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Indian Contract Act 1872
Indian Contract Act 1872
1872
WHAT IS A CONTRACT?
Section 2(h) of the Indian Contract Act, 1872
states that 'an agreement enforceable by law is
contract
We can summarize it as under.
Contract = An agreement + enforceable by law
Agreement:
According to section 2(e), An agreement means
every promise & every set of promises, forming
consideration for each other
Promise
As per Section 2(b) of the Contract Act, a proposal
when accepted becomes a promise.
Promise = Proposal by one person + its
acceptance by another person
Consensus-ad-idem:
Before there can be an agreement, both
the parties must agree upon the subject
matter of the agreement(same thing) in
the same sense & at the same time.
Example
A invites B to a dinner and B accepts it. If A
tails to serve the dinner, B cannot go to court.
The invitation for dinner is a social agreement.
Lawful Consideration
The lawful consideration means something in
return. As a contract contains the reciprocal
set of promises, a consideration is necessary.
The consideration must be lawful and should
have a commercial value.
Example
A promises to pay $50,000 on a certain date
to B without any promise in exchange. This is
not a valid contract.
Free Consent
It is essential for every contract that, there must
be a free & genuine consent of all the parties.
According to Section 14, A consent is said to be
free, if it is not caused by coercion, undue
influence, fraud, mis representation or mistake.
The parties should be of same mind on all material
terms of the contract.
Example
A has two carsone black and the other white. He
offers to sell one of his cars to B. A intends to sell
the black one while B accepts the offer believing
that it is for the white car. Here, A and B are not
thinking in the same sense of a particular thing. In
this situation, there is a mistake, so it cannot be
said to be a free consent.
Lawful Object
Every agreement has some objects or
purposes. The object of an agreement
should not be illegal, immoral or opposed
to the public policy. In simple words, we
can say that the object of an agreement
must be lawful.
Example
A promised to pay Rs. 1 lakh to B to kill C.
The killing of a person is punishable
under the IPC. Therefore, the promise is
unlawful and void.
Capacity of Parties
Every person is not competent to enter
into a contract. Person who has attained
the age of majority with a sound mind
and not disqualified under any act is
competent to enter into a contract.
Agreement Must Not Be Expressly
Declared Void or Illegal
If a certain agreement is expressly
declared to be void by the law of country
then such an agreement, if entered into,
shall not be enforceable by the court.
Certainty of Meaning
An agreement contains terms as decided
by the parties. The terms of agreement
must be certain and unambiguous. If the
terms of an agreement are uncertain, it is
not a valid contract.
Example
A agreed to pay Rs. 5 lakh to B for an
ultra-modern decoration of his drawing
room. The agreement is void because the
meaning of the term ultra-modern' is not
certain.
Possibility to Perform
Every agreement contains reciprocal
promises. The promises under the
contract must be possible to perform. If
the parties have agreed on the contract
which contains any promise not possible
to perform in real life, the contract will
not be considered as a valid contract.
Example
A agrees to discover treasure by magic
for B. The agreement is void because the
act in itself is impossible to be performed
from the very beginning.
Legal Formalities
In some cases, the document in which the contract
is incorporated has to be stamped. In some other
cases, a contract, besides being a written one, has
to be registered. Thus, where there is a statutory
requirement that the contract should either be
made in writing or registered, the required
formalities must be complied with.
Therefore, we can say that an agreement will
become a contract when it satisfies all the
essentials of a valid contract. If any one of the
elements of a valid contract is missing, it is treated
as an invalid contract. All the agreements may
or may not be a contract but all the contracts
are basically agreements.
Voidable Contract
When the contract is entered into
without the free consent of party, it
is considerate as a voidable contract. The
definition of the act states that a voidable
contract is enforceable by law at the
option of one or more parties but not
at option of the other parties.
Voidable contract will be considered as
valid if it is not cancelled by the
aggrieved party within a reasonable time.
Illegal Agreement
An illegal agreement means that which is
immoral or criminal in nature or which is
opposed to public policy.
Example: An agreement to supply
smuggled goods.
Unenforceable Contract
It is that contract which is not enforceable
in the court of law, due to some legal or
technical defect.
Eg. Absence of writing, lack of stamp etc.
Express Contract
An express contract is a contract made
by the use of words spoken or written.
Implied Contract
An implied contract is a contract which is
made otherwise than by the words
spoken or written. It came into existence
on account of an act or conduct of the
parties.
Quasi-contract
It means a contract which does not arise
from any formal agreement but is
imposed by law. It is based upon the
principle of equity means no one should
grow rich out of another persons cost. It
is similar to a contract in which a legal
obligation is imposed on a party who is
required to perform it.
Example: T, a tradesman, leaves goods at
Cs house by mistake. C treats the goods
as his own. C is bound to pay for the
Executed Contract
In an executed contract both the parties
have performed their promises under a
contract. It is a contract where, under the
terms of contract, nothing remains to be
done by the parties.
Example
A sells his car to B for 1 lakh. A delivered
the car and B paid the price. This is an
executed contract.
Executory Contract
In an executory contract both the parties
are yet to perform their promises. In
other words, it is a contract where parties
have to still perform their obligation in
the future.
Example
A sells his car to B for 1 lakh. If A is still to
deliver the car and B is yet to pay the
price, it is an executory contract.
Unilateral Contract
A unilateral contract is also known as a one-sided
contract. It is a contract where only one party has
to perform his promise. In such a contract, the
promise on one side is exchanged for an act on
the other side. After the formation of a unilateral
contract, only one party remains liable to perform
his obligation because the other party has,
already performed his obligation.
Example
Alap promises to pay 1000 to anyone who finds
his lost cellplone. Bansi finds and returns it to
Alap. From the time Bansi found the cell phone,
the contract came into existence. Now Alap has
to perform his promise, i.e., the payment of 1000.
Bilateral Contract
In a bilateral contract both the parties
have
to
perform
their
respective
promises. It is also known as a two-sided
contract.
Here,
the
obligation
is
outstanding on the part of both the
parties.
They are similar in nature to Executory
contracts.
Definite,
Acceptance
As per Section 2(b) 'when the person to
whom the proposal is made signifies his
assent thereto, the proposal is said to be
accepted. The proposal when accepted,
becomes a promise'.
MEANING OF CONSENT
Two persons are said to consent, when
they agree upon the same thing in the
same sense.
FREE CONSENTSECTION 14
A consent is said to be free, when it is not
obtained by
CoercionSection 15
Undue influenceSection 16
FraudSection 17
MisrepresentationSection 18
MistakeSections 20, 21 and 22
CoercionSection 15
Definition:- According to Section 15, Coercion
is
1.The committing or threatening to commit, any act
forbidden by the Indian Penal code (IPC), or
2.The unlawful detaining or threatening to detain,
any property, to the prejudice of any person,
whatever,
With the intention of causing any person to enter
into an agreement.
When a consent is obtained by coercion, the
contract is voidable at the option of the aggrieved
party and any benefit received by the other party
under coercion must be paid back. If the aggrieved
party has suffered from any loss, he can recover
the loss from the defaulting party.
UNDUE INFLUENCE
According to section 16(i)
A contract is entered on undue influence
when relations that exist between the
parties are such that one of them is in a
position to dominate the will of the other,
and the dominant party uses his position
to obtain unfair advantage over the other.
When a contract is made with undue
influence, the contract is voidable. The
aggrieved
party
can
recover
the
damages, if he has suffered front loss
because of undue influence.
FraudSection 17
Fraud may be defined as an intentional, deliberate or willful misstatement of facts, which are material for the formation of a
contract.
The fraud means and includes the following acts:
1. Suggestion of facts which is not true by one person who does
not believe it to be true.
2. Active concealment of the fact.
Example
Furniture dealer conceals the cracks in furniture by polish work.
3. A promise made without any intention of performing it.
4. Any act or omission, specifically declared as fraudulent by law.
5. Any other act to deceive.
The aggrieved party can ask for a specific performance. The
aggrieved party can sue for damage, if he has suffered a loss.
A mere silence as to facts is not fraud.
MisrepresentationSection 18
Mis representation is a false statement
which made by a person innocently
(without any intention to deceive the
other party). Here, the person making
statement, honestly believes that it is
true.
It also includes non-disclosure of a
material fact or facts, without any
intention to deceive the other party.
The aggrieved party can cancel the
contract. It means a contract is voidable
at the option of the aggrieved party but
Unilateral Mistake
A unilateral mistake means one party is
at mistake. A contract is neither void nor
voidable except that it is mistake as to
the nature of the contract or a mistake
with regard the identity of the person.
3. Convict
A convict cannot enter into a contract
while he is undergoing imprisonment. But
he can enter into a contract with the
permission of central government while
undergoing imprisonment. However a
convict can enter into a contract when is
released from jail or he has been granted
bail.
4. Insolvent
When any person is declared as an
insolvent his property vests in the
receiver and therefore, he cannot enter
By
whom
the
contract
must
be
performed:1.Promisor himself:- This means a contract,
which involves use of personal skill of promisor,
must be performed by the promisor himself.
Eg. A contract to sing a song at a musical
event.
2. Agent: When the performance of the contract
does not require personal skill, it may be
performed by the promisor or by his
representative.
Eg. A promise to pay Rs. 10,000 to B for his
personal service. This payment may be done
by either A or his agent.
DISCHARGE OF CONTRACT
A contract is said to be discharged when
the obligations created by it come to an
end. The various modes of discharge of a
contract are as follows :
1.
Discharge
by
performance.
Discharge of a contract by performance
takes place when the parties to the
contract fulfill their obligations arising
under the contract within the time and in
the manner prescribed. The performance
may be
(i) actual performance, or