Indian Contract Act, 1872-DOC

Law of Contract Branch of law Promises made shall be legally binding on parties to a contract Introduces a definiteness in business transactions Evolution Development of Human Civilization Frequency of exchanges between persons and communities Changes in social and economic behavior Need for a code to govern bilateral transactions Scheme of Indian Contract Act, 1872 General Principles of contract Special contracts Bailment and pledge Indemnity and guarantee Agency Indian Contract Act Does not deal with Partnership Sale of goods Negotiable instruments insurance Nature of Law of Contract Differs from other branches of law Does not lay down rights and duties Lays down principles subject to which parties can create contracts Parties create law for themselves Gives freedom to contract in any way the parties please Contract and Conveyance Jus in personam What is a contract ? A contract is an agreement enforceable by law What is an agreement ? Every promise and every set of promises forming consideration for each other is an agreement What is a promise ? 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. What is a proposal (offer) ? A person is said to have made a 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 other to such act or abstinence An accepted proposal is an agreement

Agreement = Offer + Acceptance Essential elements of a valid contract Offer and Acceptance Intention to create legal relationship (agreements of social or domestic nature do not contemplate legal relationship) Lawful consideration Capacity of parties to contract Free and genuine consent Lawful object Agreements not declared to be void Certainty and possibility of performance How can you make an offer ? By express words By implied conduct of parties e.g. “Will you sell your car to me for Rs. 100000?” Or Installation of a public telephone at a public place To whom can an offer be made ? To definite person To world at large (Carlill v/s Carbolic Smoke Ball co) What constitutes an offer ? An obvious intention to be bound by it Object of obtaining assent of offeree Must be definite Must be communicated Legal Rules as to offer Must be capable of being accepted “A social invitation is not an offer” Must be definite and certain “I will sell you a car”. I have three cars. Which Car ? At what price ? Where ? When? Must be communicated No communication no acceptance, No acceptance, no agreement, No agreement, no contract Must have an intention to obtain assent of other party Offer should not contain a term the non compliance of which may be assumed to amount to acceptance One cannot say that if the acceptance is not communicated by certain time, the offer would be considered as accepted

A statement of price is not an offer What is not an offer ? A declaration of intention and an announcement An auctioneer announcing an auction in the newspaper. If the auction is cancelled, one cannot sue for cancellation It is merely a declaration of intention or announcement An invitation to make an offer or do business Display in a shop Invitation to purchase Sale of goods in malls, contract is made when the cashier at the counter accepts the payment What is Acceptance ? An act of assenting to the offer. Can be Express or Implied At an auction sale, X is the highest bidder. The auctioneer accepts the offer by striking the hammer on the table. This is an implied acceptance. Legal Rules as to Acceptance It must be absolute and unqualified A made an offer to B to purchase a house with possession on 25th July. The offer was followed by an acceptance suggesting possession from 1st Aug. There was no agreement. It must be communicated to the offeror A mere resolve or determination of offeree without any manifestation is not acceptance A draft agreement for supply of coal Sent to the manager of a railway company Manager wrote on it “approved” and put it in his drawer. Not communicated to the offeror No contract resulted. Must be given within a reasonable time. Must not precede the offer Must be given by the party to whom the offer is made Must be given before the offer is revoked Cannot be implied from silence Communication

Deemed to be made by an act or omission Can be done through words spoken or written or through conduct

A proposes to sell his house to be at a certain price. The offer is sent through a letter posted on 10th July. Letter reaches to B on 12th July Communication of Offer is complete on 12th. B accepts to purchase at the offered price. He sends is assent through a letter posted on 14th July. Comm. is complete as against A on 14th. This letter reaches A on 16th July. Comm is complete as against B on 16th. Communication of revocation Taking back, withdrawal, recalling Comm is complete as against the person to whom it is made, when it is put into transmission As against the person who makes it, when the other person comes to know of it Time for revocation Of offer Any time before the communication of acceptance is complete as against the proposer Of Acceptance Any time before the communication of acceptance is complete as against the acceptor 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 Or promises to do or to abstain from doing Something, Such act or abstinence or promise is called a consideration for the promise Consideration can be Past Present Future It is an act e.g. A promises B to guarantee payment of price of the goods which B sells on credit to C. It is an abstinence e.g. A promises B not to file a suit against him if B pays A Rs. 500. Legal Rules as to Consideration It must move at the desire of the promisor It may move from the promisee or from any other person It may be an act, abstinence or forbearance May be past, present or future Need not be adequate. Must be real and not illusory. Must be something which the promisor is not already bound to do

Must not be illegal and immoral Capacity to contract Who can contract ? A major A person of sound mind A person who is not disqualified from contracting by any law to which he is subject Contracts with minor Inoperative and void ab initio Contracts with persons of unsound mind A lunatic A drunken or an intoxicated person But when he is not under the influence of intoxication, he is capable of contracting. FREE CONSENT Consent is not free when it is affected by any of the following elements: Coercion Undue influence Misrepresentation Mistake Valid contract requires consensus ad idem. When consent is not free, contract is voidable. Coercion Coercion includes fear, physical compulsion & menace Threat to commit suicide amounts to coercion Undue Influence When one of the parties to a contract is in a position to dominate the will of the other When he/she abuses this position to obtain unfair advantage Following relationships raise presumption of Undue Influence Parent and child Guardian and ward Trustee and beneficiary Religious advisor and disciple Doctor and patient Solicitor and client Fiance and fiancee Misrepresentation It is a false statement The person making it honestly believes it to be true Or he does not know it to be false

Misrepresentation includes non disclosure of material fact without any intention to deceive Fraud It exists when a false representation is made Knowingly without belief in its truth & Recklessly And the person making it intended the other party to act upon it It exists when there is a concealment of a material fact or partial statement of fact with an intention to deceive or to induce to enter into a contract Mistake Of law Of own country No defence

of foreign contract is void Of fact

Bilateral

Unilateral

Agreement is void

Generally not allowed as a defence Exceptions: Identities of Persons Nature of contract Legality of Object Consideration must be legal

It is unlawful in the following cases: It is forbidden by law It is fraudulent It involves or implies injury to the person or Property of another It is regarded immoral It is opposed to public policy

EFFECTS OF ILLEGAL AGREEMENTS Void ab initio Collateral transaction become tainted with illegality No action can be taken for recovery of money paid or property transferred No action can be taken for breach of agreement CONTINGENT CONTRACTS It is contract to do or not do something if some Event collateral to such contract does or does not Happen Event is uncertain Event is collateral ‘A’ agreed to purchase certain shares of a company if the company appointed him as its sole agent at a certain place. Before the company do that, it went into liquidation. ‘A’ was entered in the list of contributories. Held A was not liable as the event upon which purchase of share was to take place, never occurred. Performance of contract Performance of a contract takes place when parties to it fulfill their obligations within the time prescribed and in the manner prescribed. What is an offer to perform ? A software company enters into a contract with a mining company to install electronic device system for dispatch of mined lignite. The software company installs the system. Subsequently the mining company prevents them from operationalizing the system. Time is of essence in a contract The performance of a promise within the specified time by a party to the contract is essential in order to entitle him to enforce performance from the other party. In business and mercantile contracts, time is of essence because business requires certainty. Discharge of contract Termination of contractual relationship between the parties Discharge takes place when rights and obligations created by a contract come to an end How can a contract be discharged? By performance By agreement or consent By impossibility By lapse of time By operation of law By breach of contract ‘X’ let out a hall for music concert.

The hall fell through in an earthquake before the first concert could take place. Contract is discharged. Breach of a contract If a party breaks his obligation which the contract imposes, there takes place a breach of the contract. Actual breach may take place either at the time when performance is due Or during the performance of the contract Anticipatory breach may take place when the party repudiates his obligations before the time of performance arrives ‘A’ undertakes to supply 10 cars to B on 1st Jan. Before this date, he informs B that he is not going to supply the goods. This is anticipatory breach of contract. What can you do in case of breach? Can rescind the contract Can sue for damages Can sue for specific performance Can sue for injunction Quasi contracts It is a relationship resembling that created by a contract. Constructive contracts under English law Principle of unjust enrichment It is created by law Types of quasi contracts Supply of necessities Payment by the interest person Obligation to pay for non gratuitous act Responsibility of finder of goods Something delivered in Mistake or under coercion A supplies the wife and children of B, who is a minor, with necessaries suitable to her condition in life. A is entitled to be reimbursed from the property of B. F picks up a diamond on the floor of S’s shop He hands it over to S to keep it till true owner is found out No one appears to claim it for quite some weeks in spite of the wide advt. F claims the diamond from S S refuses to return A village was irrigated by a tank

The Govt effected certain repairs to the tank for its preservation The Govt had no intention to do so gratuitously The Zamindars enjoyed the benefits thereof An insurance company paid the amount on a policy under the mistake that the goods had been destroyed by a peril insured against. The goods in fact had been sold. The co. can recover the money. Indemnity A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person Guarantee It is a contract to perform the promise, or discharge the liability of a third person in case of his default. Bailment Derived from a French verb, bailler = to deliver Delivery of Goods is a key concept of Bailment The possession has to be parted with by the bailor e.g. A delivers the goods for being transported from Anand to Ahmedabad to a transport company Pledge Bailment of goods as security for payment of a debt or performance of a promise is called pledge e.g. A borrows Rs. 200 from B and keeps his watch as security for payment of the debt Any kind of movable property i.e. goods, documents or valuables may be pledged