INDIAN CONTRACT ACT, 1872

A Contract is an agreement enforceable at law. AGREEMENT + ENFORCEABILITY AT LAW

By: Hetal Jani

Certain Principles
‡ The directions of the State, expressed as law, have to be followed. Beyond these directions, however, individuals are free to do what they like. ‡ Agreements must b performed by the consenting parties. ‡ The benefit that each party to a contract receives during the mutual exchange is called consideration. Only agreements which have consideration for both the parties are to be enforced. Such agreements are called contracts.

Contd .
‡ Contracts tainted with illegality or similar vice are not to be enforced. ‡ In the cases where a contract is not performed, a money equivalent can be worked out for the losses incurred by the injured party. The infringing party should be made to pay this amount to the injured party.

‡ The constituents of the working of contracts can be identified as: ± Formation of agreements ± Consideration ± Setting aside of bad contracts ± Damages and Compensation .

´ALL AGREEMENTS ARE CONTRACTS BUT ALL CONTRACTS ARE NOT AGREEMENTSµ .

Agreement + Enforceability =Contract. 2. All contracts are agreements.Agreement & Contract Distinguished 1. Offer + Acceptance =Agreement. All agreements are not contracts 1. . Contract necessarily creates a legal obligation. Agreement may not create any legal obligation. 2.

Essentials of Valid Contract ‡ PROPOSAL & ACCETANCE (AGREEMENT =OFFER + ACCEPTANCE) ‡ LAWFUL CONSIDERATION ‡ CAPACITY OF PARTIES ‡ FREE CONSENT ‡ AN AGREEMENT NOT DECLARED VOID ‡ LEGAL FORMALITIES ‡ INTENTION TO CREATE LEGAL RELATIONSHIP ‡ CERTAINTY ‡ POSSIBILITY OF PERFORMANCE ‡ ENFORCEABLITY BY LAW.LAWFUL OBJECT .

forming the consideration for each other is an agreement. Types: Valid Agreement: Enforceable by Law. Void Agreement: Not enforceable by Law. ± ± .Agreements ‡ ‡ ± ± ± ± Every promise and every set of promises. Illegal Agreement: Something against the Law itself. Voidable Agreement: A voidable agreement is one which is enforceable by Law at the option of one or more of the parties thereto but not at the option of the other or others. Unenforceable Agreement: Valid in Law but is incapable of proof because of some technical defect. Enforceable Agreement: An agreement enforceable by Law is a contract.

Types of Contract ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Voidable Contract Void Contract Unenforceable Contract Executed Contract Executory Contract Express Contract Implied Contract Quasi Contract Contingent Contract Speciality Contract Simple Contract Statutory Contract Contracts of Records Types on the base of validity Types on the base of performance Types on the base of formation .

. ‡ Executory Contract: Where both the parties have yet to perform their obligations. it is said to be implied which leads to an implied contract. ‡ Implied Contract: When the proposal/acceptance of any promise is made otherwise than in words.Contd ‡ Executed Contract: Where both the parties have performed their obligations. ‡ Express Contract: When the terms of a contract are reduced in writing or are agreed upon by spoken words at the time of its formation.

does or does not happen. Certain obligations which are not contracts in fact but are so in the contemplation of law. signed. if some event. sealed and delivered by the parties called contract under seal.Contd« ‡ Quasi Contract: Certain relations resemble those created by a contract. ‡ Speciality Contract: It is a contract which is in writing. collateral to such contract. ‡ Contingent Contract: is a contract to do or not to do something. .

Contd ‡ Simple Contract: it is the contract which is not under seal. ‡ Statutory Contract: When all or some of the terms and conditions of a contract are statutory. like judgment of a court. it is called statutory contract. . ‡ Contracts of Records: A contract of record is one which is taken on the records of a Court.

.Proposal / Offer WHEN A PERSON SIGNIFIES TO ANOTHER HIS WILLINGNESS TO DO OR TO ABSTAIN FROM DOING ANYTHING. WITH A VIEW TO OBTAINING THE ASSENT OF THAT ANOTHER TO SUCH ACT OR ABSTINENCE HE IS SAID TO MAKE A PROPOSAL.

Parties To Contract ‡ A person making a proposal or offer is called promisor or proposer or offerer ‡ A person to whom the proposal is made is called the offeree ‡ A person who accepts the proposal or offer his assent to it is called the promisee .

Offer is the expression of willingness. A mere statement of intention does not constitute a binding promise even though a person to whom it is made acts upon it. (Harvey Vs. An offer must be intended to create and be capable of creating legal relations. but there must be something in the nature of a request 2. Facey) . 3.Essentials or Rules of a Valid Offer 1.

Facey ‡ Will you sell us your Bumper Hall Pen? Telegraph lowest cash price. (H to F) .Harvey Vs. (F to H) ‡ We agree to buy Bumper Hall Pen for the sum $900 asked by you. (H to F) ‡ Lowest price for Bumper Hall Pen $900.answer paid.

6. An offer should be distinguished from invitation to offer (Window Display & Advertisements) . 5. An offer must be communicated to an offeree-(Lalman Vs. The terms of offer must be certain and unambiguous An offer can be express or implied from the circumstances. 7. 8. 9. Gauri Dutt). An offer may be conditional and offer lapses when the condition precedent is not accepted. The offer must be made to a definite person.RULES Contd« 4.

Various Offers
‡ GENERAL OFFER SPECIFIC OFFER (Mrs. Carlill vs. Carbolic Smoke Ball Co.) ‡ COUNTER OFFER ‡ AUCTION SALES AND TENDER ‡ STANDING OR OPEN OFFER

Acceptance
When the person to whom a proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.

Essentials
1. It must be absolute and unqualified. 2. It must be expressed in some usual and reasonable manner or in manner prescribed. 3. Mental acceptance is not sufficient in law i.e., Acceptance must be communicated to the offerer. 4. Acceptance of the proposal Special Terms. 5. Acceptance of the proposal need not always be expressed in words- but silence cannot be assumed to be acceptance.

8. Acceptance must be by a certain person. 10. Acceptance must be given within a reasonable time. .Essentials Contd« 6. Acceptance must be given before the offer lapses or is revoked or is withdrawn. 9. it is no acceptance of the proposal. 7. It cannot precede offer. If the act is done in ignorance of the proposal.

.Communication of Offer Communication of offer is complete when it comes to the knowledge of the person to whom it is made.

so as to be out of the power of the Acceptor.When it comes to the knowledge of the Proposer. .Communication of Acceptance ‡ As against the PROPOSER. ‡ As against the ACCEPTOR.When it is put into a course of transmission to him.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor.A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer.Time of Communication of Revocation of Offer ‡ Time of revocation of proposal. . but not afterwards. ‡ Time for revocation of acceptance. but not afterwards.

or (iii) promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise. or abstained from doing or (ii) does or abstains from doing. the promisee or any other person (i) has done.Consideration When at the desire of the promisor. .

‡ Forbearance to sue is a good consideration. ‡ Consideration need not be adequate. immoral or opposed to public policy. present and future. illegal. ‡ Consideration must not be unlawful. ‡ Consideration may move from the promisee or any other person Stranger to a contract.Essentials of a Valid Consideration ‡ Consideration must move at the desire of the promisor. ‡ Consideration may be an act of doing or abstaining from doing something or it may be an act or forbearance or abstinence. . ‡ Performance of existing obligation is no consideration. ‡ Consideration must be real and not illusory. ‡ Consideration may be past.

Assignment of Contract 4. Ltd. Marriage settlement 3. Trust or charge 2. Covenants Running through land .Doctrine of Privity STRANGER TO A CONTRACT CANNOT SUE (Dunlop Pneumatic Tyre Co. Vs.) Exceptions: 1. Agents 5. Ltd.Selfridge & Co.

deed under seal. Gifts.No Consideration.When an agreement without consideration is valid? (Exceptions) ‡ Agreement made on account of natural love and affection ‡ Promise to compensate for past voluntary service ‡ Promise to pay time-barred debt ‡ Others Agents. No Contract. Gratuitous Promise .

Unlawful Object UNLAWFUL OBJECT AGREEMENTS THAT ARE UNLAWFUL AGREEMENTS THAT ARE AGAINST PUBLIC POLICY AGREEMENTS THAT ARE ILLEGAL IN NATURE .

or ‡ Is fraudulent. if permitted. it would defeat the provisions of any law. or ‡ It is of such nature that. or ‡ The Court regards it as immoral or opposed to public policy. .Unlawful Object / Consideration ‡ It is forbidden by law. or ‡ Involves or implies injury to the person or property of another.

5. 4.Agreements against Public Policy 1. 7. 9. 3. 2. 6. Trading with an enemy Champerty and maintenance contracts Stifling prosecutions Marriage brokerage agreements Agreements interfering with administration of justice Agreements tending to create interest against duty Agreements as regards sale of public offices Agreements tending to create monopoly Agreements in restraint of marriage . 8.

Non-compliance of Court s order . Agreements in restraint of legal proceeding 13. Foreign awards 16. Agreements in restraint of tradeExceptions± Sale of Goodwill ± Partners agreements ± Trade Combinations ± Service Contracts 12. Agreements not to bid 15. Agreements to defraud creditors or revenue authorities 14.Agreements against Public Policy Contd« 11.

In cases of equal guilt in an illegal agreement. Collateral transactions to illegal agreement to are tainted with illegality 3.Illegal Agreements ´ALL ILLEGAL AGREEMENTS ARE VOID BUT ALL VOID AGREEMENTS ARE NOT ILLEGALµ Effects of Illegality: 1. . the position of defendant is better than that of the plaintiff.no action can be taken for recovery of money paid or for breach 2. Illegal agreements are void.

CAPACITY TO CONTRACT .

Who are Competent to Contract ? Every person is competent to contract (i) Who is of the age of majority according to the law to which he is subject. . (ii) Who is of sound mind. and (iii) Who is not disqualified from contracting by any law to which he is subject.

PARTIES NOT COMPETENT TO CONTRACT MINORS UNSOUND MINDS DISQUALIFIED BY LAW .

Surety for minor 5. Liability of a third person. Minor s contract is absolutely void 2. Minor s Marriage 7.Position of a Minor in Contract 1. Relinquishment by a minor 8. Insolvency 6. Service contracts . No specific performance of a minor s contract 3. Ratification of a minor s contract 4.

Exceptions ‡ ‡ ‡ ‡ Promisee or Transferee Agency Partnership Necessaries .Minors contracts are void.

CONTRACTS BY PERSONS OF UNSOUND MIND ‡ Contracts by lunatics ‡ Contracts by idiots ‡ Contracts by drunkards .

Contracts by convicts. Contracts by foreign Sovereigns.Parties Disqualified By Law Contracts by Corporations. ‡ ‡ ‡ ‡ . their diplomatic staff and accredited representatives of foreign States. ‡ Aliens. ‡ Contracts by Married Women & Pardanashin Women. Contracts by insolvents.

FREE CONSENT .

Mistake.Free Consent Consent is said to be free when it is not caused by Coercion. Fraud. (I) (II) (III) (IV) (V) . Misrepresentation. Undue Influence.

AD-IDEM CONSENSUS AD-IDEM IS TWO OR MORE PERSONS ARE SAID TO CONSENT WHEN THEY AGREE UPON THE SAME THING IN THE SAME SENSE. .

Coercion Coercion is committing. . or threatening to detain any property. or threatening to commit. to the prejudice of any person whatever. any act forbidden by the Indian Penal Code. or the unlawful detain. with the intention of causing any person to enter into an agreement.

Essentials of Coercion ‡ For an act to be forbidden by the Indian Penal Code. ‡ The act must have been done or threatened with the intention of causing any person to enter into an agreement. even a person who is not party to the contract & be directed against even a member of his household. . fear and even menace to goods. there must not be merely a threat. ‡ Coercion includes physical compulsion. ‡ May proceed from anybody. Consent must be caused by unlawfully detaining or threatening to detain any property. ‡ It does not matter whether the Indian Penal Code is or is not in force in the place where the coercion is employed. but the act should be such as to be punishable under the IPC. not necessarily the other contracting party.

‡ Money paid or anything delivered must be returned. ‡ Aggrieved party may rescind within a reasonable time.Effect of Coercion ‡ It is a voidable contract. .

.Undue Influence A CONTRACT IS SAID TO BE INDUCED BY UNDUE INFLUENCE WHERE THE RELATIONS SUBSISTING BETWEEN THE PARTIES ARE SUCH THAT ONE OF THE PARTIES IS IN A POSITION TO DOMINATE THE WILL OF THE OTHER AND USES THAT POSITION TO OBTAIN AN UNFAIR ADVANTAGE OVER THE OTHER.

‡ The act of undue influence must range under one or the other heads of coercion or fraud . ‡ The dominating party uses that position to obtain unfair advantage over the other. ‡ Burden of Proof: shall lie on the person in a position to dominate the will of the other. .Essentials of Undue Influence ‡ One of the parties is in a position to dominate the will of the other.

Presumptions as to Undue Influence ‡ Where he holds a real or apparent authority over the other. or ‡ Where he stands in a fiduciary relation to the other. . or ‡ Where he makes a contract with a person whose mental capacity is temporarily or permanently affected.

It is of moral character 4. It is most subtle in character . Consent is obtained by the dominating will of the other 2. It is mainly of physical character 3. Person is forced to give his assent. It is of violent character ‡ UNDUE INFLUENCE 1.Difference Between Coercion & Undue Influence ‡ COERCION 1. Consent is obtained by threat of an offence. 2. but under moral influence 3. Consent is given in good belief.

(iv) Any other act fitted to deceive.Fraud Fraud means and includes any of the following acts committed by (a) a party to a contract: (b) with his connivance. (ii) The active concealment of a fact by one having knowledge or belief of the fact. or (c ) by his agent. or to induce him to enter into the contract(i) The suggestion. (v) Any such act or omission as the law specially declares to be fraudulent . of that which is not true by one who does not believe it to be true. as to a fact. (iii) a promise made without any intention of performing it. with intent to deceive another party or his agent.

Effects of Fraud ‡ The contract is voidable ‡ He may insist that the contract shall be performed ‡ He may rescind the contract within a reasonable time ‡ He has a right to sue for damages .

FLAW IN CONSENT FLAW IN CONSENT COERCION UNDUE INFLUENCE MISREPRESENTATION MISTAKE FRAUDULENT OR WILFUL INNOCENT OR UNINTENTIONAL MISTAKE OF LAW MISTAKE OF FACT MISTAKE OF THE COUNTRY BILATERAL UNILATERAL MISTAKE OF FOREIGN COUNTRY AS TO SUBJECT MATTER AS TO POSSIBILITY OF PERFORMANCE AS TO PERSON AS TO NATURE OF CONTRACT EXISTENCE PHYSICAL IDENTITY LEGAL QUALITY QUANTITY TITLE PRICE .

DISCHARGE OF CONTRACT DISCHARGE BY PERFORMANCE BY DEATH BY REFUSING TENDER OF PERFORMANCE BY BREACH OF CONTRACT BY IMPOSSIBILITY BY OF AGREEMENT PERFORMANCE OR BY (SUPERVENING CONSENT IMPOSSIBILITY) BY PROMISEE FAILING TO OFFER FACILITIES FOR PERFORMANCE BY OPERACION OF LAW BY MATERIAL ALTERATION BY LAPSE OF TIME ACTUAL BREACH ANTICIPATORY ‡DESTRUCTION ‡CHANGE OF LAW ‡DEATH OR PERSONAL BY NOVATION INCAPACITY BY REMITTANCE ‡OUT-BREAK BY WAIVER OF WAR BY RESCION ‡NON-EXISTENCE OF PARTICULAR STATE OF THINGS ‡BY INSOLVENCY ‡BYMERGER .

‡ ‡ ‡ ‡ ‡ ‡ ‡ .How is the contract discharged? By performance By death By refusing tender of performance By breach of contract By impossibility of performance By agreement or by consent By promisee failing to offer facilities for performance ‡ By operation of law ‡ By unauthorized material alteration of a contract ‡ By lapse of time.

the contract is discharged. death of promisor discharges the contract. or where personal skill or ability is involved. the promisor is not responsible for non-performance. ‡ By refusing tender of performance If a party offers to perform his promise and the offer has not been accepted by the other party.‡ By performance: If both the parties to the contract have performed what they have agreed to do. . ‡ By death: Where a contract is personal in character.

Cases of impossibility: Destruction of the object necessary for performance of the contract. it is breach of contract.‡ By breach of contract: If a party to a contract has refused to perform his part of the promise. It can be Actual breach or Anticipatory breach ‡ By impossibility of performance: When the performance of a contract becomes subsequently. it becomes void & discharged. Change of law. Non-existence of particular state of things which forms the basis of the contract. Death or personal incapacity. . Out-break of war.

or to rescind or alter it.‡ By agreement or by consent: Contract can be terminated by mutual express or implied agreement between the parties. Remission and waiver: When a party to the contract abandons or waives his rights. the new contract is called accord and the actual payment is called satisfaction . Accord & satisfaction: Where a lesser sum is actually paid than what is due under an existing contract. the other party thereto need not perform his promise. . Novation: If the parties to a contract agree to substitute a new contract for it. contract is discharged Rescission: When a person at whose option a contract is voidable rescinds it.

. the contract is dischared. By Merger: Merger of superior right into an inferior right.‡ By promisee failing to offer facilities for performance: If the promisee refuses to afford the promisor reasonable facilities for the performance of his promise. ‡ By operation of law: By insolvency: On a person being adjudicated insolvent. he is realised from all his debts and liabilities.

.‡ By unauthorized material alteration of a contract: In case of material alteration by one party to the contract without the consent of the other party. ‡ By lapse of time. the contract is discharged.

BREACH OF CONTRACT By: Hetal Jani .

Remedies of Breach of Contract ‡ Suit for specific performance ‡ Suit for injunction ‡ Suit for damages. for the loss sustained ‡ Quantum Meruit .

which is the subject-matter of the contract and which a party undertakes to do or not to do. . ‡ Suit for injunction: It is an order of the Court directing a person to do or refrain from doing some act.Contd« ‡ Suit for specific performance: The court directs the party committing the breach of contract to perform the promise according to the terms of the contract.

for the loss sustained: Injured party can claim damages for the loss caused by breach of contract.Contd« ‡ Suit for damages. The aggrieved party can recover the actual loss caused to him and not the exemplary or unusual damages. . Damages are given by way of restitution and as a monetary compensation to the injured party.

Contd« TYPES OF DAMAGES ‡ Compensatory Damages: Damages which are calculated to actually compensate or make up the loss suffered by the party. . ‡ Nominal Damages: Damages which naturally arise in the usual course of things from the breach are called nominal damages.

Contd« ‡ Exemplary Damages: Damages which are due to remote or indirect consequences. . ‡ Special Damages: Damages arise on account of unusual circumstances. mental pain. These are recoverable only when they are brought to the knowledge of the defendant. suffering etc. They are granted only in case for injured feelings.

the party who suffers by such breach is entitled to receive from the party who has broken the contract. which naturally arose in the usual course of things from such breach or which the parties knew.Rules for ascertaining damages ‡ When a contract has been broken. compensation for any loss or damage caused to him thereby. ‡ Such compensation is not to be given for any remote and indirect losses or damages sustained by reason of the breach. when they made the contract to be likely to result from the breach of it. .

Contd« ‡ In estimating the loss or damage arising from a breach of contract. . the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

.Quantum Meruit ‡ Means as much as earned or deserved or as much as is merited . ‡ A person can under certain circumstances claim payment for the work done or goods supplied without any contract or under a contract which is discharged by the breach of the other party.

It is forfeited when the transaction falls through by reason of the default or failure of the purchaser. ‡ Security Deposit: It made by a party to a contract with the other party. ‡ Advance Money: It is made merely as per payment of the purchase price agreed upon between the parties. as security for guaranteeing due performance of the contract. It represents a guarantee that the contract will be fulfilled or earnest is given to bind the contract. . It can be forfeited in the case the party neglected to perform his part of contract.‡ Earnest Money: It is treated as part payment of the price when the contract is completed.

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