5/8/2015 santhi narayanan 1 INDIAN CONTRACT ACT 1872

Introduction 5/8/2015 santhi narayanan 2 Law of contract – Foundation upon which the superstructure of modern business is built Business – promise made between parties – performance follows later Breaking of a promise – without incurring liability – endless complications

Contd - 5/8/2015 santhi narayanan 3 Law of contract lays down legal rules relating to promises, their formation, performance and enforcement Applicable not only to business community but others

CONTRACT 5/8/2015 santhi narayanan 4 Sec 2(h) – “ An agreement enforceable by law is a contract”. Two elements - An Agreement Legal obligation ie, a duty enforceable by law.

Agreement 5/8/2015 santhi narayanan 5 Section 2(e) – “Every promise and every set of promises forming the consideration for each other, is an agreement.” Promise – What is a promise? Sec 2(b) - 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

Agreement Starting point of a contract is a promise or (an agreement). The formation of an agreement requires consenus ad idem, ie, meeting of minds between parties –parties must agree upon the same thing in the same sense. 5/8/2015 santhi narayanan 6

Example 5/8/2015 santhi narayanan 7  Ram offers to sell his car for Rs 1,00,000 to Shyam. Shyam accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between Ram and Shyam  Therefore, an agreement consists of an offer by one party and its acceptance by the other.  Agreement = Offer + Acceptance of offer

Enforceability of Agreement 5/8/2015 santhi narayanan 8 An agreement is said to be enforceable by law if it creates a legal obligation. Obligation is a legal tie which imposes upon determinate person or persons the necessity of doing or abstaining from doing a definite act or acts If an agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus, an agreement is a wider term than contract.

5/8/2015 santhi narayanan 9 Agreement + Legal obligation (Enforceability at law) = Contract

Contract Act 5/8/2015 santhi narayanan 10 “All contracts are agreement but all agreements are not contracts”. Agreements of moral, religious or social nature are not contracts they are not likely to create a duty enforceable by law parties never intend to create a legal obligation.

Contd - 5/8/2015 santhi narayanan 11 Ex; X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for the dinner. Can he take his friend to Court???? X cannot go to the court to claim his loss. A father promises to pay his daughter Rs 1000 as pocket allowance. Later he refuses to pay. Can the daughter recover the Amount??? The daughter cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations

Case 5/8/2015 santhi narayanan 12 Balfour vs Balfour [(1919) 2 K.B. 571] A promise by the husband to pay his wife 30 pounds every month. Later Husband refuses to pay. Wife goes to court. Held: unenforceable as parties never intended it to be bound by legal obligations.

contd 5/8/2015 santhi narayanan 13  In commercial or business agreements an intention to create legal relations is presumed. Thus, an agreement to buy and sell goods intends to create legal relationship, hence is a contract, provided other requisites of a valid contract are present. But if the parties have expressly declared their resolve is not to create a legal obligation, even a business agreement does not amount to a contract.

Case 5/8/2015 santhi narayanan 14 Rose&Frank Co. vs Corruption Bros [1925 AC 445] There was an agreement between R company and C company by means of which the former was appointed as the agent of the latter. One clause in the agreement was: ”This agreement is not entered into….as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.” HELD - There was no binding contract as there was no intention to create legal relationship

Distinction between an agreement and a contract 5/8/2015 santhi narayanan 15 Agreement ◦ Offer and its acceptance constitute an agreement ◦ An agreement may or may not create a legal obligation ◦ Every agreement need not necessarily be a contract ◦ Agreement is not concluded or binding contract Contract ◦ Agreement and its enforceability constitute a contract ◦ A contract necessarily create a legal obligation ◦ All contracts are necessarily agreements. ◦ Contract is concluded and binding on the concerned parties

EnforceabiltyMethod of Formation Extent of performance Obligation to perform Valid Voidable unenforceable Illegal Void Executed Executory Express Formal Simple Implied Standard Form Contingent Quasi Bilateral Unilateral Classification of Contract 5/8/2015 santhi narayanan 16

Essentials 5/8/2015 santhi narayanan 17 Valid Contract

Essential elements of a valid contract 5/8/2015 santhi narayanan 18 Proper offer and its proper acceptance Intention to create legal relationship Free Consent Capacity to contract Lawful consideration Lawful object Agreement not expressly declared void Certainty of meaning Possibility of performance Legal formalities

Offer and acceptance 5/8/2015 santhi narayanan 19 OFFER An offer is the starting point in the making of an agreement.An offer is also called ‘proposal’ Sec 2(a) – “ A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence.”

OFFER 5/8/2015 santhi narayanan 20 An offer involves the following essential elements; It must be made by one person to another person It must be an expression of readiness or willingness to do (i.e., a positive act) or to abstain from doing something (i.e., a negative act) It must be made with a view to obtain the consent of that other person to proposed Act or abstinence

Contd 5/8/2015 santhi narayanan 21 Offeror – The person making the proposal is called the ‘offeror’ or ‘proposer’. Offeree – The person to whom the proposal is made is called the ‘offeree’ or the ‘proposee’.

Types of offer 5/8/2015 santhi narayanan 22 General offer – When the offer is made to the world at large Specific offer – When the offer is made to a definite person Implied offer – An offer may be implied from the conduct of the parties or the circumstances of the case.

Legal rules as to offer 5/8/2015 santhi narayanan 23 Certain and unambiguous terms Intention to create legal relationship Different from an invitation to offer Proper communication No term of non- compliance of which amount to acceptance Communication of special terms Different from a mere declaration of an intention

Contd- 5/8/2015 santhi narayanan 24 Intention to create legal relationship An offer must be such that when it is accepted it will create a legal relationship Certain and unambiguous terms If the terms of the offer are vague or indefinite, its acceptance cannot create any contractual relationship.

Contd - 5/8/2015 santhi narayanan 25 Different from a mere declaration of intention Mere declaration of intention indicates that an offer will be made or invited in the future A declaration of intention by a person does not give right of action to another.

Case 5/8/2015 santhi narayanan 26 Harrison vs Nickerson An auctioneer advertised in a newspaper that a sale of office furniture would be held. A broker came from a distant place to attend that auction, but all the furniture was withdrawn. The broker thereupon sued the auctioneer for his loss of time and expenses. Held - A declaration of intention to do a thing did not create a binding contract with those who acted upon it, so that the broker could not recover.

Contd - 5/8/2015 santhi narayanan 27 Different from an invitation to offer In an invitation to offer the person making an invitation invites others to make an offer to him It is prelude to an offer inviting negotiations or preliminary discussions Case – Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401 Harvey vs facey

Contd- 5/8/2015 santhi narayanan 28 Offer must be communicated An offer must be communicated to the person to whom it is made. An offer is complete only when it is communicated to the offeree Acceptance is not possible unless offer is brought to the knowledge of the offeree. ie, One can accept the offer only when he knows about it. Acceptance in ignorance of offer confers no right. ie, An offer accepted without its knowledge does not confer any legal rights on the acceptor. Case: Lalman Shukla vs Gauri Dutt

Contd - 5/8/2015 santhi narayanan 29 No term of non-compliance of which amounts to acceptance The offer must not contain a term, the non-compliance of which amount to acceptance Ex: A offers by post to sell his horse to B for Rs He writes, “ If you do not reply, I shall assume you have accepted the offer.” There would be no contract even if B does not reply

Contd 5/8/2015 santhi narayanan 30 While making the offer, the offeror cannot say that if the offer is not accepted before a certain date, it will be presumed to have been accepted Communication of special terms or standard terms of contract Special terms of the offer must also be communicated along with the offer. If the special terms of the offer are not communicated, the offeree will not be bound by those terms.

Acceptance 5/8/2015 santhi narayanan 31 Acceptance means giving consent to the offer. It is an expression by the offeree of his willingness to be bound by the terms of the offer. Sec 2(b) – “ A proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto. A proposal when accepted becomes a promise.” Acceptance is the consent given to offer.

Contd- 5/8/2015 santhi narayanan 32 Who can accept In case of a specific offer – To be accepted by that definite person or that particular group of persons to whom it has been made and non else. In case of general offer – An offer made to the world at large or public in general can be accepted by any person having the knowledge of the offer by fulfilling the terms of the offer.

Contd - 5/8/2015 santhi narayanan 33 How to make acceptance – Express acceptance – An express acceptance is one in which is made by words spoken or written Implied acceptance – An implied acceptance is one which is made otherwise than in words. It is inferred from the conduct of the parties or the circumstances of a particular case

Legal rules of valid acceptance 5/8/2015 santhi narayanan 34 Absolute and unqualified MannerCommunicationBy whomTo whom Before the lapse of the offer

Communication of offer and acceptance 5/8/2015 santhi narayanan 35 Must be complete so as to bind the concerned parties because as soon as the communication is complete the parties loose the right of withdrawal or revocation. (a) Communication of offer – It is complete when it comes of the knowledge of the person to whom it is made.

Contd - 5/8/2015 santhi narayanan 36 Communication of acceptance – As against the proposer – When it is put in a course of transmission to him, so as to be out of the power of the acceptor. As against the acceptor oWhen it comes to the knowledge of the proposer.

Revocation of offer and acceptance 5/8/2015 santhi narayanan 37 Taking back, withdrawal (sec 5) Time for revocation of proposal – A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

Contd - 5/8/2015 santhi narayanan 38 Time for revocation of acceptance – An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.