Contract act.ppt


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Contract act.ppt

  1. 1. INDIAN CONTRACT ACT 1872 11/21/11 santhi narayanan
  2. 2. Introduction <ul><li>Law of contract – Foundation upon which the superstructure of modern business is built </li></ul><ul><li>Business – promise made between parties – performance follows later </li></ul><ul><li>Breaking of a promise – without incurring liability – endless complications </li></ul>11/21/11 santhi narayanan
  3. 3. Contd - <ul><li>Law of contract lays down legal rules relating to promises, their formation, performance and enforcement </li></ul><ul><li>Applicable not only to business community but others </li></ul>11/21/11 santhi narayanan
  4. 4. Definitions <ul><li>Anson – Legally binding agreement between two or more person by which rights are acquired by one or more to Act or forbearance on the part of the other. </li></ul><ul><li>Salmond – an agreement creating and defining obligation between parties </li></ul><ul><li>Pollock – Every agreement and promise enforceable at law is a contract </li></ul>11/21/11 santhi narayanan
  5. 5. CONTRACT <ul><li>Sec 2(h) – “ An agreement enforceable by law is a contract”. </li></ul><ul><li>Two elements - </li></ul><ul><ul><li>An Agreement </li></ul></ul><ul><ul><li>Legal obligation ie, a duty enforceable by law. </li></ul></ul>11/21/11 santhi narayanan
  6. 6. Agreement <ul><li>Section 2(e) – “Every promise and every set of promises forming the consideration for each other, is an agreement.” </li></ul><ul><li>Promise – What is a promise? </li></ul><ul><ul><li>Sec 2(b) - 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 </li></ul></ul>11/21/11 santhi narayanan
  7. 7. Example <ul><li>Ram offers to sell his car for Rs 1,00,000 to Shyam. Shyam accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between Ram and Shyam </li></ul><ul><li>Therefore, an agreement consists of an offer by one party and its acceptance by the other. </li></ul><ul><li>Agreement = Offer + Acceptance of offer </li></ul>11/21/11 santhi narayanan
  8. 8. Enforceability of Agreement <ul><li>An agreement is said to be enforceable by law if it creates a legal obligation. </li></ul><ul><li>If an agreement is incapable of creating a duty enforceable by law, it is not a contract. </li></ul><ul><li>Thus, an agreement is a wider term than contract. </li></ul>11/21/11 santhi narayanan
  9. 9. 11/21/11 santhi narayanan
  10. 10. Contract Act <ul><li>“ All contracts are agreement but all agreements are not contracts”. </li></ul><ul><li>Agreements of moral, religious or social nature are not contracts </li></ul><ul><ul><li>they are not likely to create a duty enforceable by law </li></ul></ul><ul><ul><li>parties never intend to create a legal obligation. </li></ul></ul>11/21/11 santhi narayanan
  11. 11. Contd - <ul><li>Ex; </li></ul><ul><ul><li>X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for the dinner. Can he take his friend to Court???? </li></ul></ul><ul><ul><ul><li>X cannot go to the court to claim his loss. </li></ul></ul></ul><ul><ul><li>A father promises to pay his son Rs 1000 as pocket allowance. Later he refuses to pay. Can the son recover the Amount??? </li></ul></ul><ul><ul><ul><li>The son cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations </li></ul></ul></ul>11/21/11 santhi narayanan
  12. 12. Case <ul><li>Balfour vs Balfour [(1919) 2 K.B. 571] </li></ul><ul><li>A promise by the husband to pay his wife 30 pounds every month . Later Husband refuses to pay. Wife goes to court. </li></ul><ul><ul><li>Held: unenforceable as parties never intended it to be bound by legal obligations. </li></ul></ul>11/21/11 santhi narayanan
  13. 13. contd <ul><li>In commercial or business agreements an intention to create legal relations is presumed. Thus, an agreement to buy and sell goods intends to create legal relationship, hence is a contract, provided other requisites of a valid contract are present. But if the parties have expressly declared their resolve is not to create a legal obligation, even a business agreement does not amount to a contract. </li></ul>11/21/11 santhi narayanan
  14. 14. Case <ul><li>Rose&Frank Co. vs Corruption Bros [1925 AC 445] </li></ul><ul><ul><li>There was an agreement between R company and C company by means of which the former was appointed as the agent of the latter. One clause in the agreement was: ”This agreement is not entered into….as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.” </li></ul></ul><ul><ul><ul><li>HELD - There was no binding contract as there was no intention to create legal relationship </li></ul></ul></ul>11/21/11 santhi narayanan
  15. 15. Distinction between an agreement and a contract <ul><li>Agreement </li></ul><ul><ul><li>Offer and its acceptance constitute an agreement </li></ul></ul><ul><ul><li>An agreement may or may not create a legal obligation </li></ul></ul><ul><ul><li>Every agreement need not necessarily be a contract </li></ul></ul><ul><ul><li>Agreement is not concluded or binding contract </li></ul></ul><ul><li>Contract </li></ul><ul><ul><li>Agreement and its enforceability constitute a contract </li></ul></ul><ul><ul><li>A contract necessarily create a legal obligation </li></ul></ul><ul><ul><li>All contracts are necessarily agreements. </li></ul></ul><ul><ul><li>Contract is concluded and binding on the concerned parties </li></ul></ul>11/21/11 santhi narayanan
  16. 16. Classification of Contract 11/21/11 santhi narayanan Enforceabilty Method of Formation Extent of performance Obligation to perform Valid Voidable unenforceable Illegal Void Executed Executory Express Formal Simple Implied Standard Form Contingent Quasi Bilateral Unilateral
  17. 17. Valid Contract Essentials 11/21/11 santhi narayanan
  18. 18. Essential elements of a valid contract <ul><li>Proper offer and its proper acceptance </li></ul><ul><li>Intention to create legal relationship </li></ul><ul><li>Free Consent </li></ul><ul><li>Capacity to contract </li></ul><ul><li>Lawful consideration </li></ul><ul><li>Lawful object </li></ul><ul><li>Agreement not expressly declared void </li></ul><ul><li>Certainty of meaning </li></ul><ul><li>Possibility of performance </li></ul><ul><li>Legal formalities </li></ul>11/21/11 santhi narayanan
  19. 19. Offer and acceptance <ul><li>OFFER </li></ul><ul><li>An offer is the starting point in the making of an agreement. </li></ul><ul><li>An offer is also called ‘proposal’ </li></ul><ul><li>Sec 2(a) – “ A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence.” </li></ul>11/21/11 santhi narayanan
  20. 20. OFFER <ul><li>An offer involves the following essential elements; </li></ul><ul><ul><li>It must be made by one person to another person </li></ul></ul><ul><ul><li>It must be an expression of readiness or willingness to do (i.e., a positive act) or to abstain from doing something (i.e., a negative act) </li></ul></ul><ul><ul><li>It must be made with a view to obtain the consent of that other person to proposed Act or abstinence </li></ul></ul>11/21/11 santhi narayanan
  21. 21. Contd <ul><li>Offeror – The person making the proposal is called the ‘offeror’ or ‘proposer’. </li></ul><ul><li>Offeree – The person to whom the proposal is made is called the ‘offeree’ or the ‘proposee’. </li></ul>11/21/11 santhi narayanan
  22. 22. Types of offer <ul><li>General offer – When the offer is made to the world at large </li></ul><ul><li>Specific offer – When the offer is made to a definite person </li></ul><ul><li>Implied offer – An offer may be implied from the conduct of the parties or the circumstances of the case. </li></ul>11/21/11 santhi narayanan
  23. 23. Cases <ul><li>General offer </li></ul><ul><ul><li>Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258 </li></ul></ul><ul><ul><li>Harbhajan lal vs Harcharan lal (AIR All 539) </li></ul></ul>11/21/11 santhi narayanan
  24. 24. Contd- <ul><li>Intention to create legal relationship </li></ul><ul><ul><li>An offer must be such that when it is accepted it will create a legal relationship </li></ul></ul><ul><li>Certain and unambiguous terms </li></ul><ul><ul><li>If the terms of the offer are vague or indefinite, its acceptance cannot create any contractual relationship. </li></ul></ul>11/21/11 santhi narayanan
  25. 25. Legal rules as to offer 11/21/11 santhi narayanan
  26. 26. Contd - <ul><li>Different from a mere declaration of intention </li></ul><ul><ul><li>Mere declaration of intention indicates that an offer will be made or invited in the future </li></ul></ul><ul><ul><li>A declaration of intention by a person does not give right of action to another. </li></ul></ul>11/21/11 santhi narayanan
  27. 27. Case <ul><ul><li>Harrison vs Nickerson </li></ul></ul><ul><ul><li>An auctioneer advertised in a newspaper that a sale of office furniture would be held. A broker came from a distant place to attend that auction, but all the furniture was withdrawn. The broker thereupon sued the auctioneer for his loss of time and expenses. </li></ul></ul><ul><ul><li>Held - A declaration of intention to do a thing did not create a binding contract with those who acted upon it, so that the broker could not recover. </li></ul></ul>11/21/11 santhi narayanan
  28. 28. Contd - <ul><li>Different from an invitation to offer </li></ul><ul><ul><li>In an invitation to offer the person making an invitation invites others to make an offer to him </li></ul></ul><ul><ul><li>It is prelude to an offer inviting negotiations or preliminary discussions </li></ul></ul><ul><ul><li>Case – </li></ul></ul><ul><ul><ul><li>Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401 </li></ul></ul></ul><ul><ul><ul><li>Harvey vs facey </li></ul></ul></ul>11/21/11 santhi narayanan
  29. 29. Contd- <ul><li>Offer must be communicated </li></ul><ul><ul><li>An offer must be communicated to the person to whom it is made. </li></ul></ul><ul><ul><li>An offer is complete only when it is communicated to the offeree </li></ul></ul><ul><ul><li>Acceptance is not possible unless offer is brought to the knowledge of the offeree. ie, One can accept the offer only when he knows about it. </li></ul></ul><ul><ul><li>Acceptance in ignorance of offer confers no right. ie, An offer accepted without its knowledge does not confer any legal rights on the acceptor. </li></ul></ul><ul><ul><li>Case: Lalman Shukla vs Gauri Dutt </li></ul></ul>11/21/11 santhi narayanan
  30. 30. Contd - <ul><li>No term of non-compliance of which amounts to acceptance </li></ul><ul><ul><li>The offer must not contain a term, the non-compliance of which amount to acceptance </li></ul></ul><ul><ul><li>Ex: A offers by post to sell his horse to B for Rs 2000. He writes, “ If you do not reply, I shall assume you have accepted the offer.” There would be no contract even if B does not reply </li></ul></ul>11/21/11 santhi narayanan
  31. 31. Contd <ul><ul><li>While making the offer, the offeror cannot say that if the offer is not accepted before a certain date, it will be presumed to have been accepted </li></ul></ul><ul><li>Communication of special terms or standard terms of contract </li></ul><ul><ul><li>Special terms of the offer must also be communicated along with the offer. </li></ul></ul><ul><ul><li>If the special terms of the offer are not communicated, the offeree will not be bound by those terms. </li></ul></ul>11/21/11 santhi narayanan
  32. 32. Acceptance <ul><li>Acceptance means giving consent to the offer. </li></ul><ul><li>It is an expression by the offeree of his willingness to be bound by the terms of the offer. </li></ul><ul><li>Sec 2(b) – “ A proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto. A proposal when accepted becomes a promise.” </li></ul><ul><li>Acceptance is the consent given to offer. </li></ul>11/21/11 santhi narayanan
  33. 33. Contd- <ul><li>Who can accept </li></ul><ul><ul><li>In case of a specific offer – </li></ul></ul><ul><ul><ul><li>To be accepted by that definite person or that particular group of persons to whom it has been made and non else. </li></ul></ul></ul><ul><ul><li>In case of general offer – </li></ul></ul><ul><ul><ul><li>An offer made to the world at large or public in general can be accepted by any person having the knowledge of the offer by fulfilling the terms of the offer. </li></ul></ul></ul>11/21/11 santhi narayanan
  34. 34. Contd - <ul><li>How to make acceptance – </li></ul><ul><ul><li>Express acceptance – </li></ul></ul><ul><ul><ul><li>An express acceptance is one in which is made by words spoken or written </li></ul></ul></ul><ul><ul><li>Implied acceptance – </li></ul></ul><ul><ul><ul><li>An implied acceptance is one which is made otherwise than in words. </li></ul></ul></ul><ul><ul><ul><li>It is inferred from the conduct of the parties or the circumstances of a particular case </li></ul></ul></ul>11/21/11 santhi narayanan
  35. 35. Legal rules of valid acceptance <ul><li>Absolute and unqualified </li></ul><ul><li>Manner </li></ul><ul><li>Communication </li></ul><ul><li>By whom </li></ul><ul><li>To whom </li></ul><ul><li>Before the lapse of the offer </li></ul>11/21/11 santhi narayanan
  36. 36. Communication of offer and acceptance <ul><li>Must be complete so as to bind the concerned parties because as soon as the communication is complete the parties loose the right of withdrawal or revocation. </li></ul><ul><ul><li>(a) Communication of offer – It is complete when it comes of the knowledge of the person to whom it is made. </li></ul></ul>11/21/11 santhi narayanan
  37. 37. Contd - <ul><li>Communication of acceptance – </li></ul><ul><ul><ul><li>As against the proposer – </li></ul></ul></ul><ul><ul><ul><ul><li>When it is put in a course of transmission to him, so as to be out of the power of the acceptor. </li></ul></ul></ul></ul><ul><ul><ul><li>As against the acceptor </li></ul></ul></ul><ul><ul><ul><ul><ul><li>When it comes to the knowledge of the proposer. </li></ul></ul></ul></ul></ul>11/21/11 santhi narayanan
  38. 38. Revocation of offer and acceptance <ul><li>Taking back, withdrawal (sec 5) </li></ul><ul><li>Time for revocation of proposal – A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. </li></ul>11/21/11 santhi narayanan
  39. 39. Contd - <ul><li>Time for revocation of acceptance – An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. </li></ul>11/21/11 santhi narayanan