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Business Law II
Section. 1. Short title.--This Act may be called the Indian Contract Act, 1872.
Extent, Commencement.--It extends to the whole of India 2[except the State of Jammu
and Kashmir]; and it shall come into force on the first day of September, 1872.
Section 1--Notes
The Preamble.--It discloses the main object and purposes of the Act. It is not only an
amending but also a consolidating Act, Ramdas v. S. Ameerchand AIR 1916 PC 7 : 43
IA 164. The Act deals with a particular subject and it is exhaustive upon the same.
When a rule of English Law receives statutory recognition by the Indian Legislature, it is
the language of the Act which determines the scope, uninfluenced by the manner in
which the analogous provision comes to be construed. Superintendence Company of
India (P.) Ltd. v. Krishan Murgai, AIR 1980 SC 1717.
Provisions of the Act not superseded.--The Parties to the contract may agree to a
particular form or condition or mode in which contract is to be executed. In case where
the government enters into a contract with a person and a particular form has been
provided for the contract has to be in that form. This does not indicate that the
provisions of this Act stand superseded by the provisions contained in the constitution
or by those of other Acts which provide for a particular mode or a form in which contract
has to be executed. Union of India v. The Steel Stock Holders Syndicate, Poona, AIR
1976 SC 879.
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SECTION. 2. INTERPRETATION CLAUSE
Section. 2. Interpretation clause.--In this Act the following words and expression are
used in the following senses, unless a contrary intention appears from the context:
( 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;
( c) The person making the proposal is called the "promisor", and the person
accepting the proposal is called the "promisee";
( d) 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, something, such act or abstinence or promise is
called a consideration for the promise;
( e) Every promise and every set of promises, forming the consideration for each
other, is an agreement;
( f) Promises which form the consideration or part of the consideration for each
other, are called reciprocal promises;
Offer: A person who makes an offer is known as offeror. A person to whom an offer is
made is known as an offeree. An offer is made when the offeror proposes a set of
terms to an offeree, with the intention that if the proposed terms are accepted, they will
create a binding contract between the two parties. By accepting the terms proposed, the
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offeree would also agree to become legally bound by them. This acceptance would
therefore form a contract.
Offer and Invitation to Treat: One must understand the difference between an offer
and an invitation to offer. An invitation to offer is different from offer.
Section 2—Notes.
Offer and Acceptance.--Until the offer was accepted there was no concluded contract
between the parties and withdrawal of such an offer is perfectly valid. There is nothing
inequitable or improper in withdrawing the offer as the offeror was in no way bound to
keep the offer open indefinitely. Nutakka Sesharatanam v. Sub-Collector, Land
Acquisition, Vijayawada, AIR 1992 SC 131.
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facts, circumstances and necessities of the case. Sonia Bhatia v. State of U.P., AIR
1991 SC 1274.
Executed and Executory.--If the performance of the contract has been fully and
completely made by both sides there will be no question of any further rights and
liabilities under the contract. But when the contract is one in which the consideration is
executed on one side to be executed by the other side there will be a right on one side
and consequent liability on the other. In case of executory consideration rights and
liabilities are outstanding on both sides. Union of India v. Chaman Lal & Co., AIR 1957
SC 652.
Document of Contract.--Where all the specific terms have been reduced into writing
after agreement, the mere fact that it is stated that a formal contract will be executed
does not denude the writing of its value. Mere heading or title of a document cannot
divest the document of its real character because it is the substance which has to be
looked into, not the form. C.T.T. Punjab v. Panipat W&G Mills, AIR 1976 SC 640.
No time fixed.--The time at which the entire amount becomes payable is not specific. It
is vague and ambiguous and incapable of true interpretation. Though such type of
agreement is not itself void or unenforceable yet in such cases the courts can always
look to the custom, usage and practice. And indeed the court relied upon such custom,
usage and practice in the trade to decree the claim. Premjit Theatres, Secunderabad v.
Rashi Mehta & Co., AIR 1990 AP 272.
Waiver.--Where a condition in the contract is for the exclusive benefit of one of the
contracting parties and does not create liabilities against him, he can waive it unilaterally
and the entire contract cannot fall through. Dr. Jiwan Lal v. Brij Mohan Mehra, AIR
1973 SC 559.
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Tender. — A tender is an offer. It is something which invites and is communicated to
notify acceptance. Broadly stated, it must be unconditional; must be in proper form, the
person by whom the tender is made must be able to and wiling to perform his
obligations. The terms of the invitation to tender cannot be open to judicial scrutiny
because the invitation to tender is in the realm of contract.
However, a limited judicial review may be available in cases where it is established that
the terms of the invitation to tender were so tailor-made as to suit the convenience of
any particular person with a view to eliminating all others from participating in the
bidding process.
In the case of public property being disposed by the state or its instrumentality (See
Art.12 for definition of state and its instrumentality) the process must be fair and
transparent as it partakes the character of public trust. However the authority has the
right not to accept the highest or the lowest bid. In doing so the Authority’s action in
accepting or refusing the bid must be free from arbitrariness or favoritism.
CASE at page 7 of Reference Book:
Meerut Development Authority v. Association of Management Studies, AIR 2009
SC 2894.
In a tender process, therefore, the offer comes from the person who submits the tender
and there is no contract until the person asking for tenders accepts one of them.
CASES.
Notice inviting tender (for mail motor contract) specifically mentioned that the vehicle
should be one not having already run more than one Lakh kilometers and crossing the
age of five. On date of participation, the vehicle sought to be placed was more than five
years old. Subsequent acquisition of new vehicle would not make him eligible to
participate in tender. Gayatri Banerjee v. State of West Bengal, AIR 2007 Cal 233.
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Petitioner having participated in the tender cannot turn around and challenge it just
because they were unsuccessful bidders. Commissioner having placed the tenders of
successful bidders before committee for final decision cannot be said to have acted
ultra vires his powers. Mega Enterprises v. State of Maharashtra, AIR 2007 Bom 156.
Terms of tender notice explicitly stating that financial bid of ineligible bidder would not
be opened. Petitioner not meeting eligibility criteria cannot seek direction to open
financial bid. Mega Enterprises v. State of Maharashtra, AIR 2007 Bom 156.
Cancellation of tender on ground that the petitioner was not a local resident and without
issuing notice was wholly arbitrary, illegal and on extraneous consideration. Shailesh
Kumar Ganesh v. State of Jharkand, (2005) 4 BC 252 (Jhar).
The Supreme Court in Tata Cellular v. Union of India AIR 1996 SC 11 has
prescribed the following requisites of a valid tender:-
1. It must be unconditional.
2. Must be made at a proper place.
3. Must conform to terms of obligation.
4. Must be made at proper time.
5. Must be made in the proper form.
6. The person by whom the tender is made must be able and willing to
perform his obligations.
7. There must be reasonable opportunity for inspection.
8. Tender must be made to proper person.
9. It must be of full amount.
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then there is no question of any loss suffered by the plaintiff. Surinder Mohan Aggarwal
v. State of J&K, (2006) 2 BC 105 (J&K).
as against the person who makes it, when it is put into a course of transmission to the
person to whom it is made, so to be out of the power of the person who makes it;
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as against the person to whom it is made, when it comes to his knowledge.
Illustrations
Section 4—Notes.
Illustration
A may revoke his proposal at any time before or at the moment when B posts his letter
of acceptance, but not afterwards.
B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.
Section 5--Notes
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prescribes a manner in which it is to be accepted and the acceptance is not
made is such manner, the proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be
accepted in the prescribed manner, and not otherwise; but, if he fails to do
so, he accepts the acceptance.
All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object and
are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in [India], and not
hereby expressly repealed, by which any contract is required to be made in
writing or in the presence of witnesses, or any law relating to the registration
of documents.
Section 10--Notes
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benefit to arise out of the land which is an interest in the immovable property. State of
Orissa v. Titlagarh Paper Mills, AIR 1985 SC 1293.
Agreement-Contract.--When one document refers to another, the two may be read
together as to constitute a complete memorandum and because of non-payment of
stipulated amount neither the partnership came into existence nor the property became
the partnership property, therefore, order of appointment of Receiver in unjustified. [ The
Associated Bombay Cinemas Pvt. Ltd. v. Urmi Developers Pvt. Ltd., (1998) 1 BC 256
(Bom).]
Free consent to contract.--If the respondents are not agreeable to the terms of
petitioner, it is open to them to refuse to sign the agreement and search for another
party which would after better terms even if the Board of Directors of respondent
company accepted the terms and passed are solution. [ Hi-Tech. Gears Ltd. v. Yogi
Pharmach Ltd., (1998) 1 BC 192 (All.).]
Summary suit.--Contract in writing contemplated under Order XXXVII CPC, need not
always be signed by both the parties and need not be evidenced in a single document
written by parties. However, the writing must be such as to arrive at a conclusion that an
agreement was certainly brought into existence and the claim made thereunder ought to
be indisputable. Jyotsna K. Valia v. T.S. Parekh & Co., AIR 2007 (NOC) 2237 : (2007)
4 AIR Bom R 738 (Bom--FB).
Section. 11.
Who are competent to contract.—
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.
Section 11—Notes
As per Sec.11 the following persons are incompetent to contract---
1. A minor.
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2. A person of unsound mind, and
3. A person disqualified by law to which he is subject.
CASE
Refer Page 36 of Reference book.
Though under Section 7 of the Transfer of Property Act, every person competent to
contract is competent to mortgage, in this case, one must see whether the parties
involved are competent to contract. The Privy Council decided that Secs.10 and 11 of
the Indian Contract Act make the minor’s contract void. The Privy Council further held
that a minor’s contract is not only void but void ab initio (from the very beginning).
Therefore any money advanced to a minor cannot be recovered.
CASE
Refer Page 36 of Reference book.
CASE
Hindu Undivided Family.--Indian Contract Act does not impose any disability upon
members of a Hindu Undivided Family in the matter of entering into a contract inter se
or with a stranger. A member of a Hindu Undivided Family has the same freedom of
contract as any other individual and may enter into partnership agreement. Commr. of
Income-tax v. Sir Hukumchand Mannalal and Co., (1970) 79 ITR 18 : AIR 1971 SC 383;
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Ratanchand Darbarilal v. Commr. of Income-tax, (1985) 155 ITR 720 : AIR 1985 SC
1572.
All agreements are contracts if they are made with the free consent of parties.
Both the parties must give their free consent. (Sec.13)-when two or
more person agree on the same thing in the same manner.
The object for which the contract is made must be lawful one.
(Sec.10). That is, must not be opposed to the law of the land. It
should not be therefore opposed to “public policy” i,.e should not be
against “public interest” . For example: A contract for setting up a
gambling house.
Section. 12.
What is a sound mind for the purposes of contracting.—
A person is said to be of sound mind for the purpose of making 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.
A person who is usually of unsound mind, but occasionally of sound mind,
may make a contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind,
may not make a contract when he is of unsound mind.
Illustrations
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CASE.
The appellant took the plea that the two agreements to sell may be declared
invalid as she was suffering from schizophrenia.
Court: - Held the document valid stating that she suffered from schizophrenia
only after signing the documents.
CASE.
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Consent is said to be so caused when it would not have been given but for
the existence of such coercion, undue influence, fraud, misrepresentation or
mistake.
Illustrations
A, on board an English ship on the high seas, causes B to enter into an
agreement by an act amounting to criminal intimidation under the Indian
Penal Code (45 of 1860).
A has employed coercion, although his act is not an offence by the law of
England, and although Section 506 of the Indian Penal Code (45 of 1860)
was not in force at the time when or place where the act was done.
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of void or voidable categories but would also invite penal action under
criminal law jurisprudence that forms part of IPC.
One must therefore be careful about the following offences under IPC:-
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Indian legal context, coercion as defined in Sec 15 of the Contract Act, is
much wider and includes unlawful detention of the property also.
Further Coercion can be committed by any person, not necessarily a party to
the contract. Again it need not be directed against the contracting party, his
parents, wife or child. It may be directed against any person, even if he is a
stranger.
While in English law, duress must be such as will cause immediate violence
and also unnerve a person of ordinary firmness of mind, these requisites are
not necessary in Indian Law, as decided in,
(3) Where a person who is in a position to dominate the will of another, enters
into a contract with him, and the transaction appears, on the face of it or on
the evidence adduced, to be unconscionable, the burden of proving that
such contract was not induced by undue influence shall lie upon the person
in a position to dominate the will of the other.
Nothing in this sub-section shall affect the provisions of Section 111 of the
Indian Evidence Act, 1872 (1 of 1872).
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Illustrations
( a) A having advanced money to his son, B, during his minority, upon B's
coming of age obtains, by misuse of parental influence, a bond from B for a
greater amount than the sum due in respect of the advance. A employs
undue influence.
( b) A, a man enfeebled by disease or age, is induced, by B's influence over him
as his medical attendant, to agree to pay B an unreasonable sum for his
professional services. B employs undue influence.
( c) A, being in debt to B, the money-lender of his village, contracts a fresh loan
on terms which appear to be unconscionable. It lies on B to prove that the
contract was not induced by undue influence.
( d) A applies to a banker for a loan at a time when there is stringency in the
money market. The banker declines to make the loan except at an unusually
high rate of interest. A accepts the loan on these terms. This is a transaction
in the ordinary course of business, and the contract is not induced by undue
influence.]
Section 16--Notes
(1) the relationships between the parties are such that the one party is in a
position to dominate the will of the other and
(2) the party has used that position to obtain an unfair advantage over the
other. Subhas Chandra v. Ganga Prasad, AIR 1967 SC 878.
It is not sufficient for the person seeking the relief to show that the relations
of the parties have been such that one naturally relied upon the other for
advice, and the other was in a position to dominate the will of the first in
giving it. More than mere influence must be proved so as to render influence
in the language of the law "undue", Sathurai v. Kappanna Chaettiar, AIR
1920 PC 65; Afsar Shaikh v. Soleman Bibi, AIR 1976 SC 163.
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Remedies: Remedies for undue influence is rescission. Damages are not
available. Under 19 A of Contract Act, once ‘Rescission’ ordered, the whole
transaction is set aside.
(1) the suggestion, as a fact, of that which is not true, by one who does not
believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the
fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
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Section 17--Notes
Cancellation of sale Deed.--If the plaintiff has challenged the validity of sale
deed, he is not obliged to produce attesting witnesses to rebut its
correctness. Markande v. Sudama Chaubey, AIR 2007 All 70.
(1) the positive assertion, in a manner not warranted by the information of the
person making it, or that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage
to the person committing it, or any one claiming under him; by misleading
another to his prejudice, or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as
to the substance of the thing which is the subject of the agreement.
Section 18--Notes
Where the mind of the signer did not accompany the signature, he never
intended to sign and, therefore, in contemplation of law, he never did sign
the contract to which his name was appended.
He was thus deceived not merely as to legal effect but as to the actual
contents of the document. This is a case where the person executing the
document was totally ignorant of the mischiefs played upon him. This was
fraudulent misrepresentation as to the character of the document and not
merely as to its content or as to its legal effect. He never intended to sign or
never intended to enter into the contract to which he unknowingly become a
party and thus it was a totally void transaction. Ningawwa v. Byrappa, AIR
1968 SC 956; Gorakh Nath Dube v. Hari Narain Singh, AIR 1973 SC 2451.
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