Definition of Contract

Contract is a voluntary, deliberate, and legally binding agreement between two or more competent parties.

Contracts are usually written but may be spoken or implied, and generally have to do

with employment, sale or lease, or tenancy.

A contractual relationship is evidenced by

(1) An offer

(2) Acceptance of the offer

(3) Valid (legal and valuable) consideration.

Each party to a contract acquires rights and duties relative to the rights and duties of the other parties.

However, while all parties may expect a fair benefit from the contract (otherwise courts may set it aside as

inequitable) it does not follow that each party will benefit to an equal extent.

Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is

not void (see void contract) or voidable (see voidable Contract). Contracts are normally enforceable whether or

not in a written form, although a written contract protects all parties to it. Some contracts, (such as for

sale of real property, installment plans, or insurance policies) must be in writing to be legally binding and

enforceable. Other contracts (see implied in fact contract and implied in law contract) are assumed in,

and enforced by, law whether or not the involved parties desired to enter into a contract.

Contracts are enforceable by law

Contracts are promises that the law will enforce. The law provides remedies if a promise is breached or

recognizes the performance of a promise as a duty. Contracts arise when a duty does or may come into

existence, because of a promise made by one of the parties. To be legally binding as a contract, a promise must

be exchanged for adequate consideration. Adequate consideration is a benefit or detriment which a party

receives which reasonably and fairly induces them to make the promise/contract. For example, promises that

are purely gifts are not considered enforceable because the personal satisfaction the grantor of the promise may

receive from the act of giving is normally not considered adequate consideration. Certain promises that are not

considered contracts may, in limited circumstances, be enforced if one party has relied to his detriment on the

assurances of the other party.

Different authors defined a contact in various ways. Let us see some of them.

Every agreement and promise enforceable at law is a contract - Sir Fredrick Pollock

A contract is an agreement, creating and defining the obligation between parties - Salmond

A contract is an agreement enforceable at law made between two or more persons by whom rights are

acquired by one or more to acts or forbearances on the part of others. - Sir William Anson.

Essential elements of a valid contract

The following are the essential elements of a valid contract :

1. Offer and Acceptance. In order to create a valid contract, there must be a 'lawful offer' by one party and

'lawful acceptance' of the same by the other party.

2. Intention to Create Legal Relationship. In case, there is no such intention on the part of parties, there is

no contract. Agreements of social or domestic nature do not contemplate legal relations.

Case :- Balfour vs. Balfour(1919)

3.Lawful Consideration. Consideration has been defined in various ways. According to

Blackstone,"Consideration is recompense given by the party contracting to another." In other words of Pollock,

"Consideration is the price for which the promise of the another is brought."

consideration is known as quid pro-quo or something in return.

4. Capacity of parties. The parties to an agreement must be competent to contract. If either of the parties

does not have the capacity to contract, the contract is not valid.

According the following persons are incompetent to contract.

(a) Minors,

(b) Persons of unsound mind, and

(c) Persons disqualified by law to which they are subject.

5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense.

According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or

(2) Undue influence, or

(3) Fraud, or

(4) Mis-representation, or

(5) Mistake.

An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It

means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the

object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) It is forbidden by law;

(b) It is of such nature that if permitted it would defeat the provision of any law;

(c) It is fraudulent;

(d) It involves an injury to the person or property of any other;

(e) The court regards it as immoral or opposed to public policy.

7. Certainty of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or capable

of being made certain are void."

8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at

law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.

9. Not declared to be void or illegal. The agreement though satisfying all the conditions for a valid contract

must not have been expressly declared void by any law in force in the country. Agreements mentioned in

Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of

trade, marriage, legal proceedings etc.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing,

registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and

gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc.

Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the

agreement does not become a contract.

Definition of agreement:

A negotiated and usually legally enforceable understanding between two or more legally competent parties is

called an agreement.

Agreement is an arrangement between parties, usually resulting from a discussion, regarding a course of action.

Agreement is a meeting of the minds. An agreement is made when two people reach an understanding about a

particular issue, including their obligations, duties, and rights.

Agreement is the act of agreeing or of coming to a mutual arrangement.

It is the state of being in accord.

Agreement is an arrangement that is accepted by all parties to a transaction.

All contracts are agreements and all agreements are not contracts

An agreement is termed a contract only when it is enforceable by law. All agreements are not necessarily legally

enforceable. It can rightly be said that an agreement has a much wider scope than a contract. For example

those agreements are not legally binding: are an invitation to dinner or to go for a walk and its acceptance.

These are agreements not contracts.

An agreement does not necessarily imply a legal obligation on the parties to the agreement. It is import here to

clarify what exactly is an obligation. Obligation is a legal tie which imposes upon a person or persons the

necessity of doing or abstaining from doing definite act or acts.

An agreement need not necessarily be within the framework of law and be legally enforceable. If it is, then it is

a contract. A promises B to do physical harm to C whom, the latter does not like and B promises to pay A Rs.

1000 to do that, it cannot be termed as a contract because such an act would be against the law. Any

agreement of which the object or consideration is unlawful is void and cannot be called a contract.

It would be clear from what has been said so far that an agreement has a much wider scope than a contract. An

Agreement implies fulfilling some agreed condition. It does not necessarily imply that the stipulated conditions

conform to the law and are enforceable by it. It may be said that an agreement is the genus of which contract is

the species. It also makes it clear that all agreements are not contracts but all contracts are agreements.

An agreement to sell a car may be a contract but an agreement to go for lunch may be a mere agreement not

enforceable by law. Thus all agreements are not contracts. In business agreements the presumption is usually

that the parties intend to create legal relations. Thus an agreement to buy certain specific goods at an agreed

price e.g., 200 bags of rice at Rs.100 per bag is a contract because it gives rise to a duty enforceable by law,

and in case of default through a court provided other essential elements of a contract was made by free consent

of the parties competent to contract, for a lawful consideration and with a lawful object.

Contract Vs. Agreements

A contract is a written or verbal agreement that is enforceable by law. An agreement is the same, however it is

typically not enforced by the law.

A contract is a formal agreement which is legally binding, usually created for business purposes, or to ensure the

safety of ones assets. Agreements are informally made with family and friends, they are similar to promises.

Contracts involve a universal acceptance of the terms and the stipulations are deemed possible to attain by all

parties. Agreements have universal acceptance, however there is no guarantee of attainment by parties and it can

be changed at any time by either participant.

Comparison chart

Agreement Contract

Definition

An arrangement (usually

informal) between two or more

parties that is not enforceable by

law.

A formal arrangement between two

or more party that, by its terms and

elements, is enforceable by law.

Validity based on Mutual acceptance by both (or all)

parties involved.

Mutual acceptance by both (or all)

parties involved.

Does it need to be in

writing?

No. No, except for some specific kinds of

contracts, such as those involving

land or which cannot be completed

within one year.

Consideration required No Yes

Legal effect

An agreement that lacks any of

the required elements of a

contract has no legal effect.

A contract is legally binding and its

terms may be enforceable in a court

of law.

Who can enter into a contract?

A person who

a. is of the age of majority according to the law to which he is subject

b. is of sound mind A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its

effect upon his interests.

c. is not disqualified from contracting by any law to which he is subject is competent to contract.

Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify

an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time

had any legal validity).

The following persons are therefore incompetent to contract

1. Minors

2. Persons of unsound mind

3. Persons disqualified by law to which they are subject

Can a Minor Enter into a Contract?

Who Is a Minor or Infant?

Traditionally, a minor or an infant is anyone under the age of 21. This has been changed by statutes in almost

every state, and a minor is now anyone under the age of 18. The term infant and minor are used

interchangeably in most situations.

What Is the Rule When Contracting With an Infant?

Generally seeking, anyone who contracts with an infant or minor is doing so at their own peril. That means that

the law gives to infants the ability to void, or exit the contract as they see fit. The most common justification for

the rule is to protect minors from assuming obligations which they are not capable of understanding. It is

obvious to see that this will lead to harsh results, so some general exceptions have been created.

Are There Exceptions to Creating a Binding Contract with a Minor?

If every contract with a minor was invalid, no one in their right mind would ever enter into a contract with a

minor. To allow some minors to enter into contracts and/or prevent minors from abusing their

position, there are several exceptions including:

Sports or Entertainment Contracts. Generally speaking, minors who enter

into sports or entertainment contracts are held to them, and cannot void.

Voiding a Contract. A minor can decide to void a contract before reaching the age of maturity

(depending on the state, but usually 18). The minor can make this decision at any time and even if the

contract has been fully performed (both parties have fulfilled their contractual obligations)

Contracts for necessary items.. A minor cannot dissafirm a contract for something necessary for life,

nor can a contract with a minor for necessary items be voided. The problem is determining what's truly

necessary. Examples of necessities would include food, clothing, and shelter. In one example, a minor

took out a mortgage on a home, then tried to get out of it. The court held that the house was a

necessary. Transportation to get to work to pay for living expenses might also be considered a necessary

item; a court would have to determine this.

Entire Contract. A minor cannot disaffirm part of a contract and agree to another part of a contract; the

contract is considered in its entirety.

Ratification. A contract can only be disaffirmed while the individual is a minor. After the person reaches

maturity, if the contract continues, the former minor is considered to have ratified the contract and is

now bound by the contract terms. A person may ratify by signing something, or by continuing to abide

by the contract (making payments, for example).

Property under contract. If a minor seeks to void a contract, he or she must return any property

purchased. In the second example above, the minor must return the car if he or she cannot keep up the

payments. The minor may also have to pay restitution for any damages to the property.

Misrepresentation of age. If a minor misrepresents his or her age and then declares he/she is a

minor, the contract is still not valid.

Parents of a minor. If a minor enters into a contract, the parents are not a party to the contract and

may not be held liable if the minor doesn't fulfill the contract terms. But if a parent or both parents co-

sign a contract along with the minor, the contract is valid and they are bound by the terms.

Termination of a contract

Contract termination occurs when one or both parties decide to end their contractual obligations. The easiest

way to terminate a contract is to have both parties mutually agree that the contract is no longer necessary. If

only one party wants to end the contract, it may be much more difficult. There are a few steps, however, that a

party can take before it starts down the road to contract termination. In addition, there are several situations,

such as illegality and unconscionable acts, that can cause a contract to be unenforceable and, consequently, terminated.

Mutual termination is the easiest form of contract termination. It occurs when both parties decide that the terms

of the contract are no longer applicable. For example, if one party makes a contract with another party to sell

widgets for six months, then after only three months, one party decides they no longer want to buy widgets and

the other decides they no longer want to sell widgets. The two parties can easily decide the contract is mutually

terminated. There will not be a lawsuit or a settlement over the contract termination, only simple paperwork

stating that the contract is mutually terminated.

5 Ways to Terminate a Contract

A contract is a legal document that binds at least two parties to one another. A contract requires one or both

parties meet obligations detailed in the contract before it is completed. In some instances, contract termination

can occur that will make the contract void of legal binding. Only the parties involved in the agreement may

terminate a contract.

Impossibility of Performance

A contract typically requires one or more parties to do something, which is called performance. For example, a

company may hire and sign a contract to have a public speaker talk at a company event. Once the public

speaker fulfills his duties agreed upon in the contract, it is called performance. If for some reason it is

impossible for the public speaker to fulfill his duties, it is called impossibility of performance. The company has the right to terminate the contract in the case of an impossibility of performance.

Breach of Contract

When a contract is intentionally not honored by one party, it is called a breach of contract and is grounds for

contract termination. A breach of contract may exist because one party failed to meet his obligations at all or

did not meet his obligations fully. A material breach of contract allows the hiring party to seek monetary

damages, and an immaterial breach of contract does not allow the party to seek monetary damages. For

example, if you purchased a product that did not arrive until a day after the agreed upon delivery date, that is

an immaterial breach of contract. However, if your order did not come until two weeks after the delivery date

and it affected your business, then that is a material breach of contract.

Prior Agreement

You may terminate a contract if you and the other party have a prior written agreement that calls for a contract

termination because of a specific reason. The agreement must give the details of what qualifies as a reason for

contract termination. It should also state what actions need to take place for one of the parties to terminate the contract. In most cases, one party must submit a written notice to the other party to terminate the contract.

Rescission

A rescission of a contract is when a contract is terminated because an individual misrepresented themselves,

acted illegally or made a mistake. For example, if you bought a house but after further inspection you discover

that the seller intentionally hid the poor physical condition of the home, you may possibly terminate the

contract. A contract rescission may take place if one party is not old enough to enter a contract or if a elderly person is not able to make legal decisions because of incapacity.

Completion

A contract is essentially terminated once the obligations outlined in the contract are completed. Parties should

keep documentation showing that they fulfilled their contract duties. Documentation is helpful if the other party

tries to later dispute the fulfillment of your contract obligations. A court of law will require proof of contract fulfillment if a dispute occurs.

What Happens When a Contract Is Terminated?

Contract termination may result in several different legal consequences, which may affect each party

differently. In some cases, the contract termination might not have caused either party any losses. In such

cases, the contract is simply terminated, and the parties are free to create a new one in the future if they so desire.

However, in the majority of cases, termination of contract usually results in losses to one or both parties. This is

common in situations involving a breach of contract terms. If this happens, the aggrieved party can usually file

a claim in court in order to recover losses that they may have incurred. The non-breaching party may then be eligible to receive a monetary damages award in order to be compensated for their losses.

In some cases a contract may be terminated, but the courts will allow the parties to form a new contract. This is

now as contract rescission and is only available under certain circumstances. Contract rescission is common for claims involving mistake or misrepresentation.

Bailment Contracts

Bailment, which, is derived from the French word "bailler," "to deliver," is denned as a delivery of personal

property by one party 'to another, to be held according to the purpose or object of the delivery and to be

returned when that purpose is accomplished, or otherwise dealt with according to the directions of the Bailor.

A Contract where one party delivers goods to the other upon return basis to fulfill a specific purpose is called

bailment contract. It includes two parties namely; bailer and bailee. The person who is delivering the goods is

called bailer and the person to whom goods are delivered, is called bailee.

Transfer of personal property by one party (the bailor) in the possession, but not ownership, of another party

(the bailee) for a particular purpose. Such transfer is made under an express or implied contract (called

bailment contract or contract of bailment) that the property will be redelivered to the bailor on completion of

that purpose, provided the bailee has no lien on the goods (such as for non-payment of its charges). The bailee

is under an obligation to take reasonable care of the property placed under its possession. Bailment contracts

are a common occurrence in everyday life: giving clothes to a launderer, leaving car with an auto mechanic,

handing over cash or other valuable to a bank, etc.

Example: A has handed over his fan to B for the purpose of repairs. It is bailment contract. A is bailer and B is

bailee. Similarly X has handed over his dress Y for the purpose of washing. It is also bailment Contract where X

is bailer and Y is bailee.

Features of Bailment

1. In case of bailment, as there is delivery of goods, there will be change in procession.

2. Though there is change in procession, there will be no change in title.

3. Bailment includes return of goods after fulfillment of purpose. 4. In delivering the goods, there must be specific purpose.

Types of Bailment Contracts

The bailment contracts are classified into Gratuitous bailments and Non Gratuitous bailments.

Gratuitous Bailments: If there is only one directional consideration, it is called Gratuitous bailment. In here,

the bailment contract is for the benefit of either the bailer or the bailee only.

Example 1: Mr. A, while going to abroad, has handed over his gold to this friend namely B for Safe custody.

Here bailer only is getting benefited.

Example 2: Y has taken Scooter for X who is his friend for 1 day. Here only bailee is being benefited.

Non Gratuitous bailments: If there is two directional consideration it is called Non-Gratuitous bailment. In here, the bailment contract is for the benefit of both parties.

Example: X has handed over his dress to B who is owner of a laundry for washing. At a charge of Rs. 10/-. Here

both parties are being benefited.

Essential elements of bailment

Three elements are generally necessary for the existence of a bailment:

Delivery

Acceptance and Consideration

Actual possession of or control over property must be delivered to a bailee in order to create a bailment. The

delivery of actual possession of an item allows the bailee to accomplish his or her duties toward the property

without the interference of others. Control over property is not necessarily the same as physical custody of it

but, rather, is a type of constructive delivery. The bailor gives the bailee the means of access to taking custody

of it, without its actual delivery. The law construes such action as the equivalent of the physical transfer of the

item. The delivery of the keys to a safe-deposit box is constructive delivery of its contents.

A requisite to the creation of a bailment is the express or implied acceptance of possession of or control over

the property by the bailee. A person cannot unwittingly become a bailee. Because a bailment is a contract, knowledge and acceptance of its terms are essential to its enforcement.

Consideration, the exchange of something of value, must be present for a bailment to exist. Unlike the

consideration required for most contracts, as long as one party gives up something of value, such action is

regarded as good consideration. It is sufficient that the bailor suffer loss of use of the property by relinquishing

its control to the bailee; the bailor has given up something of valuethe immediate right to control the property.

Nature of care in bailment

The degree of care required in a bailment depends on the type of bailment involved. It is therefore important to

classify bailments to determine the standard of care that is required. The most common classification is based

on whether the bailment arises from an agreement.

The most common bailment is a mutual benefit bailment, in which both parties benefit. There are five types of

mutual benefit bailments: renting, work and services, pledging, consigning, and storage and parking.

In a mutual benefit bailment, the standard of care is that of reasonable care. Failure to use reasonable care may

subject the bailee to liability for any damages that may occur, unless the bailee limits its liability. In a mutual

benefit bailment, the bailor has certain rights and responsibilities. The bailor has the right to be paid for the

services rendered and to have the bailed property returned in good condition when the bailment ends.

A gratuitous bailment is one in which only one party benefits and there is no charge for services rendered. In a

bailment for the sole benefit of the bailor, the bailor has a right to have the bailed property stored properly and

to have the property returned when the bailment ends. The bailee has the obligation to store the bailed

property with a slight degree of care and to return the property when the bailment ends. The bailor is obliged to

warn the bailee of any defects or dangers connected with the property bailed.

In a bailment for the sole benefit of the bailee, the bailee must use a high degree of care in taking care of the

property bailed, must use the property only as agreed, and must return it when the bailment ends. The bailor

has the right to have the property returned in a safe condition when the bailment ends. The bailor has a duty to

warn the bailee of any defects or dangers in the property bailed.

Some bailments arise without agreement between the parties. These are known as constructive bailments. One

type is a bailment of lost property. Another is a bailment by necessity, which arises when someone obtains

possession of another's property by mistake. In both cases, the standard of care is that of reasonable care.

Impossibility and Frustration of the Contract

Impossibility may exist at the time of the contract or may arise subsequently. It may be physical or legal

impossibility. In either case, the agreement is void ab-initio. The object being that the law cannot compel the

impossible. When the subject matter is destroyed, the contract is frustrated by virtue of physical impossibility. Even where the object contemplated by the parties fails to materialize the contract is frustrated.

Where a flat was hired for purposes of witnessing coronation ceremony on fixed announced days and

subsequently the coronation ceremony was cancelled, it was held that as the object of the contract was frustrated by the non-happening of the coronation, the defendant was not liable to pay balance of rent.

A contract to do an act which after the contract is made becomes impossible or unlawful by some event which

the promisor could not prevent, becomes void when the act becomes impossible or unlawful. When the

impossibility of performance cannot reasonably be supposed to have been in contemplation of the contracting parties when the contract was made, performance or further performance of the promise is excused.

The contract may be impossible of performance due to supervening impossibility or illegality or due to

frustration of a contract by occurrence of an unexpected event or a change of circumstances beyond the

contemplation of parties or over which the parties have no control. A contract may be frustrated by emergency,

regulations and restrictions. Impossibility may also be created by change of law or destruction of subject

matter. Where an act becomes unlawful, the performance of the contract can be excused on the ground of

impossibility. However, if impossibility is brought about by an act of a party to the contract, the performance of

the contract is not excused. The impossibility of performance must be in respect of a term of the contract.

However, if contract can be performed in any other manner, the contract is not frustrated. There is a general

principle that a party prevented from doing an act by some circumstances beyond his control, can do so at the first subsequent opportunity.

Impossibility does not include commercial impossibility; for example, where the performance of the contract

becomes onerous. Where a wants to avoid the construction of a building as the building cost has become

costlier, it has been held that this is a case of commercial impossibility and the performance is, therefore, not

excused. Similarly, restrictions imposed by Government on trade or export are cases of commercial

impossibility.

When there is frustration, the dissolution of the contract occurs automatically. It does not depend on the choice

or election of either party.

The doctrine of frustration cannot be availed of by the person when the non-performance of the contract was attributable to his own default.

How frustration due to supervening impossibility does occurs

The contract becomes impossible of performance or is frustrated in any of the following cases:

Where the subject matter of the contract ceases to exist.

Where circumstances arise which make the performance of the contract impossible.

Where object contemplated by the parties or the event contemplated does not occur, the contract is

frustrated.

Where the party who is to only perform the contract dies, or is incapacitated from performing the

contract.

Where enactment of legislation or Government interference prevents the performance of the contract.

Where act becomes unlawful.

Effects when the contract becomes impossible:

When the contract becomes impossible, the party who has received any advantage under it must restore it to the other party or make compensation for it.

Where one person has promised to do something, which he knew, or with diligence, might have known, and

which the promise did not know to be impossible or unlawful, such promisor must make compensation to such

promise for any loss which such promise sustains through the non-performance of the promise. Party cannot

take advantage of impossibility caused by his own default.

DEFINITION of 'Quasi Contract'

A legal agreement created by the courts between two parties who did not have a previous obligation to each

other. A normal contract requires two parties to consent to mutually agreeable terms. Under a quasi contract,

neither party is originally intended to create an agreement. Instead, an arrangement is imposed by a judge to rectify an occurrence of unjust enrichment.

When one party knowingly receives something for nothing, the courts may impose a quasi contract.

Quasi contract is a binding obligation that is imposed by the courts to avoid injustice or unjust enrichment.

Alternative ways of describing a quasi contract are:

1. An implied-in-law contract imposed by the courts to prevent injustice.

2. A special form of contract that lacks mutual assent of the parties but which is imposed on the parties by the courts to avoid injustice.

3. A situation in which there is an obligation as if there was a contract, although the technical requirements of a contract have not been fulfilled.

It is also called an implied-in-law contract.

For example, P agrees to work for D for one year, payment of the $30,000 salary to be made at the end. P

works for six months, then unjustifiably quits. P cannot recover "on the contract," because he has not

substantially performed. But he will probably be allowed to recover in quasi-contract, for the fair value of the

benefits he has conferred on D. The court will estimate these benefits (which will probably be one-half of the $30,000 annual salary), and will subtract the damage to D of P's not performing the second six months.

For example, if UPS delivers a new television to Zoe that she did not order and she keeps the television and

does not attempt to return it to the company that mistakenly shipped it to her, a judge could impose a quasi-

contract to force her to pay for the television. Zoe did not intend to purchase the TV, and the TV company did

not intend to sell her a TV, but since she chose to benefit from the TV at the company's expense, the court requires her to reimburse the TV company to make the situation fair.

Difference between insurance and wagering agreements

Sl.

No.

Basis Contracts of Insurance Wagering agreements.

1 Insurable interest The Assured has an insurable interest

in the subject matter.

There is no interest in the subject

matter, other than that created by

the agreement itself.

2 Interest in protection

of subject matter

Both the parties have such interest

matter.

Only one of the parties is interested

in the protection of the subject

matter.

3 Value of contract Except life insurance, all insurances

are contract of indemnity (whose

value is unknown).

The amount of the contract is fixed.

4 Benefit It benefits the public. It does not benefit anyone except the

winner.

5 Basis of agreement It is based upon scientific and

actuarial calculation of risks.

It is a gamble or game of chance.

6 Actual amount payable In case of contracts of insurance

except life insurance, the actual

amount payable need not necessarily

be the full amount for which the

property is insured.

In case of wagering agreements, the

actual amount payable is usually

fixed.

7 Beneficial/against the

public policy.

These are regarded as beneficial to

the public policy

These are considered to be against

public policy.

8 Gamble Such agreements do not

tantamount to gambling as they

involve the element of investment

and protection.

Being change oriented, these are

closer to gambling

9 Contract of indemnity General insurance is a contract of

indemnity while life insurance is not.

Wagering agreements are not

contract of indemnity.

Void Agreement Vs Voidable agreement

A contract that is "void" cannot be enforced by either party., The law treats a void contract as if it had never

been formed. A contract will be considered void, for example, when it requires one party to perform an act that

is impossible or illegal.

A "voidable" contract, on the other hand, is a valid contract and can be enforced. Usually only one party is

bound to the contract terms in a voidable contract. The unbound party is allowed to cancel the contract, which

makes the contract void.

BASIS OF DIFFERENCE VOID AGREEMENT VOIDABLE CONTRACT

It is valid when made and

Void ab-intio

It is void from the very continues to remain valid

beginning till it is repudiated by the

aggrieved party.

Which essential element

It is void because an essential It is voidable because the

element of a valid contract is consent of a party is not

of contract is missing

missing free.

It continues to be

Enforceability

It cannot be enforced by any enforceable if the

party aggrieved party does not

repudiate the contract.

A third party who

purchases goods in good

Right of third party

Third party does not acquire faith and for consideration

any rights. before the contract is

repudiated acquires good

title of those goods.

On the expiry of

Even on the expiry of a

reasonable time, it may be

Effect of lapse of come a valid contract, if the

reasonable time, it can never

reasonable time aggrieved party does not

become a valid contract.

repudiate the contract

within reasonable time.

Damage

The question of damages The aggrieved party can

does not arise. claim damages.

Definition of breach of contract

Generally, it means Violation of any of the agreed-upon terms and conditions of a binding contract.

Breach of contract means failing to perform any term of a contract without a legitimate legal excuse. The

contract may be either written or oral. A breach may include not finishing a job, failure to make payment in full

or on time, failure to deliver all the goods, substituting inferior or significantly different goods, not insuring

goods, among others. An anticipatory breach may be made by an act which indicates the party will not

complete the work.

A breach of contract in legal terms amounts to a broken promise to do or not do an act. Breaches of a contract

are single, occurring at a single point in time, or continuing breaches. A lawsuit for breach of contract is a civil

action and the remedies awarded are designed to place the injured party in the position they would be in if not

for the breach. Remedies for contractual breaches are not designed to punish the breaching party. A contract is

a legally enforceable promise, either made in writing or orally. However, certain promises must be reduced to

writing in order to satisfy the Statute of Frauds, a rule of substantive law, not a rule of evidence, that specifies certain subjects that must be evidenced by a written instrument.

The non-breaching party is relieved of his obligations under the contract by the other party's breach. Courts will

award damages in the event of a breach, but the intent is not to punish the breaching party, but rather to put

the other party in the position they would occupy if the contract had been fulfilled. In cases where money is

inadequate to compensate the aggrieved party, the court may award specific performance to force the breaching party to fulfill the terms of the contract.

Definition of anticipatory breach of contract

An anticipatory breach of contract is a failure to live up to a contract term before the actual time for

performance has arrived. It is often occurs when one party states an intention not to fulfill or substantially fulfill

a contractual obligation before it is due. Such a repudiation of contract terms is generally required to be

affirmatively stated. The repudiating party may not later demand performance under the contract from the other party.

An anticipatory breach of contract will occur in one of the following situations:

Where there has been a renunciation by a party of their liabilities under the contract an intention to no longer be bound by the contract shown by their actions

Where there is an impossibility of performing obligations under the contract due to their actions

Two types of anticipatory breaches are:

(1) Express repudiation, a clear refusal by a party to perform a contract.

(2) Implied repudiation, an act of a party that puts the performance of a contract out of its own power to

perform (such as when a party sells off its tools or other assets required in performance of the contract).

The result of anticipatory breach is that the other party does not have to perform his/her obligations and cannot

be liable for not doing so. This is often a defense to a lawsuit for payment or performance on a contract.

Under the Uniform Commercial Code, which has been adopted in some form by almost every state, a

repudiation will justify a demand for an assurance of performance by the non-breaching party. The repudiating

party may withdraw a repudiation without legal consequence before there has been a material change in

position.

Most Common Legal Remedy for a Breach of Contract

Contracts are a favorite tool of business people everywhere, as they lend assurance and definition to

transactions. But what happens when someone doesn't do what they said they would in a contract? In the legal world, this is called a "breach," and there are a number of remedies for this situation.

Remedies in Law

When lawyers talk about "remedies in law," they are talking about money damages. For breach of contract cases, there are several different types of monetary remedies:

Compensatory damages: This is the most common breach of contract remedy. When compensatory

damages are awarded, a court orders the person that breached the contract to pay the other person

enough money to get what they were promised in the contract elsewhere. For example, suppose you hire

and pay someone to clean your house for $100, but he is unable to do it. You search for a new cleaning

service, and the cheapest one you find will clean your house for $150. If this cost is found to be

reasonable, your first cleaner would have to pay you $150 in compensatory damages, allowing you to

get your house professionally cleaned as the contract intended.

Restitution: When a court orders restitution, they tell the person that breached the contract to pay the

other person back. In the example above, the court would order the first cleaner to pay you back $100,

since that's what you paid him to clean your house.

Punitive damages: This is a sum of money intended to punish the breaching party, and is usually

reserved for cases in which something morally reprehensible happened, such as a manufacturer

deliberately selling a retailer unsafe or substandard goods.

Nominal damages: A court awards nominal damages when there has been a breach of contract but no

party to the contract suffered any harm.

Liquidated damages: These are damages that the parties agree to pay in the event a contract is

breached.

Quantum Meruit: A court can award one party payment for what they deserve for any work that she

performed before the other party breached the contract. For example, if the cleaner in the example

above had cleaned half the house, and then you decided you didn't want him to finish, he can demand $50 as quantum meruit. Translated from Latin, the term means "as much as he deserved."

Remedies in Equity

Equitable remedies are typically awarded when monetary damages will not properly remedy the situation. They

involve the court ordering the parties to act or to refrain from acting. Types of equitable remedies include:

Specific Performance: A court decree that requires the breaching party to perform their part of the

bargain indicated in the contract. For example, if one party has paid for a delivery of goods, but the

other party did not ship them, a specific performance decree might require the goods to be properly

delivered.

Contract Rescission: The former contract which is the subject of dispute is "rescinded" (cancelled), and

a new one may be formed to meet the parties needs. This is a remedy typically given when both parties agree to cancel the contract or if the contract was created through fraud.

Contract Reformation: The former contract is rewritten with the new contract reflecting the parties true intent. Reformation requires a valid contract to begin with and often is used the parties had a mistaken understanding when forming the contract.

Offer

An offer is a voluntary but conditional promise submitted by a buyer or seller (offeror) to another (offeree) for

acceptance, and which becomes legally enforceable if accepted by the offeree.

An offer (unlike a solicitation) is a clear indication of the offeror's willingness to enter into an agreement under

specified terms, and is made in a manner that a reasonable person would understand its acceptance will result

in a binding contract. Offers normally include a closing date, otherwise a period of 30 days after the date of

offer is commonly assumed.

The offer can come in the form of a:

Letter

Newspaper

Website

Fax

Email

Behavior

In technical terms, the offer is not really an offer until it is received by the offeree

An offer can also be revoked or taken back by the offeror at any time prior to acceptance.

It is also possible to terminate an offer, or take the offer off of the table completely. There are a few ways this can be

done.

Death of either party

Insanity of either party

Death or destruction of the person or the thing required to perform the contract terms

The offer can also be terminated if a counter-offer is made by changing the terms of the original offer.

Acceptance

"An acceptance of an offer is an indication, express or implied, by the offeree made whilst the offer remains

open, and in the manner requested in that offer of the offeree's willingness to be bound unconditionally to a

contract with the offeror on the terms stated in the offer."

"... acceptance ... a final and unqualified expression of assent to the terms of an offer."

"Acceptance means the signification by the offeree of his willingness to enter into a contract with the offeror on the terms offered to him by the latter. Without an acceptance there can be no contract ...."

Types of Acceptance

An acceptance may be conditional, express, or implied.

Conditional Acceptance A conditional acceptance, sometimes called a qualified acceptance, occurs when a person to whom an offer has been made tells the offeror that he or she is willing to agree to the offer provided

that some changes are made in its terms or that some condition or event occurs. This type of acceptance

operates as a counteroffer. A counteroffer must be accepted by the original offeror before a contract can be

established between the parties. Another type of conditional acceptance occurs when a drawee promises to pay

a draft upon the fulfillment of a condition, such as a shipment of goods reaching its destination on the date

specified in the contract.

Express Acceptance An express acceptance occurs when a person clearly and explicitly agrees to an offer or agrees to pay a draft that is presented for payment.

Implied Acceptance An implied acceptance is one that is not directly stated but is demonstrated by any acts indicating a person's assent to the proposed bargain. An implied acceptance occurs when a shopper selects an

item in a supermarket and pays the cashier for it. The shopper's conduct indicates that he or she has agreed to

the supermarket owner's offer to sell the item for the price stated on it.

Consideration

"It is a fundamental principle of contract law that in order to create a binding contract which the law will recognize and enforce, there must be an exchange of consideration between the parties.

"Consideration is simply something of value received by a promisor from a promisee. It can take the form of a right, interest or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given,

suffered or undertaken by the other .

"If there is no consideration there is no contract; and if there is no contract, there is nothing upon or from which to found or create liability.

"The act or promise of one party is, as it were, 'bought' or 'bargained for' by the act or promise of the other; each party exchanges something of value. To create an enforceable contract there must be ... 'reciprocal

undertakings'. So, if one party is neither giving anything, nor is promising to do or give anything, there is no

consideration for the other partys act or promise."

Essentials features of consideration:

1. Must move at desire of promisor if done at instance of third party or without desire of promisor

not good consideration.

2. May move from promisee or any other person- consideration may move even from a stranger

contract cannot be enforced by stranger to contract even if made for his benefit - but stranger to

consideration can sue if party to the contract (privity to contract).

3. May be an act or abstinence/forbearance or a return promise act must not be a legal duty to

perform abstaining is consideration in negative form may be past, present or future one may also

be a return promise (Executory consideration) Forbearance to sue, compromise of a disputed claim,

composition with creditors is valid consideration.

4. May be past, present or future may be voluntary or at request.

5. Need not be adequate where consent of the promisor is freely given, inadequacy of consideration

does not make the contract void adequacy of consideration is for the parties to consider at the time of

making the agreement, and not for the court when it is sought to be enforced.

6. Must be real and not illusionary - also must be competent and of value

7. Must be something which promisor not already bound to do: should not under pre-existing

legal or contractual obligation performance of public duty by public servant is not consideration.

8. Must not be illegal, immoral or opposed to public policy must not be unlawful.

9. Doctrine of privity of contract Only parties to contract can sue and be sued on the contract

stranger to contract cannot sue even if contract is for his benefit and he provided consideration

stranger has no right or obligation cannot enforce it.

Contingent Contract

Contingent contract is a contract to do or not to do something if some event. Collateral to such contract, does

or does not happen. Insurance contract provide the best example of contingent contracts. The performance of a

contingent contract depends upon the happening or non-happening of some future event.

Characteristic of Contingent contract

The performance of such contracts depends on a Contingency on the happening or non happening of the

future event.

In a Contingent contract, the event must be collateral incidental to the contract.

The Contingency is uncertain. If the Contingency is bound to happen, the contract is due to be

performed in any case and is not therefore a Contingent contract.

Agreements in restraint of trade:

Restraint of trade is a very old legal concept relating to the right of individuals to do business, or pursue a trade or

profession, freely, without restraint.

Agreement in restraint of trade is defined as the one in which a party agrees with any other party to restrict his liberty

in the present or the future to carry on a specified trade or profession with other persons not parties to the contract

without the express permission of the latter party in such a manner as he chooses. Providing for restraint on

employment in the employment contracts of the employees in the form of confidentiality requirement or in the form

of restraint on employment with competitors has become a part of the corporate culture.

Restraint of trade is an issue in non-compete agreements, where an employee or business owner accepts an agreement

(sometimes for compensation) not to compete with the former employer or new business owner within a certain area

for a specific period of time. If a court views a non-compete as unreasonable, it is usually based on the principle that it

constitutes restraint of trade.

For example, an employment contract provision that prohibits a former employee from setting up a competing

business for 5 years within a 100 mile radius of the former employer would likely be declared void because it

constitutes restraint of trade. At issue in these contract situations is what is "reasonable" to protect the former

employer, in this case, from having an employee leave the company and begin competing with his/her former

employer, against the right of an individual to practice a trade or profession.

Exception or limitations of agreements in restraint of trade:

An agreement in restraint of trade is valid in the following cases:

1. Sale of goodwill:

The seller of the 'goodwill' of a business can be restrained from carrying on a similar business, within specified local

limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein,

provided the restraint is reasonable in point of time and space.

Illustrations :

A, after selling the goodwill of his business to B, promises not to carry on similar business "anywhere in the world."

As the restraint is unreasonable, the agreement is void.

C, a seller of imitation jewellery in London, sells his business to D and promises that for a period of two years, he

would not deal: (a) in imitation jewellery in England, (b) in real jewellery in England, and (c) in real or imitation

jewellery in certain foreign countries.

The first promise alone was held lawful. The other two promises, namely (b) and (c), were held void as the restraint

was unreasonable in point of space and the nature of business (Goldsoll vs. Goldman).

2. Partners' agreements:

An agreement in restraint of trade among the partners or between any partner and the buyer of firm's goodwill is valid

if the restraint comes within any of the following cases:

(a) An agreement among the partners that a partner shall not carry on any business other than that of the firm while is

a partner.

(b) An agreement by a partner with his other partners that on retiring from the partnership he will not carry on any

business similar to that of the firm within a specified period or within specified local limits.

(c) An agreement among the partners, upon or in anticipation of the dissolution of the firm that some or all of them

will not carry on a business similar to that of the firm within a specified period or within specified local limits

provided the restrictions imposed are reasonable.

(d) An agreement between any partner and the buyer of the firm's goodwill that such partner will not carry on any

business similar to that of the firm within a specified period or within specified local limits, provided the restrictions

imposed are reasonable.

3. Trade combinations:

As pointed out earlier, an agreement, the primary object of which is to regulate business and not to restrain it, is valid.

Thus, an agreement in the nature of a business combination between traders or manufacturers e.g., not to sell their

goods below a certain price, to pool profits or output and to divide the same in an agreed proportion, does not amount

to a restraint of trade and is perfectly valid.

Similarly, an agreement amongst the traders of a particular locality with the object of keeping the trade in their own

hands is not void merely because it hurts a rival in trade.

But if an agreement attempts to create a monopoly, it would be void.

4. Negative stipulations in service agreements:

An agreement of service by which a person binds himself during the terms of the agreement, not to take service with

anyone else, is not in restraint of lawful profession and is valid. Thus a chartered accountant employed in a com may

be debarred from private practice or from serving elsewhere during the continuance of service.

But an agreement of service which seeks to restrict the freedom of occupation for some period, after the termination

of service, is void.

5. Trade Unions:

A trade Union may restrict an entrepreneur or an enterprise from doing certain business for the purpose of labor

welfare. It is Valid but it should be a registered trade union.