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THE INDIAN CONTRACT ACT (ICA), 1872
What is a contract?
Section 2(h)
“An agreement enforceable by law is a contract”.
Thus,
Contract = Agreement + Enforceability at Law
Agreement?
Section 2(e)
Promise/(s) Promise/(s) = Agreement
(in exchange for)
Promise?
Section 2(b)Promise = Proposal/Offer + Acceptance
Proposal?Section 2(a)Expression of willingnessWith a view to seek the assent of the otherThus, mere expression of willingness doesn’t constitute offer/proposal.
Acceptance
Section 2(b)
Giving of assent to the proposal.
Enforceability by Law
Agreements which are not enforceable
Illegal/unlawful agreements, e.g., to smuggle/to kill
Social Agreements (Balfour vs. Balfour)
Agreements Declared Void under ICA
e.g.Agreement with or by a minorAgreement in restraint of tradeMarriage brokerage contractWagering/Betting Agreements
Kinds of Contracts
From the point of view of Enforceability
Void
Voidable
Valid
Void Agreement vs. Void Contract
Void Agreementi.e., void-ab-initio i.e. unenforceable from the very beginningBecomes void (Void Contract)
Voidable i.e., void + able
i.e., capable of being declared void(unenforceable) at the option of one of the parties to the contract but not at the option of the other.
Valid Contract
Section 10To be a valid contract, it must satisfy the following:
1. Offer and Acceptance2. Consensus-ad-idem (Meeting of minds)
i.e., persons must agree to the same thing in the same sense and at the same time.
3. Intention to create legal relationship as against social relationship or illegal/unlawful relationship.
4. Free and Genuine Consent, i.e., free from coercion undue influence fraud misrepresentation mistake
5. Parties competent to contract
6. Lawful consideration and object, i.e., something in return and that must be lawful.
Valid Contract
(‘Object’ and ‘Consideration’ usually overlap. However, there may be difference at times e.g., object may be to kill competition and for that purpose in view, a senior manager of the competitor may be paid a certain amount to give unrealistically high quotation.)Here: Object is to kill competition. Consideration is :
(i) payment of money (ii) giving high quotations
Valid Contract
7. Agreement not declared void.
8. Certainty of Meaning: e.g. sale and purchase of 100 tonnes of oil. But which oil? Thus, agreement being uncertain – not valid.
But, if the seller deals only in one kind of oil and one variety, then it shall be valid since it is capable of being made certain.
Valid Contract
9. Possibility of performance: Impossibility whether known to the parties or not, renders a contract invalid.
10.Necessary legal formalities: e.g. sale-deed of immovable property.
Void vs. Illegal Agreements
Void Agreement Illegal Agreement
1. Unenforceable
2. Not Punishable
3. Collateral transactions unaffected.
1. Unenforceable
2. Punishable (fine or imprisonment or both)
3. Collateral transactions are also void.
Specific and General Offer
Specific Offer: made to a specified person or a group of
persons. can be accepted only by the person to
whom made.
Thus, if offer is addressed to ‘A’, ‘B’ cannot accept it.
Case Law: Boulton vs. Jones
Specific and General Offer
General Offer: which is not a specific offer. made to the world at large. can be accepted by anyone by
complying with the terms of the offer. Case Law: Carlill vs. Carbolic Smoke
Ball Co.
Offer vs. Invitation to offer
Illustrations of Invitation to Offer: Prospectus issued by a college. Prospectus issued by a company. Invitation of bids in an auction. Price-catalogues, price lists, quotations Display of goods with a price-tag in a
shop window.
Special Terms in a Contract
Examples: Dry cleaner’s receipt, courier’s receipt, shipment receipt, insurance policy, etc.
Binding if communicated or attention drawn to the fact that there are certain special terms and conditions.
Not binding if attention is not drawn and the other party not aware of.
Cross Offers & Counter Offers
Cross Offers
Identical offers cross each other and none of the parties is aware of the same. Doesn’t result in a contract unless one of them is accepted.
Counter Offer
Instead of accepting an offer, the offeree makes a counter offer, i.e., accepts the same subject to certain conditions or qualification.
Contracts through Post
Communication of Offer
is complete when the offeree has the knowledge of the same.
Communication of Acceptance It has two aspects, viz.,
As against the proposer As against the acceptor
As against the proposer
Communication is complete as soon as a duly addressed letter of acceptance is put into the course of transmission.
Whether the same reaches the proposer or not.
As against the acceptor Communication is complete only when the
proposer has received the letter and learnt the contents thereof.
Communication of Revocation
Communication of revocation (of offer or acceptance) is complete: As against the person who makes it
when it is put into the course of transmission.
As against the person to whom it is made, when it comes to his knowledge.
Comparing ‘offer’ to a ‘train of gunpowder’ and ‘acceptance’ to a ‘lighted match stick’ – How far correct?
William Anson’s observation though valid in the English context doesn’t hold good in India since in India acceptance is revocable.
Claim for Damages
Damages U/S Section 73
Damages U/S Section 74
Only damages naturally flowing
From breach (Ordinary
Damages)
Special Damages(No claim for
consequential loss unless in the
Contemplation of the parties
(Hedley v. Baxendale
ExemplaryDamages
Nominal Damages
Pre-fixed Damages
Penalty
Liquidated Damages(What can be recovered is
actual loss or amount prefixed, whichever is less)