THE INDIAN

CONTRACT ACT
1872
(1 September 1872)
Objective of the act
• The objective of the contract act is to ensure that the rights and obligations arising
out of a contract are honored and that legal remedies are made available to an
aggrieved party against the party failing to honor his part against the party failing to
honor his part of agreement. The Indian contract act makes it obligatory that this is
done and compels the defaulters to honor their commitments.
 it Extends to the whole of India except the state of Jammu and Kashmir.
It came into force on the first day of September, 1872.
The sale of Goods was repealed from this Indian Contract Act in 1930. Contracts
relating to partnership were repealed in 1932.

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Invitation to an Offer

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Proposal

• When one person Signifies to another his

willingness to do or to abstain from doing
anything, with a view to obtaining the assent of
the other to such act or abstinence, he said to
make a proposal.

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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.
The person making the proposal is called the
“Promisor” and the person accepting the proposal
is called the “Promisee”.
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Agreement

 Every promise and every set of promises,

forming the consideration for each other is an
agreement.
An agreement not enforceable by law is said to
be void.

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Contract

 An agreement enforceable by law is

a contract.

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Contract

 An agreement enforceable by law is a contract.

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Steps involved in the Contract

 Proposal and its communication

Acceptance of proposal and its communication
Agreement by mutual promises
Agreement by mutual promises
Contract
Performance of Contract
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 Essential requirements of a valid contract
 Offer and its acceptance
 Free consent of both parties
 Mutual and lawful consideration for agreement
 It should be enforceable by law
Parties should be competent to contract
Object should be lawful
Certainty and possibility of performance
Contract should not have been declared as void under contract act or any
other law
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Offer

 May be express or implied

 May be positive or negative
 Must intend to create legal relationship
 Term of offer must be certain
 May be made to a specific person or class of person or to any one in the world at large
 Must be communicate to the offer
 Must be made with a view to obtain the assent
 May be conditional
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Termination of offer
 By notice of revocation
 By lapse of time
 By failure of the acceptor to fulfil a condition
precedent to acceptance
 By failure to accept according to the mode prescribed
 By death or insanity of the offeror
 By rejection
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Essentials of a valid acceptance

 Acceptance must be absolute and un conditional

 Acceptance by usual mode as desired by the offeror
 Acceptance cannot precede the offer
 Acceptance may be express or implied
 Acceptance must be given within a reasonable time
 Acceptance must be by an ascertained person (offeree)

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Essentials of a valid acceptance
 Offer cannot be accepted after it was rejectedunless it is renewed
 Silence does not imply acceptance
 Acceptance must be made before the lapse orrevocation of the offer
 Acceptance of offer means acceptance of allterms attached to the offer


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Legal rules regarding Consideration
 Consideration is required both for formationand discharge of an agreement or contract
 Consideration may be past, present and future
 Consideration may be either positive ornegative
 Consideration must be done at the desire ofthe promisor
 Consideration may be furnished by thepromisee or any other person

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Legal rules regarding Consideration
 Consideration must be lawful
 Consideration must be real and not illusory
 Consideration need not be adequate
 Consideration must not be the performanceof existing duties
 Consideration must be of some value in theeyes of law

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Contractual Capacity
 Every person is competent to contract who isof the age of the majority according to the lawto
which he is subject and who is of a soundmind, and is not disqualified from contractingby any
law to which he is subject.

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Contractual Capacity
 Mental Deficiency
— Sound Mind (he is capable of understanding it andof forming a rational judgment as to its
effectsupon his interests)
 Mental Incompetents
 Idiots
 Lunatics and insane persons
— Minor (< 18 years)
 Legal Disability (Alien Enemy, Insolvent,Imprisonment)

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Free Consent

 Agree upon the same thing in the same sense.

 Image dlna h

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Object and Public Policy

 Not be forbidden by law

 Should not defeat provisions of any lawNot be fraudulent
 Should not injure a person / propertyShould not be immoral
 Should not be opposed to public policy

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Void and Voidable Contract
 An agreement which is enforceable by law atthe option of one or more of the partiesthereto,
but not at the option of the other orothers, is a voidable contract
 A contract which ceases to be enforceable bylaw becomes a void contract.

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Types of Contract — On the basis ofValidity

 Valid contract: An agreement which has all the essential elements of acontract is called a valid
contract. A valid contract can be enforced bylaw.
 Void contract[Section 2(g)]: A void contract is a contract which ceasesto be enforceable by law. A
contract when originally entered into maybe valid and binding on the parties. It may subsequently
become void.-- There are many judgments which have stated that where any crimehas been
converted into a "Source of Profit" or if any act to be doneunder any contract is opposed to "Public
Policy" under any contract—than that contract itself cannot be enforced under the law
 Voidable contract[Section 2(i)]: An agreement which is enforceable bylaw at the option of one or
more of the parties thereto, but not at theoption of other or others, is a voidable contract. If the
essential elementof free consent is missing in a contract, the law confers right on theaggrieved
party either to reject the contract or to accept it. However,the contract continues to be good and
enforceable unless it isrepudiated by the aggrieved party.
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Types of Contract — On the basis ofValidity

 Illegal contract: A contract is illegal if it is forbidden by law;or is of such nature that, if

permitted, would defeat theprovisions of any law or is fraudulent; or involves or impliesinjury to
a person or property of another, or court regardsit as immoral or opposed to public policy.
Theseagreements are punishable by law. These are void-ab-initio.
 “Allillegal agreements are void agreements but all voidagreements are not illegal.”
 Unenforceable contract: Where a contract is good insubstance but because of some technical
defect cannot beenforced by law is called unenforceable contract. Thesecontracts are neither
void nor voidable.

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Types of Contract — On the basis ofFormation

 Express contract: Where the terms of the contract are expresslyagreed upon in words (written
or spoken) at the time offormation, the contract is said to be express contract.
 Implied contract: An implied contract is one which is inferredfrom the acts or conduct of the
parties or from thecircumstances of the cases. Where a proposal or acceptance ismade otherwise
than in words, promise is said to be implied.
 Quasi contract: A quasi contract is created by law. Thus, quasicontracts are strictly not contracts
as there is no intention ofparties to enter into a contract. It is legal obligation which isimposed
on a party who is required to perform it. A quasicontract is based on the principle that a person
shall not beallowed to enrich himself at the expense of another.

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Types of Contract — On the basis ofPerformance

 Executed contract: An executed contract isone in which both the parties have performedtheir
respective obligation.
 Executory contract: An executory contract isone where one or both the parties to thecontract
have still to perform their obligationsin future. Thus, a contract which is partiallyperformed or
wholly unperformed is termedas executory contract.


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Types of Contract — On the basis ofPerformance

 Unilateral contract: A unilateral contract is one inwhich only one party has to perform
hisobligation at the time of the formation of thecontract, the other party having fulfilled
hisobligation at the time of the contract or beforethe contract comes into existence.
 Bilateral contract: A bilateral contract is one inwhich the obligation on both the parties to
thecontract is outstanding at the time of theformation of the contract. Bilateral contracts arealso
known as contracts with executoryconsideration.

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Performance

 Section 37, Para 1, of the Contract Act lays downthat, “The parties to a contract must either
perform,or offer to perform, their respective promises, unlesssuch performance is dispensed
with or excusedunder the provisions of this act, or of any other law.”
 The offer to perform the contract is called Tender.Offer to perform or Tender may be called
attemptedperformance. A tender, to be legally valid, must fulfillthe following conditions.

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A tender, to be legally valid, mustfulfill the following conditions

 It must be unconditional
 A tender money, must be in legal tender money, notby any foreign money, or by promissory
note orcheque.
 The tender must be made at a proper time and place
 The person to whom a tender is made must be givena reasonable opportunity of ascertaining
that theperson by whom it is made is able and willing thereand then, to do the whole of what he
is bound by hispromise to do.

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A tender, to be legally valid, must fulfill the following conditions

 If the offer is an offer to deliver anything tothe promisee, the promisee must have areasonable
opportunity of seeing that thething offered is the thing which the promisoris bound by his
promise to deliver.
 When there are several promisees, an offer,to any one of them is a valid tender
 Must be in proper form
 Must be willing and ready to fulfill theobligations

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Performance made by whom?

 Personal Performance : In cases involving personalskill, taste, or credit, the promisor must
himselfperform the contract.
 Performance by Representative : In all other casesthe Promisor or his representatives may
employ acompetent person to perform it.
 Performance by a third person : When a promiseaccepts performance of the promisee from a
thirdperson, he cannot afterwards enforce it against thepromisor

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Performance made by whom?

 Death of Promisor
— Contracts involving personal skill or volition, cometo an end when the Promisor dies. His
heirs orlegal representatives are not bound to performsuch contract
— In cases not involving personal skill or volition, thelegal representatives of a deceased
promisor arebound to perform the contract. Liability of thelegal representatives is limited to the
assetsobtained from the deceased.

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Persons entitled to demandperformance

 Promisee
 Legal Representative
 Third Party (Eg. Trust : A & B enter into acontract in favor of C; C can demandperformance)
 Joint promisees

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Time for Performance and Place for Performance

Time
 When no time is specified : Reasonable time
 When time is specified (it has to be followed)
 On application for performance by promise
Place
 Delivery of Goods
 Payment of Money

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Performance of ReciprocalPromises

 Mutual and Dependent

 Mutual and Independent
 Mutual and Concurrent
 Order of Performance (who has to do when) :Fixed by contract

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Contracts that need not beperformed

 When a new contract is substituted

 A person rescinds it (who has the option of‘voidable’)
 Promisee neglects or refuses to afford thepromisor circumstance for performance
 Impossibility or Illegality
 If one person has right to rescind a contract

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Discharge of Contract by a NewAgreement

 Substitution
— Of old contract by new contract
— Of a party to the contract by a new one
 Alteration (change in terms of contract
 Rescission (by mutual consent/non-performance/voidable)
 Waiver (abandonment of a right which aperson is entitled to)

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Discharge of Contract by a NewAgreement

 Remission (promisee may give up a part of hisclaim at his own will)

— Whole / in part
— Extend the time of performance
— Accept any other satisfaction than performance
 Merger (superior right and inferior rightcoincide and meet in one and the sameperson) eg.
Person buys the land which he hastaken for lease before.

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Discharge by Operation of law

 Insolvency
 Merger
 Death
 Lapse of Time
 Material alteration / Unauthorized alteration

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Discharge of contract byimpossibility

 Destruction of object necessary forperformance

 Change of law
 Personal incapacity
 Non-existence or non-occurrence of an eventnecessary for performance
 Outbreak of war

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Breach

 If a party breaks his obligations which thecontract imposes; contract is no longerbinding on the
other person
 Actual Breach of Contract
 One party fails or refuses to perform his obligation
 Express Repudiation (by word or act refuses tocontinue to perform his obligation)
 Implied Repudiation (makes by his own act thecomplete performance of the contract
impossible)

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Breach

 Anticipatory Breach of Contract (done beforethe time for performance arrives)

— By Renunciation (Express Repudiation)
— By creating some Impossibility (ImpliedRepudiation)

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Remedies in case of Breach

 Suit for damages (dealt by Indian ContractAct)

 Dealt by Specific Relief Act, 1963
— Bring an action for specific performance
— Suit for Injunction
— Claim for quantum meruit
— Restitution
— Suit for cancellation or rescission

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Remedies for Breach of Contract

 Suit for Damages (loss or damage suffered bybreach of contract)

 Kinds
— Ordinary or General Damages (damages whicharise on a breach; parties know it at the time
ofentering into contract; eg. Difference in contractprice and market price)
— Special Damages (breach of contract under somespecial circumstances)

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Remedies for Breach of Contract

 kinds
— Exemplary Damages (shows the Court’s strongdisapproval of the conduct of the defendant
incommitting the wrong; eg. Refusal to honor acheque in spite of having funds)
— Nominal Damages (breach involved is of technicalnature, so some nominal damages (1 rupee)
maybe awarded)
— Remote Damages (not to be given for any remoteand indirect loss or damage sustained by
reasonof the breach)

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Remedies for Breach of Contract

 Rules regarding determination of amount of damages

— Restoration of parties to a position where they would have been if the contract had been per
formed and not where they would have been if they never made the contract
 Damages are recoverable in 2 cases
— When they arise naturally in the usual course ofthings from such breach.
— Loss or damage which the parties knew, whenthey made the contract is likely to result from the
breach of it.

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Suit for Injunction

 Preventive relief
 This is an order of the court restraining thewrong doer from doing or continuing thewrongful act
complained of.
 Usually granted to enforce negativestipulations in cases where damages are notadequate relief.

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Suit for Quantum Meruit

 Quantum Meruit means as much as is earned.

 Right to Quantum Meruit : Right to claim thecompensation for the work already done.

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THANK YOU

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COMPANY TEAM SLIDE

Firstname Lastname Firstname Lastname

Firstname Lastname Firstname Lastname

FIRSTNAME Firstname Lastname Firstname Lastname

LASTNAME
Designation | Description

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TABLE

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Title Content Content Content Content

Title Content Content Content Content

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PIE CHART

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