Law of Contracts

NCR
 Contents
• Proposal- its communication, acceptance and revocation
• Agreement vis-à-vis contract, void agreement & voidable contract
• Consideration – essential elements, exception to rule- No consideration no
contract, privity of contract and consideration
• Capacity to contract, Free consent – coercion, undue influence,
misrepresentation, fraud, Mistake – of fact and of law, Legality of object
• Agreements opposed to public policy and in restraint of marriage, trade &
legal proceedings, Contingent contracts, Performance of contract
• Liability of joint promisor, Consequences of breach of contract–liquidated
damages and penalty, Quasi contract, Indemnity and guarantee–surety’s
liability
• Bailment–Duties and
• liabilities of bailor and Bailee, bailment of pledges
• Agency–types of agency, agents duty to principal and vice-versa,
ratification and revocation of agent’s authority.
 Proposal- its communication, Acceptance and
Revocation

• According to the Indian Contract Act 1872, proposal is defined in

Section 2 (a) as “when one person will signify to another person his
willingness to do or not do something (abstain) with a view to obtain
the assent of such person to such an act or abstinence, he is said to
make a proposal or an offer.”

• A proposal is defined as an offer made by one party to another party

with the intention of entering into a legally binding agreement.
 Features and Elements of valid offer
• Must express willing to do or abstain from doing
• It can be positive or negative
• Elements of Offer:
• Two Parties
• Proposal must be communicated- lalman Shkula V/s Gauri Dutt
• It must create a legal relationship
• It must be certain and definite
• It may be specific or general
 Classification of Offer
• Express offer- Can you work for me for coming 3 months?
• Implied offer- Travelling by bus to reach to the destination
• General Offer- discount sale
• Special Offer- to a specific person
• Cross offer- both parties making offers to each other without
knowing
• Counter offer- New offer nullifying the old offer
 Lapse & Revocation of an Offer
• An offer lapses after a defined or reasonable time.
• An offer lapse by not being accepted in the specified mode
• An offer lapses by rejection.
• An offer lapses by the offerer or the offerer’s death or insanity until
acceptance.
• An offer lapses by revocation before acceptance.
• An offer lapses by subsequent illegality or destruction of the subject
matter.
 Acceptance
• The Indian Contract Act 1872 defines acceptance in Section 2 (b) as
“When the person to whom the proposal is made signifies his assent
thereto, the offer is said to be accepted. Thus the proposal when
accepted becomes a promise.” An offer can be revoked before it is
accepted.
• Types:
• Expressed Acceptance-Giving Consent
• Implied Acceptance- buying without negotiating
• Conditional Acceptance-Giving provisional admission
 Essentials of Acceptance
• Communication
• Signified by the acceptor
• Signified to the offerer- Horse auction
• Acceptance not necessary at all times- running in marathon
• Must be absolute and unconditional
• Must be in usual and reasonable/ prescribed manner
• Communication of acceptance when complete
• Electronic contracts
Agreement vis-à-vis contract
 Void and Voidable
• Agreement not enforceable by law is known as VOID agreement
Sharing the stolen goods.- Death of a borrower,
• An agreement which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of other or others is
a voidable contract .
• Signing a document containing false information
• Contract with a minor
 Consideration
quid-pro-quo
• ‘When at the desire of the promisor, the promisee or any other
person has done or abstained from doing, such act or abstinences or
promise is called consideration’
• Elements:
• Some act or abstinence
• Done or undertaken to be done at the desire of the promisor
• By the promisee or any other person
• Buying of an apple- Sellers consideration is apple and buyers
consideration is money
• Chapple v Nestle (1959)
• Nestle were running a special offer whereby members of the public
could obtain a music record by sending off three wrappers from
Nestle’s chocolate bars plus some money.
• The copyright to the records was owned by Chapple, who
claimed that there had been breaches of their copyright. The case
turned round whether the three wrappers were part of the
consideration. It was held that they were, even though they were
then thrown away when received.
• Glassbrooke v GCC (1925)
• The police were under a duty to protect a coal mine during a strike,
and proposed mobile units. The mine owner promised to pay for police
to be stationed on the premises. The police complied with this request
but when they claimed the money, the mine owner refused to pay saying
that the police had simply carried out their public duty.
• It was held that although the police were bound to provide protection,
they had a discretion as to the form it should take. As they believed
mobile police were sufficient, they had acted over their normal duties.
The extra protection was good consideration for the promise by the mine
owner to pay for it and so the police were entitled to payment.
 No Consideration no Contract
• The principle “no consideration, no contract” means that for a
contract to be valid and enforceable, there must be an exchange of
something of value between the parties involved. This exchange is
known as “consideration.”
• Consideration is an essential element of a contract, and it can take
many forms.
 Exceptions to consideration
1. Agreement made on account of natural love and affection
2. Agreement to compensate past voluntary service-
3. Agreement to pay a time barred debt- café coffee day
4. Completed gift
5. Contribution to charity
 Privity of Contract
‘ A contract is a contract between the parties only and no third person
can sue upon it event if it is admittedly made for his benefit’
Eg. Supply Chain

Capacity to contract:
Section 11 of the Indian Contract Act, 1872, defines the capacity to
contract of a person to be dependent on three aspects; attaining the
age of majority, being of sound mind, and not disqualified from
entering into a contract by any law that he is subject to.
Performance of Contract
 Free Consent
• Free consent
Section 13 of the Indian
contract act 1872 is, the
meaning of free consent
is an agreement made
between two parties for
the same purpose with
the Union of thoughts. It
is under the principle of
consensus-ad-idem
Contingent contract- Insurance
Breach of contract
Types of Breach
• Material Breach of Contract. A material breach of contract happens
when one party receives less than what was promised in the contract
or an entirely different -
• Actual breach is a failure to perform a contractual obligation when
the agreed-upon time for performance has arrived, leaving the other
party to seek remedies .. Cream Line Dairy
• A minor breach happens when you don't receive an item or service by
the due date.
• A fundamental breach is that one of the parties to the agreement
failed to comply with its part of the business by failing to fulfill a
contractual clause that was important to the agreement to such an
extent that another party could not fulfill its own responsibilities in
the contract. Wedding Photo grapher
• An anticipatory breach is an action in contract law that shows a
party's intent to abandon or forgo their obligations to another party.-
Real Estate- Builder
 Consequence of Breach of Contract
• The consequences of breaching a contract can be significant and far-
reaching.
• A breach can lead to legal remedies, compensation, specific
performance, as well as impacts on reputations and relationships. By
understanding the consequences, parties involved in a contract can
be more mindful of the potential risks and steps to take when a
breach occurs.
 M/S Murlidhar Chiranjilal vs. M/S Harishchandra Dwarkadas &
Anr (1961)
• Appellant- M/s Murlidhar Chiranjilal
• Respondent- M/s Harishchandra Dwarkadas
• Facts of the case
• The appellant and the respondent had entered into a contract for the sale of
canvas at Re 1 per yard.
• The delivery of the canvas was to be made by the railway receipt from Kanpur to
Calcutta, and the charges for the same, along with labour charges, were to be
borne by the respondent.
• The railway receipt was agreed to be delivered on 5th August, 1947. However, the
appellant failed to deliver the receipt.
• On 8th August, 1947 the appellant intimated to the respondent that since the
booking from Kanpur to Calcutta was closed, the contract could not be performed,
and it had become impossible for the appellant to perform the said contract.
• The appellant then closed the contract and returned the advance taken from the respondent.
• However, the respondent did not accept the impossibility of the performance of the contract by
the appellant. The respondent informed the appellant that they had committed a breach of
contract and were liable to pay damages.
• The trial court in this matter held that the contract had become impossible to perform, and the
respondent was held responsible where the appellant had failed to perform the contract. The trial
court also held that since the respondent could not prove the rate that was prevailing on the date
of the breach of contract, as claimed by the respondent. Hence, the respondent was not entitled
to damages.
• The respondent appealed in the High Court, and the Court held that the contract had not become
impossible to perform.
• The High Court further held that the respondent was entitled to damages as per the rate
prevailing in Calcutta on 5th August 1947 i.e., the date of the breach of contract.
• Thereafter, an application for special leave was granted by the Supreme Court.
• Issue involved
• The issue related to the breach of contract that arose before the Hon’ble Supreme Court was
whether the respondent was entitled to the damages at the rate at which they claimed them.
• Judgement of the Court
• The Supreme Court held that there was a breach of contract as the contract was required to be
performed on August 5, 1947, by delivery of a railway receipt. However, the delivery was not
done on the said date. The Court further addressed the question of whether the respondent
was entitled to damages or not.
• The Court observed that the case involved the purchase of goods for resale, and the appellant
and respondent were not aware that the contract would result in a breach. Therefore, the
respondent had to prove the rate prevailing in Kanpur to calculate the amount of damage that
would arise naturally in the usual course of things from such a breach. However, the
respondent failed to prove the rate, therefore, they were not entitled to damages.
• The Supreme Court set aside the High Court’s decree and restored the trial court’s order.
• Formula E has announced the cancellation of the Hyderabad E-Prix,
alleging a contract breach by the new Telangana government. The
second Formula E race in India was slated to be held on February 10.
Formula E has alleged a breach of contract by the Municipal
Administration and Urban Development Department (MAUD) that
falls under the control of Telangana government. "The cancellation
comes following a decision by the Municipal Administration and
Urban Development Department (MAUD), under the control of the
Government of Telangana, not to fulfil the Host City Agreement
signed on 30 October 2023," Formula E said in statement on Friday.
Shah Rukh Khan's wife Gauri Khan has been named in a police case by a Mumbai man who alleges that he was
misled by her advertisement for a real estate company and booked an apartment that he never got.
Kirat Jaswant Shah alleges that the company, for which Gauri Khan is brand ambassador, took ₹ 86 lakh from
him for an apartment in Lucknow, Uttar Pradesh, but didn't hand it over in 2016, as promised to him. He has filed
an FIR (First Information Report) in Lucknow against Tulsiyani Construction, its managing director Anil Kumar
Tulsiyani, director, Mahesh Tulsiyani, and Gauri Khan. He has blamed Gauri Khan for “breach of contract”.

Shah says in the complaint that he bought the apartment influenced by a 2015 ad in which Gauri Khan spoke
about the project.
The apartment was at Sushant Golf City, he says.
Quasi Contract
Indemnity and Guarantee

A financial guarantee is an agreement

that guarantees a debt will be repaid to
a lender by another party if the
borrower defaults. Essentially, a third
party acting as a guarantor promises to
assume responsibility for a debt should
the borrower be unable to keep up on
its payments to the creditor.
 Who needs Indemnity Insurance?
• Indemnity insurance is typically recommended for professionals such
as doctors, lawyers, architects, engineers, accountants, consultants,
and other individuals or businesses providing professional services. It
is also valuable for contractors, manufacturers, and service providers
whose work may result in financial losses or liabilities for clients.
• Types:
• Malpractice Insurance- Medical Field
• Errors & Omission Insurance- Consultants
 Examples of Indemnity
• Insurance of a New house
• An indemnity coverage will protect the vaccine-makers when
someone sues them for a loss. The WHO co-led COVID-19
compensation scheme allows developing countries using the
COVAX vaccine to indemnify pharmaceutical companies until July
2022.
 Bailment & Pledge
• A "bailment" is the delivery of goods by one person to another for
some purpose, upon a contract that they shall, when the purpose is
accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them.
• The person delivering the goods is called the "bailor".
• As per section 172 of the Indian Contract Act, 1872, a Pledge is a
contract where a person deposits an article or good with a lender of
money as security for the repayment of a loan or performance of a
promise.
• Pledge is also known as a pawn.
 Examples
• Keeping furniture at friends house
• Giving cloth to the tailor for stitching
• Dropping cloths at a dry cleaners
• Valet parking
• Giving car for repair
• Bank Locker services
Liability of a Bailor
 Liability of a Bailee
• When the bailee takes possession of a piece of property, they assume
a legal and fiduciary responsibility for its safekeeping. As mentioned
above, the bailee is expected to take reasonable care with the
property, even if there is no fee involved.
• The bailee must, therefore, return the goods to the bailor as they
were entrusted. The bailor can sue for damages if he can prove the
bailee did not use reasonable care during the bailment.
• There may come a time when the bailment period has passed and the
bailor has not reclaimed the item(s) in question and has made no
attempt to do so. The bailee should then make every attempt possible
to ensure the property is returned. Once all efforts have been
exhausted, the bailee may consider the property abandoned.
 Agency
• Agency is defined as a relationship where one party, namely the
principal, who delegates some authority to another party, namely
agent to represent him or to act on his behalf, in dealing with a third
person, as to create a binding legal relationship between the former
and the third party.
• An agent is a person employed to do any act for another, or to
represent others in dealings with third parties and the person for
whom such act was done or who was so represented was so-called
“the principal”. An agent is merely an extended hand of the principal
and cannot claim independent rights.
 Types of agency
• Auctioneers
• Factors
• Brokers
• Del-Credere Agents
They are mercantile agents, who, on the payment of some extra
commission guarantees the performance of the contract by the third
person.
 Agents duty to Principal and vice-versa
• Not to delegate his authority until and unless it is necessary
according to the custom of trade, business or when the act does not
require personal skill or the principal expressly or impliedly agrees to
the appointment of sub-agent
• Duty to use his discretion for appointment of a substituted agent for
the principal.
• To conduct business as per directions/ business custom/ with skill/
reasonable diligence
• The agent needs to maintain proper accounts of the sums belonging
to the principal
• In case of difficulty, to use all reasonable diligence in communicating
with the principal and obtain his instructions.
• He has a duty of not to conceal and disclose all material facts to the
principal.
• It is the duty of the agent to pay all the sums received by him on the
principal’s account.
Ratification and Revocation of Agent’s authority.

• The doctrine of ratification is concerned with acts performed without

authority by an agent in the name of a principal. In short, ratification
occurs whenever the ratifying party clearly manifests that he has
adopted the unauthorized transaction effected by his agent
purportedly on his behalf.
• For example, if I authorize my agent to only offer a certain type of
financing, but my agent offers more and I do not protest and allow
the deal to continue, that could be considered ratifying the act of the
agent and thus binding me.
 Revocation of Agents Authority
• An agency is terminated by the principal revoking his authority; or by
the agent renouncing the business of the agency; or by the business
of the agency being completed; or by either the principal or agent
dying or becoming of unsound mind; or by the principal being
adjudicated an insolvent.
• The Principal can revoke only his agent's authority when it has not
been exercised by the Agent Reasonable notice must be given for
such revocation. Revocation may be express or complied.
• For example – A empowers B to let A's house. Afterwards A lets it
himself.
 • Thank You
• End of Unit II
• Next class test followed by Unit III- Company Law