Indian

Contracts Act
1872

– Prof CA Rajat Rashmi

Case Studies

– https://www.lawnn.com/top-10-landmark-judgements-law-contracts/

– Answer the questions projecting on your screen.

Contract Vs. Agreement

Differences between Contract and Agreement

Points of Contract Agreement
Differences
Elements Agreement + Legal Offer + Acceptance
Enforceability
Essence of a All contracts create legal Not all agreements create legal
Legal relationship relationship
Relationship
Scope Every contract is an agreement Every agreement is not a contract
Enforceability All contracts are legally Only agreements which become
enforceable contract are legally enforceable
Essentials of a Valid Contract

– Agreement
– Intention to create legal obligation
– Legitimate consideration
– Capacity of parties
– Free consent(Consensus ad idem, there should be no Coercion, Undue Influence, Fraud, misrepresentation
or mistake.
– Lawful object
– Form
– Certainty
– Possibility of performance
– Agreement not expressly declared void
Explanation, Legal Precedence etc.

– Intention to create legal obligation: Balfaur vs. Balfaur

– Capacity to contract: Not a Minor, of unsound mind, undischarged insolvent or a convict, an
alien enemy or otherwise disqualified from contracting by any law.
– Free Consent – Doctrine of ad idem (Meeting of mind)
– Lawful object – Not an act forbidden by law
– Form – Writing is not important
– Certainty – Not vague… ‘10 metres of cloth’, ‘10 litre of milk’ are ambiguous objects
– Expressly void agreements – Agreements in restraint of Marriage, trade or legal proceedings or
by way of wager, except: Horse Race, Prize Competition, Contract of Insurance (Exceptions:
http://www.legalservicesindia.com/article/1753/Exceptions-of-agreement-in-restraints-of-trad
e-with-reference-to-Indian-and-English-case-laws.html
)
Contracts where writing is necessary

– Agreement to pay a time barred debt

– Transfer of share certificates
– Hire-purchase agreements
– An assignment of copyright
– Negotiable instruments under the 1881 act
– An agreement to sell land and building
In above cases if the contract is not written it is rendered invalid.
 Types of Contracts
– Valid, Void and Voidable
– Unenforceable and Illegal
– Executed and Executory
– Express and Implied
– Unilateral and Bilateral
– Quasi
Voidable Contract: - (Concept of Quantum Meruit dictates that a service
- Made by Coercion, Undue performed under void agreement is to be paid for)
Influence, fraud or - Void agreement is one which never became a
misrepresentation contract, a void contract was once a valid
- Time bound contract not agreement and later on became void due to:
completed in time - Mistake of fact
- Reciprocal contract where - Unlawful object
one party prevents other to - No Consideration
complete their part of the
contract
Void vs Voidable Contract
Illegal Vs Void Agreement
Void Vs. Voidable Illegal Vs. Void
– Definition - Scope
– Nature and validity - Effect on collateral transaction
– Factors responsible - Restitution of benefit received
– Enforceability - Void ab Initio
– Relationship
– Right of the third party
– Compensation
– Effect of lapse of time
E Contracts

– Web Wrap Contract

– Shrink Wrap Contract
Offer

– Offer is an expression of readiness to do or not to do something.

– Characteristics:
– Must intend to create and be capable of creating a legal obligation
– Its term must be certain
– It must be certain – Clear, Definite, Absolute and Final
– It must be made to obtain the consent of the offeree
– It must be communicated
– It may be conditional provided the conditions are:
– Clearly written, expressed or communicated
– Presented in a manner that a reasonable person would become aware before acceptance
– Conveyed before entering into the contract
– Reasonable
Examples of Valid Offer With Special
Terms
– Special terms to be clearly written and presented in unambiguous manner
– In a manner which ensures that a reasonable person would become aware of it
– The terms to be incidental to the contract and to be communicated before the
contract is entered into
– To be reasonable and not repugnant to public policy
– Thomson Vs. LM&S Railways
– Handerson vs. Stevenson
– Olley vs. Marlborough Court Ltd
– Lilly White vs. Munnuswami
 Offer Essentials

- An offer is distinct from Types of Offer Revocation or Termination of Offer

Query
- Firm Offer Vs Invitation – Express vs Implied - Communication of notice of revocation
to treat
- Auction Sale – Specific vs General - Lapse of time
- Display of Goods – Cross Offer - Failure to accept full condition precedent to
for sale acceptance
- Invitation for – Standing Offer
tender – Counter Offer - Death or insanity of either party
- Company
Prospectus Communication: - Refusal or counter offer
- General – Communication is complete - Acceptance differs from the prescribed one
advertisement of
when it comes to the - Subsequent illegality or destruction of subject
goods
knowledge of the person to
matter
whom it is made
Acceptance
Rules of Acceptance
– Made by offeree
– Unconditional
– Communicated to the offeror
– Oral or written
– In the mode prescribed by the
offeror
– Given within a reasonable
time
– Given while the offer is in
force
Mere Silence is not acceptance
Communication of acceptance is
complete as against:
- Proposer when the
communication is put in
transmission and is out of
the hands of the acceptor
- Acceptor when it comes to
the knowledge of proposer
Devas Vs. ISRO Arm Antrix Case

– Unlawful repudiation by ISRO

– Damages paid by ISRO of $672M + 18% interest pa till the amount is paid to
Devas (amounting to $336,000 per day of delay in payment)
 Consideration

Rules Governing Consideration: Consideration must have some value:

- Benefit and Detriment
– Contract must be supported by consideration - Past Present or Future Consideration:
- Past Consideration
– must move at the desire of the promisor
- Present or executed Consideration
– may move from the promisee or any other person - Future or Executory Consideration
– must have some value
– Must be defined as past, present or future consideration
– Need not be adequate but it should be sufficient
– Must be legal
 Consideration Miscellaneous

Contract without consideration is generally not a contract

Privity of Contract Exceptions:
however it is:
– Trust or charge - Valid if it is made out of natural love and affection and if it
is:
– Assignment - Made in writing
- Registered
– Marriage Settlement - promise to pay a debt barred by limitation Law
– Agency Exceptions:
- Promise to pay time barred debt
– Acknowledgement of liability - Completed gift
- Agency
- Guarantee
Legality of Object
A lawful object is one which is not:
- Forbidden by law
- Of a nature that if permitted, would
defeat provisions of any law
- Fraudulent
- Of a nature involving or implying
injury to person or property
- Regarded as immoral by a court, or
opposed to public policy
Effect of partial illegality:
The part that is legal is taken as valid contract
and the other part is considered void ab initio.
Opposed to public policy:
- Trading with Alien enemy
- Interference with administration of justice
- Marriage brokerage agreement
- Trafficking in public offices
- Unfair and unreasonable dealings
Capacity to Contract: Minor

- Position of agreement with minor

- Agreement with minor is void altogether
- Minor can always plead minority
- No ratification after attainment of majority
- Contract for the minor’s benefit
- Contract by parent or guardian
- Contract by parent or adult jointly
- Minor as a partner
- Minor as an agent
- Minor as a shareholder
- Minor and insolvency
- Contract of apprenticeship by guardian of minor
- Minor’s Liability for supply of necessaries
- Minor’s liability in tort
Capacity to Contract: Person of
Unsound Mind
– Agreement with person of unsound mind
– Effect of Agreement made by person of unsound mind
– By Idiots
– By Lunatics
– By Intoxicated Person
– Exceptions
– Burden of proof
Capacity to Contract: Person
Disqualified by Law
– Alien Enemies
– Convicts
– Exceptions:
– Expiration of period of sentence
– During Parole
– On remission of legal consequences of their crime
– Undischarged Insolvents
– Foreign Sovereigns and Ambassadors
– Joint Stock Companies and Statutory Corporations (for ultra vires acts and contracts of
personal nature such as marriage ordivorce)
Free Consent

Acts considered by law as Coercion

- Act forbidden by IPC
- Threatening to commit such an act
- Unlawful detaining of any property
- Threatening to detain any property
Acts outside the purview of coercion:
- Threat to file suit
- Threat to commit suicide
- Effect of coercion
- Burden of proof
Coercion
Meaning
– Committing an act forbidden by IPC
– Threatening to Commit such an act
– Unlawful detaining of any property
– Threatening to detain any property.
Effect:
- Contract is Voidable
- When money is paid due to coercion, it
should be paid back.
- Burden of proof is on the dissenting party
 Undue Influence

– Prerequisites: Presumption of domination of will: Effect:

– Apparent Authority: - Contract becomes voidable,
– Relationship is such - Aggrieved party to prove that:
– Father Son
that one person has - Other party was in position
– Master Servant
influence over the to dominate and
– Police officer Culprit
other - The party used the
– Fiduciary Relationship (Based on trust and influence to get into the
– The relationship was confidence) contract
used to get a consent. – Doctor and Patient
– Trustee and Beneficiary Pardanasheen Woman:
– Solicitor and Client - Terms of contract were explained
– Guru and devotee - She understood the implication
– Woman and her confidential managing agent - She had free and independent
– Parent or guardian and child. advice
- It was deliberate voluntary act
based on her intelligence
Differences Coercion and Undue
Influence
– Mode of operation
– Relationship between parties
– Nature of act
– Third party
– Presumption by law
– Rights available
– Nature of liability
 Misrepresentation
Meaning:
– Positive assertion about something which
is not true but the asserter believes it to be
true
– Breach of duty which advantages the
person without intention. Or someone
claiming something on behalf of the
person something which is not true but
knowing it to be true, which causes gain to
the person
– Causing a party to make mistake in the
terms of contract, innocently. Without
knowing it to be erroneous.
Essentials of misrepresentation:
- Innocent assertion or representation which is untrue
- Of fact material to agreement
- Is untrue or turns out to be untrue
- Person to whom misrepresentation was made relied on the
it and it induced him to take the decision.
- The party misrepresented cannot complain it if it had
means of finding out the mistake.
Classification:
- Unwarranted statement of material facts
- Breach of duty bringing advantage to the person committing
- Inducing mistake about subject matter.
Effect of Misstatement

– Contract is voidable
– Damages can be claimed only in the following circumstances:
– Misrepresentation in a prospectus causing a subscriber to buy shares
– Agent committing a breach of warranty
– Relationship of confidential nature and one person suffers loss due to misrepresentation (Doctor
– Patient)
– Burden of proof:
– Aggrieved party to share the fact misrepresented
– Misrepresenting party to prove that the statement was not relied upon to take the decision.
 Fraud

Essential Elements
– False and wilful representation or assertion
– Perpetrator of representation
– Intention to deceive
– Representation relates to fact
– Active concealment of fact
– Promise made without intention of performing it
– Representation deceived the party
– Any other act fitted to deceive a party
– Other acts of omission specially declared void (Material defect, Defect or dispute regarding the transferor’s title)
– Party misled suffered loss
– Silence can amount to fraud (Where it is the duty of the person to speak or where silence is equivalent to speech)
Differences between Misrepresentation
and Fraud
– Nature of act
– Intention to deceive
– Silence
– Remedies available
– Defence
 Mistake

Types of Unilateral Mistake:

Types Types of bilateral mistake: - Concerns fundamental fact
- Subject matter: - Other party has the knowledge of
– Mistake of Law - Existence
mistake
– Of Law of Country - Identity
- Quantity Effects of Mistake:
– Of Foreign Law - Bilateral mistake of fundamental fact
- Quality
– Of Fact - Title of agreement makes it void
- Unilateral mistake of fact as to
- Price
– Bilateral Mistake identity of person contracted with or
- Possibility of performance
– Subject matter nature of contract makes the
– Possibility of performance
contract void
- Mistake of foreign law makes the
– Unilateral Mistake contract void
- Person paid to or delivered goods or
services by mistake is bound to
return it.
Void Agreement

– Agreements Expressly Declared Void

– Agreement by or with persons incapable of contract
– Agreement entered into under a mutual mistake of fact
– Where object of agreement is whether fully or partly is unlawful
– Agreements without consideration
– Agreement in restraint of marriage
– Agreement in restraint of trade
– Agreement in restraint of legal proceedings
– Agreement the meaning of which is uncertain
– Agreement by way of wager
– Agreement to do impossible act
 Performance of Contract
Types:
- Actual Essentials: Who performs the Reciprocal Promises:
contract? - Promisor is not
- Substantial, - Unconditional
bound to perform
- Within Proper Time - Promisor unless promise is
- Partial
- Made under circumstances where the - Agent ready and willing
- Attempted - Order of performance
person to whom it is made receives the
- Legal of Reciprocal
Time and place of performance: benefit as per the tenor of the contract
Promises
- Where no time is specified
- Promisee must have reasonable Representative - Liability of party
- Where time is specified
- On application by promisee opportunity to inspect - Third Person preventing
- Without application by the - An offer to multiple joint promisees are performance of act
- Joint Promisors on which the contract
promise treated as if there is an offer to each
- As per time and manner hinges
one of them - Effect of default
sanctioned by Promisee.
Discharge of Contract

– Performance
Impossibility: Breach
– Substituted Agreement - Objective - Anticipatory Breach
– Novation - Commercial - Actual Breach
- Frustration - Breach of condition
– Rescission
- Temporary - Breach of Warranty
– Alteration
– Remission Operation of Law:
– Waiver - Statutes of Limitation
- Insolvency
– Lapse of Time - Merger
– Impossibility of performance
Accord of Satisfaction:
– Operation of Law Accord
– Accord and Satisfaction Satisfaction
– Breach
Remedies for Breach of Contract

Damages Quantum Meruit:

– Remoteness of Damage - Person employed to work for another
– Assessment of Damage person without any agreement.
– Types of Damages - In case of services performend against
a specific contract for mode of
– Compensatory compensation
– Nominal - For divisible contract, when a party to
– Consequential contract is prevented from fulfilling
– Punitive contractual obligation by another party
to the contract
– Incidental
- For indivisible contract, completely
– Liquidated or Agreed
executed, but badly, only after
Injunction: deducting the loss due to bad work.
- Prohibitory Injunction
- Mandatory Injunction
Quasi Contractual Relationships

– Claim for necessaries supplied to person incapable of contracting in his account

– Reimbursement of person paying money due by other
– Obligation of person enjoying benefit of non gratuitous act
– Responsibility of finder of lost goods
– Liability of person to whom money is paid, or things are delivered, by mistake or
by coercion