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INDIAN Contract act

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INDIAN CONTRACT ACT
1872
Topics
• Introduction
• Meaning and Essentials of a Valid
contract
• Offer and Acceptance
• Capacity to Contract
• Free Consent
What is Contract?
According to sec.2(h), a contract is
defined as an agreement enforceable
by law.
What is Agreement?
According to sec.2(e), every promise
or set of promises forming
consideration for each other.
AGREEMENT=OFFER+ACCEPTANCE
What is Promise?
According to sec2(b),a proposal when accepted
becomes a promise.
What is Offer?
According to Sec.2(a), when a person made a
proposal, when he signifies to another his
willingness to do or to abstain from doing
something.
“All agreements are contracts but
all contracts are not agreements”
Contract= Agreement+ Enforceability at
Law
Agreement
Enforceability
at law
C
O
N
T
R
A
C
T
ESSENTIAL ELEMENTS OF A
VALID CONTRACT (Sec.10)

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INDIAN Contract act

  • 2. Topics • Introduction • Meaning and Essentials of a Valid contract • Offer and Acceptance • Capacity to Contract • Free Consent
  • 3. What is Contract? According to sec.2(h), a contract is defined as an agreement enforceable by law. What is Agreement? According to sec.2(e), every promise or set of promises forming consideration for each other.
  • 4. AGREEMENT=OFFER+ACCEPTANCE What is Promise? According to sec2(b),a proposal when accepted becomes a promise. What is Offer? According to Sec.2(a), when a person made a proposal, when he signifies to another his willingness to do or to abstain from doing something.
  • 5. “All agreements are contracts but all contracts are not agreements” Contract= Agreement+ Enforceability at Law Agreement Enforceability at law C O N T R A C T
  • 6. ESSENTIAL ELEMENTS OF A VALID CONTRACT (Sec.10)
  • 7. Types of Contracts VALID CONTRACTS • Absolute contract • Contingent contract(Sec. 31-36) • Express contract • Implied/Quasi contract(Sec.68- 72)
  • 8. Valid contract - If all the condition are fulfilled it is called as a valid contract. Absolute contract - A contract which is not dependent on fulfillment of any condition. Contingent contract - In a contract to do or not to do something, if an event is collateral, does or doesn't happen. Express contract - When contracts are either in writing or in oral. Implied contract - When contracts are neither in writing nor in oral.
  • 9. INVALID CONTRACTS • Void contract Is void(Void - ab - initio) Becomes void • Voidable contract • Illegal contract • Unenforceable contract
  • 10. Invalid contract - In a contact if any one condition is not fulfilled. Is void (Void-ab-initio) - An agreement which is not valid from the beginning. Becomes void - An agreement which is valid in the beginning but due to some supervening impossibility the contract becomes void. Voidable contract - A contract which is valid unless until avoided by either the party. Illegal contract - An agreement forbidden by law. Unenforceable contract - It is valid but due to some technical defect the contract becomes void. In case defects are removed the contract is enforceable.(lack of registration, lack of signature etc.,)
  • 12. OFFER Offer(i.e. Proposal) [section 2(a)]: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other person either to such act or abstinence, he is said to make a proposal The person who makes an offer is called “Offeror” or “ Promisor” and the person to whom the offer is made is called the Offeree” or “Promisee”. Example Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr. A is making an offer to Mr. B. Here A is the offeror and B is the offeree.
  • 13. (1) There must be two parties. (2) The offer must be communicated to the offeree. (3) The offer must show the willingness of offeror. Mere telling the plan is not offer. (4) The offer must be made with a view to obtaining the assent of the offeree. (5) A statement made jokingly does not amount to an offer. (6) An offer may involve a positive act or abstinence by the offeree. (7) Mere expression of willingness does not constitute an offer. Essentials elements of an offer
  • 14. Legal Rules as to valid offer (1) Offer must be communicated to the offeree. (2) The offer must be certain, definite and not vague or ambiguous. (3) The offer must be capable of creating legal relation. A social invitation does not create legal relation. (4) Offer may be express and implied. (5) Cross offer do not conclude a contract. (6) An offer must not thrust the burden of acceptance on the offeree. (7) Offer must be distinguished from “invitation to offer”. (8) Offeror should have an intention to obtain the consent of the offeree.
  • 15. KINDS OF OFFER  EXPRESS OFFER  IMPLIED OFFER  SPECIFIC OFFER  GENERAL OFFER  CROSS OFFER  COUNTER OFFER  STANDING OFFER / CONTINEOUS OFFER
  • 16. ACCEPTANCE Acceptance [section 2(b)]: When the person to whom the proposal is made, signifies his assent there to , the proposal is said to be accepted.
  • 17. Legal Rules for the Acceptance • Acceptance must be absolute. • Acceptance must be communicated. • Manner of acceptance. • If there is deviation in communication of an acceptance of offer, offeror may reject such acceptance by sending notice within reasonable time. • Acceptance of offer must be made by offeree. • Mere silence is not acceptance of the offer. • Time limit for acceptance If the offer prescribes the time limit, it must be accepted within specified time. If the offer does not prescribe the time limit, it must be accepted within reasonable time. • Acceptance of offer may be expressly (by words spoken or written); or impliedly (by acceptance of consideration); or by performance of conditions (e.g.in case of a general offer)
  • 18. • Delayed or no delivery of letter Where the letter of acceptance is posted by the acceptor but it never reaches the offeror, or it is delayed in transit, it will not affect the validity of acceptance. • Acceptance by telephones or tax If the communication of an acceptance is made by telephone, tele-printer, telex, fax machines, etc • The time of Contract Acceptance must be time bound. It must be accepted within specific interval of time. General Rules as to Communication of Acceptance • Acceptance by post Where the communication of acceptance is complete when the letter of acceptance is posted, properly addressed.
  • 19. • Communication of acceptance in case of an agent Where the offer has been made through an agent, the communication of acceptance is completed when the acceptance is given either to the agent or to the principal. In such, if the agent fails to convey the acceptance received from offeree, still the principal is bound by the acceptance. • Acceptance on loudspeakers Acceptance given on loudspeaker is not a valid acceptance.
  • 21. PERSONS WHO ARE INCOMPETENT TO CONTRACT
  • 22. MINOR • According to Indian Majority Act 1875 “A minor is one who has not completed his or her 18th year of age.” • In case of contracts relating to ordinary Merchantile Transactions, the age of majority is to be determined by law of place where contract is made. • In case of contracts relating to land, the age of majority is to be determined by the law of the place where land is situated.
  • 23. EFFECT OF MINOR’S AGREEMENT • An agreement with or by a minor is void: A minor is not competent to contract and that a contract by minor is void ab initio. CASE: Mohori Bibi V. Dharma Das Ghose A minor borrowed Rs 20000 from B and as security executed mortgage in favor. He became a major a few moths later and filed a suit for the declaration that the mortgage executed by him during his minority was void and should be cancelled. It was held that a mortgage by a minor was void and B was not entitled to repayment of money.
  • 24. Minor can be a promise or beneficiary: If a contract is beneficial to a minor, it can be enforced by him. CASE: The general American Insurance CO. Ltd. V. Madan Lal Sonu Lal (1935) X, a minor, insured his goods with an insurance company. The goods were damaged. X filed a suit for claim.The insurance co. took the plea that person on whose behalf the good were insured was a minor.The court rejected the plea and allowed the minor to recover the insurance money.
  • 25. No Ratification: An agreement with minor is completely void. A minor cannot ratify the agreement even on attaining majority, because a void agreement cannot be ratified. But if on becoming major, minor makes a new promise for fresh consideration, then this new promise will be binding. No estoppel against a minor: Where a minor by representing his age has induced the other party to enter into a contract by him, he cannot be made liable on the contract. There can be no estoppel against a minor.It means he is not estopped form pleading his infancy in order to avoid a contract.
  • 26. Liability for torts: A tort is a civil wrong.A minor is liable in tort unless the tort in reality is a breach of contract.Thus, where a minor borrowed a horse for riding only he was held liable when he lent the horse to one of his friends who jumped and killed the horse. Minor as shareholder: A minor, being incompetent to contract cannot be shareholder of the company. Partnership: A minor being incompetent to contract cannot be a partner in the firm, but he can be admitted to the benefits of partnership.
  • 27. No insolvency: A minor cannot be declared insolvent as he is incapable of contracting debts and dues are payable from the personal properties of minor and he is not personally liable. Minor can be an agent: A minor can act as an agent. But he will not be liable to his principal for his acts. A minor can draw, deliver and endorse negotiable instruments without himself being liable. Minor cannot bind parent or guardian: An infant is not capable of binding his parent even for necessaries. The parents will be held liable only when child is acting as an agent for parents.
  • 28. Joint contract by minor and adult: In such a case, the adult will be liable on the contract and not the minor. Surety for a minor: In a contract of guarantee when an adult stands surety for a minor then he is liable to third party as there is direct contact between the surety and the third party. Liability for necessaries: A claim for necessaries supplied to a minor is enforceable by law.But a minor is not liable for any price that he may promise and never for more than the value of the necessaries.There is no personal liability of the minor,but only his property is liable.
  • 29. PERSONS OF UNSOUND MIND • Section 12 lays down that “A person is said to be of sound 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 a rational judgement as to its effect upon his interests”. • Unsoundness of mind does not mean weakness of mind or loss of memory. • An agreement with person of unsound mind is void. But under section 68, the property of such person is always liable for necessaries supplied to him or to anyone whom he is legally bound to support.
  • 30. Unsoundness of mind may arise from: • IDIOCY: An idiot is a person whose mental powers of understanding even ordinary matters are absent because of lack of development of the brain. CASE: A property worth Rs.25000 was agreed to be sold by a person for Rs.7000 only. His mother proved that he was a congenital idiot, incapable of understanding the transaction. The sale was held void. • LUNCAY: It is a disease of the brain. A lunatic loses the use of his reason due to some mental disease. He can enter into the contract during that period when he is of sound mind.
  • 31. Drunkenness: It produces temporary incapacity till the man is under the effect of intoxication creating absence of mind. He can enter into the contract when he is not drunk. Hypnotism: It also produces temporary incapacity till the person is under the impact of artificially induced sleep. Mental Decay: It is on account of old age.
  • 32. PERSONS DISQUALIFIED BY ANY OTHER LAW • Alien enemies: An alien is competent to contract with citizens of India living in India during peace time. Contracts entered into before the declaration of war are either stayed or terminated. • Insolvents: An insolvent cannot enter into a contract as his property vests in the official receiver. This disqualification is removed after he is discharged. • Professional persons: Doctors and advocates are included in this class. In England barristers are prohibited from suing for their fees. But in India this disqualification does not exist.
  • 33. Convicts: A convict while undergoing imprisonment is incapable of entering into a contract. But this disability comes to an end on the expiriy of the sentence. Corporations: A corporation is an artificial person recognized by law. It is competent to enter into a contract only through its agents. Married Women: A women is competent to enter into a contract.Marriage does not affect the contractualy capacity of a woman.She can even bind her husband in case of necessity.A married woman may sue oe be sued in her own name in respect of her separate property.
  • 36. FREE CONSENT According to section 13. Two persons are said to have consented when they agree upon same thing in the same sense. FREE CONSENT In English law, this is called ‘consensus – ad – idem’ Effect of absence of consent: ⇒ When there is no consent at all, the agreement is void – ab – initio’. It is not enforceable at the option of either party Example 1:- X have two car one Maruti car and one Honda city car. Y does not know that X has two cars Y offers to buy car at Rs.50,000. Here, there is no identity of mind in respect of the subject matter. Hence there is no consent at all and the agreement is void – ab – inito .
  • 38. 1. Coercion is the committing or threatening to commit any act which is Unlawful or Threatening to detain any property, of any person, with the Intention of causing any person to enter into an agreement. 2. Examples: - After giving a good beating to A, B makes him to agree to sign a promissory note for Rs 1000. Coercion (Section 15)
  • 39.  Committing any act which is forbidden by the IPC  Threatening to commit any act which is forbidden by the IPC  Unlawful detaining of any property or  Threatening to detain any property.  coercion need not necessary proceed from party to contract.  Coercion need not necessary be directed against the other party  It is immaterial whether the IPC is or is not in force at the time or at the place Coercion [Section 15]
  • 40. Types of Coercion • Threat to commit Suicide:- An attempt to commit suicide is an offence and it is also type of coercion. • Threat to file a suit. • Threat to act some unlawful acts. • Threat to detain property of any person.
  • 41. Effect of Coercion • When the consent of a party to an agreement is obtained by coercion, the contract becomes voidable at the option of the party, whose consent is so obtained. • The burden of proving that the consent was obtained by coercion shall be upon the party who wants to set aside the contract on the plea of coercion.
  • 42. Undue influence [Section 16] • Meaning of undue influence :- dominating the will of the other person to obtain an unfair advantages over the others. • (a) where the relation subsisting between the parties must be such that one party is in position to dominate the will of the other. • (b) The dominant party use his position. • (c) Obtain an unfair advantage over the other .
  • 43. Presumption of domination of will 1.Where he holds a real or apparent authority over the other 2.Where he stands in a Trust fiduciary (benefit) relation to the other 3.Mental Capacity of a person is temporarily or permanent effected by reason of age, illness or mental or bodily distress 1.Master and servant, parent and child, Income Tax officer and assesses principal and a Temporary Teacher. 2.Trustee and beneficiary spiritual Guru and his disciples, solicitors and clients. Guardian and wards 3.Relationship between medical attendant and ward. No. Presumption of Domination of will:- I. Landlord and Tenant II. Creditor and Debtor III. Husband and wife IV. Mother and Daughter
  • 44. Effect of undue Influence:-[Section 19A] • When consent to an agreement is caused by undue influence, the contract is voidable at the option of the party whose consent was so caused. Burden of Proof:- A contract is presumed to be induced by undue influence if the following two condition:- • A party has the position to dominate the will of the others • The transaction is unconscionable (unreasonable) In such a case dominant party is under the burden to prove the undue influence was not employed.
  • 45. Where some transaction is entered into in the ordinary course of business, but due to certain contingencies, one party is able to make the other party agree to certain terms and conditions then it is not undue influence. Example : A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence. Example : A spiritual guru induced his chela to donate all his property to the ashram and said that in return of it, he will certainly get salvation. The chela did the same. Held, that this is a case, of undue influence so it becomes void. UNDUE INFLUENCE
  • 46. Undue influence Vs Coercion Coercion Undue influence Meaning – using or threat to use physical force  obtain the consent of party (intention)  Punishment under IPC  -Parties – Stranger – Relationship – Immaterial –  Voidable at the option of aggrieved party Benefit - Back Involves use of moral force (mental pressure) Obtain an unfair advantage (intention) - Not criminally liable Between the parties to the contract -One party dominate the other party - Voidable or court set aside Benefit – order of court – Back
  • 47. Fraud (17) • The term fraud means a take representation of facts made willfully with a view to deceive the other party. • Sec.17- fraud means any act committed by a party to a contract or with his connivance or by his agent with intent to deceive another party there to or his agent or to induce to enter into contract.
  • 48. Essentials of fraud :- o By a party to the contract o There must be representation – [an opinion a statement of expression – does not fraud] o The representation must be false, Before conclusion of contract. o The misrepresentation must be made willfully. o The misrepresentation must be made with a view to deceive the other party. o The other party must have actually been deceived. o The other party have suffered a loss.
  • 49. • Ex:- T bought a cannon from H. It was defective, but H had plugged it. T did not examine the cannon, but it burst when he used it. Held as the plug had not deceived T, he was liable to pay for the cannon. • Ex.: Where the representation was true at the time of when it was made but becomes untrue before the contract is entered into and this fact is known to the party who made the representation. If must be corrected. If it is not so corrected it will amount to be fraud.
  • 50. When the silence amount to fraud: (a) General rule:- Mere (only) Silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud. EXCEPTION where the circumstances of the case are such that regarding being had to them. It is duty of the person keeping silence to speak. Such duty arises in the following two cases . (1) Duty to speak exists where the parties stand in a fiduciary relationship, e.g. father and son, guardian and ward, trustee and beneficiary etc. or where contract is a contract of ubberima fidei (requiring utmost good faith), e.g. contracts of insurance. Ex.:- A sells by auction to B a horse which A knows to be unsound. B’ is A’s daughter and has just come of age. Here the relation between the parties would make it A’s duty to tell B is the horse is unsound. (2) When silence itself equivalent to speech. B says to A “ if you do not deny it I shall assume that the horse is sound”. A say nothing – A’s silence equivalent to speech. A can held liable to fraud. [Half Truth is worse than a blatant: - Example – company pay dividend – in class room]
  • 51. Misrepresentation (section 18) Misrepresentation is when a party (person) asserts something which is not true though he believes is to be true. In other words misrepresentation is a falls representation made innocently. An agreement is said to be influenced by misrepresentation if all the following conditions are satisfied. (a) The party makes a representation of a fact [The representation by a stranger (By anyone with his connivance or by agent) to the contract does not affect the validity of the contract. (b) The misrepresentation was made innocently i.e. if was not made with a view to deceive the other party. (c) The other party has actually acted believing the misrepresent to be true.
  • 52. Misrepresentation include: 1.Unjustified statement of facts – positive assertion – Believe true really not true no basis misrepresentation 2.Breach of duty. 3. Inducing other to make mistake as to qualify or nature of subject matter. Misrepresentation may be committed in any of the following Ways 1.UNWARRANTED STATEMENTS - If an person makes a statement of false which is not warrant by information ,he is said to make a misrepresentation 2.BREACH OF DUTY –When a person commits a breach of duty without any intension to deceive The other party and thereby gains something while the other party loses ,it will be termed as Misrepresentation 3.INCLUDING MISTAKES ABOUT SUBJECT MATTER –if a party to a contract includes the other party ,although innocently to commit a mistake as to the nature or quality of the subject matter of the agreement ,he becomes guilty of misrepresentation
  • 53. MISTAKE Mistake is a misconception or error. Mistake means erroneous belief or wrong motion concerning something. Section 20 of the Indian Contract act 1872, defines Mistake as follows:“Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement , the agreement is void.”Thus it means that parties entering into the contract should not be under any error and they must agree on the same thing in the same sense.
  • 54. KIND OF MISTAKE 1.MISTAKE AS TO INDIAN LAW – such a mistake does not make the contract voidable . The rule in this case is that “Ignorance of law is no excuse “ 2.MISTAKE AS TO FOREIGN LAW- mistake of law of a foreign country vitiates the contract and renders it void
  • 55. 3.Mistake by Fact - It may be (A) Bilateral or (B) Unilateral (A) Bilateral mistake of Facts According to section 20 where both the parties to an agreement are under a mistake as to a matter of facts ,essential to the agreement the agreement shall be void therefore a BILATERL MISTAKE Thus I. There must be a common or Mutual Mistake i.e. mistake related to both the parties or all the parties II. The mistake must be related to the fact of essential to the agreement Example man and a women entered into an separate agreement believing themselves as lawfully married .The agreement is void on account of mutual mistake about Facts (B) Unilateral Mistake –It is a mistake of one of the parties to a contract as to the matter of facts ,thus a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of facts