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INDIAN CONTRACT ACT,1872

Ms. Parul Gupta


Definition of Contract

Acc to Sec. 2 (h) " A contract is therefore is


an agreement the object of which is to
create a legal obligation .“

Contract essentially contains two elements:


(1) An agreement, and
(2) Legal obligation i.e., a duty enforceable by
law

Ms. Parul Gupta


Agreement.

As per Section 2(e): "Every promise and every set of promises,


forming the consideration for each other, is an agreement."

What ts a 'promise'?
Section 2(b) which defines the term:"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."
(a) Plurality of persons. There must be two or more persons to make
an agreement because one person cannot enter into an agreement
with himself.
(b) Consensus-ad-idem. Both the parties to an -agreement must
agree about the subject-matter of the agreement in the same sense
and at the same time. Ms. Parul Gupta
2. Legal obligation.
. "All contracts are agreements but all
agreements are not contracts."
" Agreements which create obligations, and
those obligations, which have their
source in agreements"

Ms. Parul Gupta


Essential Elements of a Valid Contract

A contract has been defined in Section 2(h) as "an agreement enforce-able by


law"
.
The essential elements of a valid contract are as follows:

1. Offer-and acceptance.
There must be a 'lawful offer' and a 'lawful acceptance' of the offer, thus
resulting in an agreement. The adjective 'lawful' implies that the offer and
acceptance must satisfy the requirements of the Contract Act in relation
thereto.
2. Intention to create legal relations.
There must be an intention among the parties that the agreement should be
attached by legal conse-quences and create legal obligations.

Ms. Parul Gupta


3. Lawful consideration.
"The 'consideration' may be an act (doing something) or
forbearance (not doing s"ometnlhg)or a promise to do or
not to do something. It may be past, present or future. But
only those considerations are valid which are 'lawful'.

The consideration is 'lawful', unless—it is forbidden by law; or is of


such a nature that, if permitted it would defeat the provisions of
any law^ or is fraudulent; or involves or implies injury to the
person or property of another; or is immoral; or is opposed to
public policy (Sec. 23).

Ms. Parul Gupta


4. Capacity of parties. The parties to an agreement
must be competent to contract, otherwise it cannot
be enforced by a court of law. In order to be
competent to contract the parties must be of the age
of majority and of sound mind and must not be
disqualified from contracting by any law to which
they are subject (Sec II).
If any of the parties to the agreement suffers from
minority, lunacy, idiocy, drunkenness, etc., the
agreement is void

Ms. Parul Gupta


5. Free consent
. Free consent of all the parties to an agreement is another essential element of a valid
contract.'Cor.sent1 means that the par-ties must have agreed upon the same thing in the same
sense (Sec. 13). There is absence of 'free consent1, if the agreement is induced by
(/) coercion,
(//) undue influence
, (///) fraud,
/v) mis-representation, or
(v) mistake (Sec. 14).
If the agreement is vitiated by any of the first four factors, the contract would be yiodable and cannot
be enforced by the party guilty of coercion, undue influence etc

6. Lawful object. For the formation of a valid contract it is also nec-essary that the parties to an
agreement must agree for a lawful object. The object for which the agreement has been entered
into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury
to the person or property of another (Sec. 23).

7. Writing and registration. According to the Indian Contract Act, a contract may be oral or in
writing. But in certain special cases it lays down that the agreement, to be valid, must be in writing
or/and registered.

8.certainty. Section 29 of the Contract Act provides that "Agree-ments, the meaning of which is not
certain or capable of being made certain, are void. Ms. Parul Gupta
KINDS OF CONTRACTS
1. Valid contract. A valid contract is an agreement enforceable by law. An
agreement becomes enforceable by law when all the essential elements of a
valid contract as enumerated above are present.

2. Voidable contract. According to Section 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." Thus, a,
voidable contract is one which' is enforceable by law at the option of one of
the parties.

3. Void contract. Literally the word 'void' means 'not binding in law'. Section 2(j)
defines: "A contract which ceases to be enforce-able by law becomes void,
when it ceases to be enforceable.“

4. Unenforceable contract. An unenforceable contract is one which is valid in


itself, but is not capable of being enforced in a court of law because of some
technical defect such as absence of \vriting, registration, requisite stamp,
etc., or time barred by the law of limitation. Ms. Parul Gupta
5. Illegal or unlawful contract.
The word 'illegal' means 'contrary to law' and the term 'contract' means 'an agreement
enforceable by law.' As such to speak of an 'illegal contract' involves a contradiction in
terms, because it means something like this—an agreement enforceable by law and
contrary to law.
An agreement is illegal and void if its object or consideration:
(a) is forbidden by law; or
(b) is of such a nature that, if permitted, it would defeat the provisions of any law; or
(c) is fraudulent; or
(d) involves or implies injury to the person or property of another; or
(e) the court regards it as immoral, or opposed to public policy (Sec.23).B
Illegal and void agreements distinguished.
Despite the similarity be-tween an illegal and a void agreement that in either case the
agreement is void ab-initio and cannot be enforced by law, the two differ from each
other in the following two respects:
(i)An illegal agreement is narrower in scope than a void agreement. 'All illegal agreements
are void but all void agreements are not necessarily illegal.'
(ii) An illegal agreement is wider in effect in relation to collateral transactions than a void
agreement. When an agreement is illegal, other
Ms. Parul Gupta
6. Express Contract
7. Implied Contract
8. Quasi Contract :- contracts have little or
no affinity with contract
9. Executed contracts
10. Executory contract

Ms. Parul Gupta


THE PROPOSAL OR OFFER
The words 'proposal' and 'offer' are synonymous and are used interchangea-bly.

Section 2(a) of the Indian Contract Act defines a 'proposal' 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".,
This definition reveals the follow-ing three essentials of a 'proposal':

(i) It must be an expression of the willingness to do or to abstain from doing


something.
(ii) The expression of willingness to do or to abstain from doing some-thing must
be to another person.
(///") The expression of willingness to do or to abstain from doing some-thing
must be made with a view to obtaining the assent of the other person to
such "act or abstinence.

Ms. Parul Gupta


Legal rules for valid Offer

1. An offer may be Express or Implied


2. Must contemplate to give rise to legal consequences and be
capable of creating legal relations
3. Terms must be certain
4. Invitation to offer is not an offer
5. May be specific or general
6. Must be communicated to the offeree
7. Should not contain a term the non compliance of which
would amount to acceptance
8. Can be made subject to any terms and conditions
9. To identical cross offers do not make a contract
Ms. Parul Gupta
Acceptance

. Section 2(b) states that "A proposal when accepted becomes a


promise" and defines' 'acceptance' as "when the "person to
whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted."

Legal rules regarding a valid Acceptance

1. Must be given only by the person to whom the offer was made
2. Must be absolute and unconditional
3. Must be in some usual and reasonable manner
4. Must be communicated by the acceptor
5. Must be given within reasonable time
6. Must succeed the offer
7. Rejected offers can be accepted only if renewed
Ms. Parul Gupta
Consideration

Definition

Section 2(d) of the Indian Contract Act defines consideration as follows:


"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."

Essentials of valid consideration


1. Must move at the desire of the promisor
2. May move from promise or any other person ( A stranger to a contract
can not sue
3. May be past, present or future
4. Must be something of value
Ms. Parul Gupta
Capacity of Parties

An essential ingredient of a valid contract is that the contracting parties


must be 'competent to contract' (Sec.10).

Section 11 lays down that "Every person is competent to contract


who has attained the age of majority according to the law to
which he is subject, and who is of sound mind,, and is not
disqualified from contracting by any Saw to which he is
subject." Thus the
Section declares that a person is incompetent to contract under the
following circumstances:
I. if he is a minor, according to the law to which he is subject,
II. if he is of unsound mind, and
III. if he is disqualified from contracting by any law to which he is
subject. Ms. Parul Gupta
Disqualified persons
 Alien Enemies
 Foreign sovereigns band ambassadors
 Convict
 Married Women
 Insolvent
 Joint stock company

Ms. Parul Gupta


"Consent" defined -
Two or more person are said to consent when they agree upon the same
thing in the same sense.

Free consent" defined -


Consent is said to be free when it is not caused by -

(1) coercion, as defined in section 15, or


(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of section 20,21, and 22.
Consent is said to be so caused when it would not have been given but for
the existence of such coercion, undue influence, fraud, misrepresentation, or
mistake
Ms. Parul Gupta
Voidability of agreements without free
consent

When consent to an agreement is caused by coercion, fraud or


misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused. A party to contract,
whose consent was caused by fraud or mispresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall
be put on the position in which he would have been if the
representations made had been true.
Exception : If such consent was caused by misrepresentation or by
silence, fraudulent within the meaning of section 17, the contract,
neverthless, is not voidable, if the party whose consent was so
caused had the means of discovering the truth with ordinary
diligence.
Explanation : A fraud or misrepresentation which did not cause the
consent to a contract of the party on whom such fraud was practised,
or to whom such misrepresentation was made, does not render a
Ms. Parul Gupta
contract voidable.
Void agreements

An agreement not enforceable by law is said to be void" (Sec.2(g)].


Thus a void agreement does not give rise to any legal consequences
and is void ab initio.

1.Agreements by a minor or a person of unsound mind_ Sec.l 0


2. Agreements made under a bilateral mistake of fact material to the
agreement (Sec. 20)
3. Agreements of which the consideration or object is unlawful (Sec.
23)
4. Agreements of which the consideration or object is unlawful in pan,
and the illegal part cannot be separated from the legal part (Sec. 24)
5. Agreements made without consideration (Sec. 25)
Ms. Parul Gupta
EXPRESSLY DECLARED VOID AGREEMENTS

The last essential of a valid contract as declared by Section 10 is that


it must not be one which is 'expressly declared' to be- void .
1. Agreements in restraint of marriage (Sec. 26).
2. Agreements in restraint of trade (Sec. 27).
3. Agreements in restraint of legal proceedings (Sec. 28).
4. Agreements the meaning of which is uncertain (Sec.29).
5. Agreements by way of wager_ (Sec. 30).
6. Agreements contingent on impossible events (Sec.36).
7. Agreements to do impossible acts (Sec. 56).

Ms. Parul Gupta


Performance of Contract
1. By the promisor himself
2. By the promisor or his agent
3. By the legal representative
4. Performance by a third party

Ms. Parul Gupta


Discharge of contracts
1. By performance
2. By mutual consent
3. By supervening impossibility
4. By lapse of time
5. By the operation of law
6. By the breach of contract

Ms. Parul Gupta

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