Indian Contract Act - 1872 Final

8/4/2019 Indian Contract Act - 1872 Final

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Indian Contract Act - 1872


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About Indian Contract Act 1872 (ICA)

It tells the way we enter into a contract, execute acontract, implement provisions of a contract andeffects of breach of a contract.

The rights and duties of parties and terms of

agreement are decided by the contracting partiesOnly. The court of law acts to enforce agreement, incase of non-performance.

It provides a framework of rules and regulations

which govern formation and performance of contractthat extends to the whole of India except the State ofJammu and Kashmir

The act is not exhaustive

jus in personam jus in rem


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What is contract?

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

Thus for the formation of a contract theremust be;

An agreement ( offer + acceptance)

The agreement should be enforceable bylaw

CONTRACT = AGREEMENT + ENFORCE BYLAW


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What is an agreement? Every promise and every set ofpromises, forming

the consideration for each other, is an agreement.[section 2(e)].

A person makes a proposal (offer). When it isaccepted by other, it becomes a promise

For example,

A agrees to pay Rs 100 to B and B agrees to givehim a book which is priced at Rs 100 is an

agreement

if A invites B to dinner and B agrees to come, it isnot an agreement as defined in Contract Act


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Meaning of Proposal

When one person signifies to another hiswillingness 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. [section 2(a)]

Thus, a proposal can be to do a positive act or

abstinence from act


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Meaning of Promise

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. [section 2(b)].

The person making the proposal is called the

promisor, and the person accepting the

proposal is called the promisee. [section

2(c)].


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Meaning of Consideration

When, at the desire of the promisor, thepromisee or any other person has done orabstained from doing, or does or abstains fromdoing, or promises to do or to abstain from

doing, something, such act or abstinence orpromise is called a consideration for thepromise. [section 2(d)].

Consideration is something in return

promise without consideration is notagreement and hence naturally, it is not acontract.


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Essentials of a Valid Contract

Proposal and its acceptance

Lawful consideration with lawful object

Parties should be competent to contract

Free consent of both parties

Agreement should not have been declared as voidunder Contract Act or any other law

Writing and registration if required by law

Legal relationship Certainty

Possibility of performance

Enforceable by law


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Examples

Proposal and Acceptance

An acceptance with a variation is no acceptance; it is simply acounter proposal.

A agrees to sell his house to B for 10,000 rupees. But B agreesto buy the house for Rs 9,000 only. The acceptance of Bscounter proposal by A will make a valid contract.

Lawful consideration with lawful object

A, B and C enter into an agreement for the division amongthem of gains acquired, or- to be acquired, by them by fraud.

The agreement is void, as its object is unlawful.

A promises to obtain for B an employment in the publicservice, and B promises to pay 1,000 rupees to A. Theagreement is void, as the consideration for it is unlawful.


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Competent to Contracts

Every person is competent to contract who is of theage of majority according to the law to which he issubject.

who is ofsound mind/ occasionally or unsound mind

E.g. A sane man, who is so drunk that he cannot

understand the terms of a contract or from a rationaljudgment as to its effect on his interests, cannotcontract whilst such drunkenness lasts

Who is at the time when he makes the contract, he is

capable of understanding it and of forming a rationaljudgment and its effect upon his interests.

Disqualified by law alien enemy, convict during theperiod of his punishment, insolvent during his period of

insovancy


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Free consent of both parties

Consent defined

Two or more persons are said to consent when

they agree upon the same thing in the same

sense.

Consent is said to be free when it is not caused

by coercion, undue influence, fraud,misrepresentation or mistake.


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Free Consent

Agreed upon the same thing in the same sense

Not caused by i) coercion ii) undue influence, iii) fraud

iv) misrepresentation v) mistake

Without free consent contract becomes voidable withthe option of the party whose consent was not free

except the consent under mistake

Contract becomes void if the consent is caused by

mistake


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Agreement must not be expressly declared as void

Agreement in restraint of marriage void.- Every agreement in restraint of the marriage of any person,

other than a minor, is void.

Agreement in restraint of trade void.

- Every agreement by which anyone is restrained fromexercising a lawful profession, trade or business of any kind,

is to that extent void.

Agreements in restraint of legal proceedings void.

- Every agreement in which any party is restricted absolutely

from enforcing his rights under any contract, by the usual

legal proceedings.


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Writing and registration if required by law

Oral contract is a valid contract. But whereverrequired by law, the contract must be in writing

and registered. E.G. Gift, Mortgage, Sale, Lease,

Memorandum and Articles of Association,

documents specified under Indian registration Act,1908 etc.


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Certainty

Agreements, the meaning of which is not certain, or

capable of being made certain, are void

Situation 1.) A agrees to sell to B "a hundred tons of oil ".There is nothing about what kind of oil was intended. Theagreement is void for uncertainty.

Situation 2.) A agrees to sell to B " my white horse forrupees five hundred or rupees one thousand". 'There isnothing to show which of the two prices was to be given.

The agreement is void


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Possibility of performance

Contact based on impossibility of performance are notvalid. Contact must be capable of being performed

E.g. An artist agrees to make a painting for A for

consideration. Artist looses both his hands in an

accident. The contract becomes void

Enforceable by law

Any agreement not enforceable by law is a mere

agreement and not contract


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Classification of contracts

Classification according to Validity Valid Contract when all the essentials of valid

contract are present then it becomes a valid

contract.

Void Contract sec 2(j)Not enforceable by law.

A contract may be valid at the time of entering

but can get void later e.g. Contract with A

abroad becomes void with the outbreak of war

with that country

- All illegal agreements are void contracts.


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Classification according to Validity cont

Voidable Contract Sec2(i) An agreement that isenforceable by law at the option of one or more

parties but not at the option of others.

E.g. A in contract with B prevents B to perform hisduties for what so ever reason

- A in contract with B for certain period and if A

fail to complete the task in time.

- Any agreement under undue influence, coercion,

misrepresentation, fraud or mistake


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Classification according to Formation

Express contractThe terms of contract areexpressly agreed upon whether in writing or by

words at he the time of formation of the

contract.

Implied contract Contracts that are inferredfrom the acts or conduct of the parties or

course of dealings between themE.g. Getting into a public bus

- Taking a cup of tea in a restaurant


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Classification according to Formation

Quasi Contacts

Quasi contracts are created by law and not by

intension of the parties.

A person is not allowed to enrich himself

unjustly at the expense of another

E.g. A tradesman leaves goods at Cs place bymistake. If C uses the goods then C is liable to

pay for the goods

E-Commerce Contract


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Classification According to Performance

Executed contract - Contracts that are done

Executory contracts - Where both the parties areyet to perform their obligation.

A contract can be partly executed or party Executory. Contract with executed consideration/

Unilateral/one-sided contract

Contracts that comes into existence after

execution by one party.

E.g.- Railway coolie


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Classification as per English law

Contracts of record Contracts that are takenon record by court e.g. judgments

Contract under Seal / Specialty contract

Contracts that are in writing , signed, sealedand delivered by parties Consideration is not

necessary in such contracts like gifts

Simple contracts Contracts that are not underseal are simple contracts


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PRACTICAL PROBLEMS


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PRACTICAL PROBLEMS

Documents

Indian Contract Act - 1872 Final