LEB Contract Act 2

Contract Act
Contracts Act 1872

Modified in 1930
Portion pertaining to purchase and sale of
various Goods was taken out and made a

separate Act in 1930- The Sale of Goods Act
Portion pertaining to association of persons
for setting up of business was carved out and
made a separate Act- The partnership Act
1932
LEB Contract Act 2 Venkataraman
What is an Agreement ?
A offers to host a party, to 10 of his class
mates ,if Sun Risers Hydrabad win IPL 2016

Social
X offers to get a Diamond NecklaceDomestic

to his wife
T offers to provide a water motor set to a local
temple and informs Trustee S
Social
M offers to sell his house to N for Rs.40

lacs
Commercial
Essential elements of
There needs to be an OFFER
contract
The offer needs to be ACCEPTED by the other
party
Only when an Offer is accepted ,it becomes
an AGREEMENT
Not all agreements are same
In the earlier slide we saw 2 agreements
which are SOCIAL in nature , 1 which is
DOMESTIC and 1 which is COMMERCIAL in
Valid Offer + Valid Acceptance =
nature
Agreement
For an Agreement to be legally binding and
enforeable, apart from an OFFER &

AGREEMENT ,the third one that is needed is
called CONSIDERATION (Quid Pro Quo )
Consideration is Something in return FOR BOTH
Consideration can be Positive or Negative i.e to
stop / abstain from doing an act.
In the absence of Consideration a Contract is not
enforceable
In the 4 examples we saw earlier, does the party
who makes an offer get anything in return ?
Creating a Legal
Intention to create a Legal Relationship is a MUST
Relationship
to have the contract legally enforceable. Otherwse
not
This Intention is IMPLIED (presumed )in a
Commercial Contract
VIOLATION OF THE SAME CAN RESULT IN THE
PARTY BEING SUED
But is NOT implied in other contracts like
personal, social or domestic
Even a personal /social / domestic can become
legally enforceable if Intention to create a Legal
relationship
is desired by+both
the parties by
Contract = Agreement
Enforceability
Law
Agreement
Legally enforceable
CONTRACT
Voidable
Agree
LEB Contract
Act 2 Venkataraman
Legally not
enforceable
Void Agree.
7
Agreement or Contract
Which is wider in Concept ?
Agreement as it includes non commercial ones
like social and domestic as well. On the contrary,
only Commercials ones come under contract
ESSENTIALS OF A VALID CONTRACT

1. Intention to create a Legal Obligation (Offer
2.
3.
4.
5.
& acceptance )
Free consent of Parties
Competency / capacity of parties
Lawful consideration& Lawful object
Should not have been declared to be void
Types
of
contract
Contracts are divided into 3 types based on

criteria
validity
Formation
Performance
10
Validity
Void Agreement
Voidable Contract
Void Contract
Illegal Agreement
Unenforceable Contract
11
Void Agreement
An agreement not
enforceable by Law
A Void agreement does
not create any legal right
or obligation
Such agreements are
void from the beginning
known as void-ab-initio
It never became a
Contract
Voidable
Contract
An agreement is
enforceable by Law at
the option of one or more
of the parties thereto,
but not at the option of
thretended
B to (sec
the Aother
or others
2(1) sell to him his th
An Agreement
with a Minor
property at 1/10
its cost to A. B
accepted. Later, it
is voidable for B
,as it was
obtained under
coercion
12
Void Contract
Illegal Agreement
A contract which ceases to
An agreement which is
be enforceable by LAW
becomes void and so
ceases to be enforceable
This contract was
originally valid as per
Law when entered
into ,but it becomes
promised to sell his
voidA later
against basic rule of public

policy,or is criminal or
immoral in nature ,is Illegal
Such an agreement is not
only void but all other
transactions emanating
form this are also illegal
house to B for Rs.50

lacs.
But later it was
destroyed in an
earthquake. A is not
responsible
A agreed to buy a car

stolen by B. This is
illegal, Further B sells
it to C ,WHO IS NOT
AWARE .C cannot get
clear title
13
Unenforceable Contract
Example
This is a Contract which cannot
A did not repay an
be enforced in a Court of Law

because of an inherent defect
at a particular time ,say
inadequate stamp duty etc.
They become enforceable once
the technical defect is removed
Here as long as it is
unenforceable Courts will not
intervene.
The parties themselves may
overlook and perform
installment for 38
months to Axix
Bank.Bank filed a suit
after 38 months.
This is not enforceable as
it has crossed the period
of Limitation which 36
months in India.
14
Formation
Express Contract
Implied Contract
Quasi Contract
15
Express Contract
An Express Contract is
one in which the terms of

the contract are
EXPRESSELY AGREED
UPON (whether in writing
or spoken) at the time of
entering into contract
A property Sale
Deed is an Express
Contract
A Stock Exchange
Listing Agreement is
an EC
16
Implied Contract
An Implied contract is
one in which the contract

comes into existence by
the ACT OR CONDUCT of
the party
A passenger in a
train is supposed to
have boarded for
travel and hence
should fulfill all
conditions of Rail
travel namely buying
a ticket
17
Based on Performance
Executed Contract
Executory Contract
Unilateral
Bilateral
18
Executed contract
A contract in which
both the parties to

the contract have
Performed their
portion of obligation
And nothing is
pending fulfillment
The contracted
Rickshaw puller
carried the
passenger
And the passenger
paid the contracted
amount
Both have fulfilled
their Obligations
19
Based on Performance
Executory Contract
A contract in which
either both parties or any

one of the parties has to
perform their contract .
It is pending execution at
the time of entering into
contract
Unilateral
A passenger agrees to
pay a Rickshaw puller
Rs.25 for taking to a
place .So ,at this point
neither of them has
performed their part of
contract
Bilateral
20
Executory Contract
Bilateral
Unilateral
Where one party has to
Where both the parties
perform his portion of

obligation
In this, only one party
makes a promise that is
open & available to
anyone who performs
the required
action
A promised
a
have to perform their

respective portion of the
obligation
It has all components of
a contract namely: An
offer, Acceptance,
Consideration, free will
The rickshaw puller
and Lawful
example in previous
reward of Rs.10000
to anyone who
finds his property
documents .
Costa coffee offers
50% discount after
7 PM
page
A signs an
Agreement to sell
his car to B for Rs.5
lacs.
21
Quasi Contracts (QC)

QC are Obligations which the Law creates in the absence of an
agreement between the parties
On Occasions, a person may receive a benefit for which the

law considers that he should pay to another person even
though there is no contract between the parties
These contracts do create certain Obligations similar to

Regular contracts
22
Types of Quasi Contracts

Claim for
necessaries
supplied to
persons
incapable of
contracting
Sec 68
Right to recover
money paid for
another person
Sec.69
Responsibility
of finder of
Goods
Sec 71
Obligation of
person
enjoying
benefits of
non
gratuitous act
Sec 70
Liability of
money paid or
thing delivered
by mistake or
by coercion
Sec 72
23
Sec 68
If a person,
Example:
Is incapable of entering
A supported a minor B
into a contract
Anyone whom he 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 person
(who cant contract) and

has given eductaion to
B. A is entitled to be
reimbursed form
property of B (if any )
A took care of B and
spent on Bs medication
when B went into a
coma (mentally ill ). A
is entitled to be
reimbursed from Bs
property
24
Sec 69
A person
Who is interested in
the payment of
money
Which another is
bound to pay by Law
And who pays it
Is entitled to be
reimbursed by the
other
Example: 1
A has hired a car from B.
while driving ,Car was
stopped by Traffic and found

not having been insured &not
paid Pollution.
Traffic orders seizure of Car or
pay up.
A pays .He is entitled to
recover from B
Ex:2
A is a tenant in Bs House
B has not paid Prop.Tax &
MCD orders attachment of
property
A pays
A can recover from B
25
Sec 70
When a person
Lawfully does anything
for another, or delivers

anbything to him and
He does not intend to
do so gratuitously &
The other person enjoys
the benefit of that
The latter is bound to
compensate the former
in regard to the thing so
done or delivered
Example: 1
A delivers a large size Pizza
to B, instead of medium ,by

mistake. B has consumed it.
B is bound to pay for the
same
Example 2:
A saves Bs property from
being washed away by flood.
B is bound to pay A for
expenses incurred
If it is established A was on
military duty for this purpose
and hence has acted
gratuitously. No
compensation.
26
Sec 71
A person who finds goods
Example:
of another, & takes it into

his custody,is subject to
the same
responresponsibilty as
Bailee
So a finder of Goods has
to
take proper care of the
goods as a man of
normal prudence would
do
And Has no reight
appropriate the Goods to
himself
A finds the stolen car of B
,who is travelling out of

country.
A informs B about his
locating Bs car and takes
to his house.
But keeps the car on the
road and with the keys
inside.It is stolen now
A is liable to compensate
B for his negligence, as
he has not taken proper
care like a normal person
would do
27
Sec 72
A person to whom
money /anything has

been paid/ delivered
by mistake or under
coercion
Should repay the
same or return it
Example 1:
Alleging A has not paid his
fees,notice is sent
A pays the same under
protest.
Later proves that he has
already paid
Is entitled to be repaid
Example 2:
A collects money as donation
from B ,by coercing him into
paying or else..
B proves that he was
compelled.He is entitled to
be repaid.
28
Quasi Contract
Sec 68 to 72 covers these

Right of lien over goods
This is a Contract which
Perishable goods ?
Cost of locating owner
IS IMPLIED BY LAW
It is an OBLIGATION created
by Law and there need not
be an agreement
NO INTENTION TO ENTER
INTO CONTRACT
ONE PARTY GETS BENEFOT
AT THE COST OF THE OTHER
VIOLATES PRINCIPLE OF
EQUITY
NO ONE SHOULD ENRICHED
AT THE EXPENSE OF THE
OTHER
high ?
Any accretion to goods got
to be also returned-Cow
,Calf.
Finder of
While buying a
Parker Pen ,the
shop keeper by
mistake had given
a Mont Blanc pen
and you have
strated using
it.You need to pay
for Mont Blanc
lost
goods
29
Breach of Contract
30
Meaning of Breach
A breach of contract occurs when a party
,without a lawful excuse
Does not fulfill his

contractual obligation
By his own act, makes it

impossible for him to perform
obligation
31
Types of Breach
Actual Breach
Anticipatory Breach
Breach that happens on
Breach that happens
the date it is due or to be

performed
The other party gets a
RIGHT OF ACTION
,against the party which
breached the contract
when one of the parties

declares his intention of
not performing the
contract
In such a case the other party
can put an end to the contract
immediately
Or may wait for the breach to
occur on the date of
performance for putting an end
to the contract
32
Remedies for Breach

Rescind the contract
File suit for Damages
File suit for specific performance
File suit for Quantum Meriut
33
Rescission:
when a party to a contract breaks it
unilaterally, the other party can treat the
contract as RESCINDED
2. In such a scnerio , the rescinding party is
ABSOLVED of his obligations
3. And is also entitled to COMPENSATION for
damage which he suffered
1.
34
Remedies
Suit for Damages:
1. Damages are the monitory compensation for
breaching the contract and is allowed to the
aggrieved party for LOSS SUFFERED
2. Loss suffered has to be established
3. The reason for compensation is not
PUNISHING but to make good the loss suffered
by the aggrieved party ,on account of breach
by one
35
Remedies
Suit for specific Performance:
1. The aggrieved seeks the order of the court
that the promise made by the party in the
contract be carried out
2. This happens actual damages arising out of
breach are not measurable and when monitory
compensation is not an adequate remedy
36
Remedies
Suit for quantum Meriut(Reasonable sum of
money )
When a party PREVENTS the other party form
completing his obligation, the aggrived party
may claim compensation
For the part of the contract already performed
by him
Under quantum Meriut ,where quantum of
compensation
due
ishad
notto mentioned
in
Where one
party
stop performance
his portion of the contract owing to
contract of default
of the other - after having
completed a portion of it ,has a right to
seek compensation based on quantum
merit
37
Liability & Payment of

Damage:
Damages
Compensation in money imposed by law for loss
or injury
1.Payable by the person who has breached the
contract
2.To the other party to the contract
3.For damages suffered by the other because of
the breach
38
Types of Damages
Ordinary Damages
Special Damages
Exemplary Damages
Nominal Damages
39
Ordinary Damages
Special Damages
Damages that generally
They are specific type of
arise on account of
breach of contract by
one
This could be non
economic in nature ,like
pain and suffering under
gone etc.
damage ,awarded to
reimburse the non
breaching party for
ECONOMIC damages that
arise INDIRECTLY from or
FLOW FROM the breach
It covers losses besides
contractual losses and may
include losses such as Loss
of profits or damage to
business or reputation
The onus is on the
aggrieved to prove this
40
Exemplary Damages
These are damages
allowed in special cases

of Loss of reputation
suffered by aggrieved
party
Generally awarded in
wrongful dishonor of
cheque or breach of
promise to marry etc.
Ex:Supreme court asked
Sterlite Industries to pay
Rs.100 crores for
polluting environment
Nominal Damages
Awarded in cases where
damage incurred to
aggrieved party is very
nominal or almost Nil
Just to acknowledge the
fact aggrieved party has
proved his case and has
won
41
Calculation of Damages
It is basically the difference between
contracted Price and Market price on the date

of breach in case of Sale of Goods
Seller has to deliver ,in the event of breach by
buyer, if he has to claim compensation of the
difference
If seller chooses to retain, he cannot claim
damages even if market goes down further
Neither can he get the damages reduced if
market goes up again
42
Liquidated Damages & Penalty

While drawing a contract , the parties , in the
contract itself stipulate ,a particular sum of

money as damages payable to the other aprty
,in the event of breach
This amount could be either 1) Liquidated
Damage
or 2) Penalty
Liquidated Damage
Penalty
This is an estimate of
compensation for damages
for certain anticipated
breach
This estimate is jointly
arrived at and accppeted
by both parties so as to
avoid calculations &
complications in future
This is an amount stipulated in

the contract ,as a deterrent
against breach
And generally is not
commensurate with the actual
loss suffered
But agreed to by both
43
Difference between the two

Liquidated Damages
Penalty
This is a Compensation
Based on actual
This is a sort of
quantum of Loss
punishment
No connection with
actual Loss, but an
exaggerated amount to
deter the other from
breach
44
Absolute & Contingency Contract
45
Contingent Contract
A contract may be
An absolute
Contract
A contingent
contract
46
Absolute contract
Contingent contract
This is one in which the
This is one contract to do
promisor binds himself to

perform the contract in
any event
or not to do something ,if

some event collateral to
that does or does not
happen (Sec.31)
A promises to
give Rs.10000,
to B,if he comes
first in Class.
47
Some Typical Contingent

contracts
Contract of Insurance
Contracts of Indemnity
48
Essentials of a contingent contract

Its performance depends upon happening or not happening of an
event
The event must be uncertain
The event must be collateral to the main contract
49
performance of a
contingent contract
depends upon
happening or not
happening of an
event
Example:
A promises ICICI Bank

that ,in the event of B
not paying a Loan ,A will
pay.
This means As liability
arises only if B does not
pay & so long as B keeps
paying ,A has no
obligation
All guarantees are
contingent contracts
50
The event must be
Example;
uncertain .
If the event based on
which contract has
been made is certain
to happen ,then it is
not a contingent
contract
A promises to pay B
a bonus of
Rs.10000 , if he
completes the work
in 3 months.
In this there is a
possibility of B
completing in 3
months or not.
51
The event to occur
should not be part of

contract but should
be collateral
(incidental ) to
contract
The event should be
neither a
performance
promised nor a
consideration for a
promise
Example:
A promises to pay a Taxi

driver Rs.150 if he
takes him metro
station and would pay
him after he reaches
This is not a contingent
contract but only a
Conditional contract
,as taking him to
metro is part of
contract and there is
no uncertainity
52
Contingent Event & will of Promisor

Performance
Example:
depends
on
happening or not
happening
of
an
uncertain event.
But event should not
be based on will or
desire
of
the
promisor
A promises to give
Rs.10000 to B ,if he
scores 1st Rank in
class, provided A
wants to give
This is not
contingent
53
Rules of contingent
contracts
Sec
32
Contingency is the Happening of an Event
Sec
33
Contingency is the Non happening of an Event
Sec
34
Contingency is the future conduct of a living person
Sec
35
Contingency is the happening or non happening of an

event within a fixed time
Sec
36
Contingency is an impossible event
54
Sec 32 : Happening of an
event
Contract cannot be
enforced until &

unless the event has
happened
If the event becomes
impossible ,such
contracts become
void
A promises to sell his

House to B, at the
particular price ,if C, to
whom it has been
originally offered, refuses
to buy it. This contract
cannot be enforced until
C refuses.
A promises to give Rs.1
lac to B, if B marries C.But
C marries someone else.
The contract becomes
void
55
Sec 33- Non happening of an event

This contract can be
enforced only when

happening of the
event becomes
impossible
A promises to B that
he would pay
Rs.10000 to A, if C
does not clear Final
exams that year. C
does not sit for the
exam .Contract now
becomes enforceable
56
Sec 34- Future conduct of a Living

person
In this case the
contract becomes
void when such
person does
anything that makes
the event impossible
A promises to pay B
Rs.10000 if B marries
C.But, C marries D.
contract becomes
void even though
later it is possible D
dies or C divorces D
57
Sec 35-Happening of an event

within a fixed time
Contract becomes
A promises to pay B
void
If at the expiration of
the stipulated time,
event has not
happened
If, before the time
given ,the event
becomes impossible
Rs.10000, if B gets
Mika for a function
on 25th of June.
If he arranges Mika
by that date,contract
may be enforced.
If he does not get
contract becomes
void
58
Sec 35- Non happening within

stipulated time
Contract may be
enforced when time

fixed has expired and
the event has not
happened
When before expiry
of time fixed,it
becomes certain
such event will nit
happen
A promises to B, that
he would let out his

house to him if no
one occupies by 31st
May.
No tenant comes to
the house till 31st
May & so the
contract is
enforceable
59
A agrees to pay B Rs. 1

Sec 36- Impossible
event
lac, if he can move a hill
In such a case
contract becomes
void
It is void ,even if
neither of the parties
knew about the
impossibility of
performance when
the contract was
made
by 2 inches. As this is
impossible , the
agreement is Void
A agrees to sell all
mangoes in his Orchard
to B by an agreement on
15th June. But later learns
that the entire orchard
had been destroyed on
10th June itself. The
agreement is void.
60

LEB Contract Act 2

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Contract Act

Contracts Act 1872

various Goods was taken out and made a

LEB Contract Act 2 Venkataraman

mates ,if Sun Risers Hydrabad win IPL 2016

X offers to get a Diamond NecklaceDomestic

temple and informs Trustee S

M offers to sell his house to N for Rs.40

LEB Contract Act 2 Venkataraman

LEB Contract Act 2 Venkataraman

For an Agreement to be legally binding and

enforeable, apart from an OFFER &

LEB Contract Act 2 Venkataraman

ESSENTIALS OF A VALID CONTRACT

LEB Contract Act 2 Venkataraman

Contracts are divided into 3 types based on

LEB Contract Act 2 Venkataraman

LEB Contract Act 2 Venkataraman

A contract which ceases to

against basic rule of public

house to B for Rs.50

LEB Contract Act 2 Venkataraman

A agreed to buy a car

This is a Contract which cannot

A did not repay an

be enforced in a Court of Law

LEB Contract Act 2 Venkataraman

LEB Contract Act 2 Venkataraman

one in which the terms of

LEB Contract Act 2 Venkataraman

one in which the contract

LEB Contract Act 2 Venkataraman

LEB Contract Act 2 Venkataraman

both the parties to

LEB Contract Act 2 Venkataraman

either both parties or any

Where both the parties

perform his portion of

have to perform their

LEB Contract Act 2 Venkataraman

Quasi Contracts (QC)

On Occasions, a person may receive a benefit for which the

These contracts do create certain Obligations similar to

LEB Contract Act 2 Venkataraman

Types of Quasi Contracts

(who cant contract) and

LEB Contract Act 2 Venkataraman

stopped by Traffic and found

LEB Contract Act 2 Venkataraman

for another, or delivers

to B, instead of medium ,by

LEB Contract Act 2 Venkataraman

A person who finds goods

of another, & takes it into

A finds the stolen car of B

,who is travelling out of

LEB Contract Act 2 Venkataraman

money /anything has

LEB Contract Act 2 Venkataraman

Sec 68 to 72 covers these

This is a Contract which

LEB Contract Act 2 Venkataraman

LEB Contract Act 2 Venkataraman

Does not fulfill his