INDIAN CONTRACT ACT,1872

General Principles (Section 1-75)

Specific Contracts (Sections 124-238)

Elements of contract, performance of contract, breach of contract, remedies for breach of contract.

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SALE OF GOODS ACT, 1930

Section 76-123, Repealed from Contract Act, now Sale of Goods Act, 1930.

INDIAN PARTNERSHIP ACT, 1932

Section 239-266, Repealed from Contract Act, now Indian Partnership Act, 1932.

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DEFINITIONS

A contract is an agreement creating and defining obligations between the parties--- SALMOND Every agreement and promise enforceable at law is a contract---- Sir FREDICK POLLOCK A contract is an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others----ANSON

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CONTRACT IS A CONCURRENT SUBJECT

Covered in Entry of 7 of list III (Seventh Schedule to Indian Constitution)

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Compensation/Damages

Can be obtained through Civil-Court

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Section 1

An Usage or Custom or Trade or any incident of contract is not affected as long as it is inconsistent with provisions of the ACT. The Act extends to the whole of India except J & K. Came into effect on 01-09-1872.

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OFFER" OR PROPOSAL {Sect-2(a)}

Is the starting point in the process of making an agreement. When one person who desires to create a legal obligation, communicates to another his willingness to do or not to do a thing, with a view to obtaining the consent of that other person towards such an act or abstinence, the person is said to be making a Proposal or Offer.
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Example of offer

A offers to sell her book to B. (Positive Act) A offers not to file a suit against B. If latter pays A the amount of RS. 10,000/outstanding. (Negative Act)

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Guidelines for a Valid Offer

An offer may be Express or Implied. An offer must reflect to give rise to legal consequences and be capable of creating legal relations. The term of the offer must be certain. An offer may be Specific or General. An offer must be communicated to the offeree. An offer can be made subject to any terms and condition.
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Communication of Proposal

Communication of an acceptance of proposal is complete when it comes to the knowledge of the person to whom it is made. A proposes, by letter, to sell a house to B at a certain price.the communication of proposal is complete when B receives the letter.

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Lapse of an offer

An offer lapses after stipulated or reasonable time. {Section 6(2)} An offer lapses by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual and reasonable manner. An offer lapses by rejection. (a) may be express (b) may be Implied- by making counter offer -by giving Conditional acceptance. An offer lapses by the death or insanity of the offeror. An offer lapses by revocation. {Section 6(1)}
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ACCEPTANCE

An acceptance is the act of expression by the offeree of his assent to the terms of the offer. It signifies the offeree's willingness to be bound by the terms of the proposal communicated to him. To be valid an acceptance must correspond exactly with the terms of the offer, It must be unconditional and absolute and It must be communicated to the offeror.
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Guidelines for a Valid Acceptance

Must be given only by the person to whom the offer is made. Acceptance must be absolute and unqualified. Acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner. Must be communicated by the acceptor. Must be given within a reasonable time and before the offer lapses or revoked.
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Communication of Offer and Acceptance

Communication of Offer-When it comes to the knowledge of the person to whom it is made. Communication of Acceptance-When the person to whom the proposal is made signifies his assent.
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Two Aspects

As against the Proposer-When it is put in a course of transmission to him As against the acceptor-When it comes to the knowledge of the proposer

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Communication of a Revocation

As against the person who makes it- when it is put into a course of transmission to the person to whom it is made. As against the person to whom it is madewhen it comes to his knowledge

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Time limit during which offer and acceptance can be revoked

Proposal- May be revoked at any time before the communication of its acceptance is complete as against the proposer. Acceptance- May revoked at any time before the communication of the acceptance is complete as against the acceptor.

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AGREEMENT (Sect 2-9)

Proposal (Sec 2-6)

Acceptance (Sec 2-9)

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(1) Consideration (Sec 2-25) (2) Capacity to Contract (Sec 23-24) (3) Legality of object (Sec 11-12)

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MEANING OF AGREEMENT{2(h)}
A promise or a set of promises' forming consideration for each other. A promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an Offer' and its Acceptance'.

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PROMISOR AND PROMISEE

Person making the proposalPromisor The person accepting the proposal Promisee. {Section 2(c)}

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AN AGREEMENT" IS A CONTRACT IF

It is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void'. The contract must be definite and its purpose should be to create a legal relationship. The parties to a contract must have the legal capacity to make it.
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CONSIDERATION {Sec 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.

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Explanation

Must be done at the desire of the Promisor. Must be done by the Promisee or any other person. It may be already executed or is in the process of being done or may be still executory. It must be something to which the attaches a value.
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Example

A promises to type the manuscript of Bs book, and in return B promises to teach As son for a month.

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Guidelines of Valid Consideration

Must move at desire of the promisor. May move from the Promisee or any other person (Included third person also). Doctrine of Constructive Consideration

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Privity of Contract

A stranger to a contract cannot sue, only a person who is a party to a contract can sue on it. A mortgages his property to B in consideration of Bs promise to A to pay As debt to C, C cannot file a suit against B to enforce his promise, C being no party to the contract between A and B.

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Exceptions

Where an express or implied trust is created. Family settlement. When the defendant constitutes himself, as the agent of the third party. In case of agency. In case of assignment of rights under a contract.
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Guidelines

Consideration may be Past, present or future. Must be something of value.

It must be of some value in the eye of law. i.e. must be real

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Examples of Past, Present and Future

A teaches the son of B at Bs request in the month of January, and in Feb B promises to pay A a sum of Rs. 200 for his services. A sells a book to B and B pays its price immediately. X promises to sell and deliver 10 bags of wheat to Y for Rs. 10,000/- after a week, upon Ys promise to pay the agreed price at the time of delivery.

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Exception to the rule No Consideration, No Contract

Agreement made on account of natural love and affection. {Section 25(1)} Agreement to compensate for past voluntary service. {Section 25(2)} Agreement to pay a time-barred debt. {Section 25 (3)} Completed gift. Contract of agency. (Section 185) Contribution to charity.
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Essential for Love and Affection

Expressed in writing Registered under the law for the time being in force for registration of documents Is made on account of natural love and affection. Between parties standing in a near relation to each other.
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Examples

A for natural love and affection, promises to give his son B Rs. 10,000/- .A puts his promise in writing and register it.

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Essentials for past Voluntary services

A promise made without consideration is also valid, if it is a promise to compensate, wholly or in part, a person who has already willingly done something for the promisor, or done something which the promisor was legally bind to do. Must be rendered willingly The promisor must be in existence at the service was rendered. The service rendered must be legal.

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Example

A finds Bs purse and gives it to him. B promises to give A Rs. 100. this is a contract

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Capacity of Parties

Every person is competent to contract + who is of the age of majority + According to the law to which he is subject + who is of sound mind + is not disqualified from contracting by any law to which he is subject.

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Minor

Indian Majority Act, 1875- who is under 18 years of age is a minor.

Section 11- According to the law to which he is subject.

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Criteria

In the case of contracts relating to ordinary mercantile transactions, the age of majority is to be determined by the law of the place where the contract is made. In case of contracts relating to land, the age of majority is to be determined by the law of the place where the land is situated.

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Example

Where a person aged 18 years, domiciled in India, endorsed certain negotiable instrument in Ceylon, by the laws of which he was a minor, he was held not to be liable as an endorser.

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Sum up

An agreement by a minor is absolutely void and inoperative as against him. Beneficial agreements are valid contracts. No ratification on attaining the age of minority. Minors liability for necessaries. Specific performance. Minor partner Minor agent Minor and insolvency Position of minors parents Minor shareholder
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Case

Mohiri Bibee v. Dharmodas Ghose (1903) 30 Cal. 539. A minor has no capacity to contract and minors contract is absolutely void. X, a minor borrowed Rs. 20,000 from Y, a money lender. As a Security for the money advanced, X executed a mortgage in Ys favour. Court= The Contract was void and Y cannot compelled to repay the amount advanced by him.

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Specific Performance

(a)

(b)

A contract entered to on behalf of Minor by his guardian or parents can be enforced if The contract is within the authority of guardian or manger It for the benefit of the minor.

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Sound Mind (Section 12)

For the purpose of making a contract = At the time when he makes it , he is capable of understanding it + and of forming a rational judgment as to its effects upon his interests.

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Sum up

A person unsound mind cannot enter into contract. (1) Condition= but if he makes a contract when is of sound mind, i.e. during lucid interval, he will be bound by it. (2) Condition= but for necessaries supplied to a lunatic or to any member of his family, the lunatics estate, if any, will be liable. No personal liability. (3) Condition= if contract is for benefit it can be enforced against the other party.

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Persons disqualified from entering into Contract.

Alien enemies Foreign sovereigns and ambassadors Professional persons Corporations Married women

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Essentials for making a Contract (Sec 10-30)

Free Consent (Sec 13-22)

Not Expressly Declared to be void

Flaws in Free Consent & its Effects Coercion (Sect 15) Fraud (Sec 17) Misrepresentation (S-18) Effect (Sec 19A)

Undue influence (Sec 16) Mistake (Sec 20-22)

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Effect (Sec 20)

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CONSENT (Section 13)

Meeting of Minds Two or more persons are said to consent when they are agree upon the same thing in the same manner.

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Example

A agree to sell his fiat car for Rs. 80.000/B agrees to buy the same. There is valid contract Since A and B have consented to the same subject matter.

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Example

A, who owns three Fiat Cars, offers to sell one, say, car x to B for Rs. 80,000/-. B agrees to buy the car for the price thinking that A is selling car y. There is no consent and hence no contract

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FREE CONSENT (Section 14)

Coercion (Section 15) Undue influence (Section 16) Misrepresentation (Section 18) Fraud (Section 17) Mistake (Section 20, 21 and 22)

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COERCION ( Section 15)

The doing of any act forbidden by the Indian Penal code is coercion even though such act is done in a place where the Indian Penal Code is not in force. A at the point of a pistol asks B to execute a promissory note in his favour and B to save his life does so. he can avoid this agreement as his consent was not free.
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Example

A Hindu widow if forced to adopt X under threat that her husbands dead body would not be allowed to be removed unless she adopts X. Is it Coercion or not?

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Example

An agent refused to hand over the books of accounts of the principal unless he released him from all liabilities concerning past transaction. Whether agreement is enforceable?

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Answer

The release so given was not binding, being the outcome of coercion.

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Example

X threatens to kill A if does not sell his house to B at a very low price. The agreement is caused by coercion.

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Question

The sugar co-operative Societies of Maharashtra are governed by the provisions of Maharashtra Cooperative Societies Act,1960. Its members are predominantly sugarcane farmers. Under the law, Co-operatives compulsorily took deposits from its farmer members. The question arose if this was coercion and a ground for making the contract voidable

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Liability

A person to whom money has been paid , or anything delivered under coercion must repay or return it.

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Example

A railway company refuses to deliver certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.

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Effect

The agreement is a contract voidable at the option of the party whose consent was so obtained.

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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.

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Position to dominate the will of another

Where he holds a real or apparent authority over the other. Where he stands in a fiduciary relation (based on mutual trust and confidence) to the other. Where he makes a contract with a person whose mental capacity is affected by reason of age, illness or mental or bodily distress

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Example

A Hindu, well advanced in age, with the object of securing benefits to his soul in the next world, gave away his whole property to his guru. Undue influence

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Example

A having advanced money to his son B during his minority, upon B coming of age, obtains, by misuse of parental influence, a bond from B for greater amount than the sum due in respect of the advance. A employs undue influence.

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Undue influence when presumed

When he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other Mental capacity is for the time being or permanently affected by reason of age, illness or mental or bodily distress.

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Undue influence when not presumed

Husband and wife Master and servant Creditor and debtor Landlord and tenant

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Presumption can be rebutted

Full disclosure of all material facts was made The consideration was adequate The weaker party was in receipt of independent legal advice.

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Transaction with Parda-Nishin women

Transaction with parda-nishin women are founded on equity and good conscience. A person who contracts with women has to prove that no undue influence was used and that she had free and independent advice, fully understood the content of the contract and exercised her will.

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Meaning

A women who goes to a court and gives evidence, who fixes rents with tenants and collects rents, who communicates when necessary, in matters of business, with men other that members of her own family, could not be regarded as a Parda-Nishin.

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Legal Effect on Contract

Voidable at the option of the aggrieved party. In this, the court has discretion to direct the aggrieved party for refunding the benefit whether in whole or in part or set aside the contract without any direction for refund.

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MISREPRESENTATION (18)

Innocent Misrepresentation

Willful Misrepresentation

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