NITIKA BACHHAWAT

BUSINESS LAWS

REVISION NOTES

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 THE INDIAN CONTRACT ACT, 1872

IN FORCE since 1ST SEPTEMBER 1872

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Contract::
agreement enforceable by law

Agreement::
 Every promise and
 Every set of promises
 Forming consideration for each other

Promise:
A proposal when accepted

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Essentials of a valid contract

Not given by Act but are Given by the Act
essential
1. Two parties 1. Offer and acceptance
2. Intention to create a legal 2. Lawful consideration
relationship 3. Capacity to contract
3. Fulfillment of legal 4. Free consent
formalities 5. Legal object
4. Certainty of meaning 6. Not expressly declared
5. Possibility of performance void

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Types of contract
Basis of validity Basis of formation Basis of
performance
1. Void 1. Express 1. Executed
2. Voidable 2. Tacit 2. Executory
3. Illegal 3. Quasi 3. Unilateral
4. Unenforceable 4. E.com 4. Bilateral
5. valid

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Void Voidable Valid Illegal unenforceable

not enforceable enforceable at enforceable at void and not enforceable
by law the option of the option of punishabl due to technical
one party but both the parties e defects
not at the
option of other

Express Tacit Quasi E com

By words oral or Inferred by acts of Not a real contract Contract entered
written the parties but looks like a using electronic
contract implied by means
law

Unilateral Bilateral Executed Executory

One sided contract Both the parties are Reciprocal promises Performed
one having yet to perform yet to be performed
performed before or
at the time of
contract

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Void Voidable
It is not enforceable by law It is enforceable at the option of the
aggrieved party
The contract cannot be performed If the aggrieved party within a reasonable
time does not avoid the contract then he
will have to perform the contract.
The aggrieved party will not have any legal The aggrieved party will have legal
remedies remedies against the other party.

Void Illegal
It is not punishable by law It is punishable by law
It need not be void ab initio It is always void ab initio
Void need not be illegal Illegal is always void
If the main contract is void the collateral is Collateral to an illegal agreement is
valid always void

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Offer :
Willingness to do or to abstain from doing something , with a view to obtain
the other’s consent.

Types of offer:
Special General Cross Counter Standing
• made to a • made to the • identical • modification • open for
definite person world at large offers of the original acceptance
or group • anyone may • in ignorance offer over a period of
• accepted by come forward • both offers • original offer time.
that person or act accordingly will lapse will lapse
group and accept the • no contract •Contract can
• the offeree offer can arise arise if
known to the • the offeree is accepted
offeror not known to within that
the offeror period

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Rules of offer:

1. Must be clear, definite and not vague

2. May be express or implied
3. Must be communicated
4. Cannot be accepted in ignorance
5. May be conditional
6. Must not contain a term non-compliance of which would amount
to acceptance
7. An invitation to offer is not an offer

Acceptance:When the Offeree signifies his consent thereto

Rules of acceptance :

1. Must be unconditional
2. Must be communicated
3. Cannot be presumed from silence
4. Must be in the specified mode
5. Must be within the specified or reasonable time
6. May be by conduct
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Communication of Offer

For the Offeror For the Offeree

When he posts the When he receives the

letter letter
Communication of offer takes place when it comes to the
knowledge of the person to whom it is made

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Communication of Acceptance

As against the Proposer As against the Acceptor

When the Acceptor

When the letter
posts the letter
reaches the Proposer

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Communication of Rescission

For the person For the person against

who makes it whom it is made

When he posts it When he receives it

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Time of Rescission

Offer Acceptance

If the revocation letter reaches If the revocation letter

before the acceptance letter is reaches before the
posted acceptance letter reaches

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Consideration :
• when at the desire of the promisor
• the promisee or any other person
• has done or abstained from doing, does or abstains from doing or
promises to do or abstain from doing
• such an act or abstinence or promise is called promise for the
consideration.

Rules of consideration:

1. Must move at the desire of the Promisor

2. May move from the Promisee or any other person
3. Maybe Executed or Executory
4. May be past ,present or future
5. Need not be adequate
6. Must be for something which a promisor is not bound to do

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Privity of contract: No consideration no contract:

Only the parties to the contract can sue a contract without consideration is void
and be sued third party cannot sue
1. Trust or beneficiary 1. Natural love and affection
2. Family or marriage settlement 2. Compensation for past voluntary
3. Assignment service
4. Estoppel or acknowledgment of 3. Time barred debt
liability 4. Agency
5. Covenants running with the land 5. Completed gifts and donations
6. Bailment

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Minor’s agreement:
1. A minors agreement is void
2. He can be a beneficiary
3. A minor can plead minority. But if his intention is to cheat he will have to
compensate the other party
4. The rule of estoppel does not apply on a minor
5. A minors act cannot be ratified
6. The rule of restitution does not apply on a minor
7. A minor can be an agent and not a principal. If he is a principal the agent will be
liable
8. Contracts by the guardian of minor is valid if it I beneficial for the minor. If the
court appoints the guardian and he contracts with the sanction of the court all
such contracts are valid.
9. A minor is never personally liable for the necessaries supplied to him, the liability
is against his property .
10. A minor is laible for torts other than for breach of contract
11. If a minor is one of the joint promisors except him all the other parties shall be
liable

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Coercion Undue influence Fraud Misrepresentation

• Committing or • Parties are in such • Means and • the positive
threatening to a relation that includes assertion of a fact
commit an act • one party is in a • act done by the which is not true
which is a crime position to party or with his though he believes
under the Indian dominate the will of connivance or by his it to be true
Penal Code. another agent • breach of duty
• unlawful detaining •Uses that position • with an intent to without an intention
or threatening to to obtain an unfair deceive the other to deceive gains an
detain any property advantage over the party or to induce advantage over
• with the intention oher him to enter into a another by
of causing the other • position to contract misleading another
party to contract dominate will: • causing however
i. Real and innocently a party to
apparent agreement to make
authority a mistake to the
ii. Fiduciary substance which is
relation the subject of the
iii. Mental distress agreement.
iv. Unconscionable
bargains
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The following acts are regarded as fraud

i. Stating a wrong fact as true
ii. Active concealment of fact (hide the fact)
iii. promise made without an intention to perform
iv. Any at fitted to deceive

Silence is not fraud:

Exceptions:
1. Duty of the person keeping silent to speak
2. Where silence is equivalent to speech

Consequences of coercion, undue influence, fraud and

misrepresentation:
1. The contract is voidable
2. Where one party uses fraud or misrepresentation and the other party iif he would
have used his diligence would have come to know the facts the contract is valid
3. If one party uses fraud or misrepresentation but the other party was not infact
misled by it he contract is valid,

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Mistake

Mistake of fact Mistake of law

Bilateral Unilateral Indian law Foreign law

Mistake of subject When one party is Ignorantia juris non Is treated as a
matter mistaken about the excusat mistake of fact
i. Quantity subject matter
ii. Quality
iii. Identity
iv. Existence
v. title
VOID VALID VALID VOID

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Lawful object or consideration

1. Consideration or object is forbidden by law
2. Consideration or object defeats the provisions of law
3. When consideration defeats any rule for the time being in force
4. When it is fraudulent
5. When consideration involves injury to the person or property of another
6. When consideration is immoral
7. When consideration is opposed to public policy
i. Trading with enemy
ii. Stifling prosecution
iii. Maintenance and champerty
iv. Interference with the course of justice
v. Traffic relating to public offices/ sale of public offices
vi. Interest against obligation
vii. Marriage brokerage agreement
viii. Agreement in restraint of marriage
ix. Agreement for the creation of monopoly
x. Agreement in restraint of trade
xi. Agreement in restraint of legal proceedings
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Agreement expressly declared void
Agreement unlawful in part
• if both parts are
separable then the legal
part is valid and the illegal
part is void
•If both the parts are not
separable then the
contract is completely void.
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Agreement which is
uncertain
• Even if the parties agree
to such an agreement it
shall be void on the
grounds of uncertainty.
• if in an agreement there
is a vague term but there
are means to ascertain the
vague term the contract is
not void.
Wagering agreement
• an agreement to give money
upon the happening or non
happening of an uncertain
event.
•Both the parties are set to win
or lose
•The following are not
regarded as wager:
i. Crossword puzzles and
competitions based on
skill and not dependent on
the similarity of answer
with the editors answer
ii. Speculation
iii. Horse racing where prize is
500 or more
iv. Chit fund
v. Commercial transaction or
share market transactions
vi. Games of skill and athlete
competition
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Who can perform the contract:

1. The promisor himself
2. His agent except in case of contracts of personal skill and confidence
3. The legal representatives in the event of death of the parties except in case of
contracts of personal skill and confidence
4. Third party
5. Joint promisors

Succession Assignment
Inheritance. Transfer of rights
Operation of law Operation of law or by agreement
Both asserts and liabilities are transferred Liabilities are assigned only with the
but liability to the extent of assets consent of all the parties concerned

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Time and place of performance

Case Perfomance
No time specified reasonable time
Day specified but no time specified during the business hours
No place fixed duty of the Promisor to ask the Promisee
to fix a reasonable place
Performance on a particular day but duty of the Promisor to ask the Promisee
Promisor will not perform unless asked by to fix a reasonable place
the Promisee

Effect of refusal to accept performance

Where the promisor offers to perform the promise: Promisor is

i. Unconditionally not liable for
ii. At the proper time and place non
iii. The promisee is given an opportunity to examine the performace
thing whether it is same for which the contract is made nor does he
And the promisee refuses to accept . lose his
Offer to one of the joint promisors shall be deemed to be an rights
offer to all of them
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Effect of refusal by a party to perform

If one of the parties has refused to perform the contract the other party may
i. Terminate the contract; or
ii. Indicate by words or conduct about his intention to carry on with the contract.
Once he accepts the contract he cannot later cancel the same

Liability of joint promisors

Each of the joint promisor is jointly liable for his share and severally liable for the whole
share.
If any of the joint promisor has performed the whole contract he may compel the
others to contribute to the performance.
If any one of the joint promisor makes a default in such contribution or is unable to
contribute then his loss shall be borne by the others in their proportion
If any one of the joint promisor is dead his legal heirs along with the other survivors
shall perform the contract. If all the joint promisors are dead then the legal heirs of all
the joint promisors shall perform the contract.
If the promisee releases any of the joint promisor it does result in the release of the
other joint promisors and they shall be liable to the promisee. However the released
promisor shall be liable to the other joint promisors
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Reciprocal promises
1. Promises which are to be performed simulteneously
2. Promisor need not perform his promise unless the promisee is ready and willing to
perform his promise
3. The order of performance may be fixed either by agreement or by implication
i. By agreement is when the parties fix the order in which the contract shall be
performed. Contract must be performed in the specified order only
ii. The contract may not specify the order but it can implied from the nature of
contract the order of performance
4. In case of reciprocal promises if one party prevents the other from performing the
contract the party so prevented
i. Has no obligation to perform
ii. But has a right to claim the damages

Appropriation of payment
1. Debtor will specify and if the creditor accepts the payment must set off that debt
only.
2. If the payment is made on account generally, the creditor may set off any debt.
3. If nothing is specified the first debt in order of time and if more then one debt
then in their proportion.

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Time of performance
Time of essence Time not of essence
If the time is of essence and the party If time is not of essence and party fails to
fails to perform the aggrieved party has a perform within time the contract is valid.
right to avoid the contract. The aggrieved party can claim damages
If the party accepts the performance at
any time other than fixed for contract then
he can claim damages only if he gives
notice.

Restitution
Restore the benefits received under a void contract or under a voidable contract on its
becoming void.

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Discharge of contract
1. Performance
i. Actaul – parties have discharged there obligationm
ii. Attempted - one is ready, other refuses to accept
2. Lapse of time
3. Operation of law
i. Death
ii. Insolvency
iii. Merger
4. Mutual consent
i. Novation: substituting old contract for a new contract
ii. Rescission: cancellation of the contract
iii. Alteration: change in the terms of the contract
iv. Remission: acceptance of lesser amount or kind in place of cash
5. Impossibility of performance
i. Existing at the time of contract (known to both, unknown to both, known to
one)
ii. Supervening impossibility (death of the promisor, destruction of subject
matter, non existence of a particular state of things, outbreak of war, change
in law)
6. Breach – non fulfillment of the terms of the contract.
i. Actual – on the due date or during the course of performance
ii. Anticipatory – prior to the due date 27

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Remedies for breach

Damages Sue for Quantum Sue for specific Sue for
rescission meruit performance injunction
Ordinary – claimed as a right If one party As much i. Goods have There is a
Special – claimed only when does not as is no substitute; negative
notice of special loss perform the earned or or term in the
Vindictive or exemplary
other may merited ii. Damages are contract and
damages – breach of
contract of marriage and sue for not an one party
wrongful dishonour of canceling adequate breaches
customers cheque the contract relief that
Nominal – when the Has to perform negative
aggrieved party does not the contract term
suffer any loss on account of
breach
Penalty – very high amount
Liquidated – very near to the
actual damage

Rules of damages: (1) Any damage arising in the ordinary course of the contract can
be claimed as a matter of right. (2) Special damages can be claimed only if the
special circumstances were made known. (3) Remote damages can never be
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Contingent contract
Dependent on the Dependent on the Dependendt on a Dependent on an
happening of an non happening of third party impossible event
event an event
If a contingent If a contingent If the third party It is void ab initio
contract is contract is acts according to
dependent on the dependent on the the contract the
happening on an non happening on contract shall be
event it is an event it is valid
Valid: when the Valid: when the
event happens and event does not
Becomes void: happen and
when the event Becomes void:
does not happen when the event
happens or does
not become
impossible

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Quasi contract
Goods delivered by mistake or under coercion: person to whom money has been paid
or anything is delivered by mistake or under coercion must repay or return.

claim for necessaries supplied to a minor or to a lunatic’s family: if a person not

capable of contracting is supplied with necessaries or supplied to his family, the person
can recover the value of the necessaries from the person’s property.

Payment by an interested party: A person who makes payment on behalf of another to

protect his interest has a right to recover the amount from the person on whose behalf
the payment was made.

Obligation of a person receiving benefits o a non gratuitous act: if a person does nythig
for another or delivers something not doing so gratuitously then the person who enjoys
the benefit is liable to pay the reasonable charges .

Responsibility of finder of the goods: if a person finds goods belonging to another takes
them in his custody he has the same position as that of the bailee of the goods. He
must restore the good back to the true owner.

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