Indian Contract Act

By Dr. Reena Mehta

Business Law- Contract Act 1872

 Pending cases
• 3 million cases are pending in India's 21 high
courts

• 26.3 million cases are pending in subordinate

courts across the country.

• Quarter million under-trials languishing in jails

across the country.
– 2,069 have been in jail for more than five years
(Home ministry's department of justice, under a Right to Information Act)
Business Law- Contract Act 1872
Status of Pending Cases in India

– 704,214 are criminal • Karnataka 1.06

– 3.2 million are civil million
cases • Rajasthan 1.05
• Gujarat 3.9 million million
• West Bengal 1.9 • Orissa 1 million
million • Andhra Pradesh
0900,000
• Bihar 1.2 million

Business Law- Contract Act 1872

 What is Law?
• Rules
• Enforced by the state
• The state to enforce law should be sovereign
state
• It receives due recognition
• It attempts to receive some sort of uniformity
and security in its application.

Business Law- Contract Act 1872

 INDIAN CONTRACT ACT 1872

Agreement

Every promise and set of promise, forming

consideration for each other is an agreement.

Contract

An agreement enforceable by law is contract.

Business Law- Contract Act 1872

 Kinds of Contract
• Void contract
• Voidable contract
• Executed contract
• Executory contract
• Unenforceable contract
• Express contract
• Implied contract
• Quasi contract
• Contingent contract
• Contract of records
• Statutory contract

Business Law- Contract Act 1872

 Quasi Contract sec (68)
• Certain relations between the parties resemble
those created by contract. Law requires a
person who receives the benefit to pay or
compensate the person giving the benefit, even
though he receives benefits without the
contract. There is no contract infact but it is
created by law, it is quasi contract.

Business Law- Contract Act 1872

 Contingent Contract sec (31)
• It is a contract to do or not to do something, is
some event, collateral to such contract, does or
does not happen.

Business Law- Contract Act 1872

Essential Elements of Valid Contract
• Proposal
• Acceptance
• Consideration
• Capacities of Parties to Contract
• Free Consent
• The agreement should not be void
• Writing & registration
• Legal Relationship
• Certainty
• Possibility of Performance
• Enforceable by law
Business Law- Contract Act 1872
 Essential Elements of Valid Contract
• Writing and registration
• Legal relationship
• Certainty
• Possibility of performance
• Enforced by law.

Business Law- Contract Act 1872

 Proposal
Sec 2(a)

When one person signifies to another his

willingness to do or abstain from doing
anything, with a view to obtaining the assent
of that other to such act or abstinence, he is
said to make a proposal.

Business Law- Contract Act 1872

 Acceptance

Sec 2 (B)

• When the person to whom the proposal is

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

Business Law- Contract Act 1872

 Consideration
Sec 2(d)

• When at the desire of promisor, the promisee

or any other has done or abstained from
doing,or does or abstains from doing, or
promises to do or abstain from doing
something such act or abstinence or promise is
called a Consideration for the promise.

Business Law- Contract Act 1872

 Essentials of Valid Proposal
• Beyond expression of willingness, there must be
something in the nature of a request.

• Proposer cannot dictate terms.

• An offer must be intended to create a legal

relationship.
• Kalai halder v. sheikh
• Balfour v. Balfour

Business Law- Contract Act 1872

 Essentials of Valid Proposal
• A mere statement of intention does not constitute a
binding promise even though a person to whom it is
made acts upon it.
– Harvey v. Facey
• The words used must apply to definite persons to
create legal relations.
• The term of offer must be certain and unambiguous.
• An offer can be expressed or implied.

Business Law- Contract Act 1872

 Essentials of Valid Proposal
• An offer must be communicated to an offeree. A person cannot
accept an offer unless he knows of the existence of the offer.

– Lalman Shukla v. Gauri Datta

• The person making an offer should intend to be bound by it as

soon as it is accepted.

• Offer can be conditional, but the conditions must be

communicated clearly.
• Counter Offer
• Offer and Invitation to offer

Business Law- Contract Act 1872

 Essentials of valid Acceptance
• Be absolute and unqualified.
– Neele v. Meritt
• It should be accepted in some usual and reasonable
manner.
• Mental acceptance is not sufficient in law.
• Acceptance must be communicated to the offerer.
• Acceptance of the proposal.

Business Law- Contract Act 1872

 Essentials of Valid Acceptance
• Acceptance of the proposal need not always be
expressed in words.
• Acceptance must be by a certain person.
• If the act is done in ignorance of the proposal, it is no
acceptance of the proposal.
• Acceptance must be given within a reasonable time.
• Acceptance must be given before the offer lapses or is
revoked.

Business Law- Contract Act 1872

 Essentials of Valid Consideration
• It must move at the desire of the promisor.
• It may move from promisee or any other
person- stranger to the contract.
–Chinnaya v. Ramaya
• It can be past, present, future.
• Consideration need not be adequate.

Business Law- Contract Act 1872

Essentials of Valid Consideration
• It may be an act of doing or abstain from
doing something.
• It should be real and not illusory.
• It need not be unlawful, illegal, immoral
and opposed to public policy.
• Performance of existing obligation is no
consideration.
• Forbearance to sue is a good consideration.

Business Law- Contract Act 1872

 Agreement Without Consideration is
Valid
• Agreement made on account of natural love
and affection.
• Promise to compensate for past voluntary
services.
• Promise to pay time barred debt.

Business Law- Contract Act 1872

 Capacity to Contract
• Minor
–MohoribebeeV. Dharamdas Ghose.
–Estoppel
– Promisee or transferee
– Agency
– Partnership

Business Law- Contract Act 1872

 Capacity to Contract
• Contracts by Lunatic
• Contract by Drunkards
• Contract by Parda Nishin Women
• Contract by Married Women
• Contract by Corporation
• Contract by Insolvent

Business Law- Contract Act 1872

 Free Consent
• Coercion
It is committing , or threatening to commit, any act
forbidden by the Indian penal code , or the unlawful
detaining, or threatening to detain any property, to the
prejudice of any person, with the intention of causing
any person to enter into an agreement

• Amiraju v. Seshma
• Purabi Bennerji v. Basudev Mukherjee.

Business Law- Contract Act 1872

 Undue Influence
• Sec 16 (1)
• A contract is said to be influenced 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.

Business Law- Contract Act 1872

 Fraud
• Means and includes any of the following act
committed by 1. a party to a contract 2. with his
connivance or 3.by his agent , with intent to deceive
another party thereto or his agent or induce him to
enter in contract.
– Active concealment
– Suggestion which is not true
– A promise made without any intention to perform it.
– Any act fitted to deceive, Any act which is declared
fraudulent

Business Law- Contract Act 1872

 Exceptions
• Deceit which does not deceive is not a fraud
• Negligence is no fraud
• Ignorance is no fraud
• Waiver

• Silence whether fraud?

Business Law- Contract Act 1872

 Misrepresentation
• Like fraud, it is incorrect or false statement but
the falsity or inaccuracy is not due to any
desire to deceive or defraud the other party. It
is innocent. Party making it believes it to be
true.

Business Law- Contract Act 1872

 Mistakes
• An enormous belief about something is called
as mistake
• Two kinds of mistakes
– Mistake of Law
– Mistake of Fact

Business Law- Contract Act 1872

 Void Agreement sec 2 (G)
• Agreement in restraint of marriage
• Agreement in restrain of trade
• Agreement in restraint of legal proceedings
• Agreement meaning of which is uncertain
• Agreement by way of wager:-
Money is payable by one person to another
conditional on happening or not happening of
future uncertain event .there must be mutual
chances of gain or loss
Business Law- Contract Act 1872
 Void Agreement
• Agreement contingent on an uncertain future
event if the even become impossible.
• Agreement contingent on an impossible act.
• Agreement to do an act which subsequently
becomes impossible

Business Law- Contract Act 1872

 Discharge of Contract
• By performance sec (37)
• By death
• By refusing tender of performance
• By breach of contract
– Anticipatory breach of contract
• By impossibility of performance
• By agreement or by consent
– Novation
– By accord and satisfaction
– By remission and waiver
– By operation of law
– By unauthorized material alteration of a contract.

Business Law- Contract Act 1872

 Breach of Contract
• Remedies to aggrieved party
• Suit for specific performance
• Suit for injunction
• Suit for damages
• Types of damages
• Compensatory damages
• Nominal damages
• Exemplary damages
• Special demages

Business Law- Contract Act 1872