The document summarizes key aspects of Indian contract law, including definitions of a contract, essential elements of a valid contract, consent and its types, indemnity and guarantee contracts, discharge of a contract, remedies for breach of contract, and agency relationships. It provides case studies on offer and acceptance, mental incapacity, and types of discharge. In 3 sentences: The document outlines the fundamental principles of contract law in India, examines essential elements of a valid contract and how contracts are formed, and explores various types of contracts including indemnity, guarantee, and agency as well as discharge of contracts and remedies for breach.
2. Contract Defined
A contract is an agreement made between two parties which the law
will enforce.
Section 2 (h) of ICA 1872 defines contract as an agreement
enforceable by law
1. Offer and Acceptance
2. Intention to Create a Legal Relationship
3. Capacity to Contract
4. Genuine and free Consent
5. Lawful object
6. Lawful Consideration
7. Certainty and possibility of performance
8. Legal Formalities
3. FREE Consent DEFINED....
Section 13) Consent Defined- Two or More persons are said to consent
when they agree upon the same thing in the same sense.
Section 14) Free Consent Defined:- Consent is said to be free when it is not
caused by –
1. Coercion (Section 15)
2. Undue Influence (Section 16)
3. Fraud (Section 17)
4. Misrepresentation (Section 18)
5. Mistake, Subject to the provisions of Sections 20, 21 and 22
4. Pharmaceutical Society of Great
Britain vs. Boots Cash Chemists Ltd
Facts: The defendant ran a self-service shop in which non-prescription drugs and medicines,
many of which were listed in the Poisons List provided in the Pharmacy and Poisons Act
1933, were sold. These items were displayed in open shelves from which they could be
selected by the customer, placed in a shopping basket, and taken to the till where they would
be paid for. The till was operated by a registered pharmacist. However, the claimant brought
proceedings against the defendant for breach of section 18(1) of the Pharmacy and Poisons
Act 1933, which requires the supervision of a registered pharmacist for the sale of any item
in the Poisons List.
Issues: The question was whether the contract of sale was concluded when the customer
selected the product from the shelves (in which case the defendant was in breach of the Act
due to the lack of supervision at this point) or when the items were paid for (in which case
there was no breach due to the presence of the pharmacist at the till).
Held: The Court of Appeal held that the defendant was not in breach of the Act, as the
contract was completed on payment under the supervision of the pharmacist. The display of
the goods on the shelves were not an offer which was accepted when the customer selected
the item; rather, the proper construction was that the customer made an offer to the cashier
upon arriving at the till, which was accepted when payment was taken.
5. Balfour vs. Balfour
FACTS: The Defendant husband and the Plaintiff wife lived in Ceylon where the Defendant worked. In
1915, while the Defendant was on leave, the couple returned to England. When it was time to return to
Ceylon, the Plaintiff was advised not to return because of her health. Prior to the Defendant returning, he
promised to send the Plaintiff £30 per month as support.
The parties’ relationship deteriorated and the parties began living apart. The Plaintiff brings suit to
enforce the Defendant’s promise to pay her £30 per month. The lower court found the parties’
agreement constituted a contract.
ISSUE : Does the husbands promise to pay £30 per month constitute a valid contract which
can be sued upon?
HELD: The court first recognized that certain forms of agreements do not reach the status of a
contract. An agreement between a husband and wife is often times such a form of agreement. In such
agreements, one partyis give a certain sum of money on a daily, weekly, monthly, etc.. basis.
6. Contracts of
Indemnity & Guarantee
The Contracts of Indemnity (Reimbursement of a loss) Sec124 : has been defined as:
"A contract whereby one party promises to save the other from loss caused to him by the conduct of
thepromisor himself or by theconduct of any other person, is called a contract of indemnity”.
Illustration A contracts to indemnify B against the consequences of any proceedings which C may
take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity. This is a
contract of indemnity."
Contract of Guarantee (Surety to the Creditor): Sec. 126 of the Indian Contract Act 1872, which deals
with the contract of guarantee, has defined it as “A contract to perform the promise, or discharge
theliabilityof a third person in case of his defaults”.
Example: A advances a loan of Rs.10,000 to B, and C promises A that if B does not repay the loan, I
will repay it.This is a contract of guarantee.It involvesthreepartiesnamely,
Surety, who gives theguarantee.
Principal Debtor,in respect of whose default theguaranteeis given.
Creditor,to whom theguaranteeis given.
7. Difference between Indemnity and
Guarantee
Indemnity
Mr. Joe is a shareholderof Alpha Ltd. lost his share certificate. Joe
applies for a duplicateone. The company agrees, but on the
conditionthat Joe compensatesfor the loss or damage to the
company if a third person brings the original certificate.
Guarantee
Mr. Harry takes a loan from the bank for which Mr. Joesph has given
the guarantee that if Harry default in the payment of the said amount
he will discharge the liability. Here Joseph plays the Role of Surety,
Harry is the principal debtorand Bank is the creditor.
8. Difference between Indemnity and
Guarantee
In a contract of Indemnity there are two parties i.e. indemnifier and indemnified. A contract of
Guarantee involves three parties i.e. creditor, principal debtor and surety.
An indemnity is for reimbursement of a loss, while a guarantee is for Security of the creditor.
In a contract of Indemnity the liability of the indemnifier is primary and arises when the
contingent event occurs. In case of a contract of guarantee the liability of surety is secondary
and arises when the principal debtor defaults.
The indemnifier after performing his part of the promise has no rights against the third party.
Whereas in a contract of guarantee,the surety steps into the shoes of the creditor on discharge of
his liability, and may sue the principal debtor.
9. Contingent Contract
A "contingent contract" is a contract to do or not
to do something, if some event, collateral to such
contract, does or does not happen.
Illustration:
A contracts to pay to B Rs. 10,000 if B's house is burnt.
This is a contingent contract.
10. Quasi Contract (Section -68 to 72)
A contractcreated by the court in the absenceof an officialagreementbetween the
parties.
Let's say you pay for a pizzato be delivered. If that pizzais deliveredto another
house, and someoneelse enjoys your three-toppingspecial, a quasi contract could
be initiated. Now, the pizzeriacould be court orderedto reimburseyou for the
amountyou paidfor that pie.
11. Discharge of contract
Discharge of a contract implies termination of contractual
obligations. This is because when the parties originally entered into
the contract, the rights and duties in terms of contractual
obligations were set up.
Consequently when those rights and duties are put out then the
contract is said to have been discharged. Once a contract stands
discharged, parties to it are no more liable even though the
obligations under the contract remain incomplete.
12. A Contract is deemed to be discharged, that is, concluded
and no longer binding, in the following circumstances
Discharge by Performance.
Discharge of Contract by Substituted Agreement.
Discharge by Lapse of time.
Discharge by Operation of law.
Discharge by Impossibility of Performance.
Discharge by Accord and Satisfaction.
Discharge by Breach.
13. Hart v O’Connor [1985] 1 AC 1000
Facts: Hart wished to purchase a farm, with very favourable terms to
himself, from O’Connor, the farm’s trustee
O’Connor agreed to the purchase
Unknown to both parties, O’Connor was suffering from senile
dementia
Issue: Could the contract be set aside due to unconscionable
conduct or mental incapacity
Decision: Yes, for mental incapacity, not unconscionable conduct
Reasoning: Unconscionable conduct was not present as Hart did
not know of the dementia and the terms were set out by Hart’s
solicitor and merely accepted by Hart, then in turn O’Connor
14. Breach of Contract
The Section 73 of the Indian Contract Act, 1872deals with the
compensation for loss or damages caused by a party for breach of
contract.
When a contract has been broken the injured party can recover from
the other party such damages as naturally and directly arose in the
usual course of things from the breach.
Remedies for the Breach of contract:
1. Recession of the contract
2. Sue for Damages
3. Sue for specific performance
4. Injunction
5. Quantum Meruit
15. Meaning & Remedies
Recession of Contract : When one of the parties to a contract does not fulfil his obligations, then the other
party can rescind the contract and refuse the performance of his obligations.
Sue for Damages:Section 73 clearly states that the party whohas suffered, since the other party has
broken promises, can claim compensation for loss or damages caused to them in the normal course
of business.
Sue for Specific Performance: Specificperformance is a remedy developed by principle of equity. A party
to a contract who is damaged because the contract is breached by another party has the option to file a
suit for specific performance compelling to perform his part of contract
Injunction : A judicial order restraining a person from beginning or continuing an action threatening or
invading thelegal right of another, or compelling a person to carry out a certain act, e.g. to make
restitution to an injured party.
Quantum Meriut: Payment for the valueof goods or services as partial fulfillment of a contract,or when
there is no contract specifying a price in the transaction.
16. Agency - Creation of Agency
Creation of Agency: Agency is a relationship between a principal
and an agent in which the principal confers his or her rightson the
agent to act on principal's behalf. Such a relationship is based on
an agency contract.
Agency system is very popular in the current business scenario. There
are two partiesin the agency system one is the principal and
another is the agent. An agent is a person acting on behalf of his
principal.
By Express or implied Contract
By Ratification
By Conduct of party or situation
By Necessity
17. Agent and Principal
(Relationship/rights)
Section 182: Agent and Principle Defined: -An
‘agent’ is a person employed to do so any act for
another or to represent another in dealings with the
third person.
The Person for whom the such act is done or who is
so represented, is called the ‘Principal’.
18. Types of Agency
Types of Agents
Special Agent- Agent appointed to do a singular specific act.
General Agent- Agent appointed to do all acts relating to a specific
job.
Sub-Agent-An agent appointed by an agent.
Co-Agent- Agents togetherappointed to do an act jointly.
