MODULE 1

INDIAN CONTRACT ACT, 1872

PRESENTED BY: CHHAVI MANRA

MAKING OF A CONTRACT
AGREEMENT CONTRACT

PROMISE

Legal Binding

Consideration

ACCEPTANCE

OFFER

DEFINITION According to Section 2(h) of the act, An agreement enforceable by law is a contract. Promise = Proposal + Acceptance Agreement = Promise + Lawful Consideration

ESSENTIALS OF A VALID CONTRACT

Offer & Acceptance
Free Consent Lawful Object Certainty of Objective Possibility of performance Intention to create legal relationship

Lawful Consideration
Capacity of Parties Legal Formalities Not Declared To Be Void

VALID CONTRACT

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

KINDS OF OFFER

How made?

To whom made?

Express offer

Implied offer

Specific Offer

General offer

Offer by abstinence Cross offer Counter 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.

ACCEPTANCE
DEFINITION 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.

COMMUNICATION
I 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.

CONSIDERATION
Section 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

MINOR
Definition A minor is one who has not completed his or her 18 years of age. Rules regarding minors 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 Corporations Exception : Property liable for necessaries provided Burden of Proof

FREE CONSENT
Definition As 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.

CONSENT IS NOT FREE WHEN IT IS CAUSED BY

Coercion

Undue Influence

Fraud

Misrepresentation

Mistake

VOIDABLE

VOID

Bilateral Mistake

Unilateral Mistake

As to subject matter

Possibility of Performance

Nature of contract

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 matter Effect : 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

DISCHARGE BY BREACH
Anticipatory Breach Actual Breach - when performance is actually due - when actually performing the contract

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

Damages

Injunction

Quantum Meruit

Specific Performance

General or ordinary Special Vindictive or exemplary Nominal

CLASSIFICATION OF CONTRACT
Enforceability Valid Void Voidable Unenforceable Illegal Standard Form Method of formation Formal Extent of performance Executed Unilateral Obligations to perform

Simple

Executory

Bilateral

Express

Implied

Quasi

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 ones 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 nongratuitous 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 moneys worth on the happening of some uncertain event in consideration of the other partys promise to pay if the event does not happen. Essentials Promise to pay money or moneys 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

THANK YOU