Indian Contract Act, 1872.ppt

8/14/2019 Indian Contract Act, 1872.ppt

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Indian Contract Act, 1872

[Act No. 9 of Year 1872, dated

25th. April, 1872]


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What is a Contract?

2(h) An agreement enforceable by law is a contract;

2(e) Every promise and every set of promises, forming theconsideration for each other, is an agreement;

2(b) When a person to whom the proposal is made, signifies hisassent thereto, the proposal is said to be accepted. A proposal, whena accepted, becomes a promise;

2(c) The person making the proposal is called the "promisor", and theperson accepting the proposal is called "promisee",

2(a) When one person signifies to another his willingness to do or toabstain from doing anything, with a view to obtaining the assent ofthat other to such act or abstinence, he is said to make a proposal;

2(d) When, at the desire of the promisor, the promisee or any otherperson has done or abstained from doing, or does or abstains fromdoing, or promises to do or to abstain from doing, something, such

act or abstinence or promise is called a consideration for the promise;


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Elements of an agreementAgreement = offer or proposal + an acceptance of that

offer or proposal

Elements of a contractContract = Agreement + legal obligation, i.e. it should be

enforceable by law

The law of Contracts is not the whole law of agreementsnor is it the whole law of obligations. It is the law of thoseagreements which create obligations, and thoseobligations which have, their source in agreements. -Salmond

What is a Contract?


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ESSENTIAL ELEMENTS OF A VALID

CONTRACT

Agreement

Intention to create legal relationship

Free and genuine consent

Parties competent to contract Lawful consideration

Lawful object

Agreement not declared void or illegalCertainty of meaning

Possibility of performance

Necessary legal formalities


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Classification of Contracts

Contracts may be classified in terms of their:Validity or enforceability

Mode of formation

Performance

Classification according to validity orenforceabilityValid

Voidable

Void

Illegal

unenforceable


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Classification according to validity or enforceability Valid

Have all essential elements discussed earlier

Voidable An agreement which is enforceable by law at the option of one or more of

the parties thereto, but not at the option of the other or others.

[Deficiency of free consent = M, F, UI, C, M]

Void agreement not enforceable by law is said to be void

A contract which ceases to be enforceable by law becomes void when itceases to be enforceable (subsequent impossibility or subsequent illegality)

Illegal One the consideration or object of which (1) is forbidden by law; or (2)

defeats the provision of any law; or (3) is fraudulent; or (4) involves orimplies injury to person or property of another; or (5) the court regards itimmoral or opposed to the public policy.

Also taints collateral transactions with illegality

Unenforceable Is neither void nor voidable, but can not be enforced because it lacks some

item of evidence such as writing, registration or stamping.


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Mode of formation

Expressterms stated in words (written or spoken)

Implied- terms inferred from the conduct of the

parties or circumstances.

Performanceextent to which performed

Executed (wholly performed) and executory (partially

performed) or

Unilateral (at the time of formation obligation to perform

on the part of one party only) and Bilateral


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Offer and Acceptance

OFFER / PROPOSAL

A proposal is defined as 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. [Section 2(a)]

The person making the proposal is called the

"promisor", and the person accepting the proposalis called "promisee.[Section 2(c)]


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How an offer is made? Communication, acceptance and revocation of proposals:

The communication of proposals, the acceptance of proposals,and the revocation of proposals and acceptance, respectively,are deemed to be made by any actor omission of the partyproposing, accepting or revoking, by which he intends tocommunicate such proposal, acceptance or revocation, or whichhas the effect of communicating it. [Section 3]

Thus an offer can be made by an act i.e. by words (written or verbal), by conduct (silenceO)

or by omission (to do something) Implied offer

Offer implied from the conduct of the parties or from thecircumstances of the case is known as implied offer.


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Specific and General Offer:

an offer can be made either:

To a definite person or a group of persons, or

To the public at large

Carlill v. Carbolic Smoke Ball Co.


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Must be made with a view to obtain acceptance [Section 2a].

Must be made with a intention of creating legal relationship. [ Balfourv. Balfour]

Terms must be definite, unambiguous and certain or capable of

being made certain [Section 29].

Offer must be distinguished from mere declaration of intention or aninvitation to offer. D are Statements made without an intention to create a binding legal

obligation amount to a mere declaration of intent and not to a proposal.

An offer is distinct from an invitation to offer. College prospectus foradmission, invitation of offers by auctioneer at the time of auction,display of goods etc. (final expression of willingness)

It must be communicated to the offeree before it can be accepted.[Laxman Shukla V. Gauri Datt]

Essential Requirements of a valid offer


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The offer must not contain a term the non-compliance of which may beassumed to amount to acceptance.

A tender is an offer as it is in response to a invitation to offer. Specific or Definite

Standing

The special terms, forming the part of the offer, must be dully broughtto the notice of the oferee at the time the offer is made. By drawing his attention to them specifically

By inferring that a man of ordinary prudence could find them by exercising

ordinary intelligence

To identical cross offers do not make a offer. Where two parties make identical offers to each other, in ignorance of each

others offer, the offers are known as cross-offers and neither of the twocan be called an acceptance of the other and, therefore there is nocontract.

Essential Requirements of a valid offer


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Termination or Lapse of Offer

An offer lapses after stipulated or reasonable time.

by death or insanity of the offeror or the offeree beforeacceptance.

An offer terminates when rejected by the offeree.

when revoked by the offeror before acceptance

By not being accepted in the mode prescribed, or if no mode isprescribed, in some usual and reasonable manner.

When the condition is not accepted in case of a conditional offer. By counter offer by offeree (acceptance of offer but subject to

certain condition or qualification).


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Acceptance

When a person to whom the proposal is made,signifies his assent thereto, the proposal is saidto be accepted. A proposal, when a accepted,becomes a promise. [Section 2b]

Acceptance how made? May be express orimplied.It is express when signified either in writing, or by word

of mouth, or by performance of some required act.

Implied when it is to be gathered from surroundingcircumstances or the conduct of the parties.

Who can accept?


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Essentials of a valid acceptance

Must be absolute and unqualified.

Must be communicated.

Must be according to the mode prescribed.

Must be given within the time specified or within

a reasonable time.

Must be in response to an offer.

Must be made before the offer lapses.Must be given by the person to whom the offer is

made.


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Communication of offer acceptance and

revocation

Communication when complete [Sec. 4] The communication of a proposalis complete when it comes to

the knowledge of the person to whom it is made.

The communication of an acceptanceis complete

as against the proposer, when it is put in a course of transmission tohim so at to be out of the power of the acceptor;

as against the acceptor, when it comes to the knowledge of theproposer.

The communication of a revocationis complete

as against the person who makes it, when it is put into a course oftransmission to the person to whom it is made, so as to be out ofthe power of the person who makes it;

as against the person to whom it is made, when it comes to hisknowledge.


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Communication of offer acceptance and

revocation

Revocation of Proposals and acceptance [Sec 5]A proposal may be revoked at any time before the communication of its

acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communicationof the acceptance is complete as against the acceptor, but noafterwards.

Revocation how made [Sec 6]A proposal is revoked

(1) by the communication of notice of revocation by the proposer to theother party;

(2) by the lapse of the time prescribed in such proposal for its

acceptance, or, if no time is so prescribed, by the lapse of a reasonabletime, without communication of the acceptance;

(3) by the failure of the acceptor to fulfill a condition precedent toacceptance; or(4) by the death or insanity of the proposer, if the fact of the death orinsanity comes to the knowledge of the acceptor before acceptance.


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Capacity of Contract

Who are competent to contract [Sec 11] Every person is competent to contract who is of the age of

majority according to the law to which he is subject, and who issound mind and is not disqualified from contracting by any law towhich he is subject.

MinorityAccording to section 3 of Indian Majority Act, 1875, a minor is a

person who has not completed 18 years of age. However, infollowing cases, a minor attains majority after 21 years of age:

Where a guardian of minors person or property has been appointed

under The Guardians and Wards Act, 1860, orWhere the superintendence of minors property is assumed by a

Court of Wards.


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Minors Contract

A contract with or by a minor is void and a minor, therefore, cannot, bindhimself by a contract. (Mohiri Bibi v. Dharmodas Ghose)

A minor can be a promisee or a beneficiary.

A minors agreement can not be ratified by the minor on his attainingmajority.

If a minor has received any benefit under a void contract, he can not be

asked to refund the same. A minor is always allowed to plead minority. (Doctrine of estoppel) Leslie v.Shiell

A minor cannot be a partner in a partnership.

A minors estate is liable to a person who supplies necessariesof life to aminor, or to one whom minor is legally bound to support (goods andservices both). (Nash v. Inman and Roberts v. Gray)

Minors parents/guardians are not liable to a minors creditor for the breachof contract by the minor whether the C is for necessaries or not.

A minor can act as an agent and bind his principal by his acts withoutincurring personal liability.


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Consideration

What the promisor demand as the price of his promise.

Something of value given by both parties to a contract that induces them toenter into the agreement to exchange mutual performances.

In Currie V. MisaC was termed as a valuable C in the sense of the law

may consist either some right, interest, profit or benefit accruing to oneparty, or some forbearance, detriment, loss or responsibility given, sufferedor undertaken by the other.

When, at the desire of the promisor, the promisee or any other personhasdone or abstained from doing, or does or abstains from doing, or promisesto do or to abstain from doing, something, such act or abstinence orpromise is called a consideration for the promise [Sec 2(D)]

Thus the term consideration is used in the sense of quid-pro-quo whichmeans something in return. This something may be some benefit, right,interest or profit or it may also be some forbearance, detriment, loss orresponsibility upon the other party.


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Importance of consideration:A promise without C is purely gratuitous and, however sacred

and binding in honor it may be, cannot create a legal obligation.

Contract = promise + the C for the promise

Thus generally, a contract can not be thought of without

consideration. No consideration, no contract is the rule of law.Abdul Aziz V. Mazum Ali and Kedar Nath V. Gori Mohamed

Since agreement Sec 2(e), is a promise in exchange for apromise, each promise forming consideration for other. It willtherefore be an inconsistency to think of an agreement andconsequently contract without C.

Thus, we can say:

Except in certain cases, a contract without C cannot be thoughtof and if made, it is devoid of any legal obligation.

Consideration


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Rules as to consideration

C must move at the desire of the promisor.

C may move from the promisee or any other person.Stranger to contract V. stranger to C

A stranger to consideration can sue but a stranger to acontract can not. Exceptions: Beneficiary in a trust

Provision of marriage expenses of female in joint hindu family

Family members who were not part in a family settlement

Assignment to a contract

An acknowledgement of a liability

C need not be adequate. C must be real and valuable.

C must be legal.

C may be present (executed), future (executory) or past.


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Exceptions to the rule

No Consideration no contract

An agreement without C is valid if: It is expressed in writing and

It is registered (under the law of R), and

It is made on account of natural love and affection, and

Made between parties standing in a near relation to each other. [Section25(1)]

A promise without C is valid if, it is a promise to compensate wholly orin part, a person who has already voluntarily done something for the

promisor, or something which the promisor was legally compellable todo. [Section 25(2)]

A promise to pay, wholly or in part a debt which is barred by the law oflimitation can be enforced if (a) it is in writing, and (b) is signed by thedebtor or his authorised agent. [Section 25(3)]


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Discharge of Contract

A contract may be discharged in following ways:By performance or tender

By mutual consent

By subsequent impossibility

By operation of lawBy breach

By performance or tender:

the obvious mode of discharge is by performance,that is, the parties have performed or offer toperform, their respective promises.

The offer of performance or tender has the sameeffect as performance.


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By mutual consent:

If the parties to a contract agree to substitute a new contractfor it, or to rescind or alter it, the original contract isdischarged. [Sec 62]

Novationsubstitution of new contract for the original one;either between same parties or different parties.

Rescissioncancellation of all or some of the terms by mutualagreement

Alterationchanging of certain terms by mutual agreement

Remissionacceptance of a lessor some than what was

contracted for or a lesser fulfillment of the promise made.(without consideration)

Waiverrelinquishment or abandonment of a right.

Mergerwhere an inferior right possessed by a personcoincides with a superior right of same person.


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By subsequent impossibility [Sec 56]An agreement to do an act impossible in itselfis void. Contract to

do act afterwards becoming impossible or unlawful: A contract todo an act which, after the contract is made, becomes impossibleor, by reason of some event which the promisor could not

prevent, unlawful, becomes void when the act becomesimpossible or unlawful.

Subsequent impossibility in England is referred to as Doctrine ofFrustration.

A contract is deemed to have become impossible of

performance under following circumstances: Destruction of subject matter of the contract.

By the death or disablement of the parties.

Subsequent illegality

Declaration of war

Non-existence or non-occurrence of a particular state of things


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Exceptions: apart from cases mentioned above,

impossibility does not discharge contract. Some

of the circumstances in which a contract is not

discharged on the ground of subsequent

impossibility are:

Difficulty of performance

Commercial impossibility

If the third person, on whose work the promissor reliedfails to perform

Strikes, lockouts and civil disturbances

Failure of one of the objects


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Effect of Supervening ImpossibilityA contract to do an act which, after the contract is made,

becomes impossible or, by reason of some event whichthe promisor could not prevent, unlawful, becomes voidwhen the act becomes impossible or unlawful.

Where one person has promised to be something whichhe knew or, with reasonable diligence, might have known,and which the promisee did not know to be impossible orunlawful, such promisor must make compensation to suchpromise for any loss which such promisee sustainsthrough the non-performance of the promise.

When an agreement is discovered to be void, or when acontract becomes void, any person who has received anyadvantage under such agreement or contract is bound torestore, it, or to make compensation for it, to the personfrom whom he received it.



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Discharge of Contract By operation of law

Discharge under this head may take place as follows: By death

By insolvency

By merger

By the unauthorized alteration of terms of a written document

By breach of Contract Breach may arise in two ways:

Anticipatory breachwhen a party repudiates the C before the timefixed for performance arrived or when a party by his own actdisables himself from performing.

Consequences: promisee may either (1) rescind the contract and

treat the contract as at an end, and at once sue for damages, or (2)may elect not to rescind but to treat the C operative and wait for thetime of performance and then hold the other party liable for theconsequence. In later case the party who has repudiated may stillperform if he can.

Thus the C is discharged only when the aggrieved party accepts therepudiation of the contract i.e. elects to rescind the contract.


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Actual breachmay take place (a) at the time when performance is dueperson does not perform his

part at the stipulated time.

55. Effect of failure to perform a fixed time When a party to a contract promises to do a certain thing at or before a

specified time, and fails to do such thing at or before the specified time, thecontract or so much of it as has not been performed, becomes voidableatthe option of the promisee, if the intention of the parties was that time shouldbe of essence of the contract.

If it was not the intention of the parties that time should be of the essence ofthe contract, the contract does not become voidable by the failure to do suchthing at or before the specified time; but the promisee is entitled tocompensation from the promisor for any loss occasionedto him by suchfailure.

If, in case of a contract voidable on account of the promisor's failure toperform his promise at the time agreed, the promisee accepts performanceof such promise at any time other than agreed, the promisee cannot claimcompensation of any loss occasioned by the non-performance of thepromise at the time agreed, unless, at the time of acceptance, he give noticeto the promisor of his intention to do so.

(b) during the performance one party fails or refuses to perform hisobligation.


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Remedies for Breach of a Contract

As soon as either party commits a breach

of the contract, the other party becomes

entitled to any of the following relief:

Rescission of the contract

Damages for the loss sustained or suffered

A decree for specific performance

An injunctionSuit on Quantum Meruit


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Rescission of the contractWhen a breach is committed by one party, the other party may

sue to treat the contract as rescinded. In such a case theaggrieved party is freed from all obligations under the contract.

Person rescinding the C is entitled to compensation for any

damage which he has sustained because of non-fulfillment of C.

DamagesGenerally speaking are of four kinds:

Ordinary damages

Special damages

Vindictive, or Punitive or Exemplary damages

Nominal damages


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Ordinary damagesAre those which naturally arose in the usual course of things from

such C. The measure is the difference between the contract priceand market price at the date of breach.

Special damagesAre claimed in case of loss of profit etc. when there are certain

special or extraordinary circumstances present and their existenceis communicated to the promisor, the non performance entitles thepromisee to not only claim ordinary damages but also damages thatmay result there from.

Vindictive, or Punitive or Exemplary damagesAre awarded with a view to punish the defendant and not solely with

an idea to compensate the plaintiff.

Nominal damagesAre awarded in cases of breach of C where there is only a technical

violation of legal right but no substantial loss is caused thereby. Thedamages awarded in such cases are very small.

Duty to mitigate damages suffered


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Contract of Agency

"Agent" and "principal" definedAn "agent" is a person employed to do any act for another, or to

represent another in dealing with third persons. The person for whomsuch act is done, or who is so represented, is called the "principal". [Sec182]

Who may employ agentAny person who is of the age of majority according to the law to which

he is subject, and who is of sound mind, may employ an agent. [Sec183]

Who may be an agent

As between the principal and third persons, any person may become anagent, but no person who is not of the age of majority and sound mindcan become an agent, so as to be responsible to the principal accordingto the provisions in that behalf herein contained. [ Sec 184]

Agent and Servant: direct supervision and control


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Contract of Agency

Creation of Agency

Express authority

Implied authority

Principal bound by estoppel

Principal bound by ratification

Agent authority in an emergency

Essential of valid ratification- with full

knowledge,for whole transaction,not injurious to

3rdparty


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Contract of Agency

Rights of Agent:Right to receive agreed or reasonable remuneration.

Right to retain money of the principal towards advancesmade or expenses properly incurred by him.

Right of lien, i.e., to retain properties of the principal forthe amount due to himself for commission,disbursements and services rendered.

Right of stoppage-in-transit in case:

Where he purchased goods with his own funds or byincurring personal liability.

Where he holds himself liable for the price of goods sold

Right to be indemnified against consequences of alllawful acts done within the authority.


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Contract of Agency Enforcement and consequences of agent's contract : Contracts entered into

through an agent, and obligations arising from acts done by an agent, may beenforced in the same manner, and will have the same legal consequences as if thecontracts had been entered into the acts done by the principal in person. [Sec 226] (a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who is

the principal. B's principal is the person entitled to claim from A the price of the goods, and Acannot, in a suit by the principal, set-off against that claim a debt due to himself from B.

(b) A, being B's agent; with authority to receive money on his behalf, receives from C a sumof money due to B. C is discharged of his obligation to pay the sum in question to B.

Principal how far bound, when agent exceeds authority: When an agent doesmore than he is authorised to do, and when the part of what he does, which is withinhis authority, can be separated from the part which is beyond his authority, so muchonly of what he does as is within his authority is binding as between him andhisprincipal. [Sec 227] A, being owner of a ship and cargo, authorises B to procure an insurance for 4,000 rupees

on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on

the cargo. A is bound to pay the premium for the policy on the ship, but not the premium forthe policy on the cargo.

Principal not bound when excess of agent's authority is not separable: Wherean agent does more than he is authorised to do, and what he does beyond the scopeof his authority cannot be separated from what is within it, the principal is not boundto recognise the transaction. [Sec 228]

A authorises B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for a sumof 6,000 rupees. A may repudiate the whole transaction.


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Contract of Agency

Termination of Agency:By revocation by principal

On the expiry of fixed period of time

On the performance of the specific purposeIn the event of insanity or death of the principal

or agent

On destruction of the subject matter of agency

In the event of the insolvency of the principal

By renunciation of agency by the agent

Documents

Indian Contract Act, 1872.ppt