INDIAN CONTRACT ACT 1872

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Introduction

Law of contract Foundation upon which the superstructure of modern business is built Business promise made between parties performance follows later Breaking of a promise without incurring liability endless complications

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Contd

Law of contract lays down legal rules relating to promises, their formation, performance and enforcement Applicable not only to business community but others

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Definitions

Anson Legally binding agreement

between two or more person by which rights are acquired by one or more to Act or forbearance on the part of the other. Salmond an agreement creating and defining obligation between parties Pollock Every agreement and promise enforceable at law is a contract

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CONTRACT

Sec 2(h) An agreement enforceable by law is a contract. Two elements

An Agreement Legal obligation ie, a duty enforceable by law.

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Agreement

Section 2(e) Every promise and every set of promises forming the consideration for each other, is an agreement. Promise What is a promise?

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
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Example

Ram offers to sell his car for Rs 1,00,000 to Shyam. Shyam accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between Ram and Shyam Therefore, an agreement consists of an offer by one party and its acceptance by the other. Agreement = Offer + Acceptance of offer

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Enforceability of Agreement

An agreement is said to be enforceable by law if it creates a legal obligation. If an agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus, an agreement is a wider term than contract.

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Agreement + Legal obligation (Enforceability at law) = Contract

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Contract Act

All contracts are agreement but all agreements are not contracts. Agreements of moral, religious or social nature are not contracts

they are not likely to create a duty enforceable by law parties never intend to create a legal obligation.

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Contd

Ex;

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????

X cannot go to the court to claim his loss.

A father promises to pay his son Rs 1000 as pocket allowance. Later he refuses to pay. Can the son recover the Amount???

The son cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations
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Case

Balfour vs Balfour [(1919) 2 K.B. 571]

A promise by the husband to pay his wife 30 pounds every month . Later Husband refuses to pay. Wife goes to court.

Held: unenforceable as parties never intended it to be bound by legal obligations.

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contd

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

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Case

Rose&Frank Co. vs Corruption Bros [1925 AC 445]

There was an agreement between R company and C company by means of which the former was appointed as the agent of the latter. One clause in the agreement was: This agreement is not entered into.as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.

HELD - There was no binding contract as there was no intention to create legal relationship

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Distinction between an agreement and a contract

Agreement

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.
Contract is concluded and binding on the concerned parties

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Classification of Contract
Enforceabilty Valid Voidable Void Method of Formation Formal Extent of performance Executed Executory Obligation to perform Unilateral

Simple

Bilateral

unenforceab le
Illegal
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Express

Implied

Quasi

Standard Form
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Contingent

Classifications of Contracts: Enforceability

1. Valid contract A contract that meets all of the essential elements to establish a contract 2. Void contract No contract exists a) Is void ( void ab-initio) b) becomes void 3. Voidable contract this contract may be repudiated(cast off) at the will of one of the parties, until it is not repudiated it remains valid. 4. Unenforceable contract A contract that cannot be enforced because it lack some item of evidence like writing, registration, stamping.
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Continued
5. Illegal contract- is one the objective of which a) Forbidden by law or b) Defeats the provision of any law c) Is fraudulent d) Court regard it as immoral Eg: A, B and C enters an agreement to kill D. This agreement is illegal

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Classifications of Contracts: Formation (1 of 2)

1. Express contract A contract expressed in oral or written words 2. Implied Contract

A contract formed in whole or in part by the conduct (as opposed to the words) of the parties. Can be implied in fact or implied in law (quasi contract)

a) Implied-in-fact contract A contract inferred from the conduct of the parties. Eg: A supplies B, a minor with necessaries for his life. A is entitled to be reimbursed from Bs property
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Classifications of Contracts: Formation (2 of 2)

b) Quasi-Contract (Implied in Law)

A fictional contract imposed on parties by a court in the interests of fairness and justice, typically to prevent the unjust enrichment of one party at the expense of the other.

4. Formal contract A contract that requires a special form or method of creation 5. Simple/ Informal contract A contract that requires no special form or mode of creation

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Classifications of Contracts: Performance

Executed contract A contract that is fully performed on both sides. 2. Executory contract A contract that is not fully performed by one or both parties. 3. Bilateral contract a promise for a promise. These are similar to executory contract. Eg: X promises to deliver a car to Y, and Y promises to pay X an agreed price. 4. Unilateral contract A promise for an act. Eg: X offers Y Rs 100 if Y will digs Xs yard. 1.

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Valid Contract
Essentials

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Essential elements of a valid contract

Proper offer and its proper acceptance Intention to create legal relationship Free Consent Capacity to contract Lawful consideration Lawful object Agreement not expressly declared void Certainty of meaning Possibility of performance Legal formalities

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Offer and acceptance

OFFER An offer is the starting point in the making of an agreement. An offer is also called proposal Sec 2(a) 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.

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OFFER

An offer involves the following essential elements;

It must be made by one person to another person It must be an expression of readiness or willingness to do (i.e., a positive act) or to abstain from doing something (i.e., a negative act) It must be made with a view to obtain the consent of that other person to proposed Act or abstinence. Eg: Abhishek offers to sell his book to Sakshi. (positive act)

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Contd

Offeror The person making the proposal is called the offeror or proposer. Offeree The person to whom the proposal is made is called the offeree or the proposee.

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Types of offer
General offer When the offer is made to the world at large. Specific offer When the offer is made to a definite person. Eg Pratham offers to sell his home to Sahil at a certain price. The offer has been made to a definite person. Implied offer An offer may be implied from the conduct of the parties or the circumstances of the case. eg If the Lucknow rajdhani train is standing on the platform of Delhi station, it signifies by this act only that it will go to Lko.

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Contd

Intention to create legal relationship

An offer must be such that when it is accepted it will create a legal relationship Eg Balfour vs Balfour [(1919) 2 K.B. 571]

Certain and unambiguous terms

If the terms of the offer are vague or indefinite, its acceptance cannot create any contractual relationship. Eg. A offers to sell B a hundered quintals of oil. This statement does not show what kind of oil is being offered to B

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Legal rules as to offer

Certain and unambiguous terms Intention to create legal relationship No term of noncompliance of which amount to acceptance Different from a mere declaration of an intention
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Different from an invitation to offer

Proper communication

Communication of special terms

Contd

Different from a mere declaration of intention Mere declaration of intention indicates that an offer will be made or invited in the future

A declaration of intention by a person does not give right of action to another.

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Case

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

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Contd

Different from an invitation to offer

In an invitation to offer the person making an invitation invites others to make an offer to him

It is prelude to an offer inviting negotiations or preliminary discussions Case

Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401 In a departmental store there is a self-service. The customer picking up the article and going to the cashers desk to pay is an offer to buy. When a casher accepts the payment a contract is entered into.

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Contd

Offer must be communicated

An offer must be communicated to the person to whom it is made. An offer is complete only when it is communicated to the offeree 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.

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Contd

No term of non-compliance of which amounts to acceptance

The offer must not contain a term, the non-compliance of which amount to acceptance Ex: A offers by post to sell his horse to B for Rs 2000. He writes, If you do not reply, I shall assume you have accepted the offer. There would be no contract even if B does not reply While making the offer, the offeror cannot say that if the offer is not accepted before a certain date, it will be presumed to have been accepted

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Contd

Communication of special terms or standard terms of contract

Special terms of the offer must also be communicated along with the offer. If the special terms of the offer are not communicated, the offeree will not be bound by those terms.

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Acceptance

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

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Contd

Who can accept

In case of a specific offer To be accepted by that definite person or that particular group of persons to whom it has been made and non else. In case of general offer 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.
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Contd

How to make acceptance

Express acceptance An express acceptance is one in which is made by words spoken or written Implied acceptance An implied acceptance is one which is made otherwise than in words. It is inferred from the conduct of the parties or the circumstances of a particular case

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Legal rules of valid acceptance

Absolute and unqualified Manner Communication By whom To whom Before the lapse of the offer

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Communication of offer and acceptance

Must be complete so as to bind the concerned parties because as soon as the communication is complete the parties loose the right of withdrawal or revocation.

(a) Communication of offer It is complete when it comes of the knowledge of the person to whom it is made.

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Contd

Communication of acceptance

As against the proposer When it is put in a course of transmission to him, so as to be out of the power of the acceptor. As against the acceptor When it comes to the knowledge of the proposer.

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Revocation of offer and acceptance

Taking back, withdrawal (sec 5) Time for revocation of proposal A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

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Contd

Time for revocation of acceptance An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

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