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INDIAN CONTRACT ACT 1872

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Introduction

Law of contractFoundation upon which thesuperstructure of modern business is built

Businesspromise made between parties

performance follows later

Breaking of a promisewithout incurring liability

endless complications

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Contd -

Law of contract lays down legal rulesrelating to promises, their formation,

performance and enforcement

Applicable not only to business

community but others

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Definitions

nsonLegally binding agreementbetween two or more person by whichrights are acquired by one or more to Actor forbearance on the part of the other.

Salmond an agreement creating anddefining obligation between parties

PollockEvery agreement and promiseenforceable at law is a contract

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CONTRACT

Sec 2(h) An agreement enforceable by law is acontract.

Two elements -

An Agreement Legal obligation ie, a duty enforceable by

law.

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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 byone party and its acceptance by the other.

Agreement = Offer + Acceptance of offer

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Agreement + Legal obligation(Enforceability at law) = Contract

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Contract Act

All contracts are agreement but all agreements arenot 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; Xinvites his friendYto a dinner andYaccepts the

invitation. IfYfails to turn up for the dinner. Can he takehis friend to Court????

X cannot go to the court to claim his loss.

A father promises to pay his son Rs 1000 as pocketallowance. Later he refuses to pay. Can the son recoverthe Amount???

The son cannot recover as its is a domesticagreement and there is no intention on thepart 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 anintention 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 validcontract 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 AC445]

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 agreementwas: 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 Offer and its acceptance

constitute an agreement

An agreement may or

may not create a legalobligation

Every agreement neednot necessarily be acontract

Agreement is notconcluded or bindingcontract

Contract Agreement and its

enforceability constitutea contract

A contract necessarilycreate a legal obligation

All contracts arenecessarily agreements.

Contract is concludedand binding on theconcerned parties

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Enforceabilty Methodof

Formation

Extent of

performance

Obligation to

perform

Valid

Voidable

unenforceab

le

Illegal

Void

Executed

Executory

Express

Formal

Simple

Implied StandardForm

ContingentQuasi

Bilateral

Unilateral

lassificationof ontract

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Classifications of Contracts:Enforceability

1. Valid contractA contract that meets all of theessential elements to establish a contract

2. Void contractNo contract exists

a) Is void ( void ab-initio)

b) becomes void

3. Voidable contractthis contract may be

repudiated(cast off) at the will of one of the parties,

until it is not repudiated it remains valid.

4. Unenforceable contractA 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 whicha) 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 contractA contract expressed in oral orwritten words

2. Implied Contract

A contract formed in whole or in part by the conduct (asopposed to the words) of the parties.

Can be implied in fact or implied in law (quasi contract)

a) Implied-in-fact contractA contract inferred fromthe conduct of the parties.

Eg: Asupplies B, a minor withnecessaries for hislife. Ais entitled to be reimbursed from Bsproperty

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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 contractA contract that requires a special

form or method of creation

5. Simple/ Informal contractA contract that requiresno special form or mode of creation

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Classifications of Contracts:Performance1. Executed contractA contract that is fully performed

on both sides.

2. Executory contractA contract that is not fully

performed by one or both parties.

3. Bilateral contracta promise for a promise. These aresimilar to executory contract.

Eg: X promises to deliver a car to Y, and Y promises to payX an agreed price.

4. Unilateral contractA promise for an act.

Eg: X offers Y Rs 100 if Y will digs Xs yard.

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Valid Contract

Essentials

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i l l f lid

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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

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 doingsomething (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

OfferorThe person making the proposal is calledthe offeror or proposer.

OffereeThe person to whom the proposal is made

is called the offeree or the proposee.

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Types of offer

General offerWhen the offer is made to the worldat large.

Specific offerWhen 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 adefinite person.

Implied offerAn 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. Thisstatement does not show what kind of oil is being offered

to B

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Legal rules as to offer

Certain andunambiguous

terms

Intention tocreate legalrelationship

Different froman invitation to

offer

Propercommunication

No term of non-compliance ofwhich amount to

acceptance

Communicationof special terms

Different from amere declaration

of an intention

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Contd -

Different from a mere declaration of intention

Mere declaration of intention indicates thatan offer will be made or invited in the future

A declaration of intention by a person doesnot give right of action to another.

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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 orpreliminary discussions

Case Pharmaceutical Society of Great Br i t ian vs Boo tscash chemis ts L td (1953) 1 QB 401

In a departmental store there is a self-service. The

customer picking up the article and going to the cashersdesk to pay is an offer to buy. When a casher accepts thepayment 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 tothe offeree

Acceptance is not possible unless offer is brought tothe knowledge of the offeree. ie, One can accept theoffer only when he knows about it.

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Contd -

No term of non-compliance of which amounts toacceptance

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 standardterms 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 madesignifies 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 personhaving 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 orwritten

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

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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 offerIt 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 proposalA 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 acceptanceAn acceptance

may be revoked at any time before the

communication of the acceptance is complete as

against the acceptor, but not afterwards.