THE INIDAN CONTRACT

ACT, 1872
What is law?
# Law refers to a set of rules.
# It applies by government for administration
of justice.
# It is a body of principles recognised and
approved by the state.
# It commands, what is right and prohibits,
what is wrong.

Salmand
Law is the body of principles recognised
and applied by the state in the
administration of justice
Woodrow Wilson
Law is that portion of the established
habit and thought of mankind, which has
gained distinct and formal recognition in
the shape of uniform rules backed by the
authority and power of the government

THE LAW OF CONTRACT

General Principles
As a result of increasing complexities of business
environment, innumerable contracts are entered into by the
parties in the usual course of carrying on their business.
Contract is the most usual method of defining the give and
take rights and duties in a business transaction.
This branch of private law is different from other branches of
law will protect or enforce; it contains a number of limiting
principles subject to which the parties may create rights and
duties for themselves.
Parties to a contract are the maker of law for themselves.
They can frame any rules they desire to the subject matter of
their agreements, and law takes cognizance of their decision
unless they are not legally prohibited.

All agreements are not studied under the

Indian Contract Act,1872, as some of those
are
contract.
Only those agreements, which are
enforceable by law, are contract.
The act refers, the essentials of a legally
enforceable agreements or contracts.
It sets out rules for making enforceable
contract or agreement.
It states the circumstances when an
agreement is voidable or enforceable by
one party only, and when the agreements
are void, i.e. not enforceable at all.

What is CONTRACT?
Section 2(h) of the act defines the term contract
as an agreement enforceable by law.
Section 2 (e) defines an agreement as every
promise and every set of promises, forming the
consideration for each other
Section 2 (b) defines Promise When the person
to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted.
Proposal when accepted, becomes a promise.
Section 2 (g) agreement not enforceable by
law is said to be void

Essential elements of a valid

contract
Section 10 All agreements are
contracts, if they are made by the
free consent of parties competent to
contract, for a lawful consideration
and with a lawful object, and are not
hereby expressly declared to be
void

Formation of contract
By agreement and contract
By standard form of contract
Promissory estoppel sometimes
there may be no agreement or
contract in strict sense of the term,
but a person making a promise may
become bound because of the
application of the equitable doctrine
of estoppel.

Essentials elements of a valid

contract
Proper offer and proper acceptance
with intention to create legal
relationship.
Lawful consideration.
Capacity
Free consent
Lawful agreement

TYPES OF CONTRACT
1. VOID CONTRACT: it is a contract without having any legal effect and
cannot be enforced in a court of law.
Sec: 2(j)- a contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable.
2. VOIDABLE CONTRACT:
Sec 2(i) an agreement which is enforceable by law at the option of one
or more the parties but not at the option of the other or others is a
voidable contract.
3. ILLEGAL CONTRACT: it is a contract which the law forbids to be
made. The court will not enforce such a contract and also connected
contracts. All illegal agreements are void but all void agreements or
contracts are not necessarily illegal.
4. UNFORCEABLE CONTRACT: Where a contract is good in substance
but because of some technical defect., i.e., absence in writing , barred
by limitation etc. one or both the parties cannot sue upon it, it is
decribed as an unenforceable contract.

5.

EXPRESS CONTRACT: A contract which is made by words

either spoken or written is said to be an express contract.
According to Section-9, insofar as the proposal or acceptance of
any promise is made in words, the promise is said to be express.
6. IMPLIED CONTRACT: By implied contract means implied by
law., i.e., the law implies a contract though parties never
intended. According to Section-9, insofar as such proposal or
acceptance is made otherwise than in words, the promise is said
to be implied.
7. TACIT CONTRACT: A contract is said to be tacit when it has to
be inferred from the conduct of the parties.
8. EXECUTED CONTRACT: It is consideration for the promise in a
contract is given or executed, such a type of contract is called
with executed consideration.
9. EXECUTORY CONTRACT : promise or obligation which serves
as consideration is to be performed in future.
10. UNILATERAL CONTRACT: A unilateral contract is a one-sided
contract in which only one party has to perform his promise or
obligation.
11. BILATERAL CONTRACT:
Where the obligation or promise in a
contract is outstanding on the part of the both the parties.

PROPOSAL/OFFER

What is meant by offer?

Contract is legally binding
agreement.
An agreement is a set of promises.
A promise is an accepted proposal
which is also known as offer.
An offer is a proposal by one party
to another to enter into a legally
binding agreement with him.

How is an offer defined?

Section 2 (a) defines

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.

The analysis of this legal definitions shows that an

offer consists of two parts: Expression of one persons willingness to do or
abstain from doing something.
Such expression should be made with a view to
obtain the assent of the other person to the
proposed act or abstinence.

to do something - Doing is positive act.

to abstain from doing anything - Abstinence
is a negative act.

Who are the parties to an offer?

There are two parties involved in an

offer:The party which make an offer -- is know as
-- Offeror or Promisor or Proposor.
The party to whom offer is made -- is known
as Offeree or Promisee.

TYPES OF OFFER
or
CLASSIFICATION OF OFFER

General Offer: It is an offer made to the public in general is called general offer.
This offer may be accepted by anyone.

Special Offer : When offer is made to a definite person, it is known as specific

offer and such offer can be accepted only by that specified person.

Cross Offer

Where two parties make identical offer to each other, in

ignorance at the time of each others offer, this offer is termed as cross offer. In this
case, there is no contract because out of the two parties no one can be called for
acceptance.
Counter Offer : When the offeree offers to qualified acceptance of the offer
subject to modifications and variations in the terms of original offer, he is said to
have made a counter offer. Counter offer amounts to rejection of the original offer.

 Express Offer : When the offer is made by words or

written.
Implied Offer : When the offer is implied by conduct

of the parties or circumstances of the case.

Standing, Open and Continuing Offer : An offer is

allowed to remain open for acceptance over a period of

time is known as a standing, open or continuing offer.
Tender for supply of goods is a kind of standing offer.
Tender until close open offer.
Tender period Continuing offer.

RULES RELATING TO OFFER

(a)The offer must be capable of creating legal relationship
between the parties.
(b)The offer must be certain, definite and not vague.
(c)The offer may be express or implied.
(d)The offer must be distinguished from an invitation to
offer.
(e)An offer may be specific or general.
(f) The offer must be communicated.
(g)The offer must be made with a view to obtaining the
consent of the offeree.
(h)An offer may be conditional.
(i) The offer should not contain a term the non compliance
of which would amount acceptance.

ACCEPTANCE
A proposal or offer is said to have
been accepted when the person to whom
the proposal is made signifies his assent to
the proposal to do or not to do something.

Section 2(b)-

Section 2 (a) defines - Offer

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.

 offer -- is know as -- Offeror or

Promisor or Proposor.
ACCEPTANCE -- Offeree or Promisee.

RULES RELATING TO
ACCEPTANCE

Acceptance must be absolute and

unqualified.
Communicated to offeror.
Acceptance must be in the mode
prescribed.
Time.
Acceptance by conduct
Mere silence is not acceptance.

COMMUNICATION OF OFFER AND

ACCEPTANCE
Communication of offer.
Communication of acceptance.
Revocation of offer and acceptance

CONSIDERATION

The general rule of law is NO CONSIDERATION, NO CONTRACT.

WE CANNOT CREATE A CONTRACT WITHOUT ANY
CONSIDERATION.
Section 2(d) defines:- When at the desire of the promisor, the promise or any other
person has done or abstained from doing or does or abstains from doing or promises to
do or abstain from doing something, such an act or abstinence or promise is called
consideration for the promise.
# Consideration is in a sense, the price agreed to be paid by the promise for the obligation of
the promisor.
# Consideration has therefore, been defined in an English Judgement as some right,
interest, profit or benefit accruing to one party or forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other at the request of the promisor.

LEGAL REQUIRMENTS REGARDING CONSIDERATION

1. Consideration is the doing or not doing something which the
promisor desires to be done or not done. ( it must not be
something which the promisor is already legally bound to do.)
2.

Consideration must be at the desire of the promisor.

(Consideration must move at the desire of the promisor)

3.

Consideration may move from promisee or any other person.

4. Consideration may be Executed and Executory

consideration.
5. Consideration may be Past, present and future.
( Past, Present and Future consideration is valid provided it
moved at the request of the promisor.)

6. Consideration must be legal.

7. Adequancy of consideration. (consideration need not be
adequate, but should be real. Consideration need not be any
particular value. It need not be approximately equal value. But it
must be something which the law would regard as having some
value.)
8. Legally bounded performance is cannot considered as
consideration ( The performance of an act by a person who is
legally bound to perform the same cannot be considered for a
contract. But, where a person promises to do more that he is
legally bound to do, such a promise provided it is not opposed to
public policy, is a good consideration).
9. Consideration must not be unlawful, immoral or opposed
to public policy.

A STRANGER TO A CONTRACT CANNOT SUE

Though under the Indian Contract Act the

consideration for an agreement may be
proceed from a third party, the third party
cannot sue on agreement. Only a person
who is party to a contract can sue on it.

SUIT BY A THIRD PARTY ON AN AGREEMENT

The aforesaid rule is, however, subject to the following exceptions:
(1) In the case of trust, a beneficiary can enforce his right under
the trust, though he was not a party to the contract between the
settler and the trustee.
(2) In the case of family settlement, if the terms of the settlement
are reduced into writing, the members of the family who originally
had not been parties to the settlement may enforce the agreement.
(3) In the case of certain marriage contract, a female member
can enforce a provision for marriage expenses, made on the
partition of the Hindu Undivided family.

(4) In the case of assignment of a contract,

when the benefit under a contract has been
assigned, the assignee can enforce the contract.
(5) In the case of an estoppels by
acknowledgment of liability or part
performance thereof, that is when, one admits
the liability.
(6) In the case of covenant running with the
land, the person who purchases land with
notice that the owner of land is bound by
certain duties affecting land, the covenant
affecting the land may be enforce by successor
of the seller.

VALIDITY OF AN AGREEMENT WITHOUT

CONSIDERATION

Asper Section 25- an agreement made without

consideration is void.
In every valid contract consideration is very
important.
A contract may only be enforceable when an
adequate consideration is passed.

In Indian Contract Act contains certain exceptions in this rule. In the

following cases, the agreement though made without
consideration, will be valid and enforceable.
1.NATURAL LOVE AND AFFECTION: A written and registered
agreement based on natural love and affection between the parties
standing near relation to each other is enforceable even without
consideration
(Ex. Husband and wife, Father and Son)
2.COMPENSATION FOR PAST VOLUNTARY SERVICES: Section
25(2)- A promise to compensate, wholly or in part a person, who has
already voluntarily done something for the promisor, is enforceable.
(Ex. Voluntarily rendering service to Rescuing damages from loss)
In order that a promise to pay for the past voluntary services in
binding the following essential factors must exist:
The services should have been rendered voluntarily.
The services must have been rendered for the promisor.
The promisor must be in existence at the time when services were
rendered.
The promisor must have intended to compensate the promise.

3. PROMISE TO PAY TIME BARRED DEBT:

Asper Section 25(3) Where a promise is writing
signed by a person making it or by his authorized
agent, is made to pay a debt barred by limitation,
it is valid without consideration.
4. AGENCY: According to Section 185 of the
Indian Contract Act, NO CONSIDERATION IS
NECESSARY TO CREATE AN AGENCY.
5. COMPLETED GIFT: In case of completed gifts,
the rule no consideration, no contract does not
apply. Asper Section 25(1) Nothing in this
section shall affect the validity as between the
doner and done, of any gift actually made.
Thus, gift do not require any consideration.

Consideration----something in
return