2. Unit -1
Indian Contract Act – 1872
• The law of contract is the basis upon which
the super structure of all business built
• Hence the law of contract was made lying
down rules for performance on any trade,
industry or commerce
3. Meaning and Definition of
Contract
Meaning:
A contract is an exchange of promises by two or
more persons, resulting in an obligation to do
and refrain from doing a particular act, Which
obligation is recognized and enforced by law.
Definition
Section 2(h) defines a contract as "An
agreement enforceable by law”
According to Pollock, "Every agreement and
promise enforceable by law is a contract”
5. Formation of Contract
Contact Formation;
For formation of contract the process of
proposal or offer by one party and the
acceptance thereof by other is necessary
Essentials for formation of contract;
A valid contract requires
1. An agreement
2. Enforceable by law
3. Consideration
6. Essentials for formation of contract
1.Agreement
Definition
Section 2(b) defines agreement as “every promise
and every set of pormises,forming consideration
of each other”
Following two characteristics of agreement
• Plurality: There must be two or more persons to
make an agreement
• Consensus-Ad-Idem: Both the parties of an
agreement must agree about the subject matter of
the agreement in the same sense at the same time
7. Essentials for formation of contract
2.Enforceable by law
Definition
An agreement is said to be enforceable by law if it
creates some legal obligation
Example
X invite his friend Y to a dinner and Y accepts the
invitation. If Y fails to turn up for dinner, X
cannot go to the court to claim his loss.
Thus every contact is an agreement but every
agreement is not a contract
8. Essentials for formation of contract
3.Considearation
Meaning
• Consideration involves a notion of exchange
• The exchange which constitute an acceptance of
an offer-in effect an exchange of promise is
brought about by acceptance-is at the same time
the necessary exchange which constitute the
consideration
9. Essential Elements of Valid Contract
1. Offer & acceptance – Offer must be definite
acceptance of offer must be absolute and
unconditional
2. Intention to create legal relationship – When
the two parties enter in to an agreement, their
intention must be to create legal relationship.
3. Lawful consideration – It means something in
return.
4. Capacity of parties - competency – must be
capable of entering into the contract. Ie, sound
mind, major.
10. 5. Free and genuine consent – There must be a free
and genuine consent of the parties to the
agreement
6. Lawful object – Object must not be illegal,
immoral, opposed to policy
7. Agreement not declared void - Must not have
been expressly declared void by law in force in the
country
8. Certainty and possibility of performance – The
agreement must be certain and not vague
9. Legal formalities – Contract should be made in
writing or in the presence of witness or registered.
12. Classifications of Contracts
1.On the Basis of Enforceability
i. Valid Contract: Fulfils all the essential requirements
provided/given under section 10,such a contract is enforceable by
law
ii. Void Contract: It is a contract without any legal effect and cannot
be enforced in a court of law
iii. Void Agreement: According to section 2(g)of Indian contract act
"An agreement not enforceable by law is void”
iv. Voidable Contract: An agreement which is enforceable by law at
the option of one or more but not at the option of the others is a
voidable contract
v. Agreement discovered to be void: The parties believe that they
have made a valid contract and become aware of its void nature
later
vi. Illegal Contract: It is a contract, which the law forbids to be made
vii. Unenforceable Contract: Where the contract is good in substances
but because of some issues like barred and imitation, it is described
as an unenforceable contract
13. Classifications of Contracts
2.On the Basis of Formation
i. Express Contract: An agreement has taken
place in a express manner by use of words,
spoken or written
ii. Implied Contract: Where the offer and
acceptance are made not by use of words but
by conduct only are therefore implied from the
circumstances
iii. Quasi Contract :contractual obligations
without existence of an actual contract
14. Classifications of Contracts
3.On the Basis of Performance
i. Executed Contract: Executed the
consideration
ii. Executory Contract: Promise exists in the
form of a promise only
15. Classifications of Contracts
4.On the Basis of obligation
i. Unilateral Contract: one sided contract(one
party has to perform his duty)
ii. Bilateral Contract: contract is outstanding on
the part of both the parties
16. Performance of Contract
Performance of contract (section 37)
Performance of contract means fulfilling of their
respective legal obligations created under the
contract by both the promisor and the promisee
Who may perform a contract?
• Promisor himself
• Agent
• Representatives
• Third Persons
• Joint promisors
Who may demand performance?
1.Promisee 2.Agent 3.Legal representative
4.Third person
17. Discharge of contract
Termination of the contractual relationship between the parties
Modes of discharge of contract
1. By performance
a)Actual performance
b)Attempted performance
2. By mutual agreement
a)Express consent
b)Implied consent
3. By impossibility of performance
a)Initial impossibility
b)Supervening impossibility
4. By lapse of time
5. By operations of law
6. By breach of contract
18. Breach of contract &Remedies
• When one of the party to the contract denies to
perform the acts or fulfilment of obligations
• Types of breach
• Actual breach- Due date of performance or during
the course of business. Ex: 10bags of sugar on 20th
oct.
• Anticipatory breach- when the party declares of
not performing the contract before the due date
of performance. Ex: G promises to supply some
articles on first day of aug. but before the date of
performance ,he informs H in advance that he is
not ready to supply the same on date.
19. Remedies for breach of contracts
• 1.Rescission of the contract : when a contract
is broken by one party , the other party may
sue to treat the contract as rescinded and
refuse further performance.
• 2.Suit for damages: The word damages means
compensation in money which the party who
suffers by a breach of contract is the
fundamental principle underlying damages is
not punishment but compensation.
20. 3.Suit upon quantum meruit : ”quantum meruit ”
literally means “as much as earned” or “as much as
merited”.
4.Suit for specific performance of the contract : In
certain cases of breach of contract , damages are
not an adequate remedy.
5.Suit for injunction : where a party is in breach of
a negative term of contract (i.e., where he is doing
something which he promised not to do)
21. • Types of damages
• 1.Ordinary Damages : These damages are paid
to the injured party for any loss which arises
naturally in the usual course of things from the
breach.
• 2.Special Damages : Special damages are those
resulting from breach of contract under some
special circumstances. The special
circumstances must have been known to both
the parties.
22. • 3.Exemplary damages : The court may allow damages
exceeding the actual loss suffered by way of
punishment. These are called exemplary damages.
Such damages are unusual (i) In cases of breach of
promise to marry
• 4.Nominal damages : Where the court finds that the
party has not actually suffered much damage.
• 5.Remote Damages : The remote or indirect damages
are not due to natural and probable consequences of
the breach of the contract.
23. Contract of Agency
Agent
The word agent is defined in sec.182 of the contract act
as “ An Agent is person employed to do an act for
another or to represent another in dealings with third
persons”.
Principal
Principal “ The person for whom such act is done or who
is represented is called the principal.
Agency
The term agency may be defined as the relationship
between an agent and his principal created by an express
or implied agreement
24. Essentials of contract of Agency
• An Agreement
• Competency of principal
• Consideration not necessary
25. Creation of Agency
• By express agreement
• By the contact or situation of the parties
• By necessity of the case
• By subsequent ratification of an unauthorized
fact.
26. Kinds of Agent
• Special Agent
• General Agent
• Universal Agent
–Mercantile Agent
–Factor
–Broker
–Auctioneers
–Commission Agent
–Banker
–Non Mercantile Agent
27. Duties of an Agent
• Duty to execute Mandatory
• Duty to follow Instruction of the principal (Sec 211)
• Duty to work with reasonable care and skill (Sec 212)
• Duty to render proper accounts (Sec 213)
• Duty to communicate with the principal (Sec 214)
• Duty not to deal on his own accounts (Sec 215)
• Duty not to make secret profits (Sec 216)
• Duty to remit sums (Sec 218)
• Duty not to delegate authority (Sec 190)
• Duty to protect the interest of the principal on his death
(Sec 209)
• Duty not to use agency information against the principal
• Duty not to setup adverse title
28. Rights of an Agent
• Rights to retain money due to himself(Sec 217)
• Rights to receive remuneration (Sec 219)
• Rights of lien (Sec 221)
• Rights to indemnify (Sec 222 & Sec 223)
29. Duties of principal
• The indemnify the agent against the
consequences of all lawful acts (sec 222)
• The indemnify the agent against the
consequences of acts done in good faith (sec
223)
• The indemnify the agent against any injury
caused by the principal neglect.
• To pay the agent, his commission or other
remuneration, agreed for his services
30. Rights of principal
• To see that the agency, business is contacted according to his
instructions and to be compensated for loss or any profit
accuring to deviations from instructions.
• To be entitled to compensation in respect of the direct
consequences of agents negligence, want of skills or
misconduct.
• To proper account from the agent when demanded by him.
(sec 213)
• To repudiate the transaction, if a material fact is cancelled by
the agent, when dealing on his own account or when dealing
by agent on his own account is disadvantages to the principal.
• To claim any benefit gained by the agent while dealing on his
own account.
31. Termination of agency
• Termination by the act of the parties
– By agreement between principal and agent.
– By revocation of agents authority by principal.
• Revocation operates prospectively
• Notice proceeding to revocation.
• Liability to compensate
• Termination by the operations of law
– Completion of agency business
– Death of the principal or agent
– By insolvency of the principal
– By the expiry of time
– By destruction of subject matter
– By principal becoming an enemy
– By the dissolution of company
– By termination of sub agent authority
