LAW OF CONTRACT

INDIAN CONTRACT ACT

1872
PROF. RAJARSHI CHAKRABORTY

SESSION 2
 HIGHLIGHTS
► INTRODUCTION TO THE LAW OF
CONTRACT
► OFFER OR PROPOSALS
► ACCEPTANCE
► CONTRACTUAL CAPACITY
► FREE CONSENT
► CONSIDERATION
 INTRODUCTION
► The main objective of the law is to introduce definiteness
in Business Transactions.

► It does not lay down so many rights and duties which the
law will protect and enforce.

► It determines the circumstances in which promises made

by the parties to a contract shall be legally binding on
them

► Its rules define the remedies that are available in the court
of Law against a person who fails to perform his contract.
 CONTRACT
► An agreement enforceable by Law ( Section 2(h) of Indian
Contract Act.

► Agreement is defines as every promise and every set of

promises forming the consideration of each other (Section
2(e))

► The two elements of an agreement are Offer or a proposal

and An acceptance of that offer or proposal.

► When the person, to which the proposal is made signifies

his assent thereto, the proposal is said to be accepted. A
proposal, when accepted, becomes a promise.
 CLASSIFICATION
The Indian Contract Act may be classified
into two main Groups

► General principles of Contract

► Specific kinds of Contract only.

 GENERAL PRINCIPLES OF
CONTRACT
► Includes rules and laws relating to communication

► Acceptance and revocation of proposals

► Voidable contracts

► Void agreements

► Contingent Contracts

► Performance of contracts

► Consequences of breach of Contract

 SPECIFIC KINDS OF CONTRACT
► Contracts of Indemnity and Guarantee

► Bailment

► Pledge and

► Agency
 KIND OF AGREEMENTS
► ValidAgreement : It is an agreement , which is
enforceable by Law

► Void Agreement: It is an Agreement, which is not

enforceable by Law.

► Voidable Agreement: it is an agreement which is

enforceable by Law at the option of one or more
of the parties but not at the option of the other
 KIND OF AGREEMENTS
► Unenforceable Agreement: Such an agreement is valid in
the eyes of Law , but cannot be enforced by the court of
Law because of some technical defects in procedural
matters of formation and enforcement.

► Social Agreements : they are of social nature and do not

enjoy the benefits of Law

► Illegal Agreement: It is against the provision of Law.

► Agreements For Future: An agreement to agree in the

future is a contradiction and is not a contract.
ESSENTIALS OF A VALID CONTRACT
► Agreement : To constitute a contract there must
be an agreement. An agreement is composed of
two elements, offer and acceptance. The party
who is making the offer is known as the offeror
and the party to whom the offer is made is know
as the offeree.

► Intention to create legal relationship: When two

parties enter into an agreement their intention
must be to create legal relationship between them.
If there is no such intension then there can be no
contract between them.
ESSENTIALS OF A VALID CONTRACT
► Lawful Consideration: The agreement to be
enforced by Law must be supported by
consideration on both sides. The term
consideration means “ something in return”. The
agreement is enforceable only when both parties
give something and get something in return.

► Capacities of Parties: The parties to the agreement

must be capable of entering into a valid contract.
There are lots of parameters based on which it is
decided whether the parties can enter into a valid
contract.
ESSENTIALS OF A VALID CONTRACT
► Free and Genuine consent: it is essential to the creation of
every contract that there must be a free and genuine
consent of the parties to the agreement. The consent of
the parties are said to be free when they agree upon the
same thing in the same sense.

► Lawful object: the object of the contract must be lawful. It

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. If an agreement suffers from any flaw , it would
not be enforceable by law.
ESSENTIALS OF A VALID CONTRACT
► Agreement not declared Void: The agreement
may not have been expressly declared Void by any
Law enforced in the country.

► Certainty and Possibility of Performance: The

Agreement must be certain and not vague or
indefinite. If it is vague and it is not possible to
ascertain its meaning , it cannot be enforced.

► Legal Formalities: An agreement may be oral or in

writing.
 OFFER AND ACCEPTANCE
► An offer is a proposal by one party to
another to enter into a legally binding
agreement with him. It is defined as “when
one person signifies to another his
willingness to do or to abstain from doing
anything with a view to obtain the assent
of that other to such act , he is said to make
a proposal.
 CHARACTERISTICS
► Itmust be an expression of willingness to do or to
abstain from doing something.

► It must be made to another person.

► It must be made with a view to obtain the assent

of another person to such act.

► The expression of willingness must be made with a

view to create legal obligations.
 TYPES OF OFFER
► Express and implied offer: Express offer is
an offer made by express words, spoken or
written.

► When an offer is made otherwise than

words, the offer is called an implied offer
 EXAMPLE OF IMPLIED OFFER
► In
a self service restaurant, there is an
implied promise to pay for eating
consumables.

►A transport company runs a bus on a

particular route , there is an implied offer by
the transport company to carry passengers
for a specified fare.
 TYPES OF OFFER
► Specific and General Offer: When an offer
is made to a specific person, it is called a
specific offer.

► When the offer is made to the world at

large , which could be accepted by anyone,
for e.g. reward to a person supplying
information pertaining to someone, is called
a general offer or offer at large.
 TYPES OF OFFER
► Positiveand Negative Offer: An offer may
be positive or negative. Thus, an offer may
be to do something or not to do something.

► An offer must be distinguished from

invitation to offer. Invitation to offer are
offers to negotiate . On the other hand,
offer is a final expression of willingness by
the offeror to be bound by his promise.
EXAMPLES TO DISTINGUISH OFFER
AND INVITATION TO OFFER
►A prospectus issued by a college for admission to
various courses is not an offer. It is only an
invitation to offer. A prospective student by filling
up an application form attached to the prospectus
is making the offer.

►A display of goods with a price on them in a shop

window is an invitation to offer and not an offer to
sell.
 LEGAL RULES AND ESSENTIALS
REGARDING OFFER
► An offer must intend to create legal relationship

► Terms of offer must be definite

► Offer must be communicated.

► The must express the final willingness of the

offeror.
 LEGAL RULES AND ESSENTIALS
REGARDING OFFER
► An offer may be made to a specific person,
or class of persons or to the world at large.

► The offer may be expressed or implied.

► The offer may be positive or negative.

 ACCEPTANCE
► When the person to whom the proposal ia
made signifies his assent thereto, the
proposal is said to be accepted. A proposal ,
when accepted, becomes a promise.

► Theperson making the proposal is called

the promiser, and the person to whom it is
made is called the promisee.
 ESSENTIALS AND LEGAL RULES OF
A VALID ACCEPTANCE
► Acceptance must be absolute and unconditional.

► Acceptancemust be according to the mode

prescribed or usual and reasonable mode.

► Acceptance must be given within a reasonable

time.

► Acceptancemust be in response to offer.

Acceptance cannot precede an offer.
ESSENTIALS AND LEGAL RULES OF
A VALID ACCEPTANCE
► Acceptance must be made before the lapse of an offer.

► Acceptance must be given by the authorised person.

► Acceptance must intend to show fulfillment of a promise.

► Acceptance may be expressed or implied. It must be

communicated to the offeror by spoken or written words or
conduct.
 ESSENTIALS AND LEGAL RULES OF
A VALID ACCEPTANCE
► Acceptance of offer means acceptance of all
the terms attached with that particular
offer.

► Acceptance cannot be implied from silence

of the offeree.
 CONTRACTUAL CAPACITY
► It means the competence of the parties to enter a valid
contract.

► Every person is competent to contract who is of 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 law.

► The following persons are incompetent to contract

a) Minors
b) Persons of unsound mind , and
c) Persons disqualified by any law to which they are subject.
 MINORS
►A minor is a person who has not completed 18
years of age. However , a minor for whom a
guardian has been appointed by the court, he
becomes a major only on his completing the age
of 21 years.

►A contract with or by a minor is void and a minor,

therefore, cannot bind himself by a contract. He is
not competent to contract.

►A minor can be a beneficiary .

 MINORS
► An agreement made by a minor (during the period of minority) cannot
be ratified by him on attaining majority because a minor’s contract is
void from the very beginning.

► A minor can always put forth the plea for minority and will not be
prevented from doing so even when he has entered into a contract
falsely representing himself to be a major.

► A minor cannot be a partner in a partnership firm.

► Minor’s parents will not be liable for the debts incurred by him ,
however, parents are liable when the minor is acting as an agent for
them.

► A minor has no liability in contract.

 PERSON OF UNSOUND MIND
► A person is said to be of unsound mind for the purpose of
making a contract, if at the time when he makes it, he is
capable of understanding it and of forming rational
judgments as to its effects upon his interests.

► A person who is usually of unsound mind but occasionally

of sound mind, may make a contract when he is of sound
mind.

► A person who is usually of sound mind and occasionally of

unsound mind, may not make a contract when he is of
unsound mind.
 PERSON OF UNSOUND MIND
► A patient in a lunatic asylum, who is at intervals of sound
mind, may contract during those sound mind intervals.

► A sane man who is suffering from high fever or who is

drunk to that extent that he does not understand the
contract.

► The tests of soundness of mind are

a) The capacity to understand the contents of the business
concerned.
b) The ability to form a rational judgement.
 PERSON OF UNSOUND MIND
► Mental incompetents
a) Lunatics or insane persons.

b) Idiots : Permanently of unsound mind

c) Drunkards
 PERSONS DISQUALIFIED BY ANY
LAW
► Alien Enemy: is a person (Including an Indian citizen)
who is domiciled in a country which is at war with India.

► Foreign Sovereigns and Ambassadors

► Corporations (Corporate status): it is an artificial

person created by law, having a legal existence apart from
its members.

► Married Women (Marital Status)

► Bankrupt.
 FREE CONSENT
► Two or more persons are said to consent when
they agree upon the same thing in the same
sense.

► Consent is said to be free, when it is not caused

by
a) coercion.
b) Undue influence
c) Fraud
d) Misrepresentation
e) Mistake
 COERCION
► COERCION is committing or threatening to commit
any act forbidden by the Indian Penal Code

► Itis the unlawful detention or threatening to

detain any property that belong to any person.

► With the intention of causing any person harm to

enter into an agreement.
 UNDUE INFLUENCE
►A contract is said to be induced by undue
influence where the relations subsisting
between the parties are such that one of
the parties is in position to dominate the will
of the other and uses that position to obtain
an unfair advantage over the other.
 FRAUD
► Fraud means and includes any of the following
acts committed by a party to a contract, or by
his agent, with the intent to deceive the other
party.
a) The active concealment of a fact by one having
knowledge or belief of the fact.
b) A promise made without any intent of
performing it.
c) Any other act fitted to deceive
d) The suggestion as to a fact, of that which is not
true, by one who does not believe it to be true.
 MISREPRESENTATION
► When a person positively asserts that a fact
is true, when his information does not
warrant it to be so.

► Breach of duty

► Misrepresentation of the subject matter.

 MISTAKE
► It is defined as an enormous belief in something.
Mistake is of following kinds
a) Mistake of fact
b) Mistake of law
c) Mistake as to the subject matter.
d) Mistake as to the possibility of performing the
contract
e) Mistake as to the identity of the person
contracted with
f) Mistakes as to the nature of the contract
 CONSIDERATION
► Consideration is a recompense given by the parties
contracting with each other.

► Itmeans something which is of some value in the

eye of Law.

►A valuable consideration in the sense of the law

may consist either in some rights, profit or
benefits accruing to one party, or some detriment,
loss or responsibility given, suffered or undertaken
by the other.
 THE ELEMENTS OF A
CONSIDERATION
► The consideration is an ACT

► Such ACT may be done by the promisee

► Suchact is either already executed, or is in

the process of execution or may be still
executory.
 LEGAL RULES REGARDING
CONSIDERATION
► Consideration is required for both formation and discharge
of an agreement or a contract.

► Consideration may be Past:

A saves B’s life . B promises to pay A a sum of Rs 1000 out
of gratitude. The consideration of B’s promise is a past
consideration something done before making of a promise.
► Consideration may be present : Consideration which
moves simultaneously with the promise. E.G. CASH SALES.

► Consideration may be future: A promises B to deliver some

goods after 10 days. B promises to pay the price on
delivery.
 LEGAL RULES REGARDING
CONSIDERATION
► Consideration may be positive or negative: TO DO OR NOT
TO DO.

► Consideration must be done or promised to be done at the

desire of the promiser.

► Consideration must be Lawful.

► Consideration (Something in return) need not necessarily

be equal to the value of something given (offer)

► Consideration must be real and not illusory.