Law of

Contract &
Special
Contract
LECTURE BY:
SAADAT ULLAH KHAN
Contract

 A contract is a voluntary arrangement between

two or more parties that is enforceable by law as
a binding legal agreement. Contract is a branch
of the law of obligations in jurisdictions of the civil
law tradition. Contract law concerns the rights
and duties that arise from agreements
 a written or spoken agreement, especially one
concerning employment, sales, or tenancy, that is
intended to be enforceable by law.
 A contract arises when the parties agree that there is an agreement.
Formation of a contract generally requires an offer,
acceptance, consideration, and a mutual intent to be bound. Each
party to a contract must have capacity to enter the agreement.
Minors, intoxicated persons, and those under a mental affliction may
have insufficient capacity to enter a contract. Some types of
contracts may require formalities, such as a demoralization in writing.
An offer is an open call to anyone wishing to accept the promise of
the offer or and generally, is used for products and
services. Acceptance occurs when an offeree agrees to be mutually
bound to the terms of the contract by giving consideration, or
something of value like money, to seal the deal.
Valid and Void Contract

 A valid contract is a written or expressed

agreement between two parties to provide a
product or service. There are essentially six
elements of a contract that make it a legal and
binding document. Most contracts only need to
contain two elements to be legally valid: All
parties must be in agreement (after an offer has
been made by one party and accepted by the
other).
Voidable and
Unenforceable Contracts
 A contract that is voidable sort of works the same way, but
there is an option for the parties to enforce the terms even
though an element is missing, or some other issue exists with
the terms. The decision to enforce the contract is between the
parties. In a voidable contract, one of the parties is legally
bound to honor the contract. So, a voidable contract can be
executed, even though there is an element missing, if the
party not legally bound agrees to move forward.
 A Void contract is not a contract and has no effect in a court of law
and cannot be enforced in a court of law. Most commonly, a void
contract will be missing one or all of the essential elements needed
for a valid contract. Neither party needs to take action to terminate it,
since it was never a contract to begin with.
 An Unenforceable contract is a contract which cannot be enforced
in a court of law. This could happen because the terms of the
contract are ambiguous, if one party has a voidable contract or if the
Statute of Limitations has expired.
Essential Elements of Valid
Contract
i. Offer and Acceptance
ii. Contractual Capacity
iii. Free Consent
iv. Consideration/Legal Object
v. Void Agreement
vi. Agreement in Written
1) Offer and Acceptance

 Offer and acceptance analysis is a traditional approach

in contract law.
 An offer is a statement of the terms on which the offeror is
willing to be bound. It is the present contractual intent to be
bound by a contract with definite and certain terms
communicated to the offeree.
 The expression of an offer may take different forms, such as a
letter, newspaper advertisement, fax, email and even
conduct, as long as it communicates the basis on which the
offeror is prepared to contract.
 For example, if a company tells you that it will sell you 100 boxes of
red wine at the price of $100,000, that company is making you an
offer. If no time limit is specified, an offer is valid for a reasonable
length of time before the offeror (the person who makes the offer)
can revoke or cancel it. To avoid potential disputes, however, the
offeror should specify the deadline for the acceptance of an offer.
 An offer must be distinguished from an "invitation to treat", which
merely invites other people to make offers but is not in itself an offer.
Examples of invitations to treat include: invitations to tender,
displaying goods on the shelves of a shop, and the advertisement of
goods or services in newspapers or on television
 There is no contract unless and until the offer is Accepted by the
person to whom the offer is addressed (sometimes called "the
offeree"). Acceptance is normally made orally or in writing, but if the
contract allows that the acceptance and performance of
contractual duties are to be carried out simultaneously, then
acceptance can also be made by conduct. For example, when a
supplier receives your cheque, that supplier may immediately deliver
the goods to you without saying or writing anything.
 It is recommended that both of the contracting parties clearly specify
and agree to the method of acceptance.
2) Contractual Capacity
 The legal capability to form a binding contract. A number of
classes of people lack contractual capacity, and these
include minors, the mentally challenged, those under the
influence of an intoxicating substance and incarcerated
convicts.
 The capacity of natural and juridical persons (legal persons) in
general, determines whether they may make binding
amendments to their rights, duties and obligations, such as
getting married or merging, entering into contracts, making
gifts, or writing a valid will.
 One of the elements of a contract is capacity. Capacity means that
a person is legally able to enter into a contract. There are several
things that make a person legally able to do so, including age and
state of mind.
 Capacity to contract means the legal competence of a person to
enter into a valid contract. Usually the capacity to contract refers to
the capacity to enter into a legal agreement and the competence
to perform some act. The basic element to enter into a
valid contract is that s/he much have a sound mind.
 3) Free Consent
 Two or more persons are said to consent when they agree upon the
same thing in the same sense. Free Consent is one of the essential
elements of a valid contract.
 Section 13 of the Contract Act defines the term ‘consent’ and lays
down that “Two or more persons are said to consent when they
agree upon the same thing in the same sense. “Thus, consent involves
identity of minds or consensus ad-idem i.e., agreeing upon the same
thing in the same sense. If, for whatever reason, there is no consensus
ad item among the contracting parties, there is no real consent and
hence no valid contract.
 4) Consideration
 In contract law, consideration means a detriment to the person who
made the promise or a benefit conferred on the other party, both of
which are measurable in economic terms. Money, goods and
services are the most common examples of consideration. You
should note that consideration need not be adequate, which
means that if the seller or service provider is contracted to sell a
product or service at a price that is below the market price, then
that seller or provider cannot subsequently go to court to claim the
shortfall.
Continue…

 Consideration is the concept of value offered and

accepted by people or organizations entering
into contracts. Anything of value promised by one
party to the other when making a contract can
be treated as "consideration": for example, if
Shahzaib signs a contract to buy a car from
Jhanzaib for Rs. 700,000, Jhanzaib's consideration
is the Rs. 700,000, and Shahzaib's consideration is
the car.
5) Void Agreement

 A Contract will be considered void, for example,

when it requires one party to perform an act that
is impossible or illegal.
 “An agreement not enforceable by law is said to
be void” [Sec.2(g)]. Thus a void agreement does
not give rise to any legal consequences and is
void In the eye of law such an agreement is no
agreement at all from its very inception.
 6) Agreement in Written
 A legal document summarizing an agreement between parties in a
dispute to abide by the decision of an arbiter. compact,
concordat, covenant. a signed written agreement between two or
more parties (nations) to perform some action.
 A written contract is an agreement made on a printed document
that has been signed by both the lender and the borrower. Written
contracts are legally binding and easier to enforce than
oral contracts.
 A binding agreement between two or more persons that is
enforceable by law. submission. a legal document summarizing
an agreement between parties in a dispute to abide by the
decision of an arbiter. compact, concordat, covenant. a
signed written agreement between two or more parties (nations) to
perform some action.
 A partnership agreement is a contract between partners in a
partnership which sets out the terms and conditions of the
relationship between the partners, including: Percentages of
ownership and distribution of profits and losses. Description of
management powers and duties of each partner
Contingent Contracts

 It’s a contract to do or not to something if some

event, collateral to such contract does or does
not happen.

 A contract to pay B Rs 60000 if B’s house is burnt.

This is contingent contract. Its conditional
contract in nature.
Essentials of Contingent Contract
 There Must be a Valid Contract:
The first requirement is that there must be a valid contract between the
parties. It must fulfill all the essential requirements of a valid contract.

 The Event Must be Uncertain:

The event upon which the performance of the contract depends must be an
uncertain events.

 The event must be collateral:

The event upon which the performance depends should
not form part of reciprocal promises which constitute the
contract
 Event Linked with Human Conduct:
If a contract is contingent as to how a person will act at an
unspecified time, the event shall be considered to become impossible
when such person does anything which renders it impossible that he
should act within any definite time.
 Agreements contingent upon an impossible event:
Contingent agreement is to do or not to do anything if an impossible
event happens, are void, whether the impossibility of the event is known
or not known to the parties to the agreement when it is made.
Performance of Contract

 The term ‘Performance of contract‘ means that

both, the promisor, and the promisee have
fulfilled their respective obligations, which the
contract placed upon them. For instance, A visits
a stationery shop to buy a calculator. The
shopkeeper delivers the calculator and A pays
the price. The contract is said to have
been discharged by mutual performance.
 Exact and complete performance by both the parties puts an end to
the contract. In expecting exact performance, the courts mean
that, performance must match contractual obligations.

 In requiring a contract to be complete, the law is merely saying that

any work undertaken must be carried out to the end of the
obligations.

 A contract should be performed at the time specified and at the

place agreed upon. When this has been accomplished, the parties
are discharged automatically and the contract is discharged
eventually.
Types of Performance

 Actual Performance:
 When a promisor to a contract has fulfilled his
obligation in accordance with the terms of the
contract, the promise is said to have been actually
performed.
 Actual performance can further be subdivided into
substantial performance, and partial Performance
1) Substantial Performance

 This is where the work agreed upon is almost

finished. The court then orders that the money
must be paid, but deducts the amount needed to
correct minor existing defect.

 Substantial performance is applicable only if the

contract is not an entire contract and is severable
2) Partial Performance

 This is where one of the parties has performed the

contract, but not completely, and the other side
has shown willingness to accept the part
performed.

 Partial performance may occur where there is

shortfall on delivery of goods or where a service is
not fully carried out.
 The two following points would help in distinguishing the two types of
performance.

 Partial performance must be accepted by the other party. In other

words, the party who is at the receiving end of the partial
performance has a genuine choice whether to accept or reject.
Substantial performance, on the other hand, is legally enforceable
against the other party.

 Payment is made on a different basis from that for substantial

performance. It is made on quantum meruit, which literally means as
much as is deserved.

 So, for example, if half of the work has been completed, half of the
negotiated money would be payable. In case of substantial
performance, the party that has performed can recover the amount
appropriate to what has been done under the contract
2)Attempted Performance

 When the performance has become due, it is sometimes

sufficient if the promisor offers to perform his obligation
under the contract. This offer is known as attempted
performance or more commonly as tender.

 Thus, tender is an offer of performance, which of course,

complies with the terms of the contract. If goods are
tendered by the seller but refused by the buyer, the seller is
discharged from further liability, given that the goods are in
accordance with the contract as to quantity and quality,
and he may sue the buyer for breach of contract if he so
desires.
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
 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.
Discharge by Performance

 Where both the parties have either carried out or

tendered (attempted) to carry out their
obligations under the contract, is referred to as
discharge of the contract by performance.
 Because performance by one party constitutes
the occurrence of a constructive condition, the
other party’s duty to perform is also triggered, and
the person who has performed has the right to
receive the other party’ s performance.
Discharge of Contract by
Substitute Agreement
 A contract emanates from an agreement
between the parties. It thus follows that, the
contract must also be discharged by agreement.
Therefore, what is required, inevitably, is
mutuality. Discharge by substituted agreement
arises when a contract is abandoned, or the
terms within it are altered, and both the parties
are in conformity over it.

 Discharge by agreement may arise in the

following ways.
 Novation: The term novation implies the substitution of a new contract
for the original one. This arrangement may be either with the same
parties or with different parties. For a novation to be valid and
effective, the consent of all the parties, including the new one(s), if
any, is essential. Moreover, the subsequent or second agreement
must be one capable of enforcement in law, the consideration for
which is the exchange of promises not to enforce the original
contract.
 Rescission: This refers to cancellation of all or some of the material
terms of the contract. If the contracting parties mutually decide to do
so, the respective contractual obligations of the parties stand
terminated.
 Alteration: This refers to a change in one or more
of the terms of a contract with the consent of all
the contracting parties. Alteration results in a new
contract but parties to it remain the same.
 Waiver: The term waiver implies abandonment or
relinquishment of a right. Where a party
deliberately abandons its rights under the
contract, the other party is released of its
obligations, otherwise binding upon it.
Discharge by Laps of Time

 A contract stands discharged if not enforced within a

specified period called the ‘period of limitation‘. The
Limitation Act, 1963 prescribes the period of limitation for
various contracts.
 For instance, period of limitation for exercising right to
recover an immovable property is twelve years, and
right to recover a debt is three years.
 Contractual rights become time barred after the expiry
of this limitation period. Accordingly, if a debt is not
recovered within three years of its payment becoming
due, the debt ceases to be payable and is discharged
by lapse of time.
Discharge by Impossibility
of Performance
 Sometimes after a contract has been established,
something might occur, though not at the fault of
either party, which can render the contract
impossible to perform, or illegal, or radically
different from that originally undertaken.
However, if whatever happens to prevent the
contract from being performed
 has not been caused by either party
 could not have been foreseen, and
 its effect is to destroy the basis of the contract
Discharge of Operation of
Law
 A contract stands discharged by operation of law in the
following circumstances.
 Unauthorized material alteration of a written document
A party can treat a contract discharged (i.e., from his
side) if the other party alters a term (such as quantity or price) of
the contract without seeking the consent of the former.
 Statutes of Limitations
A contract stands discharged if not enforced within a
specified period called the ‘period of limitation’. The Limitation
Act, 1963 prescribes the period of limitation for various contracts.
 Insolvency
A discharge in bankruptcy will ordinarily bar
enforcement of most of a debtor’s contracts.

 Merger
A contract also stands discharged through a
merger that occurs when an inferior right accruing to
party in a contract amalgamates into the superior right
ensuing to the same party. For instance, A hires a factory
premises from B for some manufacturing activity for a
year, but 3 months ahead of the expiry of lease
purchases that very premises. Now since A has become
the owner of the building, his rights associated with the
lease (inferior rights) subsequently merge into the rights of
ownership (superior rights). The previous rental contract
ceases to exist.
Discharge by Accord and
Satisfaction
 To discharge a contract by accord and satisfaction; the
parties must agree to accept performance that is
different from the performance originally promised. It
may be studied under the following sub-heads.
 Accord
An accord is an executory contract to perform an
act that will satisfy an existing duty. An accord suspends, but
does not discharge, the original contract.
 Satisfaction
Satisfaction is the performance of the accord, which
discharges the original contractual obligation.
Discharge of Contract by
Breach
 Breach occurs where one party to a contract fails to
perform its contractual obligations, or the performance is
defective. A breach of contract does not per se bring a
contract to an end. The breach may give to the aggrieved
party the right to terminate the contract but it is for the non-
breaching side to decide whether or not to exercise that
option. The aggrieved party has a right of election; that is to
say, it can choose either to affirm the contract or to
terminate it.

 A Breach may be anticipatory or actual.

Anticipatory Breach

 Also known as ‘breach by repudiation’, anticipatory

breach occurs when one party states, before the arrival of
the date fixed for performance, without justification that it
cannot or will not carry out the material part of the
contractual obligations on the agreed date or that it
intends to perform in a way that is inconsistent with the
terms of the contract.

 This may also occur where one party by some action

makes performance impossible.
Effects of Anticipatory
Breach
 Where there is an anticipatory breach, the non-
breaching party may either rescind the contract,
or treat the contract in force and wait for the time
of performance. In first case, it can immediately
sue for damages, i.e., it is not required to wait for
the time for performance to expire.
Actual Breach

 Actual breach refers to the failure to perform

contractual obligations when performance is due.
Failure to perform obligations is the most common
form of breach, wherein a seller fails to deliver the
goods by the appointed time, or where, although
delivered, the goods are not up to the mark in
respect of quality or quantity specified in the
contract.
 Effect of actual breach
Breach is described as a method of discharge
although it may not automatically discharge the contract.
Breach of contract leads to two main remedies, namely
breach of condition, and breach of warranty.
 Breach of a condition This is a major term, known as
material breach, which entitles the injured party to
damages, and gives it an option to treat the contract
as subsisting or discharged.
 Breach of a warranty This is a minor term, known
as non-material breach, which entitles the non-
breaching party to damages. It does not have
the right to repudiate the contract, although a
non-material breach can give it the right to defer
performance until the breach is made good.
However, once the breach is remedied, the non-
breaching party must go ahead and render its
performance, minus any damages caused by the
breach.
Breach Of Contract:
Remedies
 The five basic remedies for breach of contract
include the following:
1. Money damages,
2. Restitution,
3. Rescission,
4. Reformation,
5. Specific performance
1) Money Damages

 A money damage award includes a sum of

money that is given as compensation for financial
losses caused by a breach of contract. Parties
injured by a breach are entitled to the benefit of
the bargain they entered, or the net gain that
would have accrued but for the breach.
 If the breach is a total breach, a plaintiff can recover
damages in an amount equal to the sum or value the
plaintiff would have received had the contract been
fully performed by the defendant, including lost profits.

 If the breach is only partial, the plaintiff may normally

seek damages in an amount equal to the cost of hiring
someone else to complete the performance
contemplated by the contract.
2) Restitution

 Restitution is a remedy designed to restore the

injured party to the position occupied prior to the
formation of the contract. Parties seeking
restitution may not request to be compensated
for lost profits or other earnings caused by a
breach.

 Instead, restitution aims at returning to the plaintiff

any money or property given to the defendant
under the contract.
 3) Rescission & Reformation

 Parties that are induced to enter into contracts by

mistake, fraud, undue influence, or duress may seek to
have the contract set aside or have the terms of the
contract rewritten to do justice in the case.

 Rescission is the name for the remedy that terminates the

contractual duties of both parties, while reformation is
the name for the remedy that allows courts to change
the substance of a contract to correct inequities that
were suffered.
5) Specific Performance

 Specific performance is an equitable remedy that

compels one party to perform, as nearly as
practicable, his or her duties specified by the
contract.

 Specific performance is available only when

money damages are inadequate to compensate
the plaintiff for the breach. This ruling often
happens when the subject matter of a contract is
in dispute.
Qausi Contract

 A quasi contract is a contract that is created by a

court order, not by an agreement made by the parties
to the contract. For example, quasi contracts are
created by the court when no official agreement exists
between the parties, in disputes over payments for
goods or services.

 The goal in the court’s creation of these contracts is to

prevent unjust enrichment to any party. To explore this
concept, consider the following quasi
contract definition.
Unjust Enrichment

 The term “unjust enrichment” refers to an

individual receiving a benefit unfairly, whether it
be by chance, or as the result of another person’s
misfortune.
 Five elements must be shown in order to prove
unjust enrichment:

 Basic necessaries supplied to a person

incompetent to entre into a contract (Sec:68)
 Payment made by interest person or a party
(Sec:69).
 Payment made for non gratuitous act (Sec:70).
 Finder of lost goods (Sec:71)
 Payment made under mistake or coercion
(Sec72).
Requirements for Qausi
Contract
 the plaintiff must have provided a tangible good
or service to the defendant, with the impression
that the plaintiff would receive payment for that
good or service.

 The second of the requirements for quasi contract

is that the plaintiff must be able to express why it
would be unjust for the defendant to receive the
good or service without paying for it, and would
therefore be unjustly enriched.
Related Legal Terms and
Issues

 Appellate Court – A court having jurisdiction to review decisions

of a trial-level or other lower court.
 Contract – An agreement between two or more parties in
which a promise is made to do or provide something in return
for a valuable benefit.
 Defendant – A party against whom a lawsuit has been filed in
civil court, or who has been accused of, or charged with, a
crime or offense.
 Plaintiff – A person who brings a legal action
against another person or entity, such as in a civil
lawsuit, or criminal proceedings.
 Remedy – The enforcement of a right, or
imposition of a penalty by a court of law.
 Unjust Enrichment – A legal principle that prohibits
one person from profiting, or being enriched, at
the expense of another person.
Indemnity and Guarantee

 Indemnity and Guarantee are a type of

contingent contracts, which are governed by
Contract Law.
 Indemnity is when one party promises to
compensate the loss occurred to the other party,
due to the act of the promisor or any other party.
 On the other hand, the guarantee is when a
person assures the other party that he/she will
perform the promise or fulfill the obligation of the
third party, in case he/she default.
 A typical example is an insurance contract, whereby one
party (the insurer or the indemnitor) agrees to
compensate the other (the insured or the indemnitee) for
any damages or losses, in return for premiums paid by the
insured to the insurer.

 Indemnity is common in agreements between an

individual and a business (for example, an agreement to
obtain car insurance), but it also applies, on a larger
scale, to relationships between businesses and
government or between governments of two or more
countries.

 Guarantee is a legal term more comprehensive and of

higher import than either warranty or "security". It most
commonly designates a private transaction by means of
which one person, to obtain some trust, confidence or
credit for another, engages to be answerable for him.
Rights of Indemnity Holder

 Following are the rights of indemnity holder under

section 125:
 Damages
 Cost
 Sums
 Bailment and Pledge

 In simple terms, bailment refers to hand over or assignment

the goods, which involves change in possession but not in the
ownership of goods. It is the transfer of goods from one party
to another party for some specific purpose. It is not same as
pledge, which is just a variant of bailment.

 Pledge implies a contract, in which an article is delivered or

say deposited with the money lender, as security for
repayment of a debt owed by him/her or performance of
promise.
Difference between
Bailment and Pledge
 When the goods are temporarily handed over
from one person to another person for a specific
purpose, it is known as bailment.

 When the goods are delivered to act as security

against the debt owed by one person to another
person, it is known as the pledge
 The person who delivers the goods is known as the Bailor
while the person to whom the goods are delivered is
known as Bailee,

 In Pledge, The person who delivers the goods is known as

Pawnor while the person to whom the goods are
delivered is known as Pawnee.

 In Bailment, the party whom goods are being delivered

has no right to sell the goods.

 The party whom goods are being delivered as security

has the right to sell the goods if the party who delivers the
goods fails to pay the debt.
Contract of Agency

 By contract a agency a person employs another

person to do any act for him or to represent him in
dealing with third persons so as to bind himself by
the act of such another person.

 The person for whom the act is done is called the

Principal and the person who represents another
persons is called an Agent.
General Rules for
Agency’s Contract
1. Whatever principal can do by himself, he may
get the same done through an agent except the
act involved is of personal nature i.e Marriage.

2. What person does by himself, Thus, the acts of

the agent are the acts of the Principal.
 Features of Agency
Contract
 Representation: An agent always represents his/her principal
dealing with third parties.

 Delegation of Authority: Principal delegates his/her authority to an

Agent to do thing on his/her behalf.

 Contractual Capacity: Both Principal an agent should be

competent in the eyes of law. They are incomplete when they
have unsound mind, minor or disqualified in the eyes of law
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 Consideration is not compulsory: In the contract

of agency valid consideration is not compulsory.
I.e, the wife may take the role of his husband
without consideration.

 Purpose: An agent may appoint in any purpose

likes. For example buying and selling goods,
deposit money in the bank, dealing with a
customer.