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The Indian Contract Act

The Indian Contract Act

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Published by Louie Hansen

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Published by: Louie Hansen on Jan 19, 2012
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THE INDIAN CONTRACT ACT, 1872Contract
Sec.2 (h) an agreement enforceable by law give rise to legalobligation. Social obligation, no contract.
Agreement
 – Sec.2 (e) -
 
every promise and set of promises, forming consideration for each other. Proposal – assent thereto – proposal accepted - promise – agreement.
Consensus ad idem:
meeting of minds in full and final agreement – agree upon thesubject matter of the agreement in same sense and at the same time. No consensus adidem - no contract.Example: A offers to sell his old Fiat car to B. B thinks that he is purchasing A’s newScoda car. There is no consensus ad idem and consequently no contract.
Essential characteristics of a valid contract:
1.Offer and acceptance – two parties, one making the offer and other acceptingit – offer must be definite – acceptance must be absolute and unconditional – acceptance must be communicated to the offeror.2.Intention to create legal relationship – intention of parties to the agreement tocreate legal relationship must – no such intention, no contract – social or domestic agreements do not contemplate legal relationship, as such nocontract.
 Balfour v Balfour 
– husband promises to pay household allowance to wife – separated – wife sues for allowance – domestic agreement – no contract.
V.Rao Vs. A. Rao
 – old widow asked her niece to move in with her - promisedto will some property in exchange – niece moved in and stayed till widow’sdeath – Held, intention to create a legal relationship – niece entitled to share in property.
 Rose & Frank Co. v Crompton Bros.
 – agency agreement between R and C -clause in agreement stated that agreement not entered into as formal or legal – not subject matter of legal jurisdiction no intention to create legalrelationship - no contract.3.Lawful consideration - both parties give and get something in return – noconsideration, no contract - consideration may be past, present or future – incash or in kind – must be real and lawful.4.Competent parties – must have attained age of majority – of sound mind – notdisqualified by any law – so, minor, lunatic, idiot, drunkard, etc not competentto contract.5.Free and genuine consent – parties are of same mind when they agree aboutthe subject matter in same sense and at the same time – if induced by coercion,undue influence, fraud, misrepresentation, etc, there is no free consent - nocontract.
 
6.Lawful object object must not be illegal, immoral or opposed to public policy – if any legal flaw, not enforceable by law.7.Agreement not declared void – must not have been declared void by any lawin force.8.Certainty and possibility of performance terms must be certain and notvague – not possible to ascertain the meaning, it cannot be enforced – must becapable of being performed – agreement to do impossible act, no contract.Example : (a) A agrees to sell “100 bales of cloth” to B. There is nothing toindicate the kind of cloth intended to be sold. The agreement isvoid for uncertainty.
Scammel v Ouston
– purchase of motor van on hire purchase – hire purchase price payable over two years - no rate of interestor mode of payment indicated – Held, the word ‘hire purchase’has not been precisely defined – no contract.9.Legal formalities essential to complete legal formalities to make theagreement binding e.g. agreement may require payment of stamp duty,require registration, etc.
Types of contracts
:1.Void contract – a contract ceases to be enforceable by law, becomes void – originally valid when entered into – by change of law, may subsequently become void – e.g. contract to deal with a foreign country will become voidwhen war breaks out between the importing and exporting country.Void agreement – agreement which does not create legal rights or obligations – a nullity – void ab initio – e.g. agreement without consideration.2.Voidable contract - enforceable at the option of one party and not the other – free consent is missing – party whose consent is not free may repudiate/rescind/avoid/cancel the contract, if so elects remains valid till it isrepudiated.Contract voidable also in following circumstances – (i)prevent promisor to fulfil his part of promise – voidable at theoption of promisor.(ii)Promisor fails to perform his part of obligation – voidable at theoption of other party/promise.3.Illegal contract which is against public policy, is criminal in nature, isimmoral – collateral transaction/agreement also becomes illegal – 
all illegal agreements are void but all void agreements are not illegal 
.Example : A enters into an agreement with B to manufacture prohibited goods – A takes loan for the purpose from C who knows about the purpose of theloan agreement between A and C is collateral to the main agreement between A and B, which is illegal – collateral agreement is also illegal.
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4.Unenforceable contract – cannot be enforced in a Court of law due to technicaldefect - may be carried out by the parties, but no legal remedies in case of  breach by either party - e.g. non-registration, non-payment of stamp duty, etcmakes the contract unenforceable.5.Express contract – terms agreed upon at the time of formation - may be writtenor oral.6.Implied contract – contract inferred from the act or conduct of the parties –  proposal or acceptance made otherwise than by words – e.g. when a persongets into bus, lets a porter carry his luggage at the railway station, takes foodat a restaurant, there is an implied contract.
Upton Rural District Council v Powell 
- P’s farm did not come under the freeservice zone of the fire department - fire at P’s farm – P called up Upton FireBrigade which arrived and put out the fire – Held, P was liable to pay for theservice rendered as implied promise to pay.7.Quasi contract resembles a contract however, no express offer or acceptance - legal obligation on a party who is required to perform it – Example : A leaves his goods at B’s place by mistake – B consumes the goodsas his own – B is bound to pay for the goods to A as there was a quasi contractunder which B was under a legal obligation to return A’s goods.8.Executed contract both the parties have performed their respectiveobligations.9.Executory contract may be partly or wholly executory either or both parties have yet to fulfil his/their part of obligation.10.Unilateral contract – one-sided contract – one party has to fulfil his part of obligation – other party has already fulfilled his obligation before or at thetime of formation of the contract – also known as contracts with executedconsideration.Example : A permits a porter to carry his luggage to the railway carriage – contracts comes into existence when the porter places the luggage in thecarriage – at that time porter has already fulfilled his obligation – A yet tofulfil his obligation.11.Bilateral contract- both the parties have yet to fulfil their obligations – contract with executory consideration.* * * * *
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