LAW OF CONTRACT

Meaning :- The term law stands of the rules of

conduct, impose & enforced by the state. These
rules of conduct regulates external conduct or
action of individual in their dealings with other
individuals as well as with the government.

Definition :- A contract is an agreement creating &

defining Obligations between Two Parties.
-Salmond
Every agreement & promise enforceable at law is
a Contract.
- F. Pollock
According to Indian Contract Act 1872:-
(Under sec 2h)
An agreement enforceable by law is Contract.

Contract = Agreement + Enforceability

 ESSENTIAL OF VALID CONTRACT
All contracts are agreement but all agreement are
not contract.

According to section 2(e) defines an agreement as

follows:-
Every promise & every set of promises
forming the consideration for each other is an
agreement.
 In order to become a contract an agreement must
satisfied the following essential requirement.

1. Lawful proposal (offer) & acceptance:-

Only the existence of an agreement through
offer & acceptance would provide the physical basis
for the emergence of a contract between two persons
so an agreement must be made by two persons.
2. Intension to create legal relationship:-
The parties entering to agreement must have an
intension to create a legal relationship between them,
if there is no such intension on the part of the parties
the agreement will not result in a contract.
3. Agreement for lawful consideration:-
The term consideration means Something in
Return. When both parties to the agreement give
something & get something in return.

4. Agreement for lawful object:-

Court would enforce the commitment created
through an agreement only if the agreement does not
promote illegality in any manner.
5. Capacity of parties to contract:-
The parties to an agreement must be competent
to contract. They must be capable of entering into a
contract it may be noted that presence of unsound
mind are not competent to contract.
 OFFER & ACCEPTANCE
Meaning:-
An offer is the proposal by one party to enter
into a legally binding agreement with him, the
term or proposal is defined in sec. 2(a) of the
Indian contract Act which is as under:-
When one person signifies to another his
willingness to do or abstain (not to do) from doing
anything with a view to obtaining the assent of
that other to such act or abstain he is said to make
a proposal.
 Essential & Legal Rules for a Valid Offer
1. The offer must be communicated to party.
2. The offer must be made with a view to obtain
the consent of the offeree.
3. The offer must have its terms definite & clear.
4. The offer must be capable of creating legal
relationship.
5. The offer must express the final willingness of
the offerer.
6. The offer may be made to the world at large.
7. The offer may be positive or negative.
8. The offer must be express or implied.

Types of OFFER

1. Specific offer.
2. General offer.
 Acceptance of an Offer

An acceptance is the manifestation by the offeree of

his willingness to be bound by the terms of the
offer. The term acceptance is defined in sec 2 (b)
of the Indian contract act as under, when the
person to whom the proposal is made signifies his
assent there to, the proposal is said to be
accepted a proposal when accepted becomes a
promise.
 Essentials & legal rules for a valid
acceptance
1. It must be communicated.
2. It must be communicated to the offerer himself.
3. It must be communicated by a person who has
the authority to accept.
4. It must be in prescribed manner.
5. It must be given in some usual & resonable
manner.
6. It cannot be presume from silence.
7. It must be express.
 CONSIDERATION
The consideration is one of the essential element of
a valid contract. Sec 25 of the Indian contract act
specifically states that, An agreement made
without consideration is void.

Definition:-
Consideration is the price for which the
promise of other is bought & promise thus given for
value is enforceable.
- POLLOCK
 Essentials of a valid consideration
1. Consideration may move from the promisee or
any other person.
2. Consideration may be past, present or future.
3. Consideration need not be adequate.
4. Consideration must be real & not illusionary.
5. Consideration may be either positive or negative.
 Capacity to contract
According to sec 10, Every person is competent to
contract who is of the age majority, according to the
law to which he is subject & who is of sound mind &
is not disqualified from contracting by any law to
which he is subject.
Following persons are incompetent to contract:-
1. Minor
2. Person of unsound mind
3. Persons who are disqualified from contracting by
any other law.
 FREE CONSENT
Parties consenting to the same thing in the same
thing consent must be free. Under sec 14 FREE
CONSENT define as, Consent is said to be free when
it is not caused by:-
1. Coercion:- Coercion is committing or threatening
to coming any act forbidden by the IPC or the
unlawful detaining or threatening to detail any
person. Whatever with the intension of causing any
person to enter into an agreement.
For e.g., A threatens to shoot B if he does not let
out his house to A. B agree to do so this
agreement is brought about by coercion.
 Essentials of Coercion
1. Unlawful detaining or threatening to detain any
property.
2. Legal or lawful threatening is not coercion.
3. Coercion may be used against a party.
4. Place of coercion is not important.
Effects of Coercion
1. The contract is voidable.
2. Cancellation of contract.
 2.Undue influence (sec. 16)
Meaning:- When the person compel the other to
enter into an agreement against his will, as a result
of unfair persuasion is called agreement by undue
influence. This happens when a special kind of
relationship exist between the party.

Elements of Undue Influence

1. There must be relations between parties.
2. Position to dominate the will.
3. Misuse the position to take undue advantage.
 3.Fraud (sec.17)
Meaning:- A false representation or a concealment
of a mental fact intending to decide the other party
to the contract is known as fraud. The intension of
the party making fraudulent, mis-representation
must be deceived the other party to contract.
Essential of Fraud
1. There must be intension to deceived.
2. There must be false representation of a fact.
3. There must be false promise.
 4.Mis-Representation (sec. 18)
Meaning:- It means a positive assertion of what is
not true even though he might believe it to be true.

Effects of Mis-representation
The parties whose consent is caused by mis
representation can:-
1. Avoid the consent.
2. Resigned the contract within a reasonable time
under specific relief act 1963.
 Contingent Contract (sec.31)
Definition:- A contingent contract is a contract to
do or not to do something of some event, collateral
to such contract does or does not happened.
e.g., Insurance policy.
Essential of valid contingent contract
1. There must be a valid contract.
2. The performance of the contract must be
conditional.
3. The event must be uncertain.
4. The event must be collateral to the contract.
 Performance of contract
According to sec 37, The parties to a contract must
either perform or offer to perform there respective
promises, unless the performance is excused under
the provisions of this act or any other law.
The legal duty of each party to perform his
obligation under the contract. Both the parties may
discharge their respective duties may either by
actually performing the contract or by making an
offer to perform it.
 Essentials of valid performance
1. The tender must be unconditional.[sec 38(1)]
2. The tender must be made at a proper time &
place. [sec 38(2)]
3. The tender must provide a reasonable
opportunity to the other party.[sec 38(3)]
4. The tender must be of the whole obligation.
5. The tender must be made to a proper person.
6. The tender must be made in the proper form.
7. The person making the tender must be able &
willing to perform his obligation.
 Termination & Discharge of contract

Meaning:- A valid contract creates certain

obligations on the contracting parties, the parties
become liable to fulfill their respective obligations.
When the parties fulfill their respective obligation,
there liability under the contract comes to an end
& the contract is said to be discharged. Thus the
discharge of a contract means that the parties are
no more liable under the contract.
 Modes of Discharge of contract
1. By impossibility of performance. [sec 36]
2. By performance. [sec 37]
3. By refusing tender of performance. [sec 38]
4. By breach of contract. [sec 39]
5. By operation of law.
6. By unauthorized material.
7. Discharge by lapse of time.
 Breach of contract
Meaning:- Enforceability the basic feature of a
contract implies that if a party breaks a contract it
will have to face the consequences as laid down in
Law. It is this pressure from law which may ensure
fulfillment of the contractual obligations by the
parties in legal life, however contracts are found to
be broken by parties & court have to give judgments
in order to enforce the contract in a just & fair
manner.
 Remedies for Breach of Contract
Meaning:- The party causing breach of contract is
called the guilty party & the other party is called
injured party or aggrieved party. Incase of breach
of contract the aggrieved party would have one or
more but not all of the following remedies against
the guilty party to be enforced through a court
case if there is no resolution of the conflict
between them , following remedies are available:-
 1. Suit for Rescission (Cancellation)
The breach of contract no doubt discharges the contract
but the aggrieved party may need to approach the court
to grant him a formal rescission i.e., cancellation of the
contract. This will enable him to be free from his own
obligation under the contract, also this will enable the
parties to undertake suitable restitution between them
because the contract has remained unperformed. Finally
sec 39 grants a right to the aggrieved party to put an end
to the contract. Sec 75 grants the right of compensation
to the arty rescinding the contact.
 2.Suit for injunction
Injunctions is a court order to a person asking him
to refrain from doing a contemplated act. Such an
order of injunction become a remedee for the
aggrieved party when the court orders the guilty
party to refrain from doing precisely that which is
causing breach of contract.
 3.Suit for specific performance
Specific performance means doing exactly what
had been intended in the contract. It is a remedee
granted to the aggrieved party by course in equity
only, In cases where it would be absolutely
essential to grant it.
In general, court do not wish to compel a
party to do what he has already refuse to do.
Therefore order of specific performance is
normally not granted in favour of the aggrieved
party.
 Contract of Indemnity
Meaning:- The term indemnity may be define as
an, act to compensate against loss.
According to Indian contract act (sec 124), A
contract by which one party promises to save the
other from loss caused to him by the conduct of
promiser himself or by the conduct of any other
person is called a contract of indemnity.
 Parties in Indemnity contract
1. Indemnifier:- The party who give the indemnity
i.e., who promises to compensate for the loss is
known as Indemnifier.
2. Indemnity holder:- The party for whose
protection the indemnity is given i.e., who is
protected against loss is known as indemnity
holder.
 Valid rules for Indemnity
1. Contract of indemnity must satisfy the
requirements of a valid contract.
2. There must be promised to save the other party
from some loss.
3. The loss may be due to the conduct of the
promiser himself or any other person.
4. The contract of indemnity may be expressed or
implied.
 Contract of Guarantee
The term contract of guarantee is defined in sec
126 of the contract act as, A contract of
guarantee is a contract to perform the promise or
discharge the liability of a third person in case of
he is default.
The analysis of this section shows that a
contract of guarantee is a contract in which a
person promises to discharge the liability of a third
person, in case third person fails to discharge his
own liability. The following three parties are
involve.
1. Surety:- The party who gives the guarantee is
known as Surety.
2. Principle of debtor:- The party on whose behalf
the guarantee is given is known as principle of
debtor, i.e., the party in respect of whose
default the guarantee is given.
3. Creditor:- The party to whom the guarantee is
given is known as creditor.