LAW OF CONTRACT
The law of contract lays down legal rules relating to promises, their formation, their performance and
their enforceability.
Contract:
1. Meaning: An agreement enforceable by law is a contract.
2.Types of contracts:
(a) On the basis of enforceability
(i) Valid Contract: Any agreement enforceable by law
(ii) Voidable Contract: Until it is rescinded by the party entitled to do so by exercising its option
in that behalf it valid.
(iii) Void Contract: A contract, which ceases to enforceable by law becomes void. Such a contract
is nullity as if there was no contract at all.
(b) On the basis of Mode of creation
(i) Implied contract: Offer and Acceptance made by acts and conduct of parties
(ii) Express contract: Offer or Acceptance made in words spoken or written
(c) On the basis of Execution
(i) Executed Contract: When both parties to a contract have completely performed their
obligations and nothing remains to be done
(ii) Executory Contracts: When either of the both parties to a contract have still to perform their
share of obligation in toto or there remains something to be done under the contract on both
sides.
3. Essentials of Valid Contract:
(a) Free consent of parties: All consents is said to be free when it is not caused by: coercion,
Undue Influence, Misrepresentation, Fraud, Mistake
(b) Competence of Parties: Minors, Persons of Unsound mind and Persons disqualified from
contracting imiby any law to which they are subject.
(c) Lawful consideration: Consideration need not be adequate or equal in value to the promise,
all that is required is that it have some value in the eyes of law.
(d) Lawful object: The object should not be forbidden by law or opposed to public policy or
fraudulent.
(e) Agreement should not be declared expressly void: It should not be an agreement in restraint
of marriage, trade, legal proceedings, or by way of wager/bet or an agreement to do an
impossible act.
4. Formation of an Agreement:
(a)Valid Offer: Should be an express or implied offer and communication of offer means that the
proposal should come to the knowledge of the party to whom it is made. It can be a general
offer or specific offer. Offer has to be final expression of willingness but not merely an invitation
to offer.
(b) Valid acceptance: Absolute and unqualified acceptance. Rules for acceptance by post differ
from those for faster mediums like telephone and telex.
5. Limitation on Freedom to contract:
(a) Unlawful Agreements: The object of an agreement is considered lawful unless (i) it is
forbidden by law (ii) is of such nature that defeats the provision of law (iii) it is fraudulent (iv)
court regards it as immoral or opposed to public policy.
(b) Void Agreements: The following agreements are not enforceable under law:
(i) Agreements of which consideration or object is unlawful
(ii) Agreements without consideration
(iii) Agreements in restraint of marriage
(iv)Agreements in restraint of trade
(v)Agreements in restraint of legal proceedings
(vi) Agreements which are uncertain and unambiguous
(vii) Agreements by way of wager
(viii)Agreements to do impossible acts
6. Performance of Contracts:
(a) The parties to a contract must perform or offer to perform their respective promises unless
such performance is dispensed or excused under the Contract Act.
(b) If no time has been specified the contract must be performed within a reasonable period of
time.
7. Impossibility and Frustration
(a) An agreement to do an act which is impossible is void. If the performance of a promise
becomes impossible for any reason which the promisor could not prevent, after the contract is
made , the contract becomes void when act becomes impossible or unlawful.
(b)Specific grounds of Frustration
(i) Destruction of subject matter
(ii)Change of circumstances
(iii)Non-occurrence of a contemplated event
(iv) Death or incapacity of a party
(v) Government or Legislative Intervention
8. Remedies for Breach of Contract
The remedies available for breach of contract namely:
(a) Recession and Damages: Entitles the injured party to recover compensation for loss suffered
by breach of contract from a party who causes such breach.
(b) Specific Performance and Injunction: Equitable relief given by courts , under the Specific
Relief Act, requiring the party to actually perform the contract according to the terms. It is given
when damages would not be an adequate remedy.
(c) Quantum Meruit: If the injured party has performed a part of his obligation under the
contract before the breach of contract has occurred , he is entitled to recover the value of what
he has done under this remedy.
9. Special Contracts:
(a) Indemnity: Party promises to save another from loss caused by conduct of promisor or
conduct of any other party. Eg: Contract of Insurance is a contract of indemnity which covers
every kind of loss envisaged by the policy.
(b) Guarantee: A Contract to perform the promise of a third person incase he defaults. Who
gives the guarantee is the ‘surety’; in respect of whose default surety is given ‘principal debtor’
and to whom guarantee is given is the ‘creditor’.
(c) Bailment: Bailment is the delivery of goods by one person (“the bailor”) to another person
(‘bailee”) for some purpose, upon a contract that they shall when the purpose is accomplished,
be returned or disposed of according to bailor’s instruction.
(d) Agency: An ‘agent’ is a person employed to do any act on behalf of another (“the principal”),
or to represent a principal in dealings with third persons. The underlying doctrine is that a
person who does a act through another is deemed to do it himself.