Day-1

Portions to be covered by Prof. Mallar

• General Principles Governing Contracts.

• Contract Management.

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 Law relating to Contract
• What is Contract.
“A agrees to sell his House to B for Rs.
20 lakhs.”

• What are the essentials of a valid

Contract
- Offer and Acceptance or Proposal and
Acceptance.
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• What is Agreement ?
Agreement is a promise or set of
reciprocal promises.

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 Components of Agreement
• Proposal
• Promise
• Consideration
• Promisor
• Promisee
• Reciprocal Promises
• Void Agreement
• Voidable Agreement

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Components Contd…..
• Communication and Acceptance.

• Revocation of Proposal.

• Proposal complete – when it comes to

knowledge of the Promisee.

• When Communication is complete?

• Agreement between Parties at a distance.

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 Communication when complete…….
• Acceptance: as against the proposer, when it is
dispatched.
as against the Acceptor, when it
reached the Proposer.

• Revocation: as against whom makes it, when it

is dispatched.
as against whom made, when it
reached him.

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 Revocation

• Revocation of proposal and Acceptance.

-Proposal can be revoked before dispatch of
acceptance.
-Acceptance can be revoked at any time
before
the acceptance reached the proposer.

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Revocation Contd….
• Revocation of Proposal – how made
- by a notice of revocation
- by lapse of time
- by not fulfilling conditions by the Acceptor
- death or insanity of the Proposer when it
comes to knowledge of Acceptor.

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 Acceptance

• Acceptance of the Proposal must be absolute.

• Acceptance of Proposal by performing

conditions or receiving consideration.

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 Fundamentals of a valid Contract
• Offer and Acceptance.
• Free consent.
• Legal capacities of parties.
• Lawful consideration.
• Lawful Object.
• Agreement not declared void or illegal.
• Necessary legal formalities-in some cases.
• Contracts need not be in writing unless law
requires.

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 Competency to Contract

• who is of age of majority – infancy.

• who is of sound mind – insanity.
• not disqualified from contracting by any law.

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 Age of Majority
• Infancy: English Law: Contract voidable;
Indian Law: Contract Void.
Exceptions:
- Agreement on behalf of minor by guardian –
legal necessity or for his sole benefit.
- Mortgage and sale in favour of minor
- Minor admitted to the benefits of
partnership.
- Necessaries – Minor’s property is liable for
necessities supplied.
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 Party to be of sound mind

• Party is said to be unsound mind if :

- capable of understanding it and
- forming a rational judgement as to its
effects upon his interests.

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Capacity of Parties Contd…

• Party is not specifically disqualified from

entering a contract under any law.

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 Who is Authorized to sign for a
Company ?
• By Power of Attorney, by Agent, by
Employees.
• Implied authorization warranted by the
position held.
• Goods within ordinary course of Business.
• Under Common Seal.

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 Free Consent

• What is consent : means two or more persons

agree on the same thing in the same sense.

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What defeats the “Fundamental Error”

• Error as to :
- nature of transaction.
- person to be dealt with.
- subject matter of the agreement.

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 When consent is Free ?

• Consent is said to be free when it is not caused

by:
-Coercion.
-Undue Influence.
- Fraud.
- Misrepresentation or
- Mistake.

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 What is Coercion

• means duress/ some form of force/ criminal

force or

• wrongful restraint/ confinement, assault,

kidnap, abduction, robbery.

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 Undue Influence

• taking advantage of relationship or influence

over the mind.

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 Caused by Fraud

• What is fraud in general under Civil Law.

- inducing another man to act on a false belief.
- suggestion as to fact which is not true.
- active concealment of fact.
- false promise.
- any other act intended to deceive or
- declared by law as fraudulent.

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 Consent is not free if by :

• Misrepresentation.
• Contract becomes voidable when it is caused
by fraud , misrepresentation, coercion, undue
influence.

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 Free Consent is also vitiated if by:

• Mistake : the Agreement is void if both the

parties are under a mistake.

• Mistake of law of India cannot be a “Mistake”.

• But mistake of foreign law can be treated as

“Mistake”.

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 Consideration & Lawful Object
• Lawful consideration and lawful object : the
Consideration or object is unlawful if:
- forbidden by law.
- if permitted, defeat the purpose of law.
- involves or implies injury to the person or
property of another.
- fraudulent.
- court regards it as immoral or opposed to
public policy. Eg: bigamy , adultery.

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Lawful Consideration contd…..
• Defeat the purpose of law
(i) Abdul vs. Husseinbi
(ii) Divorce – Bai Vilji vs. Nanse Nigam.
• Immoral
• Opposed to public policy
- Prejudice to the state in times of war
- Stifling prosecution
- Champerty and maintenance
- Restraint of marriage or trade

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 Consideration is essential
• Agreement without consideration is void
unless:
- by writing registered between near relatives
but, out of natural love and affection
- to compensate person for something
voluntarily done for the promisor or which the
promisor was bound to do.
- in writing to pay a time-barred debt.
• Exceptions: (a) Gift
(b) Negotiable Instruments
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 Quasi Contracts
• Quasi-Contract or Implied Contract
- not strictly contracts, but which created
peculiar obligations- based on equitable
consideration.
- based on justice, equity and good
conscience.
• Such obligations are:
- Supplying of necessaries to lunatics,
minors, married women etc. to person
incapable of contract
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 What is breach of contract?

• Actual Breach

• Anticipatory Breach

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 REMEDIES FOR BREACH

• Rescind the contract.

• Sue for Damages.

• Sue for Specific Performance.

• Sue for Injunction.

• Sue on Quantum meruit.
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Remedies for breach of Contract contd….
• Rescission: When one party breaks, treat the
breach as discharge and refuse to perform his
part of contract.
• Damages: Where one party breaks (breaches)
the contract, the other party is entitled for
damages.
- Court will assess the money value of the loss
suffered by the injured party and award this as
damages to compensate for his loss.
- Disappointment, vexatious mind, injured feeling
are excluded.

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Remedies for breach of Contract contd….
• Specific Performance:
- actual carrying out of performance of the
Contract.
- Defendant will be asked to carry out
obligations.
- only special cases.
• Specific Performance will not be granted:
- monetary compensation is adequate.
- court cannot supervise the execution like
construction of bungalow like
- contract for personal service – singing/
painting.
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Remedies for breach of Contract contd….

• Injunction: An injunction is a mode of securing

the specific performance of a negative term of a
contract.

• When Injunctive Relief is not available?

• Quantum Merit : obligation of person enjoying

the benefit of non-gratuitous things.

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Remedies for breach of Contract contd…. –
Grant of Damages

• Liquidated

• Unliquidated Damages

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 LIQUIDATED DAMAGES
• Liquidated damages is the amount agreed
between the parties at the formation of the
contract, payable in the event of breach.

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 UNLIQUIDATED DAMAGES

• Ordinary Damage.

• Special Damage.

• Exemplary Damage.

• Nominal Damage.

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Damages Contd…..
• Ordinary Damages:
- estimated amount of loss actually incurred.
- pecuniary / monetary compensation to put the
injured party in the position he would have been

had the contract been performed.

-proximate consequence, which naturally across
in
the usual course of things – not for damage cause
by remote cause.
- sale of goods- damages payable would be the
difference between the contract price and the
price at which the goods are available on the
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Damages Contd…..
• Special Damages :
are those resulting from the special circumstances

to the knowledge of contracting parties.

• Conditions to be satisfied for getting Special
Damages as against Ordinary Damages.

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Damages Contd…..
• Exemplary Damages:
Damages awarded with a view to punish the
defendant- As a rule not granted in ordinary
contracts.
(a) breach of promise to marry
(b)wrongful dishonor of customer’s cheque by
banker.
• Nominal Damages:
A token award- a rupee for infringement of
right but no pecuniary loss.
- to establish right against the defaulting party.

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Damages Contd…..

• When Liquidated Damages amounts to “Penalty”

and disallowed?

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