Legal Aspects of Business
Module 5
Contract Law - II
Learning Objectives
• To discuss important common provisions and
understand various mandatory elements of valid
contract.
• To understand the concept of discharge of
contract and breach of contract along with its
various modes.
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Your takeaway’s from here
• Discuss the formation of contract under the Act
• Understand various important essential elements
of contract
• Study and understand discharge of contract and
breach of contract as per Indian Contract
Act,1972.
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Introduction of the act
• Provisions of essentials elements of
contract.
• Formation of contract
• Discharge of Contract and
• Breach of contract
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Formation of Contract
• Contracts are agreed between two parties.
• Enforceable by law
• Describes general principles which parties are
expected to adhere to while creating rights and
duties.
• Parties are set to free to set their own terms
and conditions.
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Rules of Offer, Acceptance and Consideration
• Intention to create legal relation.
• An offer can be made to an individual, or a group or
a world at the large.
• Invitation to treat Vs Offer
• An offer must be definite and not uncertain, and
acceptance has no effect unless communicated.
• An acceptance should be unconditional consent to
the proposal.
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Rules of Offer, Acceptance and Consideration
• The promisor making the offer can prescribe the
mode of acceptance.
• Uncertain agreements cannot be legally enforced.
• Consideration can be in terms of either benefit or
detriment to the promisee.
• Consideration must be mutual.
• Consideration need not be adequate.
• Consideration must be quid pro quo.(i.e. given in
return for the promise.) 7
Essential elements of contract
• The intention to create • Statutory formalities -
legal relationship . When by any stature it
• Lawful offer and lawful is required that an
acceptance. agreement should be in
writing or registered or
• Capacity of the parties . made in presence of
• Free consent. requisite, these
• Lawful object and formalities must be
design. complied with.
• Lawful consideration • Certainty.
• Possibility.
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What is Offer?
• Formation of agreement required two steps :
1. making of a proposal by one person and
2. acceptance of this proposal by other.
• Sec 2 (a) :When one person signifies to another
his willingness to do or to abstain from doing
anything, with a view to obtaining the acceptance
of that other to such act or abstinence, he is said
to make a proposal.
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Difference Between Offer and Invitation to offer
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Types of offer
Express offer
When an offer is made by express words, written or
spoken
Implied offer
When an offer is implied from the conduct of a person
or persons or from the circumstances of case.
Specific offer
An offer made by an offerer to a definite person or a
definite class of persons
General offer
When the offer is made to the world at large.
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Case Law
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What is Acceptance ?
• Sec. 2 (b) “When a person to whom the proposal is
made , signifies his assent thereto, the proposal is
said to be acceptance.”
• A proposal , when accepted become a promise.
• A proposal can be accepted only by the person to
whom the proposal is made.
• But if, the proposal is not directed to a specified
person but to the world at large, it may be accepted
by any member of the public who has knowledge
about the proposal. 13
Revocation of offer and acceptance (Section 4)
By lapse of time
By the communication prescribed in the proposal
of the notice of before which acceptance
revocation by the is required (if no time
proposer to the other specified, by the lapse of
party. a reasonable time before
acceptance is made.)
By the death or insanity
By the failure of
of the proposer, if the
acceptor to fulfil a
knowledge of that fact
condition required for
reaches the acceptor
acceptance.
before acceptance.
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Capacity to contract
• Essential requirements to enter into contract:
Attained the age of majority.
If he is sound mind.
If he is not disqualified from contracting by
any law to which he is subject.
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Case Law
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Free Consent (Section 14)
• Consent – Two persons agreeing on the same thing in
the same sense.
• Consent obtained by following methods said to be
void:
Coercion – doing or threatening or committing to do
so.24
Undue Influence – One of the party is domination
other one.
Fraud – Intention to deceive another party.
Misrepresentation – any false but positive assertions
about something.
Mistake – can be made as a matter of fact.
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Consideration (Section 2d)
• An act or abstinence or promises.
• The price for which the promise of the
proposer is bought.
• Must be lawful.
• Present, past or future.
• Something which promisor is not already
bound to do.
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Discharge of Contract
• It implies termination of contractual obligations.
• A contract is said to be discharged when it
ceases to operate i.e. when the rights and
obligations created by it come to an end.
• Circumstances when the contract is discharged :
1. By performance
2. By agreement or consent
3. By impossibility
4. By lapse of time
5. By operation of law
6. By breach of contract
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Discharge
of Contract
By agreement
By performance By impossibility By lapse of time By operation of By breach of
or consent
law contract
Novation
By Death
Rescission
By Insolvency
Alteration
Unauthorized
alteration
Remission
Rights and liabilities
Waiver vested in same person
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• Parties have carried out performance
By Performance • Attempted to carry out performance
• Novation – substitution of new contract
• Rescission – Terms of contract cancelled
By agreement or consent • Alteration – Change in terms of conditions
• Remission – Acceptance of lesser fulfilment of promise
• Due to – destruction of subject matter, death or incapacity of
the person.
By impossibility • If an agreement contains an undertaking to perform an
impossibility, it is void.
• A contract should be performed within a specified period
• The contract is terminated if it is not performed.
By Lapse of time
• By Death
• By insolvency
By Operation of Law • Unauthorized alteration of the terms
• Rights and liabilities vested on one person
• Promisor fails to perform the promisor breaking of the
obligations which a contract imposes.
By Breach of Contract • Actual Breach – Fails to perform on due date
• Anticipatory Breach – Not performing contract before due
date.
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Breach of contract
• Meaning : Breach of contract means promisor fails
to perform the promise or breaking of the
obligations which a contract imposes.
- It occurs when a party to the contract without lawful
excuse does not fulfill his contractual obligation or
by his own act makes it impossible that he should
perform his obligation under it
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Types of Breach of Contract
ACTUAL BREACH ANTICIPATORY BREACH
Occurs when a party does nit Premature destruction of contract.
perform his part of contract at
specified time.
Aggrieved party may treat Promisor must refuse to perform or
contract as discharged and disable himself from performing his
file a suit for damages promise in its entirety.
against party at fault.
If promisee gives consent for
continuance of contract the contract is
not discharged.
Aggrieved party may
a) Treat contract as discharged.
b) Treat contract as operative and
wait till the time of performance
arrives.
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Remedies against Breach of Contract
Suit for Damages • Meant for seeking monetary compensation
Suit for • Meant for termination of the contract with no
Rescission further performance.
Suit for specific • A discretionary remedy wherein court orders
performance the parties to perform the obligations.
• Latin term : As much as is merited or earned.
Suit Upon • Meant for restitutory (the act of returning to
Quantum Merit rightful owner) remedy
Suit for an • a court order directing a person to do or
refrain from doing some specified act, which,
injunction has been the subject matter of contract.
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Quasi Contracts
• An agreement between two parties without previous
obligations to one another that has been created
and legally recognized by the court system.
• Contract is arranged and imposed by a judge to
correct a circumstance in which one party acquires
something at the expense of the other party.
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Kinds of Quasi Contract
a. Supply of necessaries to persons who are
incompetent to contract -
b. Reimbursement of the payment
c. Non-Gratuitous Act – person lawfully does
anything for another person or delivers anything
to him.
d. Finder of Goods – Finds goods belongs to
another
e. Liability of the person to whom money is paid by
mistake.
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