Cases

& FAQ’s

Indian contract Act,1872

• FAQs - Indian Contract Act

• Q1) What is a contract?

• Q2) Under what conditions a contract does stands valid?

• Q3) Who is competent to enter into a contract?

• Q4) How is a contract made?

• Q5) What is a 'Quasi contract'?

• Q6) What constitutes 'breach of contract'?

• Q7) What compensations are available to the party suffering from such a breach?

• Q8) What is fraud??

• Q9) When are contracts said to be completed: when the signing party submits the signed party or the receiving party receives the signed copy of the contract?

• Q10) What is Specific Performance?

Q1. What is a contract?

Ans - Any agreement that is enforceable by law is termed as "Contract".

Q2. Under what conditions a contract does stands valid?

Ans - If, under any given condition, the contract fulfills the following conditions, it is said to be a valid contract:

• Made by free consent of parties. Consent is said to be free if it is not caused by coercion, undue influence, fraud, misrepresentation and mistake.

• Made for a lawful consideration, i.e. not immoral, fraudulent, forbidden by law, fraudulent, against public policy in the eyes of the law or disqualified from contracting by any law to which he is subject. [Section 11].

• Not expressly declared to be void.

Q3. Who is competent to enter into a contract?

Ans - A person who is:

1. Age: Major by age, as per the applicable laws.2. Mental Capacity: Of sound mind i.e. one who is capable of understanding the terms and conditions of the contract and is capable of making a rationale agreement.3. Legal Requirements: Not disqualified to enter into any contract by any law.

Q4. How is a contract made?

Ans - Any contract is formed via the following steps:

1. Proposal/Offer: One party proposes or offers the second party. 2. Negotiation: The parties involved negotiate and come to a common goal.3. Acceptance: Both the parties accept the terms finalized and a contract is created.

Q.5 What is a 'Quasi contract'?Ans - 'Quasi contract' is not a 'contract' but an

obligation created by law (in the absence of any agreement) for certain relations resembling those that are created by Contract. It is based on the concept of equity.

These are termed as 'quasi contracts'. These are - (a) Supply of necessaries (section 68) (b) Payment of lawful dues by interested person (section 69) (c) Person enjoying benefit of a gratuitous act (section 70) (d) Finder of goods (section 71) (d) Goods or anything delivered by mistake or coercion (section 72).

Q6. What constitutes 'breach of contract'?

Ans - The parties to a contract must either perform or offer to perform, their respective promises, if not dispensed with or excused under the provisions of the Act, or any other law.

Non-performance of the duty undertaken by a party in a Contract amounts to breach of contract, for which he can be made liable.

Q7. What compensations are available to the party suffering from such a breach?

Ans - Under the Act, if a sum is provided for in the contract as the amount to be paid in case of such a breach, or if the contract contains any other clause for penalty, the party complaining of the breach is entitled to receive from the party at fault, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract.

In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation.

Q8. What is fraud?

Ans - Fraud constitutes certain acts done with the intention to deceive or to induce a person to enter into a contract.

Q9. When are contracts said to be completed: when the signing party submits the signed party or the receiving party receives the signed copy of the contract?

Ans - Contracts are said to be completed the moment the signing party signs the copy and dispatches them to the receiver.

Q10. What is Specific Performance?

Ans - Specific performance means actual execution of the contract as agreed between the parties.

• I want to file a case against a party, which signed a contract with me for not following the terms of that contract. The contract was signed in Bombay but I made the offer in Delhi. Can I file the case in Delhi?

• A. Suit on breach of contract may be filed at the place where it was made or at the place where it should have been performed and the breach occurred. Mere making an offer does not constitute cause of action in a suit for damages for breach of contract. But when it was accepted, suit may be filed at the place of acceptance.

1

• I entered into an agreement with a company. All the proposals made by me were accepted though a formal contract is not yet concluded. Now the other party wants to change certain terms. Can they do so?

• A. No the other party cannot change the term of the contract as the proposals made by you had been accepted. As such, the contract is completed even though the formal agreement has not been concluded. Any unilateral change in the agreement without your prior consent, amounts to breach of the terms of contract.

2

• We have contracted with a foreign company to make computers. After the formal contract was executed we came to know about their previous offer to the other Company. Can the company be now sued for fraud because of concealment of information?

• A. You cannot sue the Company as no fraud has been committed by the Company on account of non-disclosure of information relating to previous offer or any past transaction. The Company is not obliged to disclose such information relating to previous offer to any other company.

3

• I want to enter into an agreement with a Firm whereby that Firm will not bid for a public auction of the govt. Am I legally permissible to do so?

• A. Section 27 of the contract Act, provides that any agreement in restrain of trade is void. In view of this provision, you cannot legally enter into an agreement with a Firm whereby that Firm will not bid for a public auction of the Govt.

4

• I entered into an agreement to buy a Flat. The seller did not give the possession of the Flat after the contract was concluded and earnest money paid. Am I now entitled to the money paid by me to the seller?

• A. You are entitle to the refund of money paid by you to the seller on account of his failure to perform his part of the contract. In case the seller fails to refund the said amount, you can file a suit for damages cause by breach of contract by the seller. You can also file a suit for specific performance of the contract, if you want to take the flat.

5

• I am a Banker working with the Bank I want to know what reasonable care should be taken by a Banker while accepting a Customer. Is there any law relating to the same effect ?

• A. As a general rule a banker before accepting a customer, must take reasonable care to satisfy himself that the person in question is of good reputation; and if he fails to do so he will run the risk of forfeiting the protection given by S.131 of the Negotiable Instrument Act but 'reasonable care' will depend on the facts and circumstances of the case. The courts have tended to accept the practices and procedures which bankers lay down for themselves, but that can by no means be decisive.

6

• . I had taken certain loan from my Bank and I defaulted in making payment of a couple of installments. The Bank thereafter to refuse to give me services of their Bank on that ground. Can the Bank stop operation of my current account or interfere in my day to day business transaction ?

• A. Subject to Bank's right to sue for arrears the customer concerned the bank is to allow the operation of one current account, which will be free from the incidence of banker's lien so as to enable the party to carry on its normal day to day business transactions, to obtain letters of credit at full margin and to enable payment on several heads.

7

• I instituted a divorce proceedings against my wife which is pending in the court. We had a locker, which could be operated by both of us. During the continuance of the case my wife withdrew all the contents of the locker. Is her action justified in law and what should I do ?

• A. When a joint locker is operatable by both the spouses, removal of contents of locker by one spouse during the pendency of a matrimonial proceeding between the parties is improper.

• My father had pledged certain Gold ornaments with the State Bank against sudden loan taken by him. My father has since died and I approach the Bank for release of the ornaments and offered them to pay the amount. The Bank is however refusing to do the same what should I do ?

• A. Gold ornaments pledged with a Bank as security for loan obtained do not fall within the term "security" or "debt" and as such, bank cannot insist on a succession certificate when on the death of pledgor his successor approaches the bank for release of ornaments on payment of all dues.

• .I paid to a lawyer by cheque to process my papers for Canadian immigration in 1996. As of today he has not done anything, he does not reply to my registered letters, but tells me that he will repay the amount very soon, when I called him numerous times from my residence in America where I am staying for past two years. What is my remedy?

• A. You can file suit for recovery and damages against the said Lawyer at Calcutta only. You can also approach the Consumer Court at Calcutta for the recovery of the amount. The limitation for recovery suit is three years from the date of payment. However, in Consumer Court, limitation is one year from the last correspondence of refusal. That apart, you can also lodge a complaint with the Bar Council of Calcutta against the said lawyer for his conduct and seek cancellation of his license.

• The bank has towed away a vehicle on account of default of 2 installments. The concerned party has offered to pay the defaulted installment but the bankers have refused to return the vehicle and have issued a letter saying that the vehicle has already being sold & are demanding payment of the entire loan amount . Kindly advice the legal options available to the owner of the vehicle hypothecated to the bank?

• A. You can file the suit for recovery of car or in the alternative for damages you have suffered. The bank has no right to sell the car without giving notice to you.

• I had dispatch certain articles on a transport company which were to be delivered to one of the customers who had paid the amount for the same. The Transport Company lost goods and it never reached our customers. After receiving amount from customer can I as owner sue the Transport Company? Can our customer also file a case and on what basis?

• A. The consignor is entitled to sue for the carrier either on the basis of title, if the property in the goods has got passed from him or on the basis of the privity of contract between himself and the carrier for the carriage of goods. If the true owner of the goods has failed to bring an action against the carrier for the loss of or damages to the goods, the consignee is not without remedy. Courts have power to circumnavigate technical hurdles to prevent miscarriage of justice. The consignor, though without title, had privity of contract with the carrier for carriage of goods and so is allowed to sue on it.