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  1. 1. 1. Short title .- This Act may be called the Indian Contract Act, 1872.<br />Extent, Commencements.-It extends to the whole of India except the State of Jammu and Kashmir; and it shall come into force on the first day of September, 1872.<br />The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872<br />Section 2(h) of the Act defines the term contract as "any agreement enforceable by law". There are two essentials of this act, agreement and enforceability<br />“All contracts are agreements but all agreements are not contracts”<br />For E.g.Agreement to sell a radio is a contract but an agreement to see a movie may be a mere agreement not enforceable by law<br />Only those agreement which satisfy the essential mention in sec 10 becomes contract<br />Agreement <br />Section 2(e) defines agreement as "every promise and every set of promises, forming the consideration for each other."<br />Again Section 2(b) defines promise in these words: "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."<br />Essentials of a valid contract<br />1 Offer <br />Sec 2 a When one person signifies to another his willingness to do or 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.<br />2. Again Section 2(b) defines promise in these words: "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.<br />e.g.<br />carbolic smoke Ball co vs Mrs. Carlill<br />In carbolic smoke Ball co.’s case, the patented medicine company advertised that it would give a reward of  £100 to anyone who contracted influenza even after using the smoke balls of the company for a certain period according to the printed directions. Mrs. Carlill purchaswed the advertised smoke ball and contracted influenza in spite of using the smoke ball according to the printed instruction. She claimed the reward of £100. The claim was resisted by the company on the ground that offer was note made to her and that in any case she had not communicated her acceptance of the offer. She filed a suit for the recovery of the reward.<br />Judgement- She could recover the reward as she had accepted the offer by complying with the term of the offer<br />en.wikipedia.org/wiki/Carlill_v_Carbolic_Smoke_Ball_Company<br />www.lawnix.com/cases/carlill-carbolic-smoke-ball.html<br />2. .Intention to create legal relations<br />There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations.<br />Agreement of a social or domestic nature do not contemplate legal relations and such they do not give rise to a contract.<br /> English contract law case -Meritt Vs. Meritt<br />The husband and wife were the joint owners of a building which was subject to mortgage to a buiding society. The husband left the matrimonial home to live with another woman. At that time, in the presence and insistence of wife, the husband signed a note saying that the wife will pay all outstanding amounts in respect of home and in return ‘’I will agree to transfer the property into your sole ownership’’.<br />Judgment- it was held that in this case it was clear that the parties intended to create legal relationship and therefore, the husband was bound by the contract <br />3.Lawful consideration<br />Sec 2d<br />When at the desire of the promisor the promisee or any other person has done orabstained from doing, or does or abstains from doing or promises to do or toabstain from doing something such act or abstinence or promise is called aconsideration for the promise<br />Must not be unlawful or gratuitous<br />Consideration is unlawful if<br />(1) it is forbidden by law; or(2) is of such a nature that, if permitted it would defeat the provisions of any laws(3) is fraudulent; or(4) involves or implies injury to the person or property of another(5) the court regards it as immoral or opposed to public policy<br />4. Capacity of parties<br />The parties to an agreement must be competent to contract. Thecontracting parties must be of the age of majority and of sound mind and must not bedisqualified by any law to which they are subject (sec.11)<br />Who are not competent to contract<br />1.a contract with or by a minor<br />2.unsound mind<br />3.a contract by alien enemy (political status)<br />b.foreign sovereigns and Ambassadors<br />c.insolvent person<br />E.g. Mohiri Bibi vs Dharmodas Ghose<br />Dharmodas ghose, a minor entered into a contract for borrowing a sum of rs. 20,000 out of which the lender paid the minor a sum of rs 8,000. The minor executed mortgage of property in favour of the lender. Subsequently the minor sued aside the mortagege. The privy council had to acertain the validity of the mortgage. Under sec 7 of the transfer of property act every person competent to contract is competent to mortagage. The privy council decided that sec 10 and 11 of the Indian contract act make the minor’s contract void. The mortgage prayed for refund of rs. 8000 by the minor. The privy council further held that as a minor’s contract is void any money advanced to a minor cannot be recovered<br />5.Free consent<br />According<br />to section 14, consent is said to be free when it is not cause by<br /><ul><li>Order influence ii) Fraud iii) mistake iv) misinterpretation
  2. 2. Case
  3. 3. The director of a tramway co. issued a prospectus stating that they had the right to run tramcars with steam intead of with horses as before. In fact, the act incorporating company provided that such power might be used with saction of the board of trade. But the board of trade refused to give permission and the company had to be wound up. A shareholder sued the director for damages for fraud. The house of loards held that the directors were not liable in fraud because they honestly believed what they said in the prospectus to be true</li></ul>6.Lawful object:<br />For the formation of a valid contract it is also necessary that the parties<br />to an agreement must agree for a lawful object. The object for which the agreement hasbeen entered into must not be fraudulent or illegal or immoral or opposed to public policyor must mot imply injury to the person or the other of the reasons mentioned above theagreement is void.<br />E.g<br />A partnership entered into for the purpose of doing business in a alcoholic drink on a licence granted only to one of the partner is void.<br />7.Writing and registration<br />Oral contract is a valid contact. However the contract must be in writing andregistered, if so required by any law, for example, gift, mortgage, sale, lease underthe Transfer of Property Act 1882, Memorandum and Articles of Association of aCompany under the Indian Companies Act, contracts under sub sections (10 and 3)of section 25 of the Indian Contract Act, etc. Documents specified under section 17of the Indian Registration Act, 1908, are required to be registered.<br />No particular form of writing is required to constitute a contract. Intentions of theparties to enter into a particular contract and to give effect to it must be manifest init, in order to constitute a valid contract.<br />8.Certainty<br /> Section 29 of the contract Act provides that “Agreements, the meaning of<br />which is not certain or capable of being made certain, are void.” In order to give rise to avalid contract the terms of the agreement must not be vague or uncertain. It must bepossible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced<br />E.g. A agrees to sell to B "my white horse for rupees five hundred or rupees one thousand". There is nothing to show which of the two prices was to be given. The agreement is void<br />9.Possibility of performance.<br /> Yet another essential feature of a valid contract is that it<br />must be capable of performance. Section 56 lays down that“An agreement to do an actimpossible in itself is void”. If the act is impossible in itself, physically or legally, theagreement cannot be enforced at law<br />10. Enforceable by Law:<br />A contract in order to be valid must be enforceable by law which elementdistinguishes agreement and contract. It is enforceable by law it is contractotherwise it is an agreement.<br />