Laws of Contract

1-General Principals of the Law of

contract ( Sec 1-75 )- General principals of
contract such as rules\laws relating to
communication
2-Specific kinds of Contracts viz
i-Contracts of Indemnity and Guarantee(Sec124-147)
ii-Contracts of Bailment and Pledge(Sec148-181)
Iii-Contracts of Agency ( Sec182-238)
 Every promise and every set of promises,
forming the considerations for each other ,
is an Agreement It implies that an
agreement is an accepted proposal
 1-Plurity of Persons-Expression of
common intention
2-Consensus ad-idem-The persons
making an agreement must consent to
some determination
3-Promise or Reciprocal promises-Every
promise or set of promises, forming the
consideration for each other
 1-Social Agreements
2-Legal ( Valid ) Agreements
3-Void Agreements
4-Voidable Agreements
5-Unforeceable Agreements
6-Illegal Agreements
7-Agreements to Agree in future
 All agreements are contracts if they are
made by the free consent of parties
competent to contract, for a lawful
consideration and with a lawful object, and
are not hereby expressively declared to be
void.
An agreement enforceable by law is a
contract
 1-Plurity of Persons-There must be minimum
two persons
2-Offer and Acceptance-Lawful proposal or
offer by one party to another
3-Legal Relationship, Legal consequences,
Promises and Obligations recognized by Law.-
two or more parties intention to create a legal
relationship
4-Lawful consideration-The agreement must
be supported by consideration
5-Contractual Capacity ( Competency ) of
Parties-Parties must be capable of entering
into a contract
 6-Free and Genuine consent-Free and
genuine consent
7-Lawful object-The object of agreement must
be lawful
8-Agreement not declared void-the
agreement must have not been declared void
by any law
9-Certainity and Possibility of Performance-
The terms of agreement must be certain
10-Legal Formalities-The agreement may be
oral or in writing
 1-Classification according to Validity
2-Classification according to formation
3-Classification on the basis of the
Obligation to Perform
4-Clasiification on the basis of Execution
 A- Enforceability-Avoidable or enforceable
contract
B-Legal obligation-Certain agreements
may not create any legal obligation
C-Binding on Parties-Binding between
Agreement and contract
D- Specialty-Agreement has a wider
concept than a contract
 i-Legality-Enforcement by a Party
ii-Time of Enforceability-Whether it can be
enforced from beginning
iii-Restitution-Restitution is always
followed
iv-Compensation-Compensation based on
performance\non performance
v-Collateral transactions-validity of
collateral agreement \ contract
 i-All inclusive-The word void is used in
broader sense
ii-Proofs-Void agreements are not illegal
unless they are proved illegal
iii-Collateral transactions-Void agreement
does not involve collateral transactions
iv- Punish ability-Void agreements are not
always punishable
 i-Defect in subject \ Procedure-Technical
and procedural requirements
ii-Timing of enforceability-Illegal
agreements are void from beginning
iii-Collateral transactions flaw in
procedural matters
iv-Punishment-Penalty clause
 A contract is made by process of lawful offer
by one party and the lawful acceptance of
the offer by the other party to whom it is
made.
Thus an offer is the starting point of making
a contract
 1-Express and Implied offer-An offer
made by words ,spoken or written
2-Specific and General offer-When an
offer is made to definite class of people
3-Positive and negative offer-Whether the
offer is positive or negative
 1- The offer may be Express or Implied
2-The offer may be positive or negative
3-Offer must intend to create legal
relationship
4-Terms of offer must be certain
5-An offer may be made to specific person
or class of persons or any one in the world
at large
6- The offer must express the final
willingness of the Offeror
 7- Every offer must be communicated to the
Offeree
8-An offer must be distinguished from
9-Offer must be made with a view to
obtaining the assent
10-Offer should not contain a term,the non-
compliance of which would amount to
acceptance
11-An offer may be conditional
 1- By notice of revocation
2-By lapse of time
3-By failure of the Acceptor to fulfill a
condition precedent to acceptance
4-By failure to accept according to the mode
prescribed
5-By death or insanity of the Offeror
6-By rejection
7-By subsequent illegality or destruction of
th bj t tt
 An Acceptance is defined as When the
person to whom the proposal is made
signifies his assent thereto ,the proposal is
said to be accepted. A proposal when
accepted becomes a promise ( Sec 2 (b) )
 1-Acceptance must be absolute and
unconditional
2-Acceptance by usual mode as desired by
offeror
3-Acceptance can not precede an offer
4-Acceptance must be express or implied
5-Acceptance must be given within a
reasonable time
6-Acceptance must show to fulfill a promise
 7- Acceptance must by an ascertained
person
8-Offer once rejected ca not be accepted
until it is renewed
9-Acceptance of offer means acceptance of
all terms attached to the offer
10-Acceptance must be made before the
lapse or revocation of an offer
11- The acceptor must be aware of the
proposal at the time of the offer
 i-As against the person who makes it-
When it is put into course of transmission
ii-As against the person to whom it is
made.-When it comes to the knowledge of
the person
 1- An offer sent by post is communicated only
when it reaches the offeree
2-An acceptance sent through post is
completed ,the moment the letter of
acceptance properly addressed and stamped is
posted
3-An acceptance binds the acceptor only when
it reaches the offeror
4-The place where letter of acceptance is
posted will be the place where the contract is
made
5-Regarding revocation of an offer the letter of
 1-Offer constitutes the first stage in the
formation of a contract, where as
acceptance constitutes the second stage in
the formation of a contract
2-An offer is made by the offeror to the
offeree .But an acceptance is given by the
offeree to the offeror
3-An offer is not held until it is brought to the
knowledge of the offeree.
 1- The consideration is an act or abstinence
2-Such act ,or abstinence should be done at
the desire of the promisor
3-Such act or abstinence may be done by
the promisee or any other person
4-Such act or abstinence is either already
executed or it is in process of execution or
may be still executor
 1- Consideration is required both for
formation and discharge of an agreement
or contract
2-Consideration may be past, present or
future
3-Consideration may either be positive or
negative
4- Consideration must move
5-Consideration may be furnished by the
Promisee or any other person
 6- Consideration must be lawful
7-Consideration must be real and not
illusory
8-Consideration must be of some value in
the eyes of law
9-Consideration need not be adequate
10-Consideration must not be the
performance of existing duties
 A- Natural love and Affection
B- Compensation for past voluntary services
C-Promise to pay time barred debt.
D-Completed gift
E-Agency
F-Remission
G-Bailment
H-Guarantee
 1-Beneficiary in a trust or charge
2-Acknowledgement of payment or
Estopped
3-Agreement creating a charge on Land
4-Family settlements
5-Assignee of a contract
 Every person is competent to contract who
is of the age of the majority according to the
law to which he is subject and who is of
sound mind and is not disqualified from
contracting by any law to which he is subject
 A-Idiots-A person who is devoid of any
faculties of thinking or forming rational
judgment
B-Lunatics and Insane persons-Whose
mental power has been derailed
C-Drunkards A person under the influence
of intoxication
 Minor is a person who has not completed
the age of 18 years. However ,a minor for
whom a guardian has been appointed by a
court or when his property is managed by
the court of wards
 1-Agreement void ab initio
2-No ratification
3-Can be a promise or beneficiary
4-No estoppels
5-No specific performance
6-Liability for torts
7-No insolvency
8-Partnership by a minor is permitted
 9-Can be an agent
10-Cannot bind parents or guardian
11-Joint contracts by minor and adult
12-Liability for necessaries
13-Minor can be Shareholder
14-Claim against the property and not
against the person
15-Restitution stops where repayment
begins
 i-Livery for an officers servant
ii- Horse, when Doctor ordered riding
exercises
iii-Goods supplied to a Minors wife for her
support
iv-Rings purchased as gifts to the Minors
fiance
v- A racing bicycle
 i-Goods supplied for the purpose of trading
ii-A Silver gift goblet
iii-Cigars and tobacco
iv-Refreshment to an undergraduate for
entertaining
 On the ground of status, some degree of
incapacity is imposed by law
A-Foreign Sovereigns ,Ambassadors and
Envoys
B-Alien Enemy
C- Professionals
D-Corporation
E-Bankrupt
F-Felons and Convicts
G-Marriage
 To make a contract valid not only the
presence of a consent of the other party is
necessary but this consent should be free
and genuine
If there is no consent , the parties are not
said to be ad idem
 Coercion is
i)-the committing or threatening to commit
any act forbidden by the Indian Panel Code
or
ii)- the unlawful detaining or threatening to
detain any property to the prejudice of any
person whatsoever
iii)-with the intension of causing any person
to enter into an agreement .it is immaterial
whether the Indian Panel Code is or not in
force in the place where the coercion is
 i-The Committing of any act forbidden by the
Indian Panel Code
ii-The Threat to commit any act forbidden by
Indian Penal Code (IPC)
iii-The unlawful detention of any property
iv-threatening to detain any property
wrongly
v-The Intention to get consent to the
Agreement
vi-Coercion may proceed from any party
vii Coercion may be directed against any
 1-Does a threat to prosecute a man or file a
civil or criminal suit against a man amount to
coercion?.
2-Does a threat to charge high prices
amount to coercion?
3-Does a threat to charge high rate of
interest amount to coercion ?
 A contract is said to be induced by undue
influence where
i-One of the parties involved is in position to
dominate the will of the other
ii-He has been in a position to obtain an
unfair advantage over the other
 Where a person who is in a position to
dominate the will of another, enters into a
contract with him ,and the transaction
appears, on the face of it or on the evidence
adduced, to be unconscionable, the burden
of proving that such contract was not
induced by undue influence shall lie upon
the person in a position to dominate the will
of the other
 1-Property-The consent is obtained by threat
of an offence
2-Crime-Includes criminal act and criminal
liability
3-Character or force-Coercion is mainly of
physical character
4-Consent-Destroying the consent
5-Place-may be committed outside India but
undue influence is exercised in India
6-Presumption-Has to be proved by a person
who alleges it
7-Third party-May be directed against a third
party
 Section 13 of the Indian Penal Code states
that Fraud means and includes various
acts committed by a party to a contract , or
with his connivance, or by his agent, with
intent to deceive another party thereto or his
agent, or to induce him to enter into a
contract.
 i-Suggestion as to a fact
ii-The active concealment of a fact
iii-The representation must relate to a fact
iv-Fraud by a party or his agent to the
contract
v-The representation must in fact deceive
vi-Actually deceived or suffered damage
 1- The general rule is that mere silence is
not fraud
2- Silence is fraudulent
3-Silence is fraudulent where the
circumstances are such that silence is in
itself equivalent to speech
 i- Statutory obligation to disclose
ii-Duty to disclose in contracts of Uberrimae
fidei ( utmost good faith )
iii-Silence is , in itself ,equivalent to speech
 Misrepresentation is any undue statement
made by a party to the contract to another
,which is a material statement of fact and
not of law and which induced the other party
to act upon the statement and enter into the
contract. Misrepresentation arises when the
presentation or statement made is
inaccurate but the inaccuracy is not due to
any desire to defraud the other party.
 In case of misrepresentation, the contract
becomes voidable and the aggrieved party can
i-Avoid the agreement
ii-Insist that the contract be performed and he
shall be put in the position in which he would
have been if the representation made had been
true.
iii-If the party to whom the innocent
misrepresentation is made had the means of
discovering the truth with ordinary diligence,
the contract is not voidable
 i-In both the cases ,a false representation
is made by a party
ii-In both the cases ,the contract is voidable
at the option of the party whose consent is
obtained by fraud or misrepresentation
 1-Intention-The type of statement
2-Damages-Suit for damages
3-Rescission-When contract is vitiated by
innocent misrepresentation
4-Where truth can be recovered with
ordinary diligence-Discovering the truth
5-Criminal act-Criminal act punishable
under the Indian Panel Code
6-Silence-Silence can be construed as
fraud
 Mistake may be defined as erroneous belief
concerning something, consent cannot be
said to be free when an agreement is
entered into under a mistake. An agreement
is valid as a contract only when the parties
agree upon the same thing in the same
sense
 i-Mistake by Law
a)-Mistake as to law in India
b)-Mistake as to a foreign law

ii- Mistake of fact

a)-Bilateral
b)-Unilateral
 i- Mistake as to the subject matter
a-Mistake as to the existence of the subject
matter
b-Mistake as to the identity of the subject
matter
c-Mistake about the quality of the subject
matter
d-Mistake as to the quantity of the subject
matter
e-Mistake as to the title of the subject matter
f-Mistake as to the price of the subject
matter
 ii-Mistake as to the possibility of
performing the contract
a-Physical impossibility
b-Legal impossibility
 Section 23 of the Contract act states that
the object or consideration of an
agreement is unlawful in the following
cases
i-Where it is forbidden by law
ii-Where it defeats the provisions of any law
iii-Where it is fraudulent
iv-Where it is injurious to another person or
his property
v Where it is immoral
 1-Forebidden by law
2-The object and Consideration must not
defeat the Provisions of any law
3-The Object and Consideration must not be
Fraudulent
4-If it involves or implies Injury to the person or
property of another
5- The Object and Consideration must not be
immoral
6- The Object and Consideration must not be
opposed to the public policy
 Public interest implies common good or
general social welfare .
The term public interest is ,therefore , an
elusive abstraction ,yet it indicates a
standard of goodness for judging private
acts and conduct in the social context.
 1-Trading with an alien enemy
2-Agreement to promote hostile action in a
friendly state
3-Agreement interfering with course of justice
4-Agreements in restraint of Legal proceedings
5-Agreements for stifling criminal prosecution
6-Agreement tending to be an abuse of legal
process
7-Agreement to oust the jurisdiction of courts
 8-Agreements to vary periods of limitation
9-Agreement for sale or to influence of
public offices
10-Agreements to influence election in
public offices
11-Agreement tending to create interest
opposed to duty
12-Agreement tending to create monopolies
13-Agreement to restraint of parental rights
14 A t t i ti l lib t
 15- Agreement in restraint of marriage
16-Marriage brokerage agreements
17-Agreement interfering with marital duties
18-Agreement in fraud of creditors
19-Agreement to defraud revenue
authorities
20-Agreement in restraint of profession
21-Agreement tending to create monopolies
22-Agreement in restraint of trade
 When a person agrees to help another by
money or otherwise in litigation in which he
is himself is not interested ,it is called
Maintenance . When a person helps
another in litigation in exchange of a
promise to handover a portion of the fruits of
the litigation ,it is called champerty.
 An agreement which interferes with an
individual s rights to engage himself in any
lawful trade ,occupation or profession is
called agreement in restraint of trade.
 1-Sale of Goodwill-That seller will not carry
any business
2-Exceptions under Partnership act-The
Indian Partnership Act 1932
3-Service contracts-Employees working
elsewhere during the period of agreement
4-Trade combinations-A voluntary
agreement among the members
5-Exclusive agency Dealing in goods of
 1-Agreement by persons who are not
competent to contract
2-Agreements under a mutual mistake of
fact material to the agreement
3-Agreements with unlawful consideration or
object
4-Agreements ,the consideration or object of
which is unlawful in part
5-Agreement without consideration
6 Agreements in restraint of marriage
 7- Agreements in restraints of Trade
8-Agreements in restraint of legal
proceedings
9-Agreements the meaning of which is
uncertain
10-Wagering agreements
11-Agreements to do impossible acts
 Wager as a promise to give money or
moneys' worth upon the determination or
ascertainment of an uncertain event
Covered under Sec 30 of Indian Contract
Act 1872
 1-Uncertain event
2-Mutual chances of gain or loss
3-Neither party to have control over the
event
4-No other interest in the event
5-The promise must be to pay money or
moneys worth
 A wagering agreement being void can not
be enforced in any court of law
Sec 30 of the Act lays down that all the
wagering contracts are void
 1-Horse race
2-Cross-word competitors and cross word
puzzle
3-Sports competitions, Literary competitions
4-Picture puzzle
5-Lottery or Raffle
6-Chit fund
7-Flower show competition, Dog show
competition ,beauty contest
8-Contract of insurance
 1-Gambling-It is a game of chance
2-Intention-The parties contemplate to get
a certain sum of money on the happening of
an uncertain future event
3-Insurable interest- The parties do not
cover up their risk of future loss.
4-Indemnity It is not a contract of
Indemnity
 5-Legal effect It is a void agreement ab
initio
6-Parties interest Only one of the parties
is interested in protecting the subject matter
7-Stakes-There is the same stake for both
the parties
8-Risk Neither of the parties is subject to
any particular risk before entering into a
contract
 1-Gambling It is not a game of chance
2-Intention There is no such intention
3-Insurable interest One of the parties
covers up his risk for future loss .He has
insurable interest
4-Indemnity General ( non-life) insurance
is a contract of indemnity
 5-Legal effect It is a valid contract
6-Parties interest Both the contracting
parties are interested
7-Stakes The stakes of the parties are not
same
8-Risk The insured ( subject matter ) is
subject to risk
 The term Illegal agreement may be
defined as the agreement which is
expressively or impliedly prohibited by law
i.e. By Indian Panel Code or by some other
special Legislation
 i- Effects on main transaction-Void from
very beginning
ii-Effects on collateral transactions-Any
incidental or parallel transaction
iii-Plaintiff not relying on the illegal
contract-If the Plaintiff has parted with
possession of his property
 1-Restrictions from enforcing legal rights
2-Agreeement which cuts short the limitation
period
3-An agreement which extinguishes the
rights of a party
4-An agreement which discharges a party
from liability
 A contingent contract is a contract indicating
to do or not to do something, if some event,
collateral to such contract, does or does not
happen. The contract of insurance, contract
of indemnity and guarantee are the
examples
 1- Its performance depends upon the
uncertainty of happening or non- happening
in future of some event. it is this
dependence on a future which distinguishes
a contract from other contracts.
2-The event must be collateral i.e. incidental
to contract
3-the contingent event should not be mere
will of promisor.
 1-The happening of a Future Uncertain
event
2-The non-happening of an uncertain Future
event
3-When Event to be is Deemed impossible
4-The happening of an event within fixed
time
5-The non-happening of an event within a
fixed time
6 impossible events
 1-Mutual promise-Agreement consists of
mutual promises
2-Validity-A wagering contract is absolutely
void
3-Performance-Neither party intends to
perform the contract
4-Interest in the subject matter-Have no
other interest in the subject matter
5-Future event-future event is the sole
determining factor
6-Nature-All contingent contracts are not of a
wagering nature
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