INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
WWe enter into contracts so many e enter into contracts so many times in a day thattimes in a day that
‘contract’ has become an indispensable part of our life. When ‘contract’ has become an indispensable part of our life. When you purchase mil or ne!spaper in the mornin" or "o
you purchase mil or ne!spaper in the mornin" or "o toto mo#ie in the e#enin"$ you are enterin" into a
mo#ie in the e#enin"$ you are enterin" into a contract. Indiancontract. Indian Contract Act really codi%es the !ay !e enter into a contract$ Contract Act really codi%es the !ay !e enter into a contract$ e&
e&ecute a contract$ ecute a contract$ implement pro#isions of a contract implement pro#isions of a contract andand e'ects of breach of a contract.
e'ects of breach of a contract. (asically$ a person is free to(asically$ a person is free to contract on any terms he chooses. The
contract on any terms he chooses. The Contract Act consistsContract Act consists of limitin" factors sub)ect to !hich
of limitin" factors sub)ect to !hich contract may be enteredcontract may be entered into$ e&ecuted and breach enforced. It only p
into$ e&ecuted and breach enforced. It only pro#idero#ides as a frame!or of rules and
frame!or of rules and re"ulations !hich "o#ern formationre"ulations !hich "o#ern formation and performance of contract. The ri"hts and
and performance of contract. The ri"hts and duties of partiesduties of parties and terms of
and terms of a"reemea"reement are decided by nt are decided by the contractin"the contractin" parties themsel#es. The court of la! acts to
parties themsel#es. The court of la! acts to enforceenforce a"reement
a"reement$ in $ in case of case of non*performancenon*performance..
+ection , of Contract Act pro#ides that any usa"e
+ection , of Contract Act pro#ides that any usa"e or customor custom or trade or any incident of contract is not a'ected as lon" as or trade or any incident of contract is not a'ected as lon" as it is not inconsistent !ith pro#isions of
it is not inconsistent !ith pro#isions of the Act. In otherthe Act. In other
!ords$ pro#ision of Contract Act !ill pre#ail o#er any usa"e or !ords$ pro#ision of Contract Act !ill pre#ail o#er any usa"e or custom or trade. -o!e#er$ any usa"e$ custom or
custom or trade. -o!e#er$ any usa"e$ custom or trade !ill betrade !ill be #alid as lon" as it is not inconsistent !ith pro#isions of
#alid as lon" as it is not inconsistent !ith pro#isions of Contract Act. The Act e&tends to the !hole of India
Contract Act. The Act e&tends to the !hole of India e&cepte&cept the +tate of ammu a
the +tate of ammu and /ashmir0 and came into e'ect on nd /ashmir0 and came into e'ect on ,*1*,*1* ,234.
,234.
It must be noted that contract need not be in writing, unless there is It must be noted that contract need not be in writing, unless there is specific provision in law that the contract should be in writing. [e.g. * specific provision in law that the contract should be in writing. [e.g. * contract for sale of immovable property must be in writing, stamped contract for sale of immovable property must be in writing, stamped and registered. * Contracts which need registration should be in and registered. * Contracts which need registration should be in writing * Bill of Exchange or romissory !ote must be in writing. * writing * Bill of Exchange or romissory !ote must be in writing. * "rust should be created in writing * romise to pay a time barred loan "rust should be created in writing * romise to pay a time barred loan should be in writing, as per #imitation $ct * Contract made without should be in writing, as per #imitation $ct * Contract made without consideration on account of natural love and affection should be in consideration on account of natural love and affection should be in writing
writing %. $ %. $ verbal contract is e&ually enforceable, if it caverbal contract is e&ually enforceable, if it can be proved..n be proved.. $
$ contraccontract can be t can be enforceenforced or compd or compensationensation'damages 'damages for breafor breach ofch of contract can be obtained through Civil Court
contract can be obtained through Civil Court Essential Ingredients of a contract
Essential Ingredients of a contract - - As per Contract Act$As per Contract Act$
a
an agreement enforceable bn agreement enforceable by law is a contract. [section 2(h)]. Hence, wey law is a contract. [section 2(h)]. Hence, we have to understand first what is ‘agreement’.
have to understand first what is ‘agreement’.
very !romise and every set of !romises, forming the consideration for each very !romise and every set of !romises, forming the consideration for each other, is an agreement. [section 2(e)].
other, is an agreement. [section 2(e)]. " " # !ers" " # !erson ma$es a on ma$es a !ro!osal (offer).!ro!osal (offer). %hen it is acce!ted by other, it becomes a !romise. Howeve
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
be one sided. &nly a mutual !romise forming consideration for each other is be one sided. &nly a mutual !romise forming consideration for each other is‘agreement’. " " 'or eam!le, # agr
‘agreement’. " " 'or eam!le, # agrees to !ay s *++ ees to !ay s *++ to and agrees to and agrees toto give him a boo$ which is !riced at s *++. -his is set of !romises which give him a boo$ which is !riced at s *++. -his is set of !romises which form consideration for each
form consideration for each other. However, if other. However, if # # agrees to !aagrees to !ay s *++ to y s *++ to ,, but does not !romise anything, it is not ‘set of !romises f
but does not !romise anything, it is not ‘set of !romises formingorming consideration for each other’ and hence not an
consideration for each other’ and hence not an agreement.agreement. t should be n
t should be noted that the oted that the term ‘agreement’ as defined in /ontract #ctterm ‘agreement’ as defined in /ontract #ct re0uires mutual consideration. " "
re0uires mutual consideration. " " -hus, if # i-hus, if # invites to dinner nvites to dinner and agreesand agrees to come, it is
to come, it is not an ‘agreement’ as defined in /ontract #ct.not an ‘agreement’ as defined in /ontract #ct.
1#3 &' ‘4&4&5#6’ " %hen one !erson signifies to another 1#3 &' ‘4&4&5#6’ " %hen one !erson signifies to another hishis willingness to do or to abstain from doing an
willingness to do or to abstain from doing anything, with a view to obtainingything, with a view to obtaining the assent of that other to such act
the assent of that other to such act or abstinence, he is said to ma$e or abstinence, he is said to ma$e aa !ro!osal. [section 2(a)]." "
- !ro!osal. [section 2(a)]." " -hus, a ‘!ro!osal’ hus, a ‘!ro!osal’ can be to do a !ositive act orcan be to do a !ositive act or abstinence from act (i.e. negative act). [nglish #ct uses the word ‘offer’, abstinence from act (i.e. negative act). [nglish #ct uses the word ‘offer’, while ndian /ontract #ct uses the word
while ndian /ontract #ct uses the word ‘!ro!osal’. 3enerally, both words‘!ro!osal’. 3enerally, both words are used inter"changeably. -his is not technically correct, as
are used inter"changeably. -his is not technically correct, as the word ‘offer’the word ‘offer’ is not used in
is not used in /ontract #ct]./ontract #ct].
1#3 &' ‘4&15’ " %hen the !erson to whom the !ro!osal is 1#3 &' ‘4&15’ " %hen the !erson to whom the !ro!osal is made signifies his assent thereto, the !ro!osal is said to be acce!ted. # !ro" made signifies his assent thereto, the !ro!osal is said to be acce!ted. # !ro" !osal, when acce!ted, becomes a !romise. [section 2(b)].
!osal, when acce!ted, becomes a !romise. [section 2(b)]. " " -hus, when a" " -hus, when a !ro!osal (offer) is acce!ted, it becomes a ‘!romi
!ro!osal (offer) is acce!ted, it becomes a ‘!romise’. #s se’. #s is clear from theis clear from the definition, only !erson to whom !ro!osal is made can signify his assent. definition, only !erson to whom !ro!osal is made can signify his assent. &ther !erson cannot acce!t a !ro!osal.
&ther !erson cannot acce!t a !ro!osal. 4&15& #
4&15& #7 4&15 " -he !erson ma$ing the 7 4&15 " -he !erson ma$ing the !ro!osal is called!ro!osal is called the 8!romisor9, and the !erson acce!ting
the 8!romisor9, and the !erson acce!ting the !ro!osal is called thethe !ro!osal is called the 8!romisee9. [section 2(c)].
8!romisee9. [section 2(c)].
/4&/#6 4&155 " 4romises which form the consideration or !art /4&/#6 4&155 " 4romises which form the consideration or !art of the consideration for each other are
of the consideration for each other are called reci!rocal !romises. [sectioncalled reci!rocal !romises. [section 2(f)].
2(f)].
Consideration for promise
Consideration for promise : -he : -he definition of ‘agreement’ itseldefinition of ‘agreement’ itself states thatf states that the mutual !romises should form
the mutual !romises should form consideration of each consideration of each other. -hus,other. -hus, ‘consideration’ i
‘consideration’ is essential for s essential for an agreement. # !romise without considerationan agreement. # !romise without consideration is not ‘agreement’ and hence naturally, it is not a ‘contract’.
is not ‘agreement’ and hence naturally, it is not a ‘contract’. 7'-& &'
‘/&57#-7'-& &' ‘/&57#-&’ " %hen, at &’ " %hen, at the desire of thethe desire of the !romisor, t
!romisor, the !romisee or any other !erson has done or abstained from doing,he !romisee or any other !erson has done or abstained from doing, or does or abstains from doing, or !romises to do
or does or abstains from doing, or !romises to do or to abstain from doing,or to abstain from doing, something, such act or abstinence or !romise is called a consideration for the something, such act or abstinence or !romise is called a consideration for the
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
!romise. [section 2(d)].!romise. [section 2(d)].
Steps inv
Steps involved in coolved in contract ntract " -he ste!s involved in the contract " -he ste!s involved in the contract are : ;are : ; !ro!osal and its communication ; acce!tance of !ro!osal and its !ro!osal and its communication ; acce!tance of !ro!osal and its
communication ; #greement by mutual !romises ; /ontract ; 4erformance communication ; #greement by mutual !romises ; /ontract ; 4erformance of /ontract.
of /ontract. " " #" " #ll agreements are not contract. ll agreements are not contract. &nly those agreements&nly those agreements which are enforceable by law
which are enforceable by law are ‘contracts’. 'ollowing are essentialare ‘contracts’. 'ollowing are essential re0uirements of a valid contract.
re0uirements of a valid contract.
(ffer and its acceptance (ffer and its acceptance
)ree consent of both parties )ree consent of both parties
utual and lawful consideration for agreement utual and lawful consideration for agreement
It should be enforceable by law. +ence, intention should be to It should be enforceable by law. +ence, intention should be to create legal relationship. $greements of social or domestic nature create legal relationship. $greements of social or domestic nature are not contracts
are not contracts
arties should be competent to contract arties should be competent to contract
(bect should be lawful (bect should be lawful
Certainty and possibility of performance Certainty and possibility of performance
Contract should not have been declared as void under Contract $ct Contract should not have been declared as void under Contract $ct or any other law
or any other law
Communicati
Communication, acceptance and on, acceptance and revocation ofrevocation of proposals
proposals -- Communication of proposal5Communication of proposal5
re#ocation5acc
re#ocation5acceptance are #ital to decide eptance are #ital to decide #alidity of a#alidity of a contract. A ‘communication’ is complete only !hen other contract. A ‘communication’ is complete only !hen other party recei#es it.
party recei#es it.
#//4-#/ 1<5- #5&6<-
#//4-#/ 1<5- #5&6<-
-
-
n order to convert a !ro!osal inton order to convert a !ro!osal intoa !romise, the acce!tance must " (*)
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
e!ressed in some usual and reasonable mane!ressed in some usual and reasonable manner, unless the !ro!osalner, unless the !ro!osal
!rescribed the manner in which it is to be acce!ted. f the !ro!osal !rescribes !rescribed the manner in which it is to be acce!ted. f the !ro!osal !rescribes a manner in which it is to be acce!ted, and the acce!tance is not made in such a manner in which it is to be acce!ted, and the acce!tance is not made in such a manner, the !ro!oser may, within a reasonable time after the acce!tance is a manner, the !ro!oser may, within a reasonable time after the acce!tance is communicated to him, insist that his !ro!osal shall be acce!ted in the
communicated to him, insist that his !ro!osal shall be acce!ted in the !rescribed manner, and not otherwise= but i
!rescribed manner, and not otherwise= but if he fails to do so, he acce!ts thef he fails to do so, he acce!ts the acce!tance. [section >].
acce!tance. [section >].
#cce!tance of offer is com!lete only when it is absolute and unconditional. #cce!tance of offer is com!lete only when it is absolute and unconditional. /onditional acce!tance or 0ualified acce!tance is no acce!tance.
/onditional acce!tance or 0ualified acce!tance is no acce!tance. 4&155, ?455 & 1467
4&155, ?455 & 1467
-
-
nsofar as the !ro!osal ornsofar as the !ro!osal oracce!tance of any
acce!tance of any !romise is made in words, the !romise is said to be!romise is made in words, the !romise is said to be e!ress. nsofar as such !ro!osal or acce!tance
e!ress. nsofar as such !ro!osal or acce!tance is made otherwise than inis made otherwise than in words, the !romise is said to be im!lied. [section @]. "
words, the !romise is said to be im!lied. [section @]. " " 'or eam!le, if a" 'or eam!le, if a !erson enters a bus, there is im!lied !romise that he will
!erson enters a bus, there is im!lied !romise that he will !ay the bus fair.!ay the bus fair. A&7#6 /&-#/- " #n agreement which is enforceable by law at the A&7#6 /&-#/- " #n agreement which is enforceable by law at the o!tion of one or more of the !arties thereto, but not at the o!tion of the other o!tion of one or more of the !arties thereto, but not at the o!tion of the other or others, is a voidable contract. [section 2(i)]. " " (a) %hen consent
or others, is a voidable contract. [section 2(i)]. " " (a) %hen consent isis obtained by coercion, undu
obtained by coercion, undue influence, misre!resentation or fraud is voidablee influence, misre!resentation or fraud is voidable at the o!tion of aggrieved !arty i.e. !arty whose consent was obtained by at the o!tion of aggrieved !arty i.e. !arty whose consent was obtained by coercionBfraud etc. However, other !arty cannot avoid the co
coercionBfraud etc. However, other !arty cannot avoid the co ntract. (b) %henntract. (b) %hen a contract contains reci!rocal !romises and one
a contract contains reci!rocal !romises and one !arty to contract !revents the!arty to contract !revents the other from !erforming his !romise, the contract becomes voidable
other from !erforming his !romise, the contract becomes voidable at theat the o!tion of the !arty to !revented. (section CD). &bvious !rinci!le is that a o!tion of the !arty to !revented. (section CD). &bvious !rinci!le is that a !erson cannot ta$e advantage of his own wrong (c) %hen time is essence of !erson cannot ta$e advantage of his own wrong (c) %hen time is essence of
contract and !arty fails to !erform in time, it is voidable
contract and !arty fails to !erform in time, it is voidable at the o!tion of other at the o!tion of other !arty (section CC). #
!arty (section CC). # !erson who himself delayed the contract cannot avoid!erson who himself delayed the contract cannot avoid the contract on account of
the contract on account of (his own) delay.(his own) delay. A&7 /&-#/- " #
A&7 /&-#/- " # contract which ceases to be contract which ceases to be enforceable by law be"enforceable by law be" comes void when it ceases to be enforceable. [section 2(E)]. " " -hus, initially comes void when it ceases to be enforceable. [section 2(E)]. " " -hus, initially a contract cannot be void, i.e. a contract cannot be void
a contract cannot be void, i.e. a contract cannot be void ab initio.ab initio. -he sim!le -he sim!le reason is that in such a case,
reason is that in such a case, it is not a contract at all to it is not a contract at all to begin with. Hence,begin with. Hence, only a valid contract can become void contract due to some subse0uent only a valid contract can become void contract due to some subse0uent
events. e.g. the !erson dies or !ro!erty is destroyed or 3overnment im!oses a events. e.g. the !erson dies or !ro!erty is destroyed or 3overnment im!oses a ban etc. " " #
ban etc. " " # void agreement is voidvoid agreement is void ab initioab initio. t never becomes a contract. t. t never becomes a contract. t is nullity and cannot create an
is nullity and cannot create any legal rights.y legal rights. What agreements are contracts
What agreements are contracts - - All a"reements areAll a"reements are
contracts if they are made by the free consent of
contracts if they are made by the free consent of partiesparties competent to contract$ for a la!ful consideration and !ith a competent to contract$ for a la!ful consideration and !ith a la!ful ob)ect$ and
la!ful ob)ect$ and are not hereby e&presslare not hereby e&pressly declared to bey declared to be #oid. Nothin" herein contained shall e'ect any la! in
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
India andIndia and not hereby e&pressly rnot hereby e&pressly repealed$ by !hich epealed$ by !hich anyany contract is re6uire
contract is re6uired to be d to be made in !ritin" or in the made in !ritin" or in the presencepresence of !itnesses$ or any la!
of !itnesses$ or any la! relatin" to the re"istration ofrelatin" to the re"istration of documents. 7section ,89.
documents. 7section ,89.
Who are competent to contract
Who are competent to contract - - :#ery person is:#ery person is
competent to contract !ho is of
competent to contract !ho is of the a"e of ma)ority accordin"the a"e of ma)ority accordin" to the la! to !hich he is sub)ect$ and !ho is
to the la! to !hich he is sub)ect$ and !ho is of sound mind$of sound mind$ and is not
and is not dis6uali%ed from contractin" by any la! to !hichdis6uali%ed from contractin" by any la! to !hich he is sub)ect. 7section ,,9.
he is sub)ect. 7section ,,9.
Free consent
Free consent : /onsent of both !arties must be free. /onsent obtained : /onsent of both !arties must be free. /onsent obtained
through coercion, undue influence, fraud, misre!resentation or mista$e is not through coercion, undue influence, fraud, misre!resentation or mista$e is not a ‘free consent’. "
a ‘free consent’. " - - T T!o or more per!o or more persons are said to consentsons are said to consent
!hen they a"ree upon the same thin"
!hen they a"ree upon the same thin" in the same sense.in the same sense. 7section
7section ,;9. ,;9. * * ** /onsent is said to be free when /onsent is said to be free when it is not caused by " (it is not caused by " (11)) coercion, as defined in section *C, or (
coercion, as defined in section *C, or (22) undue influence, as defined in) undue influence, as defined in section *F, or (
section *F, or (33) fraud, as defined in section *>, ) fraud, as defined in section *>, or (or (44) misre!resentation, as) misre!resentation, as defined in section *G, or (
defined in section *G, or (55) mista$e, subEect to the !rovisions of sections 2+,) mista$e, subEect to the !rovisions of sections 2+, 2* and 22. " "
2* and 22. " "Consent is said to be so caused !hen it !ould notConsent is said to be so caused !hen it !ould not ha#e been "i#en but for
ha#e been "i#en but for the e&istence of such coercion$the e&istence of such coercion$ undue in<uence$
undue in<uence$ fraud$ misrepresentfraud$ misrepresentation or ation or mistae.mistae. 7section ,=9.
7section ,=9. Void agreements
Void agreements - $n agreement not enforceable by law is said to be - $n agreement not enforceable by law is said to be void. [section /g0%. - - !ote that it is
void. [section /g0%. - - !ote that it is not not 1void contract2, as an 1void contract2, as an
agreement which is not enforceable by law does not become 1contract2 agreement which is not enforceable by law does not become 1contract2 at all. )ollowing are void agreements - * Both parties under mista3e of at all. )ollowing are void agreements - * Both parties under mista3e of fact /section 40 * 5nlawful obect or consideration /section 60 *
fact /section 40 * 5nlawful obect or consideration /section 60 * $greeme
$greement withount without considt consideration /eration /section section 70 * 70 * $gre$greement in rement in restraintestraint of marriage /section 80 * $greement in restraint of trade /section 90 * of marriage /section 80 * $greement in restraint of trade /section 90 * $greeme
$greement in resnt in restraint of ltraint of legal proegal proceedings ceedings /section /section :0 * 5n:0 * 5ncertaincertain agreement /section ;0 * <agering agreement /section ;0 *
agreement /section ;0 * <agering agreement /section ;0 * $greeme
$greement to do nt to do an impossan impossible $ible $ct /sectict /section 780. - on 780. - - "he- "hese arese are discussed below.
discussed below.
Obligation of person who has received advantage under void agreement or Obligation of person who has received advantage under void agreement or contract that becomes void
contract that becomes void
-
-
%hen an agreement is discovered to be void, or%hen an agreement is discovered to be void, or when a contract becomes void, any !erson who has received any advantage when a contract becomes void, any !erson who has received any advantage under such agreement or contract is bunder such agreement or contract is bound to restore it, or to ma$eound to restore it, or to ma$e com!ensation for it, to the !erson from whom he received it.
com!ensation for it, to the !erson from whom he received it. Contingent contract
Contingent contract - $ =contingent contract> is a contract to do or - $ =contingent contract> is a contract to do or not to do something, if some event, collateral to such contract, does or not to do something, if some event, collateral to such contract, does or does not happen.
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
house is burnt. "his is a contingent contract. [section A@%.house is burnt. "his is a contingent contract. [section A@%.
Contracts which must be performed
Contracts which must be performed
-
-
-he !arties to a contract must either -he !arties to a contract must either !erform, or offer to !erform!erform, or offer to !erform, their res!ective !romises, unless such, their res!ective !romises, unless such !erformance is dis!ensed with or ecused under the !rovisions of this
!erformance is dis!ensed with or ecused under the !rovisions of this #ct, or#ct, or of any other law. 4romises bind the re!resentatives of the !romisors in case of any other law. 4romises bind the re!resentatives of the !romisors in case of the death of such !romisors before !erformance, unless a contrary
of the death of such !romisors before !erformance, unless a contrary intention a!!ears from the contract. " "
intention a!!ears from the contract. " " Illustrations - Illustrations - ((aa) # !romises to) # !romises to deliver goods to on a
deliver goods to on a certain day on !ayment of certain day on !ayment of s. *,+++. # s. *,+++. # dies beforedies before that day. #
that day. #’’s re!resentatives are bound to s re!resentatives are bound to deliver the goods deliver the goods to , and to , and is is bound to !ay s. *,+++ to #
bound to !ay s. *,+++ to #’’s re!resentatives. (s re!resentatives. (bb) # !romis) # !romises to es to !aint a!aint a !icture for by a certain day,
!icture for by a certain day, at a certain !rice. # at a certain !rice. # dies before the day. dies before the day. -he-he contract cannot be
contract cannot be enforced either by #’enforced either by #’s re!resentative or by s re!resentative or by [section D>].[section D>]. -he !erformance can be
-he !erformance can be ‘actual !erformance’ ‘actual !erformance’ or ‘attem!ted !erformance’, i.e.or ‘attem!ted !erformance’, i.e. ‘offer to !erform’.
‘offer to !erform’.
Performance of reciprocal promises
Performance of reciprocal promises - romises which form the - romises which form the consideration or part of the consideration for each other are called consideration or part of the consideration for each other are called reciprocal promises. [section /f0%.
reciprocal promises. [section /f0%. $ $ mutual promise can mutual promise can be ofbe of following types /a0 utual and independent <here each party following types /a0 utual and independent <here each party must perform his promise independently and irrespective of whether must perform his promise independently and irrespective of whether the other party has performed or willing to perform e.g. eller agrees the other party has performed or willing to perform e.g. eller agrees to deliver on 7
to deliver on 7thth and Buyer agrees to pay on @7 and Buyer agrees to pay on @7thth. /b0 Conditional and. /b0 Conditional and
dependent erformance of promise by one party depends on prior dependent erformance of promise by one party depends on prior performance of promise by other party. e.g. Buyer agrees to pay for performance of promise by other party. e.g. Buyer agrees to pay for goods @7 days after delivery. +ence, unless seller delivers goods, goods @7 days after delivery. +ence, unless seller delivers goods, buyer2s liability does not arise. /c0 utual and concurrent <here the buyer2s liability does not arise. /c0 utual and concurrent <here the promises of both parties must be performed simultaneously. e.g. buyer promises of both parties must be performed simultaneously. e.g. buyer agrees to pay immediately on delivery of goods i.e. cash payment. agrees to pay immediately on delivery of goods i.e. cash payment.
Contracts which need not be performed
Contracts which need not be performed " ormally" ormally, a contract , a contract is e!ectedis e!ected to be !erformed. -he !erformance my be actual or by way of tender, i.e. to be !erformed. -he !erformance my be actual or by way of tender, i.e. attem!ted !erformance. However, in certain situations as
attem!ted !erformance. However, in certain situations as stated below, thestated below, the contract need not be
contract need not be !erformed. ; ovation, rescission and alteration of!erformed. ; ovation, rescission and alteration of contract ; 4romisee may dis!ense with or remit !erformance of
contract ; 4romisee may dis!ense with or remit !erformance of !romise ;!romise ; :'ect of ne"lect of
:'ect of ne"lect of promisee to a'ord promisor reasonablepromisee to a'ord promisor reasonable facilities for performance >
facilities for performance > 1erger of su!erior rights with inferior right1erger of su!erior rights with inferior right under contract
under contract . .-his is usually termed as ‘discharge of contract’.-his is usually termed as ‘discharge of contract’. Quasi Contracts
Quasi Contracts - 1 - 1Quasi Quasi 2 means 1almost2 or 1apparently but not really22 means 1almost2 or 1apparently but not really2 or 1as if it were2. "his term is used when one subect resembles
or 1as if it were2. "his term is used when one subect resembles another in certain characteristics but there are intrinsic differences another in certain characteristics but there are intrinsic differences between the two. 1
between the two. 1Quasi Quasi contract2 is not a 1contract2. It is an obligation contract2 is not a 1contract2. It is an obligation which law created in absence of any agreement. It is based on e&uity. which law created in absence of any agreement. It is based on e&uity. "here are certain relations resembling those created by contract. "here are certain relations resembling those created by contract.
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
"hese are termed as 1"hese are termed as 1quasi quasi contracts2. contracts2. "hese are "hese are /a0 /a0 upply ofupply of necessaries /section 8:0 /b0 ayment of lawful dues by interested necessaries /section 8:0 /b0 ayment of lawful dues by interested person /section 8;0 /c0 erson enoying benefit of a gratuitous act person /section 8;0 /c0 erson enoying benefit of a gratuitous act /section 940 /d0 )inder of goods /section 9@0 /d0 Doods or anything /section 940 /d0 )inder of goods /section 9@0 /d0 Doods or anything delivered by mista3e or coercion /section 90.
delivered by mista3e or coercion /section 90. Consequences of Breach of Contract
Consequences of Breach of Contract - Compensation is payable for - Compensation is payable for breach of contract. enalty is also payable if provided in contract.
breach of contract. enalty is also payable if provided in contract. Breach of contract may be actual or anticipatory.
Breach of contract may be actual or anticipatory.
Summary of principles of compensation and damages
Summary of principles of compensation and damages - )ollowing - )ollowing points are important - * Compensation for loss or damage is payable. points are important - * Compensation for loss or damage is payable. ince the word used is 1compensation2, punitive damages cannot be ince the word used is 1compensation2, punitive damages cannot be awarded. * "hese should be in usual course or 3nown to parties i.e. awarded. * "hese should be in usual course or 3nown to parties i.e. both parties must be aware * !o compensation for remote and indirect both parties must be aware * !o compensation for remote and indirect loss or damage * ame principle applies to
loss or damage * ame principle applies to quasi contract quasi contract also. also. DE!E?$# $$DE Deneral damages are those which result DE!E?$# $$DE Deneral damages are those which result from 1direct and proximate2 conse&uences from breach of contract. from 1direct and proximate2 conse&uences from breach of contract. !ormally, what can be awarded is compensation for loss or damage !ormally, what can be awarded is compensation for loss or damage which can be directly or proximately attributed to the breach of
which can be directly or proximately attributed to the breach of contract. (ne way of assessing damages is the difference between contract. (ne way of assessing damages is the difference between the contract price and the mar3et price on date of breach of contract, the contract price and the mar3et price on date of breach of contract, plus reasonable expenses incurred by him on account of the breach plus reasonable expenses incurred by him on account of the breach plus cost of suit in court of law.
plus cost of suit in court of law.
C(!EF5E!"I$# #( (? ECI$# $$DE pecial damages C(!EF5E!"I$# #( (? ECI$# $$DE pecial damages or conse&uential damages arise due to existence of special
or conse&uential damages arise due to existence of special
circumstances. uch damages can be awarded only in cases where circumstances. uch damages can be awarded only in cases where the special circumstances were foreseeable by the party committing the special circumstances were foreseeable by the party committing the breach or were specifically 3nown to the party. Conse&uential the breach or were specifically 3nown to the party. Conse&uential losses li3e loss
losses li3e loss of profit due of profit due to breach, which to breach, which may occur may occur indirectly dueindirectly due to breach cannot be normally awarded unless there are special
to breach cannot be normally awarded unless there are special circumstances which parties were aware. #oss of profit can be circumstances which parties were aware. #oss of profit can be
awarded only in cases where seller could have foreseen those losses awarded only in cases where seller could have foreseen those losses and arose directly as result of breach.
and arose directly as result of breach. ?(IEE +(5#
?(IEE +(5# "$"$GE "E GE "E "( I"ID$"E "+E #( (?"( I"ID$"E "+E #( (? $$DE Explanation to section 9A specifically provides that in $$DE Explanation to section 9A specifically provides that in estimating loss or damage, the means available for remedying the estimating loss or damage, the means available for remedying the inconvenience caused by breach of contract shall be ta3en into inconvenience caused by breach of contract shall be ta3en into
account. "hus, promisee should ta3e all reasonable steps to mitigate account. "hus, promisee should ta3e all reasonable steps to mitigate the losses e.g. if promisor does not supply goods, he should ma3e the losses e.g. if promisor does not supply goods, he should ma3e efforts to procure from alternate sources may be even at higher price, efforts to procure from alternate sources may be even at higher price,
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
to reduce his losses arising out of breach of contract.to reduce his losses arising out of breach of contract.
HI!IC"IHE (? EE#$?J $$DE Hindictive or exemplary HI!IC"IHE (? EE#$?J $$DE Hindictive or exemplary damages cannot be awarded under Contract $ct. +owever, these may damages cannot be awarded under Contract $ct. +owever, these may be awarded by Court under tort under special circumstances e.g. * be awarded by Court under tort under special circumstances e.g. * ishonour of che&ue by Ban3 when there was balance in account, as ishonour of che&ue by Ban3 when there was balance in account, as it causes loss of reputation of credit worthiness of person issuing it causes loss of reputation of credit worthiness of person issuing che&ue * Breach of contract to marry, as it hurts both feelings and che&ue * Breach of contract to marry, as it hurts both feelings and reputation.
reputation.
Quantum Meruit
Quantum Meruit ? ‘ ? ‘Quantum meruit Quantum meruit ’ means ‘as much as’ means ‘as much as earned’. A contract may come to end by
earned’. A contract may come to end by > breach of contract> breach of contract > contract becomin" #oid or >
> contract becomin" #oid or > @@oidable contract a#oided byoidable contract a#oided by party. In such case$ if a party has e&ecuted part of contract$ party. In such case$ if a party has e&ecuted part of contract$ he is entitled to "et a proportionate amount i.e. ‘as much as he is entitled to "et a proportionate amount i.e. ‘as much as earned by him’. This is not by !ay of ‘dama"es’ or
earned by him’. This is not by !ay of ‘dama"es’ or
‘compensation for loss’. * * The principle is that e#en !hen ‘compensation for loss’. * * The principle is that e#en !hen contract comes to a premature end$ the party should "et contract comes to a premature end$ the party should "et amount proportional to the
amount proportional to the !or done5ser#ices!or done5ser#ices pro#ided5"oods supplie
pro#ided5"oods supplied by one partyd by one party. . One party should notOne party should not "et enriched at the cost of other.
"et enriched at the cost of other. Contract of indemnity
Contract of indemnity - - A contract by !hich one partyA contract by !hich one party
promises to sa#e the other from loss caused to
promises to sa#e the other from loss caused to him by thehim by the conduct of the promisor himself$ or by the conduct of any conduct of the promisor himself$ or by the conduct of any other person$
other person$ is called is called a ‘contract a ‘contract of indemnity’. of indemnity’. * ** * Illustration
-Illustration - A contracts to indemnify ( a"ainst theA contracts to indemnify ( a"ainst the
conse6uences of any proceedin"s !hich C may tae a"ainst conse6uences of any proceedin"s !hich C may tae a"ainst ( in respect of a certain sum of 488 rupees. This is a contract ( in respect of a certain sum of 488 rupees. This is a contract of indemnity. 7section ,4=9.
of indemnity. 7section ,4=9. Contract of guarantee
Contract of guarantee -- A contract of "uaranteeB is aA contract of "uaranteeB is a
contract to perform the promise$ or dischar"e the liability$ of contract to perform the promise$ or dischar"e the liability$ of a third person in case of his default. The person !ho "i#es a third person in case of his default. The person !ho "i#es the "uarantee is called the suretyB0 the person in
the "uarantee is called the suretyB0 the person in respect ofrespect of !hose default the "uarantee is "i#en is
!hose default the "uarantee is "i#en is called the principalcalled the principal debtorB$ and the person to
debtorB$ and the person to !hom the "uarantee is "i#en is!hom the "uarantee is "i#en is called the creditorB. A "uarantee may be
called the creditorB. A "uarantee may be either oral oreither oral or !ritten. 7section ,49. * * 7erson "i#in" "uarantee is also !ritten. 7section ,49. * * 7erson "i#in" "uarantee is also called as ‘"uarantor’. -o!e#er$ Contract Act uses the !ord called as ‘"uarantor’. -o!e#er$ Contract Act uses the !ord ‘surety’ !hich is same as ‘"uarantor’9. *
‘surety’ !hich is same as ‘"uarantor’9. * * Three parties are* Three parties are in#ol#ed in contract of "uarantee. Contract bet!een any t!o in#ol#ed in contract of "uarantee. Contract bet!een any t!o of them is not a ‘contract of "uarantee’. It may be contract of of them is not a ‘contract of "uarantee’. It may be contract of indemnity. rimary liability is of the principal debtor. Eiability indemnity. rimary liability is of the principal debtor. Eiability of surety is secondary and arises !hen rincipal Debtor fails of surety is secondary and arises !hen rincipal Debtor fails
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
to ful%ll his commitments. -o!e#er$ this is so !hento ful%ll his commitments. -o!e#er$ this is so !hen suretysurety "i#es "uarantee at
"i#es "uarantee at the re6uest of principal debtor. If thethe re6uest of principal debtor. If the surety "i#es "uarantee on his o!n$ then it
surety "i#es "uarantee on his o!n$ then it !ill be contract of!ill be contract of indemnity. In such case$ surety has all primary liabilities. indemnity. In such case$ surety has all primary liabilities. /&57#-& '& 3<##-
/&57#-& '& 3<##-
-
-
#nything done, or any !romise#nything done, or any !romise made, for the benefit of the !rinci!almade, for the benefit of the !rinci!al debtor, may be sufficient considerationdebtor, may be sufficient consideration to the surety for giving the guarantee.
to the surety for giving the guarantee. " "" " Illustrations - Illustrations - ((aa) re0uests # to) re0uests # to sell and deliver to him goods on credit. # agrees to do so, !rovided / will sell and deliver to him goods on credit. # agrees to do so, !rovided / will guarantee the !ayment of the !rice of the goods. / !romises to guarantee the guarantee the !ayment of the !rice of the goods. / !romises to guarantee the !ayment in consideration of #
!ayment in consideration of #’’s !romise to deliver the goods. -s !romise to deliver the goods. -his ishis is sufficient consideration for /’s !romise. (
sufficient consideration for /’s !romise. (b) A selms and delivers goods to B.b) A selms and delivers goods to B. C afterwards request
C afterwards requests A to gorbear to s A to gorbear to sue B for sue B for te debt for te debt for a !ear" anda !ear" and #romises t
#romises tat if $e does so"%C will #a! for tem in default of #a!ment b! B. Aat if $e does so"%C will #a! for tem in default of #a!ment b! B. A agrees to forbear as
agrees to forbear as requested. &is is a requested. &is is a suffi'ient 'onsideration for suffi'ient 'onsideration for C(C(ss #romise. ')
#romise. ') A sells and delivers goods to B. C afterA sells and delivers goods to B. C afterwards" witoutwards" witout 'onsideration" agrees to #a! for tem in default of B. &e
'onsideration" agrees to #a! for tem in default of B. &e agreement is void.agreement is void. *se'tion 12+,.
*se'tion 12+,.
Bailmen
Bailment t - Bailment is anoter t!#e of s#e'ial - Bailment is anoter t!#e of s#e'ial 'ontra't. in'e it is a'ontra't. in'e it is a 'ontra't(" naturall! all basi' requirements of 'ontra't are a##li'able. 'ontra't(" naturall! all basi' requirements of 'ontra't are a##li'able. - Bailment means a't of delivering goods for a s#e'ified #ur#ose on trust. &e Bailment means a't of delivering goods for a s#e'ified #ur#ose on trust. &e goods are to be re
goods are to be returned after te #ur#ose is overturned after te #ur#ose is over. I. In bailment" #ossession ofn bailment" #ossession of goods is transferre
goods is transferred" but #ro#ert! i.e. ownersi# is not trd" but #ro#ert! i.e. ownersi# is not transferred.ansferred. A A “bailment” is the delivery of goods by
“bailment” is the delivery of goods by one person to anotherone person to another for some purpose, upon a contract that they shall, when the for some purpose, upon a contract that they shall, when the purpose is accomplished, be re
purpose is accomplished, be returned or otherwise diturned or otherwise disposedsposed of according to the
of according to the directions of the person delivering them.directions of the person delivering them. The person delivering the goods is
The person delivering the goods is called the “bailor”. Thecalled the “bailor”. The person to whom they are de
person to whom they are delivered is called the “livered is called the “bailee”. - -bailee”. -!planation " If a person already in possession of the goods !planation " If a person already in possession of the goods of another
of another, contracts to hold , contracts to hold them as a bailee, he them as a bailee, he therebythereby becomes the bailee, and
becomes the bailee, and owner becomes the bailorowner becomes the bailor, of , of suchsuch goods, although they may not have been delivered by way of goods, although they may not have been delivered by way of bailment. #section $%&'. #Thus, initial possession of goods
bailment. #section $%&'. #Thus, initial possession of goods may be for other purpose,
may be for other purpose, and subse(uentlyand subse(uently, it may be, it may be converted into a contract of bailment, e.g.
converted into a contract of bailment, e.g. seller of goods willseller of goods will become bailee if goods continue in his possession after sale become bailee if goods continue in his possession after sale is complete'.
is complete'. )ailment can be
)ailment can be only of *goods+. only of *goods+. As per sectiAs per section / of 0aleon / of 0ale of 1oods Act, *g
of 1oods Act, *goods+ means every 2ind of oods+ means every 2ind of movable propertymovable property other than money and actionable claim. - - Thus, 2eeping other than money and actionable claim. - - Thus, 2eeping money in ban2 account is not *bailment+. As2ing a person to money in ban2 account is not *bailment+. As2ing a person to loo2 after your house or farm during your absence is not loo2 after your house or farm during your absence is not
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
*bailment+, as house or fa*bailment+, as house or farm is not a rm is not a movable propertymovable property..
Bailmen
Bailment of pledget of pledgess - /ledge is s#e'ial 0ind of bailment" were deliver! of- /ledge is s#e'ial 0ind of bailment" were deliver! of goods is for #ur#ose of se'urit! for #a!ment of a debt or #erforman'e of a goods is for #ur#ose of se'urit! for #a!ment of a debt or #erforman'e of a #romise. /ledge is bailment
#romise. /ledge is bailment for se'urit!. for se'urit!. Common e$am#le is 0ee#ing goldCommon e$am#le is 0ee#ing gold wit ban0mone! lender to obtain loan. in'e #ledge is bailment" all
wit ban0mone! lender to obtain loan. in'e #ledge is bailment" all #rovisions a##li
#rovisions a##li'able to bailment a##l! to #ledge also. In addition" some'able to bailment a##l! to #ledge also. In addition" some s#e'ifi' #rovis
s#e'ifi' #rovisions a##l! to #ledge.ions a##l! to #ledge.The bailment of goods asThe bailment of goods as security for payment of a debt
security for payment of a debt or performance of a promise isor performance of a promise is called “pledge”. The bailor is in this case called the
called “pledge”. The bailor is in this case called the “pawnor”. The bailee is called the
“pawnor”. The bailee is called the “pawnee”. #section $'.“pawnee”. #section $'. Contract of Agency
Contract of Agency - Agency is a special type of contract. The - Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do concept of agency was developed as one man cannot possibly do every transaction himself. Hence he should have opportunity or every transaction himself. Hence he should have opportunity or facility to transact business through others li!e an agent. The facility to transact business through others li!e an agent. The principles of contract of agency are " #a$ %&cepting matters of a principles of contract of agency are " #a$ %&cepting matters of a personal nature what a person can do himself he can also do it personal nature what a person can do himself he can also do it
through agent #e.g. a person cannot marry through an agent as it is a through agent #e.g. a person cannot marry through an agent as it is a matter of personal nature$ #b$ A person acting through an agent is matter of personal nature$ #b$ A person acting through an agent is acting himself i.e. act of agent is act of 'rincipal. - - Since agency is a acting himself i.e. act of agent is act of 'rincipal. - - Since agency is a contract all usual requirements of a valid contract are applicable to contract all usual requirements of a valid contract are applicable to agency contract also e&cept to the e&tent e&cluded in the Act. (ne agency contract also e&cept to the e&tent e&cluded in the Act. (ne important distinction is that as per section )*+ no consideration is important distinction is that as per section )*+ no consideration is necessary to create
necessary to create an agency.an agency. A13T A34 56I37I5
A13T A34 56I37I5A8 49I34A8 49I34 - - An “agent” is a person An “agent” is a person
employed to do any act for another or to represent another in employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is dealings with third persons. The person for whom such act is done, or who is
done, or who is so represented, is called the “principal”so represented, is called the “principal” #section $&'.
#section $&'.
:;< =A> =58<> A13T
:;< =A> =58<> A13T - - Any person who is of the age of Any person who is of the age of ma?ority according to the law to which he is sub?ect, and who ma?ority according to the law to which he is sub?ect, and who is of sound mind, may employ an agent. #section $&@'. is of sound mind, may employ an agent. #section $&@'. -Thus, any person competent to contract can appoint an Thus, any person competent to contract can appoint an agent.
agent.
:;< =A> ) A3 A13T
:;< =A> ) A3 A13T - - As between the pri As between the principal and thirdncipal and third persons any person may becom
persons any person may become an agent, but no persone an agent, but no person who is not of the age of ma?ority and of
who is not of the age of ma?ority and of sound mind cansound mind can become an agent, so as to be responsible to his principal become an agent, so as to be responsible to his principal according to the provisions in that
according to the provisions in that behalf herein contained.behalf herein contained. #section $&%'. - - The signicance is
#section $&%'. - - The signicance is that a 5rincipal canthat a 5rincipal can appoint a minor or person of unsound mind as
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
case, the 5rincipal will be responsible to third pacase, the 5rincipal will be responsible to third parties.rties. ;owever
;owever, the agent, who , the agent, who is a minor or is a minor or of unsound mind,of unsound mind, cannot be responsible to 5rincipal. Thus,
cannot be responsible to 5rincipal. Thus, 5rincipal will be5rincipal will be liable to third parties for acts done by Agent, but agent will liable to third parties for acts done by Agent, but agent will not be responsible to 5rincipal for his
not be responsible to 5rincipal for his i.e. Agent+s/ acts.i.e. Agent+s/ acts. 7<30I46ATI<3 3<T 3700A6>
7<30I46ATI<3 3<T 3700A6> - - 3o consideration is3o consideration is necessary to create an
necessary to create an agencyagency. #section $&B'. Thus, . #section $&B'. Thus, paymentpayment of agency commission is not essential to hold appointment of of agency commission is not essential to hold appointment of Agent as valid.
Agent as valid. Authority of
Authority of agent agent C An agent can act on C An agent can act on behalf of 5rincipalbehalf of 5rincipal and can bind the 5rincipal.
and can bind the 5rincipal. A&( 6&7 &8 /9ICI/
A&( 6&7 &8 /9ICI/AA: - An agent as following duties towards: - An agent as following duties towards #rin'i#al. ; Condu'ting #rin'i#al(
#rin'i#al. ; Condu'ting #rin'i#al(s s business as #er is direbusiness as #er is dire'tions ; Carr! out 'tions ; Carr! out wor0 wit normal s0ill and diligen'e ;
wor0 wit normal s0ill and diligen'e ;6ender proper accounts6ender proper accounts #section $@'. D Agent+s duty to communicate with principal #section $@'. D Agent+s duty to communicate with principal #section $%' D
#section $%' D ot to deal on is own a''ount" in business of agen'! ot to deal on is own a''ount" in business of agen'! *se'tion
*se'tion 215,. 215,. ;; Agent+s duty to pay sums recei Agent+s duty to pay sums received for principalved for principal #section $&
#section $&' D ' D Agent+s duty on teAgent+s duty on termination of agency rmination of agency byby principal+s death or insanity - #se
principal+s death or insanity - #section EF'.ction EF'. ,%/%,AT
,%/%,ATI(/ T( A0%/T - 1onsideration is not neI(/ T( A0%/T - 1onsideration is not necessary forcessary for creation of agency. However if there is an agreement an agent is creation of agency. However if there is an agreement an agent is entitled to get remuneration as per contract.
entitled to get remuneration as per contract. 9I<& 8= /9ICI/
9I<& 8= /9ICI/AA: - ; 9e'over damages from agent if e disre: - ; 9e'over damages from agent if e disregardsgards dire'tions of /rin'i#al ; 8btain a''ounts from Agent ; 9e'over mone!s dire'tions of /rin'i#al ; 8btain a''ounts from Agent ; 9e'over mone!s 'olle'ted b! Agent on bealf of
'olle'ted b! Agent on bealf of /rin'i#al ; 8btain details of se'ret #rofi/rin'i#al ; 8btain details of se'ret #rofitt made b! agent and
made b! agent and re'over it frore'over it from im ; =orfeit remuneration of Agent if em im ; =orfeit remuneration of Agent if e mis'ondu'ts te business.
mis'ondu'ts te business. 6&I 8= /9ICI/
6&I 8= /9ICI/AA: - ; /a! remuneration to agent as agreed ;: - ; /a! remuneration to agent as agreed ;
Indemnif! agent for lawful a'ts done b! im as agent ; Indemnif! Agent for Indemnif! agent for lawful a'ts done b! im as agent ; Indemnif! Agent for
all a'ts done b! im in
all a'ts done b! im in good fait ; Indemnif! agent if good fait ; Indemnif! agent if e suffers loss due toe suffers loss due to negle't or la'0 of s0ill of /rin'i#al.
negle't or la'0 of s0ill of /rin'i#al. T%,I/AT
T%,I/ATI(/ (2 A0%/13 - An agency I(/ (2 A0%/13 - An agency is terminated by is terminated by thethe principal revo!ing his authority4 or by the agent renouncing the principal revo!ing his authority4 or by the agent renouncing the business of the agency4 or by the business of the agency being business of the agency4 or by the business of the agency being completed4 or by either the principal or agent dying or becoming of completed4 or by either the principal or agent dying or becoming of unsound mind4 or by the principal being ad5udicated an insolvent unsound mind4 or by the principal being ad5udicated an insolvent
under the provisions of any Act for the time being in force for the relief under the provisions of any Act for the time being in force for the relief of insolvent debtors. 6section 78)9. - - In following cases an agency of insolvent debtors. 6section 78)9. - - In following cases an agency
INDIAN
INDIAN CONTRACT
CONTRACT ACT
ACT
cannot be revo!ed " : Agency coupled with interest #section 787$ : cannot be revo!ed " : Agency coupled with interest #section 787$ : Agent has already e&ercised his authority #section 78;$ : Agent Agent has already e&ercised his authority #section 78;$ : Agent hashasincurred personal liability. incurred personal liability.
