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Indian Contract Act 1872 .

A Contract is an agreement enforceable by law.

Every promise and every' set of promises fonning the consideration of each other is an ac:rccmcnt .
Promise is a proposal when accepted.

Proposal when one person signifies to~ciherhis willingness to do or abstain from doing anything with a view to obtaining the assent of tlrat other to such acts or abstinence he is said to ~ake a proposal. Acceptance is when the person to whom the proposal is made signifies his assent thereto the proposal is accepted. Promisor Promisee Making the proposal Accepting the proposal.

Consideration .. 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 something o~ such act or

abstinence or promise is called consideration ... ESSENTIAL ELEMENTS OF A CONTRACT.

Agreement. Intention to create a legal relationship. Free and genuine consent. Parties competent to contract. Lawful Consideration. Lawful object. Agreement not declared void or illegal. t- Certainity of meaning.
I

Offer ,acceptance, consensus - ad idem Not social or domestic. Not misrepresentation,fraud,coercion ,mistake,undue influence. Major,sound mind, not disqualified by law. Nudum pactum( a bare promise) Not unlawful

Precision.
Impossible
\Vriting, wherevcr

i Necessary i

Possibility ofper.fonnae.

acts excluded.
registration rcquired. and attestation
I

legal formalItIes.

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ESSENTIAL REOUIREM~NTS OF A VAll 0 OFFER.

I Must be made with a view to obtain acceptance.

2 3
4 5 6 7 8 9

Must be made with the intention of creating legal relations.

Terms of otTer must be unambigous,detinite and certain and capable of being certain. It must be distinguished from mere declaration of intention or an invitation to offer. It must be communicated to the offeree. the The offer must not contain a term non compliance of which may be assumed to amount to acceptance. A tender is an offer as it is in response to an invitation to offer. The special terms, fonning part of the otTer, must be duly brought to the notice of the offeree at the time the offer is made. Two identical cross offers do not make a contract. ESSENTIALS OF A VALID ACCEPTANCE

1 2 3 4 5 6 7

Acceptance must be absoloute and unaualified. It must be communicated. It must be according to the mode prescribed. It must be given within the reasonable time specified or within reasonable time. It must be in response to an offer. It must be made before the offer lapses. It must be given by the person to whom the offer is made.

TERMINATION OF AN OFFER
I 2 3 4 5 6 7 An offer lapses after stipulated or reasonable time. An offer lapses by the death or insanity of the offeror or the offerree before acceptance. An offer lapses on rejection An offer terminates when rejected It terminates by counter offer It terminates by not being accepted in the mode prescribed or in usual and reasonable manner. A conditional offer tenninates when condition is not accepted--_J

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M i~representation Mistake

Party can sue for damages. Innocent mistake of fact. Consequences are same as fraud except cannot sue for damages. Of fact ( bilateral/unilateral) and oflaw.

RULES REGARDING

CONSIDERATION

Consideration must move art~e desire of the promisor i.e. not at the

desire of a third party.

2 3 4 5 6

Consideration Consideration Consideration A stranger to Consideration

may move from the promisor or an need not be adequate. must be real and competent. a contract cannot maintain suit. must be leQal.

DISCHARGE OF CONTR~CTS
~ By performance or tender

" Bymutualconsent ( Novation

/ Rescission

/ Alteration

/ Remission)

,. By subsequent impossibility ( Destruction of subject matter / death or disablement of parties / subsequent illegality / declaration of war / non existence or non occurrence of a particular thing) Exceptions: Difficulty of performance / Commercial impossibility / Strikes; lockouts; civil disturbances (unless contract specifically mentions ). ~ By operation of law ( death; insolvency ~ merger: unauthorised alteration of the terms of contract) y By breach ( anticipatory / actual)

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POSITION OF MINOR's CONTRACTS 1 2

3 4 5 6 7 8 9 A contract with a minor is void ab initio A minor's agreement cannot be ratified by the minor on attaining majority A minor cannot be asked to refund any benefit received under a void agreement A minor is not estopped to plead minority even where he falsely represents himself to be of full age. A minor cannot be a partner in a partneship firm . He may, however be admitted to the benefits of an already existing partnershio. A minor can, however be a promisee or beneficiary A minor's estate is liable to a person who supplies neccessaries of life to a minor. Minor's parent or guardian are not liable to a minor's creditor for the breach of contract of a minor. A minor can act as allent

WHAT IS FREE AND GENUINE CONSENT

Both parties agree to the same thing in the same sense. Coercion

Threat to commit suicide / DURESS / sums paid due to

coercion is repayable. Consequences are contract is 'voidable.

Undue Influence

Where he holds a real or apparent authority over the other / or where he stands in a fiduciary relationship / where he makes a contract with a person whose mental capacity is affected by age or illness for example: parent/child, guardian/ward; doctor/patient ;guru/disciple . consequences are that contract. is voidable. Burden of proof could lie on the person with
power. Stating of a fact not true deliberately; the active concealment of a fact; a promise made without i intention of perfonning it ; any act litted to deceive;
I

Fraud

any.
!

! legal fraud. It must actually deceive; it must result in a

. loss. -~_C2!:s~Jenccs

ar.:..~_~voi~~'~_~~ll_~-Is a i!lSist ~s if f~ct is l~~JC._~

:(-)
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BAILMENT Charecteristics
1) Delivery of goods ( actual! constructive) 2) Contract 3) Return of goods Duties of a 8ailor 1) To disclose faults in the goods
','

2) Lia,hilitytor hreach of warranty as to title. 3) To bear expenses in case of gratuitous bailment.

Duties of the Bailee 1) 2) 3) 4) 5) To take 'care of the goods bailed Not to make unauthorised use of goods Not to mix hailor~s goods with his 0\1.11 To return the goods bailed To return any accretion of goods bailed

PLEDGE Rights of a Pledgee

-' 4 5 6 Duties of a Pledgee Taking care of the goods! not putting the goods to unauthorised use! return of goods including accruals Rights and duties of a Pledgor can be drawn from the above duties and rights of a Pledgee.

..

Contracts

of (;uarentce

Iindemnitv

1) In a guarentee there is a threeway agreement between the debtor; the creditor and the surety wheras in the case of indemnity there is only the indemni fied and the indemni fief.

Rights and obligations of the creditor in a contract of guarentee : He can claim his dues ITomthe surety as soon as the debtor fails to fulfill his obligations. He need not wait for exhausting all the remedies .
,

However it is expected that the creditor would not change the agreement without due consultation and agreement of the surety. Also he should not release the principal debtor from his debt. Not to infringe on the rights of the surety. Forbearence of action against the debtor does not absolve the surety from his obligations under the contract. Rights of surety Right of subrogation that is when the surety discharges the debts the rights of the creditor pass on to the surety as far as claiming the same from the debtor is concerned .( w.r.t. securities I bonds etc... ) Right to be indemnified ( for sums paid) Rights against co sureties to claim their part of the contribution in case he has paid in excess. Liabilities of surety It is co extensive Withthe debtor. Discharge of Surety I) 2) 3) 4) 5) 6) By notice of revocation By death of surety By variance in terms of contract By release or discharge of the principal debtor By giving time or agreeing not to sue the principal debtor By creditor's act of omission

A(;Ef\;CY
Acent

Duties To conduct the husiness of an agency according to the principal's directions and not deviate even for the benefit of the prin.. To conduct the business with the skill and diligence generally possesed To render proper accounts In case of difficulty to communicate with principal Not to make any secret profits

Rights

Right to receive agreed and reasonable remuneration.

Right to retain moneys of the principal towards advances / expenses Right of lien i.e to retain properties of the rincipal for commissiom , expense etc Right of stoppage - in - transit in some cases such as del credere agent Right to be indemnified for all acts done within his ri1!hts.

Not to deal on his own account Not entitled to remuneration for bad business conduct
,

Titansues\ \

~x-employee \ forjoining rivalfinn, gets stay S8njay K Pil...

BANGALOAE,14JUNE INDUS11UES has filed a case

\
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I TITAN
I

Titan sues ex-employee

Nangia prohibited him from being an employee or offering consultanCYfor a company engaged in business which is in direct competition with TItan. Section 27 of ContraCt Act says "every agreement by which anyone is restrained from exercising a lawfulprofession. trade or business of any kind. is to that extent void." Juroce Dal Veer Bhandari of the De1hi High Court had durini hisjudgement in the matter of Pepsi Foods Ud (pbdntiffs) vs Bharat Coca Cola Holdings (P) Ltd (defendants) statedthat ..A,chnittedly the service in and employment contracts of the plaintiffs there is a negative covenant clause. restraining an employee from engaging or i undeftaking employt11en~ 12 months affor

:employee for joining a rival com-

against a former senior-level

j pany. . i The company bas obtained a I stay from a civil court. restraining i Vasanth Nangia. its former chief Ioperating -officer (jeweDery diviI

sian),fromWodangasthe CEO of I Oyzterbay, Bangalore-based a jeweUery ston: start-up, as it violated an employment contract signed by Nangia with Titan. Nangia resigned with two others last year and !\et up Oyzterbay in June 2000. Oyzterbay specialises in designer jeweDery aimed at youngsters. a segment which Titan's jewellery brand Tanishq has not ventured into till now. The stay order becomes significant as Titan is planning in the next two weeks to ('orne out with its own range of jewellery ('atering to the younger segynt'flt of the Indian populac<" in din"\'t c()mpt~ tition with O)'z1erbay. Ineidt'ntally, Oyzterbay\ jew. dlery is priced in the ,Wt'rag-t.
rdnge of Rs 2()O to Rs ;-,...JO.'\lit' av-

t ter be has ~ the piaintiffsservice.It is ~

settled that such post-termination

restraint.

under Indian taw.is in vio1ation Section 'Zl of ~ of the Contract Act, Such contracts are Wr t- cnforceable. void. and 3j.f<\insthe public t

eraRt:' price band of the Tanishq rang-eof jewellery is arotlnd Ihrt"\, limes more'\lIt:' case says that the emplo\'ment contrxt sig-nedby
-CONTINUED ON PAGE 12

,-:; ~

L~/

Whois liable for~ehiclet

-':-~

yourlossifyourvehIcleparked : stolen?Is t~econtractoror the

~uendant.(b~nsee) at the ~rksibilitylies~t~~~e,~gencyman-

at authorised parking place is

lostfromparking lots? ~ 3 - t,'

' ,VI

WHO~sliableto~akegood

~~y.:,!,

~~

~ fi.ndingOfth~~lateCom
~

',,','

: 1 he CommIssionobserved t

~ ~~";-

~ ~ "'"~, . 109place IShable or the respon- :'~~':"'''!

: '~/:,.~.'
~ ',.',
~

.:..~

: the parking ;u'ca has : handedby uverIAA to the llcen : ment the under the. ilgT
: nn the temls and condilion
~ ~

hentirc management of runni

~
a~

agingpa~kii1g are~ (licensor). Is the nommal parkmg charge re- :

p.:aringin the.1~reement.11le Ii : ':\.'I1~e ;Is..;umcd had rcsponsibi!

I ceived
I
~

a~o.unts to hls.rende~mgofser, vIce on consIderatIOn? \Vhat :

~ 1

: whl,'h w~re p;trked o~. payll:Z : ul pr."SCnhedcharges. .documents are required to stake ~ DSMehta : In"ixinglheprieeufcar~ ; the claim for the loss?: : ;-':;ltinn;.1Cllmmis..;iun diffem Airport Authurity W;ISas much with the St:lle Commission; 1 . National Cpnsumer Disputes Redressal Commission, in Ma- : responsihle for taking can: of VI:- : hdd th;lt the price shown for ~ hesh Enterprises vs Arun Ku- hide entrusted to its licens.:e as purpose uf the insurance nuj mar Gumber has givendear rul- : the licensee him.-.clf.It directed: nut he ;1 currect market pnC!'
~ ~ ~

by.

the

~ontra,ctor

Consumer Corner

ity ~ur the safely uf the vehiQa

ing on November 15. 2000 on

: the
~

uppusite part)' lu pay Rs

: The ar
~

W;'Spun:hascu for }U'

'

some of these issues. The ruling is of considerable interest to all vehicle owners. The o,m-:

1.35.972 heing the amount shown for th.: purpose of iosur-: ancc of the C:IT and Rs 5000 on

i..'h.641S.

plaioant, Arun Kumar Gumber,

went to Indira Gandhi Intcrna-:

account of mental agonyAggrieved by the order of thc

tional Airport to see off his: District Forum. IAA as wdl as brother. He parked his Maruti the Mahesh Entcipriscs fikd;1I1 car in the authorised parking: 'appeal before the State Com- : area. The complainanton t.is re- : mission.The Intern;ltion;11 Air-: turn found that the carwasmiss- port Authority urged that the
~ ~ ~ ~

: : tion
~

TIlc cllmplainantused tl c.lr for almost four years. 11 Commissiun held that dedt
'10 .lCcount of dcpreciatil

: hadto be made{or-I)'ears,
nut {or une YC41r held by as

St.ttcCommission. ! As sllch the prh:c of the would be <,"IyRs 90.000. .

S!IOU!d p~~-k~;e the rcc:e~.!t "~'

ing. He lodged a report with the:

police,statio~lndiraGandhiInlernatlonal Airport. In spite of best efforts. the:

car could not be traced. Gumbcr

tiled a complaint before the Dis-

: :
~

trict Forum impleading the Indira Gandhi International Air- : complainant. : the name :lOdaddn..-sses 0 of port Authority and Mahesh ~ The State Commission. on ur two p.:rsuns available on
~

entire managemcnt of the parking was handed over tll th~ licensce. Mah\.'Sh Enterpn:;es: urged that the facts alleged by the complainant did not consti. tute bailment and the contr.lctor was not liable to indemnify the: appraisal of the evidence: :lOd in

: ownct!?kthy.vchiclehow(
~

: : the
~

tIcket. which mu...1 heal1t~.qut11 'J; bcrohhc \'J;hicleand also rep

matter immediately to i:

polio:. '., Also. he should note d<>,

Enterprises who was managing:

the parking area claiming Rs 1,95.852being the price of the

flew car. besides, Rs 40,009 on

: the lightof the legal position. re- : puseaswitnesses bouttheno a

~

: spot
~

'\,\'ho if necessary

could,

account of compensation. International Airpon Authority (IAA) argued that the: complainant did not hire the ser.

: constitute bailment and the per- : the st:mJ in lerms of receiPt : son responsible for thc manage- : sued to him hy the cuntractor
~

turned the finding that the facts

availability of vchicle parked: ' hisattendanl. The above judgment

: State Commissionalso returned:

~

ment of the parking are was liable to make good the loss. The: the finding that lAA was not liablctosatisfythedaiminview:

is 1,

considerable significance to a
~

vicesof the IAA and at no stage

Iherewasaprivityofcontractbc-: tWeen the tWo. Under the teons of the licence. the Airport Au.

those who park their cars ,

parking places. The p.:rson (

: of aause
~
~ ~

thority was not responsible for

deficiency in service or ncgligence.on the p~rtofthe licensee. -\.Iso, the parkm~ charges were col!ccteJ by the hcensee and the: responsibility for Ihe loss, if any, was thaI of Ihe licensee.
The Di<~~ict FC,ulII allowed:

: hide for parking on payment.1 : port Authorityand Mahesh En- : parking fees:lOdissuesa recell : terprises. : is hailce in tcrms of Section I.
entered into betWeen the AirIt held that lAA was not li~ ~

(9) of the agr~ement

;Iuthorily.whichreceivesIhe ",

IndianContr;..-I Aclandis r .
\':::oJ\. ,.1' :~;~ C'~ ;: IiI': tJU'Lh;t~

abk 10 pay any amount h~ Ihe ~lx'n~lhle Ic~r I~e ;-..f. "'!'':: ;"::1 complamant. The State (01- : \eh:::~.: ;" In.: balkr. .\ I".. .....
mi~sion fix~li ;>ricc," !!:~ ;,jarull 1,22.375, Sol ,c":~"G.; pc:liuon. Ihe J\:a-

: C.-.r ai ~s

: : pTlee,minus : -- -

lkpr':Clauon.
On -., -

':,;: ;:umpliant "!:~ :...1" ,~::,: ::,.: : lional Commission upbdd

Ihe : Fmtl/r.l."''''Ir:''_'~'III(''.\<lI/l)(J.clJ''

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Flow Chart Essential Elements of a Contract

Given below is a no',v chart enlHJ!.cratl"<' as per the definitions ghr~n under

the essential

elements of the Act.

of a contract

sec.2~)} and sec.lO (s 2h)

Contrad

1-,An agrecmcnt : A promise or set of prol1Jiscs Is 2b] -

i
Enforceable

I by law (5.10)

An offer

~
Capacity (55.11-12)
I

1
Acceptance (5 2b)

Consideralioo (ss.23-25)

Free consent (s~.13-14)

Lawful object (ss.23-24)

I Otherwise not void (s5.26-30)

Minol" (s.lI)

Unsound mind
Lunatics

LC:fal L'

r
Coercion (s.15)

incapacit.y (under particular laws lil-:c Insurance, Company Law (3:::.nking; etc.) ,--I Undue Fraud Misreprcsentation Inf1\1enc~ (s.17) (s.18) (s.16)

'I

Mistake (s.20)

.--

of one party (s.22)

I

ofbolh pa':i~

(S.2~J

G![,let (s5.20,22)

oflaw (s.21)

in rcsi.r:.l~rlt of m<lrriage (s.26)

"---,
in restraint oi trade (5.27)

in }'.;straint of legal p,ocecdings (s.28)

-f
ambiguous agrecmcnt (s.2a)

t'_.

\VagerJng agl'~emcnt (s. 30)

to do impo$siblc ,'act (s.3G) t 1
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