INDIAN CONTRACT ACT 1872

ESSENTIAL ELEMENTS OF VALID CONTRAACT;

1. Offer and acceptance:

There must be two parties

Terms of offer must be definite

Acceptance must be absolute and unconditional

It must be communicated to offerer

2. Intention to create legal relationship

3. Lawful consideration

4.Capacity of parties - “Competency”

a. Age of majority

b. Sound mind

c. Not disqualified by any law

5. Free and genuine consent

Same sense at the same time

When induced by coercion

Undue influence

Fraud

Mis-representation not free consent.

6. Lawful object : Not illegal, immoral or opposed toPublic policy

7. Agreement not declared void.

8. Certainty and possibility of performance

9. Legal formalities

OFFER AND ACCEPTANC E;

OFFER is defined under section 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”

What constitutes an offer?

1. Offer must show an obvious intention2. It must be made with a view to obtaining assent of the offeree.3. The offer must be definite4. It must be communicated to offeree

LALMANI VS GAURI DUTT (1913)11 All.L.J.489FITCH VS SNEDAKER (1868) 38 NY.288.

LEGAL RELATIONSHIP;

1. Offer must be such as in law is capable of being Accepted and giving rise to legal relationship

- a social invitation does not create legal relation.

2. Terms of offer must be definite, unambiguous and

certain and not loose and vague

3. An offer may be distinguished from (i) a declaration of intention and announcement (ii) an invitation to make an offer display of goods

4. Offer must be communicated

5. Offer must be made with a view to obtaining theAssent.

6. Offer should not contain a term the non-complianceof which may be assumed to amount to acceptance

7. A statement of price is not an offer.

The communication of acceptance is complete -

- as against proposer when it is put into course of- transmission to him so as to be out of the power of acceptor.

- as against acceptor when it comes to the knowledge of proposer

COMMUNICATION OF REVOCATION;Section 4(3)

as against the person who makes it when it is putinto course of transmission to the person to whom

- it is made, so as to be out of power of person who

- makes it.

- as against the person to whom it is made when it comes to his knowledge.

TIME FOR REVOCATION OF OFFER AND ACCEPTANCE

Time for revocation of proposal:

Section 5,(I) A proposal may be revoked at any time beforethe communication of its acceptance is complete as againstthe proposer but not afterwards.

Section 5(2) An acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor but not afterwards.

ACCEPTANCE - Section 2 (b)

Legal Rules as to Acceptance -

Section 7 (1 & 2)

1. It must be absolute and unqualified - ad idem on all matter

2. It must be communicated to offerer.

3. It must be according to mode prescribed or

usual and reasonable mode.

4. It must be given within reasonable time.

5. It can not precede an offer.

6. It must show an intention on the part of acceptor to fulfill terms of the promise.

7. It must be given by the party to whom the offer is made.

8. It must be given before the offer lapses or withdrawn

9. It cannot be complied from silence.

CONSIDERATION - Defined under Section 2 (d):

“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, something, such act or abstinence or promise is called a consideration for the promise;”

“A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given”CURIE VS MISA (1875)LR10Ex153.KEDAR NATH VS GAURI MOHAMED (1886)14 Cal.64.ABDUL AZIZ VS MASUM ALI (1914) 36 All.268.

LEGAL RULES AS TO CONSIDERATION;

1. It must move at the desire of the promisor. DURGA PRASAD VS BALDEO (1880) 2 All 221

2. It may move from promise or any other person. CHINNAYA VS RAMAYYA (1882) 4 Mad 137

3. It may be an act, abstinence or forbearance or return

promise. DEBI RADHA RANI VS RAM DAS AIR Patna 282

4. It may be past, present or future

5. It need not be adequate

6. It must be real and not illusionary

7. It must be something which the promisor is not bound to do.

8. It must not be illegal, immoral, or opposed to public policy (Section 23)

STRANGER TO CONTRACT;

Exception to privity rules – A person in whose favour a charge or other interest in some specific property has been created may enforce it though he is not a party to the contract. The decision of the Privy Council in KHWAJA MUHAMMAD KHAN VS HUSSAINI BEGUM (1910)

VALID CONTRACT SECTION 10

Under Section 10, ( what agreement are contract) -

“All agreements are contracts if they are made by Free consent (U/S 13,14)Of parties competent to contract For lawful consideration and lawful object andare not expressly declared to be void”

‘CONSENT’ defined – Two or more persons are said to consent when they agree upon the same thing in the same sense. (Sec 13)

FREE CONSENT; (section 14) - Consent is free when it is not caused byCoercion as defined u/s 15Undue influence u/s 16Fraud u/s 17Mis-representation u/s 18Mistake Sections 20-22.

COERCION Section 15

1.The committing of any act forbidden by IPC

2.Threatening to commit any act forbidden by IPC

3.The unlawful detailing of any property

4.The unlawful threatening to detain any property to prejudice of any person with the intension of causingany person to enter into an agreement.

UNDUE INFLUENCE Sec. 16

“A contract is said to be induced by “undue influence”

where the relations subsisting between the parties are

such that one of the parties is in a position to dominate

the will of the other and uses that position to obtain an

unfair advantage over the other.”

RELATIONSHIP WHICH RAISE

PRESUMPTION OF UNDUE INFLUENCE;

1. Parent and child

2. Guardian and ward

3. Trustee and beneficiary

4. Religious advisor and disciple

5. Doctor and patient

6. Solicitor and client

7. Fiance and fiancée

FRAUD Sec.17

“Fraud means and includes any of the following acts

committed by a party to a contract, or with his connivance,

or by his agent, with intent to deceive another party thereto

or his agent, or to induce his to enter into the contract -

(1) the suggestion, as a fact, of that which is not true,

by one who does not believe it is true;

(2) the active concealment of a fact by one

having or belief of the fact;

(3) a promise made without any intention

of performing it;

(4) any other act fitted to deceive

(5) any such act or omission as the law specially

declares to be fraudulent.

Illustrations

(a) A sells by auction to B a horse which A

knows to be unsound . A says nothing to B

about horse’s unsoundness. This is not fraud in A.

(b) B is A’s daughter and has just come of age.

Here the relation between the parties would make

it A’s duty to tell B if the horse is unsound.

(c) B says to A – “If you do not deny it. I shall

assume that the horse is sound” A says nothing.

Here A’s silence is equivalent to speech.

(d) A and B being traders, enter upon a contract.

A has private information of a change in prices which

would affect B’s willingness to proceed with the contract.

A is not bound to inform B.

MIS – REPRESENTATION – Sec. 18

A representation when wrongly made either innocently or

intentionally is mis-representation.

Requirement of Mis-representation:

1. It must be a representation of material fact.

Mere expression of opinion does not amount to

mis –representation even if it turns out to be wrong.

2. It must be made before conclusion of contract with

a view to inducing other party.

3. It must be made with an intention that it

4. should be acted upon

by the concerned person.

5. It must have induced the contract.

6. It must be wrong but the person who

made it honestly believed it to be true.

7. It must be made without any intention

to deceive the other party.

8. It need not be made directly to the plaintiff.

A wrong statement made to a third person with

the intention of communicating to the plaintiff also amounts to mis-

representation.

MISTAKE -

(1) Mistake of law

(2) Mistake of fact

Mistake of law may be

(1) of his own country

(2) of a foreign country

Mistake of fact may be

(1) Bi-lateral (2) unilateral

Agreement void where both parties are under

mistake as to take of fact.

Various cases fall under bi-lateral agreement:

1. Mistake as to subject matter

i) Mistake as to existence of subject matter

ii) Mistake as to the identity of subject matter

iii) Mistake as to the quality of subject matter

iv) Mistake as to quantity of subject matter

v) Mistake as to title of subject matter

vi) Mistake as to price of subject matter

2. Mistake as to possibility of performing contract

1) Physical impossibility2) Legal impossibility

UNILATERALMISTAKE; Sec. 22.

Example: A offers to sell his house to B for an intended sum of rupees 44,000/-. By mistake he makes an offer for rupees 40,000/. He can not make defence of mistake.A buys an article thinking that it is worth rupees 1000/- when it is worth only rupees 50/-. A cannot avoid the contract.

COMPETENCY OF PARTIES TO CONTRACT:

Section 11 declares the following persons to be incompetent to contract

1) Minors

2) Persons of unsound mind

3) Persons disqualified by any law

1. AN AGREEMENT WITH A MINOR IS VOID AND INOPERATIVE

MOHRI BIBI VS DHARMODAS GHOSE

2.He can be promisee or beneficiary

3. His agreement cannot be ratified by him on attaining age of majority.

4.If he has received any benefit under void agreement, he cannot ask to compensate or pay for it.

5.He can always plead minority LESLI VS SHIELL

6.There can be no specific performance of the

agreements entered into by him as they are void ab-initio.

7.He cannot enter into a contract of partnership

8.He cannot be adjusted insolvent

9.He is liable for necessaries.

He can be an agent

PERSONS OF UNSOUND MIND:

Lunatics - mentally deranged. He suffers from intermitants intervals of sanity and in-sanity

Idiots - completely lost mental powers.

Drunken persons.

Other persons: contract with an alien

friends, corporations, insolvents and convicts.

VOID AGREEMENTS;

1. Agreements by incompetent parties Sec.112. Agreements made under mutual mistake Sec.203. Agreements the consideration or object of which is unlawful

Sec.23, 24, (part consideration)4. Agreements made without consideration5. Agreements in restraint of marriage Sec. 266. Agreements in restraint of trade Sec.277. Agreements in restraint of legal proceedings Sec 28.8. Agreements the meaning of which is uncertain Sec.299. Agreement by way of wager - one – way to pay upon

determination of uncertain events.10. Agreements contingent on impossible events Sec.3611. Agreement to do impossible acts Sec5612. In case of reciprocal promises to do things legal and also other

things illegal, the second set of illegal promises is void Sec 57.

PERFORMANCE OF CONTRACT Sec. 37 (1) -

The parties to contract must either perform oroffer to perform their respective promises.

Requisites of valid tender - offer to perform Sec. 38

1. It must be unconditional

2. It must be whole quantity contracted for

3. It must be by a person who is in a a position and is wiling to perform the promise

4. It must be made at the proper time and place, proper person, of several promises.

5. It must be made to proper person

6. It may be made to one of the several promissees

7. In case of tender of goods, it must give a reasonable opportunity to the promise for inspection of goods.

8. In case of tender of money, the debtor must make a valid tender in the legal tender money

EFFECT OF REFUSAL OF PARTY TO PERFORMPROMISE WHOLLY Sec. 39

When a party refuses to perform, his promise in its entirety, the promise may put an end to contract.

CONTRACT WHICH NEED NO BE PERFORMED;

1. When performance becomes impossible Sec.562. Parties agree to substitute new contract Sec 623. When the promise dispenses with or remits Sec. 63

STRANGER TO CONTRACT;

“Privity of contract” - only parties to a contract may sue and to be sued.

EXCEPTIONS;

1. A trust or charge

2. marriage settlement, partition or other family arrangement

3. acknowledgement or estoppel

4. assignment of contract

5. contrtact entered into through an agent

6. covenants running with the land.

CONTRACT WITHOUT CONSIDERATION IS VOID - EXCEPTIONS

1. Love and affection Sec. 25(1)

(a)Agreement in writing (b) Registered

2.Compensation for voluntary services 25(2)

3.Promise to pay a time barred debt Sec 25(3)(4)

4.Completed gift

5.Agency

6.Charitable subscription

CLASSIFICATION OF CONTRACT;

1. Classification according to validity:A contract is based on agreement. An agreement becomes a contract when all essential elements are present.

In such case contract is valid contract.

If one or more element is missing the contract is either

VOIDABLE, VOID, ILLEGAL OR UN - ENFORCEABLE

Voidable contract Sec. 2(i) « 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, is a voidable contract. »

Void contract Sec. 2 (g) “An agreement not enforceable by law is said to be void”

Illegal agreement is one which transgresses some rule of basic public policy

Unenforceable – because of technical defect.

CLASSIFICATION ACCORDING TO FORMATION

EXPRESS CONTRACT – Sec.9 – expressly agreed terms

IMPLIED CONTRACT – eg. To get into public busTakes tea in restraurant Pick-up news paper from vendorLifts luggage by coolie.

CLASSIFICATION ACCORDING TO PERFORMANCE

EXECUTED CONTRACT; When both the parties have performed their respective obligation.

EXECUTORY CONTRACT; When both the parties have yet to perform their obligation.

LEGALITY OF OBJECT

Section 23,What considerations and objects are lawful, and what not –

the consideration or object of an agreement is lawful, unless-

1.it is forbidden by law – if it is punishable under criminal law2.if it is of such a nature that if permitted it would defeat the provision of law

3.if it is fraudulent4.if it involves or implies injury to person or property of another5.if the courts regard it as immoral 6.where the court regards it as opposed to public policy

AGREEMENTS OPPOSED TO PUBLIC POLICY;

1. Agreements of trading with enemy

2. Agreement to commit a crime

3. Agreement which interfere with administration of justice

4. Agreement in restraint of legal proceedings Sec. 28

5. Trafficking in public offices and titles

6. Agreements tending to create interest opposed to duty

7. Agreements in restraint of parents rights

8. Agreements restricting personal liberty

9. Agreement in restraint of marriage Sec. 26

10. Marriage brokerage

11. Agreements interfering with marital duties

12. Agreements to defraud creditors or revenue authorities

13. Agreements in restraint of trade.

WHO CAN DEMAND PERFORMANCE;

IT IS ONLY PROMISEE WHO CAN DEMAND PERFORMANCE

Eg. A promises B to pay C a sum of rupees 500/- . A does not pay the amount to C?

TIME AND PLACE OF PERFORMANCE Sec. 46, 50

Where no application is to be made and no time is specified - within reasonable time

Where time is prescribed and no application is to be made Sec.47

Application for performance on a certain day and place

Application by promisor to appoint place Sec.48,

Performance in a manner or at time prescribed

RECIPROCAL PROMISES;

1. Mutual and independentEg. B agrees to pay price of goods on 10th . S promises to supply on 20th . Promises are independent and mutual.

BY WHOM MUST CONTRACT BE PERFORMED

1. Promisor himself

2. agent Sec.3(3)

3. Legal representative

4. third person

5. Joint promisor

DEVOLUTION OF JOINT LIABILITIES - Section 42-44

1. Any one of joint promisor may be compelled to Perform ( Sec.43)

2. A joint promisor compelled to perform may claim contribution (Sec.43(2))

3. Sharing of loss arising from default Sec. 4

DISCHARGE OF CONTRACT:

After the formation of the contract, the next stage is reached, namely, the fulfillment of the object the parties had in mind.When the object is fulfilled the liability of either party under the contract comes to an end.The contract is then said to be discharged. But “performance” is not the only way in which a

contract is discharged

A contract may be discharged : 1. By performance (Sec. 37to 63),

Performance of contingent contracts –A contingent contract is a contract to do or not to

do something, if some event, collateral to such contract, does not happen –S.31

Contracts contingent on an event happening S. 32

e.g. A makes a contract with B to buy B’s horse if A survives. This contract cannot be enforced unless and until C dies in A’s lifetime.

e.g. A contracts to pay B a sum of money when B marries C. C dies without being married to B. the contract becomes void.

Contracts contingent on an event not happening – S.33

e.g. A agrees to pay B a sum of money if a certain ship does not returnthe ship is sunk. The contract can be enforced when the ship sinks.

When the event on which contract is contingent to be deemed impossible,if it is the future conduct of a living person – S.34.

e.g. A agrees to pay B a sum of money if B marries C. C marries D. the marriage of B to C must now be considered impossible, although it is possible that D may die and C may afterwards marry B.

When contract becomes void which are contingent on happening of specified event within fixed time – S.35

e.g. A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.

Agreement contingent on impossible events, void S. 36

e.g. A agrees to pay B 1000 rupees if two straight lines should enclose a space. The agreement is void.

e.g. A agrees to pay B 1000 rupees if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.

2. By agreement or consent – S. 62.

3. By impossibility – S. 56

4. By lapse of time S. 55.

5. By operation of law

6. By breach of contract

1. By Performance - 1. Actual 2. Attempted

2. By Agreement - 1. by express consent 2. byImplied consent (Sec. 62)a. novation b. rescission c. alterationd. remission e. waiver f. merger.

3. By Impossibility of performance - S. 561. known to the parties2. unknown to the parties3. supervening impossibility - grounds for frustration:

a. destruction of subject matter – where the actual and specific subject matter of the contract has ceased to exist Taylor Vs. Coldwell. In this case, a promise to let out a music hall was held to have frustrated on the destruction of the hall.

b. non existence of a state of things/change of circumstances

e.g. A contracted to supply B certain classes and quantities of American piece goods. The contract was C.I.F Karachi. The goods arrived there after

some delay. B regused to accept on the ground that both the qualities and quantities offered for delivry were not according to the particular contract. A called upon B to refer the dispute to the nominated arbitrator who was residing at Karachi. Then came partition which made it imp;ossible for non-Muslim to go to Karachi.

c. Non occurrence of certain/contemplated events – Krell Vs. HenryThere, a contract to hire a room to review the proposed coronation procession was held to have frustrated when the procession was postponed.For this result to follow it is necessary that the happening of the event should be the foundation of the contract.

d. death for personal services

e. change of law

f. outbreak of war

4. By lapse of time

5. By operation of law

a. death b. merger c. insolvency d. unauthorized alteration of termse. rights of liability vesting in the same person

6. By breach of contract:

1. Actual (a) at time of performance(b) during performance

2. Anticipatry (1) by an act of promisor making Performance impossible i.e. implied repudiation (2) by renunciation of the obligation i.e. expressrepudiation.

REMEDIES FOR BREACH OF CONTRACT:

1. Rescission of contract2. Suit for damages3. Suit upon quantum of meruit4. Suit for specific performance 5. Suit for injunction

RESCISSION:

When a contract is broken by one party, the otherParty may sue to treat the contract as rescined and Refuse further performance. He is absolved all his

Obligation.

DAMAGES:

Monetary compensation allowed to injured party.

HADLEY VS BOXENDALE.

Sec. 73.Compensation for loss or damage by breach ofContract. - the injured party is entitled to (a)such damages which naturally arose in the usualcourse of things (b) such damages which the party knew

© such compensation is not to be given for any remote or indirect loss (d) such compensation arising from breach of quasi-contract shall be same as in any other contract.

FORMS OF DAMAGES:

1. Ordinary damages2. Special damages3. Exemplary damages4. Nominal damages5. Damages for loss of reputation

6. Damages for inconvenience and discomfort

7. Mitigation of damages8. Difficulty of assessment9. Cost of decree10. Damages agreed upon in advance

in case of breach

LIQUIDATED DAMAGES AND PENALTY:

QUASI-CONTRACT - Sec. 68 to 72

1. Supply of necessaries Sec. 682. Payment by an interested person Sec 693. Obligation to pay for non-gratuitous act Sec 704. Responsibility of finder of goods act. Sec. 715. Mistake or coercion Sec.72

QUANTUM MERUIT:

Claims arises in following cases:

1. where an agreement is discovered to be void Sec.652. when something is done without any intention

to do so gratuitously Sec.703. when there is express or implied contract to

render services but there is no agreementto remuneration

4. when completion of contract is prevented by act of other party to contract

5. when contract is divisible