the contract act 1871(r)

THE CONTRACT ACT 1871THE CONTRACT ACT 1871 According to section 2(h) of the Indian Contract Act:“An agreement enforceable by law is a contract.” All agreements are not enforceable by law and, therefore, all agreements are not contracts. Some agreements may be enforceable by law and others not. For example, an agreement to sell a two wheeler may be a contract, but an agreement to go to see a movie may be a mere agreement not enforceable by law.

Thus, all agreements are not contracts.However, all contracts are agreements.

Only those agreements mentioned in section 10 become contracts.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871AGREEMENT: According to section 2(e) : “every promise and every

set of promises forming the consideration for each other is an agreement.”

A promise is a result of an offer(proposal) by one person and its acceptance by the other.

Section 2(b) of the Act defines promise as “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.”

Thus, when there is a proposal from one side and the acceptance of that proposal by the other side, it results in a promise. This promise from the two parties to one another is known as an agreement.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871 An agreement enforceable by law is a contract. All

such agreements which satisfy the conditions mentioned in section 10 of the Act are contracts.

Section 10 is as under:“All agreements are contracts if they are made by the

free consent of parties competent to contract, for a lawful consideration & with a lawful object and are not hereby expressly declared to be void.”

Therefore, the essential elements of a valid contract are:

Proper offer and its proper acceptance. Intention to create legal relationship. Free consent. Capacity to contract

THE CONTRACT ACT 1871THE CONTRACT ACT 1871The essential elements of a valid

contract(contd…)

Lawful consideration. Lawful object. Agreement not expressly declared void Certainty of meaning Possibility of performance Legal formalities

THE CONTRACT ACT 1871THE CONTRACT ACT 1871

COMPETENT TO CONTRACT:

According to section 11, of the Indian Contract Act, every person is competent to contract:

I. Who is of the age of majority according to law to which he is subject, and

II. Who is of sound mindIII.Who is not disqualified from contracting by any law to

which he is subject.


LAWFUL CONSIDERATION:

According to section 2(d), consideration is defined as “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 abstain from doing something, such act or abstinence or promise is called consideration for the promise.“

In short, Consideration means quid pro quo i.e. something in return.

An agreement must be supported by a lawful consideration on both sides.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871LAWFUL CONSIDERATION:

The consideration or object of an agreement is lawful, unless and until it is-

1.forbidden by law, or 2.is of such nature that ,if permitted ,it would defeat

the provisions of any law ,or 3.is fraudulent ,or involves or implies injury to the

person or property of another ,or 4.the court regards it as immoral ,or opposed to public

policy. 5.consideration may take in any form-money, goods,

services, a promise to marry, a promise to forbear etc.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871FREE CONSENT:According to section 14,consent is said to be free when

it is not caused by:

1)Coercion2)Undue influence3)Fraud4)Misrepresentation5)Mistake

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Coercion:According to section 15,"Coercion is the 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 whatever, with the intention of causing any person to enter into an agreement.”

Undue Influence:According to section 16(1), a contract is said to be

induced by undue influencea) where the relations subsisting between the parties

are such that one of them is in a position to dominate the will of the other, and

b) the dominant party uses that position to obtain an unfair advantage over the other.


Undue Influence(cont..)Essentials of undue influence:In order to constitute undue influence, it is necessary to

prove that:1. 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

2. Such a person uses his dominant position to obtain an unfair advantage over the other.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Undue Influence(cont..)

Person in dominant position & obtaining of unfair advantage:

In the following cases, a person is deemed to be in a position to dominate the will of another:

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 by reason of age, illness, or mental or bodily distress.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Fraud: The term fraud means a false representation of fact

made wilfully with a view to deceive the other party.

Essential elements of fraud:

By a party to a contract False representation Representation as to a fact Actually deceived Suffered loss

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Misrepresentation:

The term misrepresentation means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party.

Essential elements of misrepresentation: By a party to a contract False representation Representation as to fact Object Actually acted.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Mistake:A mistake is said to have occurred where the parties

intending to do one thing by error do something else. Mistake is an erroneous belief concerning something.

The mistake can be of two types:

1. Mistake of law2. Mistake of fact

THE CONTRACT ACT 1871THE CONTRACT ACT 1871CLASSIFICATION OF CONTRACTS:

• On the basis of creation:a)Express contractb)Implied contract

• On the basis of execution:a)Executed contractb)Executory contract c) Partly executed & partly executory contract

THE CONTRACT ACT 1871THE CONTRACT ACT 1871CLASSIFICATION OF CONTRACTS

• On the basis of enforceability:

a)Valid contractb)Void contractc) Void agreementd)Voidable contracte) Illegal agreementf) Unenforceable contract

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Valid contract:A contract which satisfies all the conditions prescribed

by law is a valid contract.Void contract:According to section 2(j) of the Indian Contract Act,1872,

“A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”

Void agreement:According to section 2(g), “An agreement not

enforceable by law is said to be void.”Voidable contract:According to section 2(i) of the Indian Contract Act,1872,

“A voidable contract is one which can be set aside or repudiated at the option of the aggrieved party.”

THE CONTRACT ACT 1871THE CONTRACT ACT 1871OFFER & ACCEPTANCE: An offer is the starting point in the making of an

agreement. An offer is also called ‘proposal’. According to section 2(a) of the Indian Contract Act,1872,

“A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence.”

Types of Offers: An offer may either be express or implied.

Express Offer: an express offer is one which is made by words spoken or written.

Implied Offer: an implied offer is made otherwise than in words. It is inferred from the conduct of the person or the circumstances of the particular case.


OFFER & ACCEPTANCE:

Types of Offers: An offer may either be specific or general.

Specific offer: a specific offer is one which is made to a definite person or particular group of persons.

General Offer: a general offer is one which is not made to a definite person, but to the world at large or public in general.


LEGAL RULES FOR A VALID OFFER:

i. Intention to create legal relationship.ii. Certain & unambiguous terms.iii.Different from a mere declaration of intention.iv.Different from an invitation to offer.v. Proper communication.vi.No term the non-compliance of which amount to

acceptance.vii.Communication of special terms.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871CONSIDERATION:

Essential elements of a valid consideration:

I. Move at the desire of the promisor.II. Move from any person.III.Past/present/futureIV.Of some valueV.Real & not illusory.VI.Something other than the promisor’s existing

obligation.VII.Lawful


Exceptions to the general rule: No consideration, No contract:

Agreements made on account of natural love & affection.

Promise to compensate. Promise to pay time barred debt. Completed gifts. Agency

THE CONTRACT ACT 1871THE CONTRACT ACT 1871CAPACITY OF PARTIES:The parties who want to enter into a contract must have

a capacity to do so.Capacity refers to competence of the parties to enter

into a valid contract.Section 11 of the Indian Contract Act makes clear the

parties who are competent to contract. Thus, section 11 declares the following persons to be incompetent to enter into a contract:

a. Minorsb. Persons of unsound mindc. Persons disqualified from contracting by the law to

which they are subject.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871MINORS:A person who has not completed his 18th year of age is

considered to be minor in the eyes of law(Section 3 of the Indian Minority Act, 1875)

The position of agreements with or by a minor:1. Validity2. No Estoppel3. In case of fraudulent representation of age by minor4. Ratification on attaining the age of majority5. Validity of minor’s agreement jointly with a major

person.6. Minor as a partner.7. Minor as an agent8. Minor as a shareholder or member of a company.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PERSONS OF UNSOUND MIND:According to Section 12 of the Indian Contract Act, “A

person is said to be of sound mind for the purpose of making a contract, if at the time when he makes it, is capable –

a. To understand the terms of the contract.b. To form a rational judgment as to its effect upon his

interests.

If a person is not capable of both, he is said to have suffered from unsoundness of mind.

The examples of persons having an unsound mind include idiots, lunatics & drunken persons.


PERSONS OF UNSOUND MIND:Position of a person who is usually of Unsound mind but

Occasionally of Sound Mind: According to Section 12,”A person who is usually of

unsound mind but occasionally of sound mind may make a contract when he is of sound mind.”

Position of a person who is usually of sound mind but Occasionally of Unsound Mind:

According to Section 12,”A person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is of unsound mind.”


PERSONS DISQUALIFIED BY LAW:

Alien enemies Foreign Sovereigns & Ambassadors Convicts Company under the Companies Act or Statutory

Corporation under the Special Act of Parliament. Insolvents

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT: Coercion:Coercion may proceed from any person, and may be

directed against any person, even a stranger. Effect of Threat to file a suitEffect of Threat to Commit Suicide

Effects of Coercion:a. Option of aggrieved party to avoid the contract.b. Obligation of aggrieved party to restore benefit.c. Obligation of other party to repay or return.

Burden or Onus of Proof

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT: Undue influence:The term ‘undue influence’ means dominating the will of

the other person to obtain an unfair advantage over the other.

Presumption of domination of will:According to Section 16(2), a person is deemed to be in a

position to dominate the will of another in the following three circumstances:

a. Where he holds a real or apparent authority over the other

b. Where he stands in a fiduciary relation to the otherc. Where he makes a contract with a person whose

mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT: Undue influence:No presumption of Domination of WillThere is no presumption of undue influence in the

following relationships:a)Husband and wife(other than pardanashin)b)Landlord and tenantc) Creditor and debtor

Effect of Undue Influence:When consent to an agreement is caused by undue

influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT: Undue influence:Burden of ProofContracts with Pardanashin Woman: A woman who

observes complete seclusion(i.e. who does not come in contact with people other than her family members) is called pardanashin woman.

Legal Presumption: A contract with a pardanashin woman is presumed to have been induced by undue influence.

Burden of Proof: the other party who enters into a contract with a pardanashin woman must prove that:

• he made full disclosure of all facts to her• she understood the contract & implications of the

contract• She was in receipt of competent independent advice

before entering into the contract

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT:Comparison/Distinction between Coercion &

Undue Influence:

Basis of distinction

Coercion Undue influence

Relationship

Consent

Parties to a contract may or may not be related to each other.Consent is obtained by giving a threat of an offence or committing an offence.

Parties to a contract are related to each other under some sort of relationship.Consent is obtained by dominating the will.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT:Comparison/Distinction between Coercion &

Undue Influence:



Nature of pressure

Who can exercise

Restoration of benefit

It involves physical pressureIt can be exercised even by a stranger to the contractThe aggrieved party has to restore the benefit received

It involves moral pressureIt can be exercised only by a party to a contractThe party avoiding the contract may or may not return the benefit

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Comparison/Distinction between Coercion &

Undue Influence:



Presumption

Nature of liability

Coercion has to be proved by the party alleging it, in no case it is presumed by the law

The party committing the crime may be punshbl under IPC

It may be presumed by the law under certain circumstances. The party against whom such presumption lies must disprove it.It doesn’t involve any criminal liability

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT:Fraud:The term fraud means a false representation of fact

made wilfully with a view to deceive the other party.Effects of fraud:A.The party whose consent was caused by fraud can

rescind(cancel) the contract.B.The party whose consent was caused by fraud may,

if he thinks fit, insist that the contract shall be performed & that he shall be put in the position in which he would have been if the representation made had been true.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT:Fraud:Silence as to fraud:General Rule: According to explanation to Section 17,

“Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud.”

Exceptions to the General Rule:The general rule that silence doesn’t amount to fraud

has the following exceptions:i. Where parties stand in fiduciary relationship like

parent-child, trustee-beneficiary.ii. Where the silence itself is equivalent to speechiii.Half truth

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT:Misrepresentation:A false representation of fact made innocently or non-

disclosure of a material fact without any intention to deceive the other party.

Effects of Misrepresentation:a. Right to rescind the contractb. Right to insist upon performance

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PROVISIONS RELATING TO FREE CONSENT:Mistake: According to section 20, “An erroneous opinion as to

the value of the thing which forms the subject matter of the agreement is not to be deemed a mistake as to a matter of fact.”

Unilateral Mistake: According to section 22, “A contract is not voidable merely because it was caused by one of the party to it being under a mistake as to a matter of fact.”Exceptions: the agreement is void where a unilateral mistake relates to the identity of the person contracted with or as to the nature of the contract.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871VOID AGREEMENTS:Following types of agreements have been expressly

declared void under various sections of the Indian Contract Act:

Agreements by or with persons incompetent to contract. Agreements entered into through a mutual mistake of

fact between the parties. Agreement, the object or consideration of which is

unlawful. Agreement, the object or consideration of which is partly

unlawful Agreement made without consideration Agreements in restraint of marriage. Agreements in restraint of trade. Agreements in restraint of legal proceedings.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871VOID AGREEMENTS:Agreements expressly declared void (contd..)

Wagering agreement Impossible agreement An agreement to enter into an agreement in future.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871WAGERING AGREEMENTS:Meaning: An agreement between two persons under which

money or money’s worth is payable, by one person to another on the happening or the non-happening of a future uncertain event is called as a wagering agreement

Essentials of wagering agreement: Promise to pay money or money’s worth. Uncertain event Mutual chances of gain or loss Neither party to have control over the event No other interest in the event.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Distinction between contracts of insurance &

wagering agreement:


Contracts of Insurance

Wagering agreement

Insurable interest

Actual amount payable

Person having an insurable interest can insure his life or property.

Except life insurance, the actual amount payable need not necessarily be the full amount for which the property is insured.

Parties to a wagering agreement need not have insurable interestIn case of wagering agreement, the actual amount payable is usually fixed.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Distinction between contracts of insurance &

wagering agreement:


Contracts of Insurance

Wagering Agreement

Beneficial/against public policy

Gamble

These are regarded as beneficial to public policy

Such agreements do not tantamount to gambling as they involve the element of investment & protection.

These are considered to be against public policyThese are considered to be against public policy. Being chance oriented these are closer to gambling.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871CONTINGENT CONTRACT:Meaning:A contingent contract is a contract to do or not to do

something if some event, collateral to such contract, does or does not happen.

Essential features of a contingent contract: Dependence on a future event Collateral event Uncertain event

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Rules regarding contingent contracts:

Kind of contingent contract

Rule regarding enforcement

Contracts contingent upon the happening of an uncertainfuture event(Section 32)

Contracts contingent upon the non-happening of a certain future event(Sec. 33)

Such contracts cannot be enforced by law unless & until that event has happened. If the event becomes impossible, such contracts become void.

Such contracts can be enforced when the happening of that event becomes impossible & not before




Contracts contingent upon the future conduct of a living person(Section 34)

Contracts contingent upon the happening of an uncertain specified event within a fixed time(Section 35)

If the uncertain event is the future conduct of a living person, such event shall be considered impossible if that such person does anything by which it becomes impossible to perform the contract within any definite time.Such contracts become void if before the expiry of fixed timea) Such event does not happen, or b)such event becomes impossible




Contracts contingent upon the non-happening of an uncertain specified event within a fixed time

Agreements contingent upon impossible events(Section 36)

Such contracts can be enforced by law if before the expiry of fixed time- a) such event does not happen, or b) it becomes certain that such event will not happenSuch agreements are void whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Distinction between a Wagering Agreement & a

Contingent Contract:


Wagering Agreement

Contingent Contract

Reciprocal promises

Void/ValidMain/collateral future event

Nature

Interest of parties

It consists of reciprocal promises

It is voidFuture event is essential to the contract.It is always of a contingent nature.Parties have no other int in the subj. matter xcept W or L

It may or may not consist of reciprocal promisesIt is validFuture event is collateral to the contract.It may not be of a wagering natureIts parties may have other interest as well.

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PERFORMANCE OF CONTRACT:A contract is said to have been performed when the

parties to a contract either perform or offer to perform their respective promises.

According to Section 37 of the Indian Contract Act, “The parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law”

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PERFORMANCE OF CONTRACT:

Types of performance:Actual Performance: Where a promisor has made an

offer of performance to the promisee & the offer has been accepted by the promisee, it is called an actual performance.

Attempted Performance(or Tender): Where a promisor has made an offer of performance to the promisee, & the offer has not been accepted by the promisee, it is called an attempted performance.

Effects of Tender:a. The promisor is not responsible for non-performance.b. The promisor does not lose his rights under the contract.


Types of Tender:

Types of tender Meaning

Tender of goods or services

Tender of money

Where the promisor offers to deliver the goods or services but the promisee refuses to accept the deliveryWhere the promisor offers to pay the amount but the promisee refuses to accept the same.


Essentials of a valid tender:

Unconditional At proper time At proper place Reasonable opportunity to promise For whole obligation To proper person Of exact amount in legal tender

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PERFORMANCE OF CONTRACT:Effect of refusal of a party to perform promise wholly:

According to Section 39 of this Act, “when a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

Persons who can demand performance: Promisee Legal representative Third party Joint promisees

THE CONTRACT ACT 1871THE CONTRACT ACT 1871Persons who can demand performance:

• Joint promisees

Case Who can demand the performance of promise

In case all promisees are aliveIn case of death of any of joint promisees

In case of death of all joint promisees

All the promisees jointly.Representatives of the deceased promisee jointly with the surviving promisee(s)Representatives of all of them jointly

THE CONTRACT ACT 1871THE CONTRACT ACT 1871PERFORMANCE OF CONTRACT:Persons who must perform:o Promisoro Promisor’s agento Legal representativeso Third partyo Joint Promisors

Case Who must perform the promise

In case all promisors are aliveIn case of death of any of joint promisors

In case of death of all joint promisors

All the promisors jointly.Representatives of the deceased promisor jointly with the surviving promisor(s)Representatives of all of them jointly

the contract act 1871(r)

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