CONTRACT ACT

1872

BY
MRS. NEHA VERMA
RAHATE
 CONTENTS

• What is a Contract?
• Valid Contract and its
essential characteristics
• Classification for Contract
• Various forms of Quasi
Contracts
 AGREEMENT
• The contract is formed only on the basis of
agreement. It is a combined effect of offer and
acceptance.
AGREEMENT= OFFER+ ACCEPTANCE

According to section 2(e), Agreement is a

promise or set of promises forming
consideration for each other.
 CONTRACT
• According to sec.2(h), CONTRACT
may be defined as
“An Agreement enforceable by law ”.
• These agreements creates Rights and
Obligations between the Parties which can
be claimed in the Court of Law.(Legal
Obligation)
THREE MAJOR COMPONENTS
OF A CONTRACT
1. AGREEMENT

3. OBLIGATION

5.
ENFORCEABILITY
• Agreement + Legal Contrac
Obligation t
• Agreement + Social Contrac
Obligation t
 ESSENTIALS OF A VALID
CONTRACT
• An Agreement has to fulfill the following
legal conditions to become a Contract –
• Two or more parties (Offer and
Acceptance)
• Intension to create a Legal Relationship
• Lawful Object
• Capacity of parties (Major, Sound mind)
• Free Consent (understanding of terms
and conditions)
 ESSENTIALS OF A VALID
CONTRACT CONTINUED..
6) Writing and Registration and Duly stamped
(not Oral Contract)
7) Certainty (proper terms and conditions)
8) Possibility of the Performance(it should not
be impossible)
9) Must not have been disqualified by any law
 CLASSIFICATION
OF CONTRACTS
O N T H E B A S I S OF

CREATION EXECUTION ENFOECEABILITY

(FORMATION) (PERFORMANCE) (VALIDITY)

- EXPRESS -EXECUTED -VALID

-IMPLIED -EXECUTORY - VOID

- QUASI - - VOIDABLE
PARTLY
- ILLEGAL
ON THE BASIS OF FORMATION
1. EXPRESS CONTRACT-
Express contract is one which is made by
words spoken or written at the time of
formation .
Example1
X says to Y, will you buy a car for Rs. 100000? Y says to X, I
am ready to buy you car for Rs. 100000. It is an express
contract made orally.
Example 2
X writes a letter to Y, I offer to sell my car for Rs. 100000 to
you. Y send a letter to Y, I am ready to buy you car for Rs.
100000. It is an express contract made in writing.
2. IMPLIED CONTRACT
An implied contract is one which is inferred
from the acts or conduct of the parties or from
the circumstances of the cases.
Example :
X, a coolie in uniform picks up the bag of Y to carry it
from railway platform to the taxi stand, without being
told by Y to do so and Y allows him. In this case there
is an implied offer by the coolie and an implied
acceptance by the passenger. Now, there is an
implied contract between the coolie and the
passenger and he is is bound to pay for the services of
the coolie.
3. QUASI
•CONTRACTS
These contacts are based on the principles
of
Justice and Equity.
• Quasi means ‘ as if ’ or ‘ similar to ’
• Also called as ‘ Implied Contracts’
• It is just like a Contract as it also creates
legal obligations.
• But the legal obligation created by Quasi Contract
do NOT rest on any Agreement, but are IMPOSED
BY LAW.
Example:
Where certain books are delivered to a wrong address then
ON THE BASIS OF PERFORMANCE
1. EXECUTED CONTRACT-
It is a contract where both the parties to the
contract have fulfilled their respective
obligations under the contract.
Example:
X offers to sell his car to Y for Rs. 1 lakh.
Y accepts X’s offer. X delivers the car to Y and
Y pays Rs. 1 lakh to X. It is an executed
contract.
2. EXECUTORY CONTRACT-
It is a contract where both the parties to the
contract have still to perform their respective
obligations.

Example:
X offers to sell his car to y for Rs. 1 lakh.
Y accepts X’s offer. If the car has not yet
been delivered by X and the price has not
yet been paid by Y, it is an Executory
contract
3. PARTLY EXECUTED AND PARTLY
EXECUTORY CONTRACT:
It is a contract where one of the parties to the
contract has fulfilled his obligation and the
other party has still to perform his obligation.
Example:
X offers to sell his car to y for Rs. 1 lakh on a
credit of 1 month. Y accepts X offer. X sells the
car to Y. Here the contract is executed as to X
and Executory as to Y.
 ON THE BASIS OF VALIDITY
1. VALID CONTRACT-
contract which satisfies all the
conditions prescribed by law is a valid contract.
Eg. X offers to marry Y. Y accepts X offer. This
is a valid contract.

5. VOID CONTRACT- [sec 2 (g)]

A void contract is a contract which is valid
when entered into but which subsequently
became void due to impossibility of
performance, change of law or some other
reason.
Eg. X offers to marry Y, Y accepts X offer. Later
on Y dies. This contract was valid at the time of
3. VOIDABLE CONTRACT:
• An arrangement which is enforceable
by law at the option of one or more of
the parties thereon but not at the
option of other or others, is a voidable
contract.
• If the essential element of free consent is
missing in a contract, the law confers
right on the aggrieved party either to
reject the contract or to accept it.
However, the contract continues to be
• Eg. X threatens to kill Y, if the does not sell
his house for Rs. 1 lakh to X. Y sells his
house to X and receives payment. Here, Y
consent has been obtained by coercion and
hence this contract is voidable at the option
of Y, the aggrieved party. If Y decides to
avoid the contract he will have to return Rs. 1
lakh which he had received from X. If Y does
not exercise his option to repudiate the
contract within a reasonable time and in the
meantime Z purchases that house from X for
1 lakh in good faith, Y cannot repudiate the
contract.
4. ILLEGAL
CONTRACT:
An illegal contract is unlawful.
Such an agreement cannot be enforced
by law.Thus, illegal agreements are
always
void -ab- initio (i.e. void from the
very beginning)
Eg. X agrees to Y Rs.1 lakh to kill Z. Y kills Z
and claims Rs. 1 lakh. Y cannot recover the
amount from X because the agreement
between X and Y is illegal and also its object
is unlawful.
 QUASI
CONTRACTS
• Quasi means ‘ as if ’ or ‘ similar to ’
• It is just like a Contract as it also creates
legal obligations.
• But the legal obligation created by Quasi
Contract do NOT rest on any Agreement, but
are IMPOSED BY LAW.
- Inspite of not having contract between parties ,
the rights and obligations are created by operation
of law rather than offer and acceptance ie
Agreement.
TYPES OF QUASI
Sec 68 to 72
CONTRACTS
1. Claim for supply of necessaries to
person incapable of contracting
2. Reimbursement of money paid, in which he
is interested
3. Obligation of person to pay for
enjoying benefit of non-gratuitous act
4. Responsibility of finder of goods
5. Liability of a person to whom money is paid
or thing delivered by mistake or under
coercion
1. Claim for supply of Necessaries to
person incapable of contracting
• If a person incapable of entering into a
contract or any one who is legally bound
to support, is supplied by another person
with necessaries suited to his condition
in life, the person who has furnished
such supplies is entitled to be reimbursed
from the property of such incapable
person.
• Illustrations:
(a)A supplies B, a lunatic, with
necessaries suitable to his condition in
life. A is entitled to be reimbursed from
B’s property.

(b)A supplies the wife and children of B, a

lunatic, with necessaries suitable to their
condition in life. A is entitled to be
reimbursed from B’s property.
2. Reimbursement of money
paid, in which he is
interested
• A person who is interested in
the payment of money which
another is bound by law to pay,
and who therefore pays it, is
entitled to be reimbursed by the
other.
• Illustrations:
The house in which A lives as a tenant
is declared to be sold by municipal
corporation for non payment of tax by
the owner of the house.
A makes the payment in order
to protect his interest.
A is conferred a legal right to
recover such payment from the
owner of the house.
 3. Obligation of person to pay for
enjoying benefit of non-gratuitous act
• Where a person lawfully does
anything to another person, or
delivers anything to him not intending
to do so gratuitously and such other
person enjoys the benefit there of, the
latter is bound to make compensation
to the former in respect of or to
restore the thing so done or delivered.
• Illustrations:

A, a tradesman, leaves goods at B’s

house by mistake. B treats the goods
as his own. He is bound to pay A for
them.
 4. Responsibility of finder
of goods

• A person who finds goods

belonging to another and takes
them into his custody, is subject to
the same responsibility as a bailee.
 5. Liability of a person to whom
money is paid or thing delivered by
mistake or
• under coercion
A person to whom money has been paid, or
anything delivered by mistake or under
coercion, must repay or return it.
• Illustration:
A and B jointly owe Rs. 100 to C. A alone pays
the amount to C, and B not knowing this fact,
pays Rs.100 over again to C. C is bound to
repay the amount to B
Discharge of
contract
 Discharge of
contract
• Discharge of contract means termination
of the contractual relationship between
the parties. A contract is said to be
discharged when it ceases to operate,
i.e., when the rights and obligations
created by it comes to an end.
A CONTRACT MAY BE DISCHARGED

1. By performance
2. By mutual agreement or
consent
3. By impossibility of performance
4. By lapse of time
5. By operation of law
6. By Breach of contract
 Discharge by
performance
• Performance means the doing of that, which
is required by the contract.
• Discharge by performance takes place when
the
parties of the contract perform wit h in t
he t ime a n d in t he
ma n n e r
p r e s c r ib e d .
• In such a case, the parties are discharged and
the contract comes to an end. But if only one
party performs the promise, he alone is
• Performance of a contract is the
most usual mode of discharge.
• It may be by

- Actual performance and

- Attempted performance or
tender.
 ACTUAL PERFORMANCE
• When both the parties perform their promises,
the contract is discharged.
• Performance should be complete, precise and
according to the terms of the agreement.
• Most of the contract are discharged
by performance in this manner.
Attempted performance or
tender
• Tender is not actual performance but
is only an offer to perform the
obligation, but the promisee refuses to
accept the performance.
 Discharge by Mutual
Agreement
or Consent

• Since a contract is created by

mutual agreement, it can be
discharged by mutual agreement
 Discharge by Mutual
Agreement
or Consent
• Types of discharge by agreement or
consent
• a) Novation
• b) Rescission
• c) Alteration
• d) Remission
• e) Waiver
 Novation (sec. 62)
• Novation means the substitution of a new contract for
the original contract.
• Such a new contract may be either between the s a
me p a r t ie s o r b e t we e n d if f
er ent
par t ie s
• The consideration of new contract is the discharge of
the original contract.
• Example:
A owes money to B under a contract. It is agreed
between A,B and C that B shall henceforth accept C as
his debtor, instead of A. The old debt of A and B no
 Rescission (sec. 62)
• Rescission of a contract takes place when the
parties to a contract may decide that they will
forget the contract and will not bring a new
contract into existence to replace it.
• Cancellation of contract by any party or all the
parties.
• Example:
X promises Y to deliver goods on 1st Oct at his go-
down. And Y promises to pay for it on 1st Nov. X does
not supply the goods. Y may rescind the contract.
 Alteratio
• n a change in the terms of a
Alteration means
contract with mutual consent of the parties.
Alteration discharges the original contract
and creates a new contract. However, parties
to the new contract must NOT change.
• Example:
X promises to sell and deliver 100 bags on 1st
Oct. And Y promises to pay on 1st Nov.
Afterwards X and Y mutually decide that the
goods shall be delivered in 5 equal
installments at Z’s godown.
 Remission (sec.63)
• Remission means acceptance by the promisee
of a lesser fulfillment of the promise made.
• In other words it may be defined as
acceptance
of a less than what was contracted.
• Example
A owes to B Rs 5000. A pays to B Rs
2000. B accepts it in full satisfaction.
The old debt is discharged.
 Waive
• r
A waiver is the voluntary relinquishment
or surrender of some known right or
privilege.
• A contractual party might waive the performance
of a contractual duty by another party. A waiver
doesn't have to be written or even spoken -- a
party may waive a contractual duty by conduct.
• Example
A landlord fails to object to a tenant paying rent 10
days late every month, he may be considered to have
voluntarily waived on-time payment by the tenant.
 Discharge By impossibility of
performanc
• Section e whic deal with
s56question,
, mentions
h two this
impossibility. kinds of
• Firstly, impossibility existing at the time
of the making of the contract.
• Secondly, a contract which is possible of
performance and lawful when made, but
the same becomes impossible or
unlawful thereafter.
 1. INITIAL
• IMPOSSIBILITY
An agreement to do an act impossible in itself
is void. The object of making any contract is
that the parties to it would perform their
respective promises. If a contract is
impossible of being performed, the parties to
it will never be able to fulfil their object, and
hence such an agreement is void.
• Example,
A agrees with B to discover treasure by magic. The
performance of the agreement being impossible, the
agreement is void. Similarly, an agreement to bring a dead
man to life is also void.
2. SUBSEQUENT IMPOSSIBILITY
• The performance of the contract may be
possible when the contract is entered into but
because of some event, which the promisor
could not prevent, the performance may
become impossible or unlawful. Section 56
makes the following provision regarding the
validity of such contracts :
• “A contract to do an act which after the
contract is made, becomes impossible, or by
reason of some event which the promisor could
not prevent, becomes void when the act,
becomes impossible or unlawful.”
2. SUBSEQUENT
IMPOSSIBILITY
Examples..
• A and B contract to marry each other. Before
the time fixed for marriage, A goes mad. The
contract becomes void.

• A contracts to act at a theatre for six months in

consideration of a sum paid in advance by B.
On several occasions A is too ill to act. The
contract to act on those occasions becomes
void.
 Discharge by lapse of time
• The limitation act, 1963 lays down that a
contract should be performed within a
specified period, called period of limitation.
If it is not performed, and if no action is
taken by the promisee within the period of
limitation, he is deprived of his remedy at
law.(ie the contract is terminated)
• For example: There is a contract of loan between A
and
B. Her limitation period is 3 years. After completion
of 3rd year discharge of contract takes place and
debtor – creditor relationship comes an end. Thus it
becomes time bared debt which cannot be recovered
 Discharge By operation of
• law
A contract may be discharged independently of the wishes of
the parties, i.e., by operation of law. This includes discharge–
a) by death (in the case of contracts for personal service).
b) By insolvency.
c)By unauthorized alteration of the terms of a
written agreement.
d) By the identity of promissor and promisee.
For example: X has drawn a bill on Y. Here X has
collect
right to amount on the bill and Y has liability to pay. There
after X has endorsed the bill to Z. Where Z has got the right
and liability is with Y. Assume that Z has endorsed the bill to
Y. Now right as well as liability are with Y. This situation
discharges the contract
 DISCHARGE BY BREACH
OF CONTRACT
• When a party having a duty to perform a
contract fails to do that, or does an act
whereby the performance of the contract
by him becomes impossible, or he refuses
to
perform the contract, there is said to be
a breach of contract on his part.
• On the breach of contract by one party, the
other party is discharged from his obligation
to perform his part of the obligation.
• He also gets a right to sue the party
making the breach of contract for
damages for the loss occasioned to him
due to the breach of contract.
• The breach of contract may be either
ACTUAL, i.e., non-performance of the
contract on the due date of performance,
or ANTICIPATORY, i.e., before the
due date of performance has come.
• For
example
A is to supply certain goods to B on 1st
January. On 1st January A does not supply
the goods. He has made actual breach of
contract.
On the other hand, if A informs B on 1st
December that he will not perform the
contract on 1st January next, A has
made anticipatory breach of contract
 REMEDIES OF BREACH OF
CONTRACT

• A Remedy is the course of action

available to an aggrieved party
(ie the party not at default) for
the enforcement of a right under
a contract.
Remedies for breach of
contract

• Cancellation or Rescission
• Specific performance
• Injunction
• Quantum Meruit
• Damages
Cancellation or Rescission
• When the contract is broken by one
party, the other party is free to
rescind and refuse further
performance.
• In such a case aggrieved party is
discharged from all the obligation
under the contract and is entitled to
claim compensation sustained because
of the non-performance of the
• Example:
• A, a singer contracts with B, manager of
theatre, to sing at his theatre every night in
every week during the next two months.
• B promises to pay her Rs. 1K for each night
performance.
• On the sixth night A willfully remains absent
from the theatre
• B in consequence rescinds the contract.
• B is entitled to claim compensation for the
damage which he has sustained through the
non-fulfilment of the contract.
 Suit for
• Here
Damages
the aggrieved party will go to the
court of law and ask for damages or
compensation for the breach of contract.
• They are monetary compensation allowed
for the loss suffered by the aggrieved
party
• The object is not to punish the party but to
make good the financial loss suffered by the
aggrieved party.
Damages are of four
kinds-
• General or ordinary
damages
• Special damages
• Vindictive or
exemplary damages
• Nominal damages
General or Ordinary
damages
• In a contract for sale of goods, the
measure of ordinary damages is
the difference between contract
price and the market price of such
goods on the date of breach
• Example:
On 1st Dec, X contracted to sell and deliver
50 tons of wheat @ Rs 8000 per ton to Y on
1st Jan. On 20th Dec, Y afterwards,
contracted to sell those goods to Z @ Rs
10000 per ton.
X failed to deliver on 1st Jan, when price
of wheat was 9500 per ton.
• Y is entitled to recover Rs 75000 and not
the profit as it is the indirect consequence
of the breach of contract.
 Special damages
• It would be the compensation for the special
losses caused to the aggrieved party by the
special circumstances attached to the
contract.
• The phrase “special damages” is often used
interchangeably with the term
“consequential damages”. This is to
indicate that the damages are the
“consequence” of a contractual breach,
though they might not have been directly
caused by the breach of contract.
• Example:
• A, a builder, contracts to erect and finish a
house by 1st Jan, in order that B may give
possession of it at that time to C. A is informed of
the contract between B and C. A builds the house
so badly that before 1st Jan it falls down, and has
to be rebuilt by B, who, in consequence, loses the
rent which he was to have received from C, and is
obliged to make compensation to C for the breach
of his contract.
• A must make compensation to B for the
cost of rebuilding, for the rent lost and
for the compensation made to C.
 Punitive or Vindictive Damages

• Punitive damages are damages that

punish the wrongdoer in a breach of
contract lawsuit. They aren't based on
actual economic loss like compensatory
damages.
• Example:

i)Breach of promise to marry (damages

are calculated on mental injury
sustained)
ii)wrongful dishonour of cheque by a
banker
 Nominal damages
• Nominal damages are awarded where
aggrieved party has been injured but did not
incur any financial losses. They are not
intended to compensate the victim but
rather are awarded to vindicate aggrieved
party’s rights.
• These are called nominal damages, because
they are very small, say one rupee or one
dollar.
Example
:
• An injured, who proves that a
defendant's actions caused the injury but
fails to submit medical records to show the
extent of the injury may be awarded only
nominal damages. The amount awarded is
generally a small, symbolic sum, such as
one dollar
 Suit for Specific
performance
• It means demanding the court’s direction to
the defaulting party to carry out the
promise according to terms of the contract.
• Example:
• X agreed to sell an old painting to Y
for Rs 50,000. Subsequently, X refused to
sell the painting. Here, Y may file a suit
against X for the specific performance of
the contract.
 Suit for
• Injunction
It means demanding for court’s stay order.
• Injunction means an order of the court
which prohibits a person to do a particular
act.
• Where a party to a contract does
something which he promised not to do,
the court may issue an order prohibiting
him from doing so.
Example
:
• W agreed to sing at L’s theatre only
during the contract. But he makes
contract with Z to sing at another
theatre and refused to perform the
contract with L.
• W could be restrained by injunction
from singing for Z.
 Suit for Quantum
• Meruit
Quantum Meruit means ‘as much as
earned’
• Right to Quantum Meruit means a right to
claim the compensation for the work already
done.
• Example:
• C an owner of a magazine, engaged P to write a
story to be published by installments in his
magazine. After a few installments were published,
the publication of the magazine was stopped. It
was held that P could claim payment for the part
already published.
THANK
U