1. INDIAN CONTRACT ACT 1872
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April 20, 2015

2. Introduction
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
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3. Contd -
Law of contract lays down legal rules relating to promises, their formation, performance and enforcement
Applicable not only to business community but others
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4. Definitions
Anson – Legally binding agreement between two or more person by which rights are acquired by one or more to Act or forbearance on the part of the other.
Salmond – an agreement creating and defining obligation between parties
Pollock – Every agreement and promise enforceable at law is a contract
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5. santhi narayanan
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6. CONTRACT Sec 2(h) – “ An agreement enforceable by law is a contract”.
Two elements -
An Agreement
Legal obligation ie, a duty enforceable by law.
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7. Agreement
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
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8. Example
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
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9. Enforceability of Agreement
An agreement is said to be enforceable by law if it creates a legal obligation.
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.
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10. Agreement + Legal obligation (Enforceability at law) = Contract
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11. Contract Act
“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.
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12. Contd - X cannot go to the court to claim his loss.
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 son Rs 1000 as pocket allowance. Later he refuses to pay. Can the son recover the Amount???
The son cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations
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13. Balfour vs Balfour [(1919) 2 K.B. 571]
Case
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.
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14. contd
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.
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15. Case 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
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16. Distinction between an agreement and a contract
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
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17. Classification of Contract
Enforceability
Method 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
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18. Valid Contract
Essentials
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19. Essential elements of a valid contract
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
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20. Offer and acceptance 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.”
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21. OFFER 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
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22. Contd
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’.
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23. Types of offer
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.
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24. Cases General offer Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258
Harbhajan lal vs. Harcharan lal (AIR All 539)
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25. Contd- 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.
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26. Legal rules as to offer santhi narayanan April 20, 2015
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
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27. Contd - 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.
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28. Case 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.
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29. Contd - 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
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30. Contd- Offer must be communicated Case: Lalman Shukla vs. Gauri Dutt
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. i.e., One can accept the offer only when he knows about it.
Acceptance in ignorance of offer confers no right. i.e., An offer accepted without its knowledge does not confer any legal rights on the acceptor.
Case: Lalman Shukla vs. Gauri Dutt
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31. Contd - 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
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32. Contd Communication of special terms or standard terms of contract
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.
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33. Acceptance 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.
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34. Contd- In case of a specific offer –
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.
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35. Contd - 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
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36. Legal rules of valid acceptance
Absolute and unqualified
Manner
Communication
By whom
To whom
Before the lapse of the offer
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37. Communication of offer and acceptance
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.
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38. Contd - As against the proposer –
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
When it comes to the knowledge of the proposer.
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39. Revocation of offer and acceptance
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.
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40. Contd -
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.
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41. CAPACITY TO CONTRACT
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42. Minor Person domiciled in India, who is under 18 years of age.
Law protects minor’s rights because they are not mature and may not possess the capacity to judge what is good or what is bad
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43. Position of minor’s agreement
Validity – An agreement with a minor is void-ab-intio
Case – Mohiri Bibee vs Dharmdas Ghosh
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44. Position of persons of unsound mind
Who is a person of unsound mind
Sec 12 - A person is said to be of sound mind for the purpose of making a contract, if at the time when he makes it, he is capable –
(a) to understand the terms of the contract.
(b) to form a rational judgment as to its effect upon his interests
Ex ; idiots, lunatic, drunken person
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45. Position of agreements with persons of unsound mind
1. Lunatic
(a) while he is of unsound mind
Capacity to contract
He cannot enter into any contract. Any agreement entered into by him during this period is altogether void and he cannot be held liable thereon.
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46. Contd- b) While he is of sound mind (II) Idiots
He can enter into a valid contract and he is liable for such contract.
He cannot enter into any contract. Any agreement entered by him is void and he is liable thereon.
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47. Contd
Drunken person
He cannot contract while such delirium or drunkness lasts
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48. Persons disqualified by law
Alien enemies – cannot enter into any contracts
Foreign sovereigns and ambassadors – can enter into contracts
enforce those contracts in our courts
but cannot be sued in our courts without the sanction of the central government
Convicts – Cannot enter into any contract during the period of the sentence
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49. Contd - Company – Insolvent –
Contractual capacity is determined by the ‘object clause’ of the memorandum of association.
Any act done in excess of the power given is ultra vires [(i.e) beyond the power] and hence void.
Insolvent –
Cannot sue and be sued.
Cannot enter into contracts relating to his property.
When the insolvent is discharged the disqualification is removed.
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50. Consideration Without which no single promise is enforceable
A technical term used in the sense of quid pro quo (i.e., something in return).
When a party promises to do something he must get ‘something in return’. This something is defined as consideration.
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51. 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 abstain from doing something, such act or abstinence or promise is called a consideration for the promise”.
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52. Contd -
Ex – X promises to deliver the goods to Y and Y promises to pay Rs 1000 on delivery. In this case, the consideration for each of these promises is as under:
For X’s promise - Y’s promise to pay Rs 1000 on delivery
For Y’s promise – X’s promise to deliver the goods
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53. Essential elements
Move at the desire of the promisor – An act constituting consideration must have been done at the desire or request of the promisor.
Case – Durga Prasad vs. Baldeo
May move from any person – immaterial as to who furnishes the consideration
Case – Chinnayya vs. Ramayya
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54. Contd - It may be past present or future It must be of some value.
It must be real and not illusory
Something other than the promisor’s existing obligation
Case – Ramachandra Chintamana vs. Kala Raju
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55. Stranger to contract
A stranger to consideration – can sue because the consideration can be furnished or supplied by any person whether he is a promisee or not
A stranger to the contract - cannot sue because of the absence of the privity of the contract
Case – Dunlop P tyre Co ltd vs Selfridge&Co Ltd
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56. Agreements made on account of natural love and affection
Contracts without consideration(Exceptions to general rule, no consideration, no contract )
Agreements made on account of natural love and affection
Promise to compensate for past voluntary service
Promise to pay a time barred debt
Completed gift
Agency
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57. Elements of valid consideration
Move at the desire of the promisor
Move from any person
Past/present or future
Of some value
Real and not illusory
Something other than the promisor’s existing obligation
Lawful
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58. Free consent
It is essential to the creation of the contract that the parties are ad idem,ie, they agree upon the same thing in the same sense at the same time and their consent is free and real.
Consent means an act of assenting to an offer.
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59. Sec 13
“Two or more persons are said to consent when they agree upon the same thing in the same sense.”
Effect of absence of consent – When there is no consent at all, the agreement is void ab-intio, ie, it is not enforceable at the option of either party.
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60. Free consent Sec 14 No free consent – contract is usually voidable
Consent is said to be free when it is not caused by (a) coercion (b)undue influence (c)fraud (d)misrepresentation or (e) mistake
No free consent – contract is usually voidable
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61. Contd- Free Consent Coercion Undue influence Fraud Misrepresentation
Mistake
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62. Coercion
Sec 15
A contract is said to be caused by coercion if it is obtained by
(a) committing any act which is forbidden by the Indian Penal Code
(b) threatening to commit any act which is forbidden by the Indian Penal Code
(c) Unlawful detaining of any property
(d) threatening to detain any property
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63. Case Case 1 Ranganayakam vs Alwar Shetty, (1889) 13 Mad 214
The relatives of a young widow threatened her that they would not allow her to cremate the dead body of her husband unless she consented to the adoption of a boy as her son.
Held: The adoption is not binding on her on account of coercion
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64. Case Muttiah Chettiar vs. Koruppen Chetty (1927) 50 Mad 786
A person secured a release from liabilities from his principal by refusing to hand over the books of account. The release deed was held to be voidable of the option of the principal.
Effect of coercion: Contract is voidable at the option of the party whose consent has been caused by coercion.
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65. Undue influence
Dominating the will of the other person to obtain an unfair advantage over the other
Sometimes the parties to the agreement are related in such a way that one of them is able to dominate the will of the other.
It creates a mental or moral fear created by coercion. Consequently the party on whom undue influence is exercised is indirectly compelled to enter into the contract
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66. Ex: A, having money advanced money to his son B during his minority, upon B’s coming of age, obtains by parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence
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67. 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 of his agent, or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge 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.
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68. Contd-
Explanation.- Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
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69. Illustrations
a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the 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.
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70. Contd-
(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.
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71. Effect Suit for recession Suit for damages for fraud
Right of recession lost if—
Affirmation of the contract even after becoming aware of the fraud
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72. Misrepresentation
A false representation of fact made innocently or non- disclosure of a material fact without the intention to deceive the other party
Aggrieved party can avoid or rescind the contract
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73. Contd-
Ex: A tells B, without checking records, that in his factory tons of indigo is manufactured every month. A believes his assessment to be true. The actual production is found to be only 830 tons. A is guilty of misrepresentation.
Effect: Right to rescind the contract
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74. MISTAKE Erroneous belief about something Mistake of law
Mistake of fact
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75. Mistake of the law of the country
Mistake of law
Mistake of the law of the country
Mistake of foreign law
Mistake of fact
Unilateral mistake
Bilateral mistake
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76. Sec21. Effect of mistakes as to law
A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in [India] has the same effect as a mistake of fact.
Illustration
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation: the contract is not voidable.
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77. Legality of the object and consideration
Object and consideration of contract must be lawful, otherwise the agreement is void
Consideration or object of contract is unlawful in the following cases:
(a) If it is forbidden by law
(b) If it defeats the provision of any law
(c) If it is fraudulent
(d) If the court regards it as immoral or opposed to public policy
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78. Agreements opposed to the public policy
Agreements of trading with the enemy
Agreement of stifling prosecution
Agreement in restraint of paternal rights
Agreement in restraint of personal liberty
Agreements in restraint of trade
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79. Other essentials
Certainty of meaning – terms of contract must be unambiguous
Possibility of performance – An agreement to do an impossible act is void
Legal formalities - Must comply with necessary formalities like writing, registration and stamping
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80. Quasi contracts
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81. Meaning Not a contract at all
One or the other essentials of a contract are absent
An obligation imposed by law upon a person for the benefit of the other even in the absence of a contract.
Based on the principle of equity
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82. Features Imposed by law and does not arise from any agreement
Duty of a party and not the promise of any party is the basis of such contract
Right under it is always a right to money
Right under it is available against specific persons and not against the whole world
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83. Types of quasi contracts
Right to recover the price of necessaries supplied
Right to recover money paid for another person
Right to recover for non-gratuitous Act
Responsibility of finder of goods
Right to recover from a person to whom money is paid or thing is delivered, by mistake or under coercion
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84. Quantum meruit “as much as earned’
Payment in proportion to the amount of work done.
When a person has begun the work and before he could complete it, the other party terminates the contract or does something which make it impossible for the other party to complete the contract, he can claim for work done under the contract.
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85. Contd-
He may also recover the value of the work done where the further performance of contract becomes impossible.
The party claiming relief has to establish the following:
He has been ready and willing to perform the contract.
He has made a part performance of the contract for which the remuneration is due.
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86. Cases in which the claim of quantum meruit can arise
In case of void agreement or contract that becomes void
In case of non gratuitous act
In case of preventing the completion of the contract
In case of divisible contract
In case of indivisible contract performed completely but badly.
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87. Performance of contract
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88. Meaning
A contract is said to have performed when the parties to the contract either perform or offer to perform their respective promises.
Sec 37 : “The parties to the contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provision of the Act, or any other law.”
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89. Contd - Types of performance: Actual performance Attempted performance
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90. Contd - Persons who can demand performance Persons who must perform
Promisee
Legal representatives
Third party
Joint promisee
Persons who must perform
Promisor
Promisor’s agent
Legal representative
Joint promisors
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91. Time and place of performance
The contract must be performed within a reasonable period of time.
The promise must be performed in the manner and at the time prescribed by the promisee.
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92. Contd-
Time as essence of contract – It is essential for the parties to a contract to perform their respective promises within the specified time.
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93. Discharge of contract
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94. Discharge of a contract
Discharge of a contract means the termination of contractual relations between the parties to a contract. A contract is said to be discharged when the rights and obligations of the parties under the contract come to an end.
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95. Modes of discharge of contract
Discharge by performance
(a) By actual performance
(b) By attempted performance
Discharge by mutual agreement:
(a) Novation – Substitution of a new contract
(b) Rescission – Cancellation of contract
(c) Alteration – Change in terms of contract with mutual consent of parties.
(d) Remission – Acceptance by promisee of a lesser fulfillment of the promise made
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96. Contd - Discharge by operation of law –
(e) Waiver – Intentional relinquishment of a right under the contract.
Discharge by operation of law –
(a) By death of promisor
(b) By insolvency
(c) By unauthorized material alteration
(d) By the identity of the promisor and promisee
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97. Contd - Discharge by impossibility of performance
Effect of initial impossibility
Effect of supervening impossibility
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98. Breach of contract
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99. Contd-
Breaking of contract means a breaking of the obligation which a contract imposes
Breach of contract is of two types:
Actual breach of contract
Anticipatory breach of contract
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100. Actual breach of contract
At the time when the performance is due
During the performance of the contract
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101. Anticipatory breach of contract
Ex; A undertakes to supply certain goods to B on 1st January. Before this date, he informs B that he is not going to supply goods. This is an anticipatory breach of contract
Anticipatory breach does not necessarily discharge the contract, unless the promisee (the aggrieved party) so chooses.
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102. Remedies for breach of Contract
When a contract is broken the injured party has one or more of the following remedies.
Rescission of the contract
Suit for damages
Suit for quantum meruit
Suit for specific performance of the contract
Suit for injunction
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103. Rescission A right not to perform obligation
The aggrieved party is discharged from all the obligations under the contract.
He is entitled to claim compensation for damage which he has sustained for the non performance of the contract
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104. Suit for damages
Monetary compensation allowed for the loss suffered by the aggrieved party due to the breach of the contract.
Case; Hadley vs Baxendale
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April 20, 2015

105. Contd -
Rule ; Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be as such as may fairly and reasonably be considered either arising naturally i.e., according to usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in contemplation of both the parties, at the time they made the contract, as the probable result of the breach of it.
santhi narayanan
April 20, 2015

106. Section 73 Deals with compensation for loss Ordinary damages
Special damages
Exemplary damages
Nominal damages
Damages for inconvenience and discomfort
Liquidated damages and penalty
Stipulation for interest
Forfeiture of security deposit
santhi narayanan
April 20, 2015

107. Suit for specific performance
Demanding the court’s direction to the defaulting party to carry out the promise according to the terms of the contract
santhi narayanan
April 20, 2015

108. Suit for injunction Demanding court’s stay order
Injunction means an order of the court which prohibits a person to do a particular act.
santhi narayanan
April 20, 2015

109. Suit for quantum meruit
Right to claim compensation for the work already done.
Ex: C an owner of a magazine engaged P to write a book to be published by installments in his magazine. After a few installments were published, the publication of the magazine was stopped. It was held that P could claim payment for the part already published.
santhi narayanan
April 20, 2015