INDIAN CONTRACT ACT 1872

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Introduction
y Law of contract ² Foundation upon which the superstructure

of modern business is built
y Business ² promise made between parties ² performance

follows later
y Breaking of a promise ² without incurring liability ² endless

complications

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Indian Contract Act
y Law of contract lays down legal rules relating to promises ,

their formation, performance and enforcement.
y These rules are not only applicable to business community

but others

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Indian Contract Act GENERAL RULES INDIAN CONTRACT ACT SPECIAL CONTRACTS 4 2/3/2012 .

CONTRACT y Sec 2(h) ´An agreement enforceable by law is a contractµ 5 2/3/2012 .

Proposal y When one person signifies to another his willingness to do or abstain from doing anything with a view to obtain his assent on such act or abstinence. y A goes to a hotel and orders tea. he is making proposal. 6 2/3/2012 . He is making proposal.

Acceptance y When one person signifies his assent thereto on the proposal made he is said to accept the proposal. y When A orders tea and B supplies tea it is understood that the proposal made by A is accepted by B 7 2/3/2012 .

This is a promise i. the proposal is said to be accepted.e.Promise y When a person to whom proposal is made signifies his assent thereto. Proposal by A to lend the book Acceptance by B by lending the book 8 2/3/2012 . y When A asks B to lend him a book and B gives his assent to lend him a book . y An accepted proposal is known as a promise.

9 2/3/2012 .00.and for B consideration is a Car.1.00.1.000 /. Now for A consideration is Rs.Consideration y Something in return.000/. y A offers B to sell his car at Rs. y Until and unless there is no consideration there cannot be an agreement.B accepts the same.

00.000/. This offer after acceptance becomes promise and this promise is treated as an agreement between A & B. when accompanied with consideration it becomes agreement. B accepts his offer. y A offers to sell his car for Rs.to B.Agreement y When the proposal is accepted it becomes promise and the promise.1. 1 0 2/3/2012 .

it is not a contract.Enforceability y An agreement is said to be enforceable by law if it creates legal obligation. y Obligation is a legal tie which imposes upon determinate person or persons the necessity of doing or abstaining from doing a definite act or acts y If an agreement is incapable of creating a duty enforceable by law. 1 1 2/3/2012 .

+ Consideration = Agreement. 1 2 2/3/2012 .CONTRACT y Proposal y Promise + Acceptance = Promise. y Agreement + Enforceability = CONTRACT.

y Agreements of moral. religious or social nature are not contracts y they are not likely to create a duty enforceable by law y parties never intend to create a legal obligation. 1 3 2/3/2012 .Contract Act y ´All contracts are agreement but all agreements are not contractsµ.

y X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for the dinner. Can he take his friend to Court???? y X cannot go to the court to claim his loss. Later he refuses to pay.Contd y Ex. y A father promises to pay his daughter Rs 1000 as pocket allowance. Can the daughter recover the Amount??? y The daughter cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations 1 4 2/3/2012 .

B.Case y Balfour vs Balfour [(1919) 2 K. y Held: unenforceable as parties never intended it to be bound by legal obligations. Wife goes to court. 571] y A promise by the husband to pay his wife 30 pounds every month . 1 5 2/3/2012 . Later Husband refuses to pay.

hence is a contract. an agreement to buy and sell goods intends to create legal relationship. But if the parties have expressly declared their resolve is not to create a legal obligation.contd € In commercial or business agreements an intention to create legal relations is presumed. Thus. 1 6 2/3/2012 . even a business agreement does not amount to a contract. provided other requisites of a valid contract are present.

One clause in the agreement was: µThis agreement is not entered into«. vs Corruption Bros [1925 AC 445] y There was an agreement between R company and C company by means of which the former was appointed as the agent of the latter.µ y HELD .as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.Case y Rose&Frank Co.There was no binding contract as there was no intention to create legal relationship 1 7 2/3/2012 .

Contract is concluded and binding on the concerned parties 1 8 2/3/2012 .Distinction between an agreement and a contract y Agreement y Contract Offer and its acceptance constitute an agreement An agreement may or may not create a legal obligation Every agreement need not necessarily be a contract Agreement is not concluded or binding contract Agreement and its enforceability constitute a contract A contract necessarily create a legal obligation All contracts are necessarily agreements.

Classification of Contract Enforceabilty Valid Voidable Void unenforceable Method of Creation Express Implied Extent of execution Executed Executory Illegal 1 9 2/3/2012 .

CONTRACTS ON THE BASIS OF CREATION EXPRESS CONTRACT Express contract is one which is made by the words spoken or written. IMPLIED CONTRACT An implied contract is one which is inferred from the conduct of a person or circumstances of a particular case 20 2/3/2012 .

CONTRACTS ON THE BASIS OF EXECUTION EXECUTED CONTRACT EXECUTORY CONTRACT PARTLY EXECUTED & EXECUTORY CONTRACT It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation 2/3/2012 It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract 21 It is a contract where both the parties to the contract have still to perform their respective obligations .

Contracts on the basis of enforceability Valid Contract A contract which satisfies all the conditions prescribed by law is a valid contract A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable An agreement not enforceable by law is said to be void A voidable contract is one which can be set aside or repudiated or avoided at the option of the aggrieved party An illegal agreement is one the object of which is unlawful The contract which is actually valid but cannot be enforced due to technical defect 2/3/2012 Void Contract Void Agreements Voidable Contract Illegal Agreement Unenforceable Contract 22 .

Essential elements of a valid contract y Proper offer and its proper acceptance y Intention to create legal relationship y Free Consent y Capacity to contract y Lawful consideration y Lawful object y Agreement not expressly declared void y Certainty of meaning y Possibility of performance y Legal formalities 2 3 2/3/2012 .

Offer / PROPOSAL yWhen one person signifies to another his willingness to do or abstain from doing anything with a view to obtain his assent on such act or abstinence. 2 4 2/3/2012 . he is making proposal.

OFFER UNDERSTANDING AN OFFER It must be made by one person to another person It must be an expression of readiness or willingness to do (i. a positive act) or to abstain from doing something (i..e..e. a negative act) It must be made with a view to obtain the consent of that other person to proposed Act or abstinence 2 5 2/3/2012 .

2 6 2/3/2012 . Offeree ² The person to whom the proposal is made is called the ¶offeree· or the ¶proposee·.Contd Offeror ² The person making the proposal is called the ¶offeror· or ¶proposer·.

Types of offer OFFER EXPRESS OFFER IMPLIED OFFER SPECIFIC OFFER GENERAL OFFER 2 7 2/3/2012 .

Legal rules as to offer Certain and unambiguous terms Intention to create legal relationship Different from an invitation to offer Proper communication No term of noncompliance of which amount to acceptance Different from a mere declaration of an intention Communication of special terms 2 8 2/3/2012 .

Contdy Intention to create legal relationship y An offer must be such that when it is accepted it will create a legal relationship y Certain and unambiguous terms y If the terms of the offer are vague or indefinite. its acceptance cannot create any contractual relationship. 2 9 2/3/2012 .

Contd y Different from a mere declaration of intention y Mere declaration of intention indicates that an offer will be made or invited in the future y A declaration of intention by a person does not give right of action to another. 3 0 2/3/2012 .

A broker came from a distant place to attend that auction. but all the furniture was withdrawn.Case y Harrison vs Nickerson An auctioneer advertised in a newspaper that a sale of office furniture would be held. so that the broker could not recover. y Held .A declaration of intention to do a thing did not create a binding contract with those who acted upon it. The broker thereupon sued the auctioneer for his loss of time and expenses. 3 1 2/3/2012 .

Contd y Different from an invitation to offer y In an invitation to offer the person making an invitation invites others to make an offer to him y It is prelude to an offer inviting negotiations or preliminary discussions y Case ² y Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401 y Harvey vs facey 3 2 2/3/2012 .

y Acceptance in ignorance of offer confers no right.Contdy Offer must be communicated y An offer must be communicated to the person to whom it is made. y Case: Lalman Shukla vs Gauri Dutt 3 3 2/3/2012 . An offer accepted without its knowledge does not confer any legal rights on the acceptor. y An offer is complete only when it is communicated to the offeree y Acceptance is not possible unless offer is brought to the knowledge of the offeree ie. One can accept the offer only when he knows about it. ie.

Contd y No term of non-compliance of which amounts to acceptance y The offer must not contain a term. the non-compliance of which amount to acceptance y Ex: A offers by post to sell his horse to B for Rs 2000.µ There would be no contract even if B does not reply 3 4 2/3/2012 . He writes. I shall assume you have accepted the offer. ´ If you do not reply.

3 5 2/3/2012 . the offeree will not be bound by those terms. the offeror cannot say that if the offer is not accepted before a certain date. it will be presumed to have been accepted y Communication of special terms or standard terms of contract y Special terms of the offer must also be communicated along with the offer. y If the special terms of the offer are not communicated.Contd y While making the offer.

A proposal when accepted becomes a promise. y It is an expression by the offeree of his willingness to be bound by the terms of the offer.µ y Acceptance is the consent given to offer. 3 6 2/3/2012 .Acceptance y Acceptance means giving consent to the offer. y Sec 2(b) ² ´ A proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto.

) 3 7 2/3/2012 . Carbolic Smoke Ball Co.(Carlil v. y In case of general offer ² y An offer made to the world at large or public in general can be accepted by any person having the knowledge of the offer by fulfilling the terms of the offer.Contdy Who can accept y In case of a specific offer ² y To be accepted by that definite person or that particular group of persons to whom it has been made and non else.

Contd y How to make acceptance ² y Express acceptance ² y An express acceptance is one in which is made by words spoken or written y Implied acceptance ² y An implied acceptance is one which is made otherwise than in words. y It is inferred from the conduct of the parties or the circumstances of a particular case 2/3/2012 3 8 .

Legal rules of valid acceptance Absolute and unqualified Manner Communication By whom To whom Before the lapse of the offer 3 9 2/3/2012 .

all the three tests must be applied to determine whether a person is competent to contract or not 40 2/3/2012 . And who is not disqualified from contracting by any law to which he is subject.11 says ³Every person is competent to contract who is of age of majority according to the law to which he is subject. ´ Thus. And who is of sound mind.CAPACITY OF PARTIES Sec.

Who is a MINOR ? A minor is a person who has not attained majority. a person is deemed to have attained majority as under: Where a guardian of a On completion of 21 years minor·s person or property is appointed under the Guardian and Wards Act Where minor·s property has On completion of 21 years passed under the superintendence of the court of wards In other cases On completion of 18 years 41 2/3/2012 . According to Section 3 of the Indian Majority Act.1875.

Who is a Person of Unsound Mind? According to Sec 12 of the Indian Contract Act. ³A person is said to be of sound mind for the purpose of making contract. if at the time when he makes it. is capable ± ‡ To understand terms of contract ‡ To form rational judgment to its effect upon his interests´ 42 2/3/2012 .

Persons disqualified by law Person disqualified by law Insolvent Convicts Alien Enemy Foreign sovereigns and ambassadors Joint stock companies 43 2/3/2012 .

the promisee or any other person has done or abstained from doing. 2(d) of the Indian Contract Act defines consideration as under : ³when at the desire of promisor. such act or abstainence or promise is called a consideration for the promise" 44 2/3/2012 . or promises to do or abstain from doing something. or does or abstains from doing .CONSIDERATION Sec.

Something other than promisor¶s existing Obligation 45 2/3/2012 . It must move at the desire of promisor ii. or present. or future iv. It must be real and not illusory vi. It must be of some value v. It may move from any person iii.Essential elements of valid Consideration i. It may be past.

this is called µconsensus-ad-adem¶ 46 2/3/2012 .13 says ³Two or more persons are said to consent when they agree on same thing in same sense´ In English Law.CONSENT Sec.

FREE CONSENT According to Sec. or b)Undue influence. or d)Misrepresentation. or c) Fraud.14 consent is said to be free when it is caused by a)Coercion. or e)mistake 47 2/3/2012 .

or iv. Committing an act which is forbidden by the Indian Penal Code. a contract is said to be caused by coercion when it is obtained by² i. Threatening to detain any property. 48 2/3/2012 . or ii.COERCION Coercion means compelling a person to enter into a contract under a pressure or a threat. Threatening to commit any act which is forbidden by Indian Penal Code. According to Section15. or iii. Unlawful detaining of any property.

Undue Influence
The term µundue influence¶ means dominating the will of other person to obtain an unfair advantage over the other Sec 16(1) says a contract is influence by undue influence² a) Where the relations subsisting between the parties are such that one of the is in position to dominate the will of another, and b) The dominant party uses that position to obtain an unfair advantage over the other
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Fraud
The term fraud means a false representation of fact made willfully with a view to deceive the other party. Essential elements of fraud : I. By a party to a contract II. False representation III.Representation as to fact IV.Actually deceived V. Suffered loss
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Misrepresentation The term µmisrepresentation¶ means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party.

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52 2/3/2012 .MISTAKE A mistake is said to have occurred where the parties intending to do one thing by error do something else.

1872.Void Agreements According to Sec2(g) of Indian Contract Act. are void -ab-initio 53 2/3/2012 . a void agreement is an agreement which is not enforceable by law. The agreements which are not enforceable by law right from the time when they are made.

Agreements by or with persons incompetent to contract 2. Agreements in restraint of legal proceedings 9. the consideration or object of which is partly unlawful 5. 3.Types of agreements expressly declared void 1. Agreements entered into through a mutual mistake of fact between the parties. Agreement in restraint of trade 8. Agreement made without consideration. Agreement. 6. Agreement in restraint of marriage 7. Wagering agreements 10.Impossible agreements 11. the object or consideration of which is unlawful 4.An agreement to enter into an agreement in the future 54 2/3/2012 . Agreement.

completely uncertain 55 2/3/2012 . Such agreements are chance oriented and therefore.Wagering agreements An agreement between two persons under which money or money¶s worth is payable. by one person to another on the happening or non-happening of a future uncertain event is called a wagering event.

does or does not happen Insurance contract provides best example of contigent contract 56 2/3/2012 .Contigent contracts Contigent contracts is a contract to do or not to do something if some events collateral to such contract.

Distinction between a wagering agreement and contingent contracts Basis of distinction Wagering agreement Reciprocal promise Contingent contract It consist of reciprocal It may or may not pronise consist of reciprocal promise It is void Future event is essential to contract It is always of contingent nature Its parties have no other interest in the subject matter of the agreement except winning or losing of wagering amount It is valid Future event is collateral to contract It may not be of a wagering nature Its parties may have other interest as well Void/ valid Main/ collateral future events nature Interest of parties 57 2/3/2012 .

58 2/3/2012 .Breach of contract A breach of contract occurs if any party refuses or fails to perform his part of contract or by his act makes it impossible to perform his obligation under the contract. the party not at fault) is relived from performing his obligation and gets a right to proceed against the party at fault.e. the aggrieved party(i. In case of breach.

Types of breach Anticipatory breach Anticipatory breach occurs when the party declares his intention of non performing the contract before the performance is due Actual breach Actual breach may take place when ‡The party to the contract refuses or fails to perform his part at the time fixed for performance ‡Party has performed a part of contract and then refuses or fails to perform the remaining part of contract. 59 2/3/2012 .

Remedies for breach of contract Remedies for breach of contract Recessio n of contract Suit Suit for Suit for upon Suit for damage specific injunction quantum s performance merit 60 2/3/2012 .

61 2/3/2012 .Quasi contract A quasi contract is not a contract at all because one or other essential for the formation of a contract is absent It is a law upon a person for the benefit of another even in the absence of a contract. It is based on the principle of equity. which means no person shall be allowed to unjustly enrich himself at the expense of another such obligations are called quasi contracts or implied contracts because the outcome of such obligation resemble those created by a contract.

by mistake or under coercion 62 2/3/2012 .Kinds of quasi contracts Right to recover the price of the necessaries supplied Right to recover money paid for another person Right to recover for non-gratutious act Responsibility of finder of goods Right to recover from person to whom money is paid or thing is delivered.

Modes of discharge of contract By mutual agreements By operation of law By performance By lapse of time By breach 63 2/3/2012 .

By performance actual tender 64 2/3/2012 .

By mutual agreement novation rescission 65 2/3/2012 .

By performance actual tender 66 2/3/2012 .

By performance actual tender 67 2/3/2012 .

By performance actual tender 68 2/3/2012 .

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