INDIAN CONTRACT ACT, 1872

PRESENTED BY: CHHAVI MANRA

MODULE 1

MAKING OF A CONTRACT

OFFER

AGREEMENT

PROMISE

ACCEPTANCE

CONTRACT

Consideration

Legal Binding

DEFINITION According to Section 2(h) of the act, “An agreement enforceable by law is a

contract.”Promise = Proposal + AcceptanceAgreement = Promise + Lawful Consideration

ESSENTIALS OF A VALID CONTRACT

VALID CONTRACT

Free Consent

Lawful Object

Certainty of Objective

Not Declared To Be Void

Legal Formalities

Capacity of Parties

Lawful Consideration

Offer & Acceptance

Possibility of performance

Intention to create legal relationship

OFFER OR PROPOSAL

Definition : Acc to sec 2(a), “when one person signifies to another his willingness to do or to 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.

E.g. A offers B to sell his house for Rs. 700000.

Offer is not 1. A mere statement of intention. 2. An invitation to offer. 3. A mere communication of information. 4. Casual Enquiry. 5. A Prospectus

Express offer

How made? To whom made?

Offer by abstinence

Cross offer

Counter offer

KINDS OF OFFER

Implied offer

Specific Offer

General offer

ESSENTIALS OF OFFERS

Capable of creating obligations. Must be certain, definite and not vague. Must be communicated to the offeree. Must be made with a view to obtaining assent. May be conditional. Should not contain a term the non compliance of

which would amount to acceptance. Lapse of an offer An invitation to offer is not an offer.

ACCEPTANCEDEFINITION “When a person to whom the proposal is made signifies his

assent thereto, it is an acceptance of the proposal”e.g. A offers to sell his old bike to B for 10000. B accept the offer

to purchase the bike for Rs 10000.ESSENTIALS OF AN ACCEPTANCE Must be absolute and unconditional. Must be communicated to the offeree. Must be made within a reasonable time. Must be according to the mode prescribed. Must be aware of the proposal at the time of the acceptance. Must be given before the offer lapses or revoked. Cannot be implied from silence.

EFFECT OF SILENCE ON ACCEPTANCE Cases when silence may be indictive of assent to the proposal.

Where the offeree having reasonable opportunity to reject the offered goods and services takes the benefit of them, it will amount to acceptance.

Where because of previous dealings the offeree has given the proposer reason to understand that the silence was intended by the offeree as a manifestation of assent and the offer or does so understand.

COMMUNICATIONI COMMUNICATION OF OFFER : It is complete as soon as it comes to the knowledge of the offeree.II COMMUNICATION OF ACCEPTANCE : It is complete (a) as against the proposer when it is put in course of

transmission to him, so as to be out of the power of the acceptor to withdraw the same.

(b) as against the acceptor when it comes to the knowledge of the proposer.

III COMMUNICATION OF REVOCATION OF OFFER : It can be revoked at anytime before the letter of acceptance is

posted.

INFERENCES

• A proposal may be revoked at any time before the communication of its acceptance is complete as against proposer but not afterwards.

• An acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor.

CONSIDERATIONSection 2(d) says, ‘When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing some thing, such an act or abstinence or promise is called a consideration for the promise.’

RULES GOVERNING CONSIDERATION

may move from the promisee or any other person. must move at the desire of the promisor. must have some value. must be defined as benefit or detriment. must be defined as past, present or future consideration. must be legal.

VALID WITHOUT CONSIDERATION

Made out of natural love and affection. Promise to compensate for past voluntary

services. Promise to pay time barred debt. Completed gift. Agency Guarantee

UNLAWFUL CONSIDERATION AND OBJECT

• Object or consideration is forbidden by law.• Object or consideration defeats the provisions

of law• Objects and Consideration are fraudulent• Object and Consideration are injurious to any

person• Object and Consideration are immoral• Objects and Consideration are against public

policy

CAPACITY OF PARTIES

Definition : “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject”

Persons incompetent to contract Minor Person of unsound mind Person disqualified by any law to which they are

subject

MINORDefinition“ A minor is one who has not completed his or her 18 years

of age.”

Rules regarding minor’s agreement• Agreement void ab initio.• No ratification• Can be a promisee or beneficiary• No estoppel• No specific performance• Liability of torts• No insolvency

Continues…

• Joint contract by minor & adult• Surety for a minor• Minor as a shareholder• Liability for necessaries• Partnership• Can be a agent

PERSON OF UNSOUND MIND“A person is said to be of sound mind for the purpose of entering into a contract if, at the time when he makes it he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.Unsoundness may arise from• Idiocy• Lunacy or insanity• Drunkenness• Hypnotism• Mental Decay

PERSONS DISQUALIFIED FROM CONTRACTING BY ANY OTHER LAW

• Alien enemies• Foreign sovereigns and ambassadors• Insolvents• Convict• CorporationsException : Property liable for necessaries

providedBurden of Proof

FREE CONSENT

DefinitionAs per section 13, “Two or more persons are

said to consent when they agree upon same thing in the same sense.” Also termed as ‘Consensus Ad Idem’.

Coercion Fraud Misrepresentation MistakeUndue Influence

VOIDABLE VOID

CONSENT IS NOT FREE WHEN IT IS CAUSED BY

Bilateral Mistake Unilateral Mistake

As to subject matter

Nature of contract

Possibility of Performance

As to identity of person

COERCION

What amounts to coercion?

• Committing any act forbidden by the Indian penal code

• Threatening to commit any act forbidden by IPC

• Unlawful detaining of any property

• Threatening to detain any property

Burden of proof

UNDUE INFLUENCE

PRE REQUISITES• One of them at dominant position• Dominant party takes unfair

advantage of the weaker party.

PRESUMPTION OF DOMINATION OF WILL• When one holds real or apparent authority over the other.• When one stands in a fiduciary relationship to the other.• When one makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, mental, or physical distress

MISREPRESENTATION

CLASSIFICATION• Unwarranted statements of material facts.• Breach of duty bringing advantage to the

person committing it.• Inducing mistake about subject matterEffect : May rescind or may act.

FRAUD

ESSENTIALS• False and willful Representation or assertion• Intention to decieve• Representation must relate to fact.• Active concealment of facts• Promise made without intention of

performing it.• Any such act or ommission that the law

socially declares as void.

DOES SILENCE AMOUNTS TO FRAUD?

• Where it is the duty of the person keeping silence to speak.

• Where silence equivalent to speech. Consequences of fraud

MISTAKE

• Mistake of law - Mistake of country law - Mistake of foreign law• Mistake of fact - Unilateral (As to nature, As to identity) - Bilateral (Subject matter, Possibility of

performance)

DISCHARGE OF CONTRACT

Modes in which a contract may be discharged• Discharge by agreement• Discharge by operation of law• Discharge by breach• Discharge by performance• Discharge by impossibility• Discharge by lapse of time

DISCHARGE BY AGREEMENT

• Novation• Alteration• Rescission• Remission• Waiver

DISCHARGE BY OPERATION OF LAW• Insolvency• Merger• Unauthorized material alteration• Death

• Anticipatory Breach • Actual Breach• - when performance is actually due• - when actually performing the contract

DISCHARGE BY BREACH

PERFORMANCE OF CONTRACT

“Performance of contract means that both the promisor and the promisee have fulfilled their respective obligations, which the contract placed upon them.”

- By whom contracts must be performed- Who can Demand performance- Time and Place of performance

DISCHARGE BY IMPOSSIBILITY• Destruction of the subject matter• Death or personal incapacity• Change of law• Declaration of war

EXCEPTIONS• Difficulty of performance• Commercial impossibility• Impossibility due to failure of third person• Strikes, lockouts and civil disturbances

DISCHARGE BY LAPSE OF TIME

• A when contract needs to be performed within specified period (Limitation act, 1963)

BREACH OF CONTRACT

“A breach of a contract is refusal by one party to abide by its terms without any lawful excuse such as impossibility of performance, refusal to perform, defective performance, or even late performance by the other party.”

REMEDIES FOR BREACH OF CONTRACT

Cancellation or Rescission

Specific PerformanceInjunction Quantum

MeruitDamages

General or ordinary

Special

Vindictive or exemplary

Nominal

CLASSIFICATION OF CONTRACT

Enforceability Method of formation

Extent of performance

Obligations to perform

Unilateral

Bilateral

Void

Voidable

Unenforceable

Illegal

ValidFormal

Simple

Executed

Executory

Express Implied Quasi Standard Form

Contingent

PRIVITY OF CONTRACT

A person who is not a party to a contract, that is a third party, can neither sue nor be sued on the contract.

EXCEPTIONS : A person who is not a party to a contract can sue upon it in the following cases.

Trust or charge Marriage settlements Family settlements Agency Acknowledgement of liability

QUASI CONTRACT

“Under certain circumstances, a person may receive a benefit in which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties. Such relationships are termed as Quasi contracts.”

CASES DEEMED AS QUASI CONTRACTS

• Claims for necessaries supplied• Payment by an interested person - The payment made should be bona fide for the protection of one’s interest - The payment should not be a voluntary one. - The payment must be such as the other party was bound by law to pay.• Quantum Meruit (As much as is earned)

Continues…..

• Obligation of a person enjoying benefit of non-gratuitous act

- The thing must have done lawfully. - The person doing the act should not have intended to do it gratuitously. - The person for whom the act is done must have enjoyed the benefit of the act.• Money paid by mistake or under coercion

Continues…..• Responsibility of finder of goods

CONTINGENT CONTRACT

“A contingent contract implies a contract, the performance of which depends on the happening or non happening of an uncertain event, incidental to such contract.”

Essentials• Performance depends upon happening or non

happening of some future event.• The event must be uncertain.• The event must be collateral. i.e., incidental to the

contract.

WAGERING AGREEMENT

A wager is an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen.

Essentials• Promise to pay money or money’s worth• Uncertain event• Each party must stand to win or lose• No control over the event• No other interest in the event

Quiz 1 and

Presentation 1

REFERENCES

• Elements of mercantile law, By N.D. kapoor• Legal Aspects of business, By Ravinder Kumar• www. Indiankanoon.com

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