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INDIAN CONTRACT ACT 1872




1                          08/30/12
Introduction
    Law of contract – Foundation upon which the superstructure
      of modern business is built

    Business – promise made between parties – performance
      follows later

    Breaking of a promise – without incurring liability – endless
      complications



2                                                            08/30/12
Indian Contract Act
    Law of contract lays down legal rules relating to promises ,
      their formation, performance and enforcement.

    These rules are not only applicable to business community
      but others




3                                                            08/30/12
Indian Contract Act




4                         08/30/12
CONTRACT
    Sec 2(h)


     “An agreement enforceable by law

                is a contract”




5                                       08/30/12
Proposal
    When one person signifies to another his willingness to do or
      abstain from doing anything with a view to obtain his assent
      on such act or abstinence, he is making proposal.

    A goes to a hotel and orders tea. He is making proposal.




6                                                            08/30/12
Acceptance
    When one person signifies his assent thereto on the proposal
      made he is said to accept the proposal.

    When A orders tea and B supplies tea it is understood that
      the proposal made by A is accepted by B




7                                                           08/30/12
Promise
    When a person to whom proposal is made signifies his
     assent thereto, the proposal is said to be accepted.
    An accepted proposal is known as a promise.




    When A asks B to lend him a book and B gives his assent to
     lend him a book . This is a promise i.e. Proposal by A to
     lend the book
     Acceptance by B by lending the book

8                                                           08/30/12
Consideration
    Something in return.
    A offers B to sell his car at Rs.1,00,000 /- B accepts the
     same. Now for A consideration is Rs.1,00,000/- and for B
     consideration is a Car.
    Until and unless there is no consideration there cannot be an
     agreement.




9                                                             08/30/12
Agreement
     When the proposal is accepted it becomes promise and the
      promise, when accompanied with consideration it becomes
      agreement.
     A offers to sell his car for Rs.1,00,000/- to B. B accepts his
      offer. This offer after acceptance becomes promise and this
      promise is treated as an agreement between A & B.




10                                                             08/30/12
Enforceability
     An agreement is said to be enforceable by law if it
      creates legal obligation.
     Obligation is a legal tie which imposes upon
      determinate person or persons the necessity of
      doing or abstaining from doing a definite act or
      acts

     If an agreement is incapable of creating a duty
       enforceable by law, it is not a contract.

11                                                          08/30/12
CONTRACT
     Proposal   + Acceptance = Promise.

     Promise    + Consideration = Agreement.

     Agreement + Enforceability = CONTRACT.




12                                              08/30/12
Contract Act
     “All contracts are agreement but all agreements are not
       contracts”.



     Agreements of moral, religious or social nature are
       not contracts
        they are not likely to create a duty enforceable by law
       parties never intend to create a legal obligation.




13                                                                 08/30/12
Contd -
     Ex;
      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????
        X cannot go to the court to claim his loss.

      A father promises to pay his daughter Rs 1000 as pocket
        allowance. Later he refuses to pay. Can the daughter recover
        the Amount???
         The daughter cannot recover as its is a domestic
            agreement and there is no intention on the part of
            the parties to create legal relations
14                                                                     08/30/12
Case
     Balfour vs Balfour [(1919) 2 K.B. 571]


     A promise by the husband to pay his wife 30 pounds every
       month . Later Husband refuses to pay. Wife goes to court.
       Held: unenforceable as parties never intended
         it to be bound by legal obligations.




15                                                          08/30/12
contd
      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.



16                                                       08/30/12
Case
     Rose&Frank Co. vs Corruption Bros [1925 AC
      445]
      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.”
        HELD - There was no binding contract as there was no intention
          to create legal relationship




17                                                                08/30/12
Distinction between an agreement and a contract
     Agreement                       Contract
      ◦ Offer and its acceptance       ◦ Agreement and its
        constitute an agreement          enforceability constitute a
      ◦ An agreement may or may not      contract
        create a legal obligation      ◦ A contract necessarily create a
      ◦ Every agreement need not         legal obligation
        necessarily be a contract      ◦ All contracts are necessarily
      ◦ Agreement is not concluded       agreements.
        or binding contract
                                       ◦ Contract is concluded and
                                         binding on the concerned
                                         parties


18                                                                08/30/12
Classification of
     Contract
Enforceabilty        Method of
                                   Extent of
                     Creation
                                   execution
     Valid
                         Express
                                      Executed
     Voidable
                         Implied      Executory
     Void

     unenforceable



     Illegal
19                                                08/30/12
CONTRACTS ON THE BASIS OF CREATION



     EXPRESS                   IMPLIED
     CONTRACT                  CONTRACT
     Express contract is one   An implied contract is
     which is made by the      one which is inferred
     words spoken or           from the conduct of a
     written.                  person or circumstances
                               of a particular case




20                                                  08/30/12
CONTRACTS ON THE BASIS OF EXECUTION


      EXECUTED                 EXECUTORY                 PARTLY
      CONTRACT                 CONTRACT                  EXECUTED &
                                                         EXECUTORY
                                                         CONTRACT
      It is a contract where   It is a contract where    It is a contract where
      both the parties to      both the parties to       one of the parties to
      the contract have        the contract have still   the contract has
      fulfilled their          to perform their          fulfilled his
      respective               respective                obligation and the
      obligations under the    obligations               other party has still
      contract                                           to perform his
                                                         obligation

21                                                                       08/30/12
Contracts on the basis of enforceability


           Valid Contract                 A contract which satisfies all the
                                          conditions prescribed by law is a
                                          valid contract
           Void Contract                  A contract which ceases to be
                                          enforceable by law becomes void
                                          when it ceases to be enforceable
           Void Agreements                An agreement not enforceable by
                                          law is said to be void
           Voidable Contract              A voidable contract is one which
                                          can be set aside or repudiated or
                                          avoided at the option of the
                                          aggrieved party
           Illegal Agreement              An illegal agreement is one the
                                          object of which is unlawful
           Unenforceable Contract         The contract which is actually
                                          valid but cannot be enforced due
                                          to technical defect
22                                                                             08/30/12
Essential elements of a valid contract
      Proper offer and its proper acceptance
      Intention to create legal relationship
      Free Consent
      Capacity to contract
      Lawful consideration
      Lawful object
      Agreement not expressly declared void
      Certainty of meaning
      Possibility of performance
      Legal formalities


23                                              08/30/12
Offer / PROPOSAL
     When one person signifies to
      another his willingness to do or
      abstain from doing anything with a
      view to obtain his assent on such
      act or abstinence, he is making
      proposal.
24                                   08/30/12
OFFER




25           08/30/12
Contd




26           08/30/12
Types of offer




27                    08/30/12
Legal rules as to offer




28                             08/30/12
Contd-
     Intention to create legal relationship
       An offer must be such that when it is accepted it will create a
         legal relationship



     Certain and unambiguous terms
       If the terms of the offer are vague or indefinite, its acceptance
         cannot create any contractual relationship.




29                                                                  08/30/12
Contd -
     Different from a mere declaration of intention

       Mere declaration of intention indicates that an offer
        will be made or invited in the future

       A declaration of intention by a person does not give
        right of action to another.




30                                                        08/30/12
Case
      Harrison vs Nickerson

        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.

      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.


31                                                              08/30/12
Contd -
     Different from an invitation to offer

       In an invitation to offer the person making an invitation invites
        others to make an offer to him
       It is prelude to an offer inviting negotiations or preliminary
        discussions
       Case –
          Pharmaceutical Society of Great Britian vs Boots cash chemists
          Ltd (1953) 1 QB 401
          Harvey vs facey




32                                                                     08/30/12
Contd-
     Offer must be communicated
      An offer must be communicated to the person to whom it is
       made.
      An offer is complete only when it is communicated to the
       offeree
      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.
      Acceptance in ignorance of offer confers no right. ie, An
       offer accepted without its knowledge does not confer
       any legal rights on the acceptor.
      Case: Lalman Shukla vs Gauri Dutt

33                                                            08/30/12
Contd -
     No term of non-compliance of which amounts
      to acceptance
      The offer must not contain a term, the non-compliance of
        which amount to acceptance

      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




34                                                              08/30/12
Contd
      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
     Communication of special terms or standard
      terms of contract
      Special terms of the offer must also be communicated along
       with the offer.
      If the special terms of the offer are not communicated, the
       offeree will not be bound by those terms.



35                                                                 08/30/12
Acceptance
     Acceptance means giving consent to the offer.
     It is an expression by the offeree of his willingness to be
       bound by the terms of the offer.

      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.”
     Acceptance is the consent given to offer.


36                                                          08/30/12
Contd-
     Who can accept
      In case of a specific offer –
        To be accepted by that definite person or that
        particular group of persons to whom it has been
        made and non else.
      In case of general offer –
        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.(Carlil v. Carbolic Smoke Ball Co.)
37                                                        08/30/12
Contd -
     How to make acceptance –
      Express acceptance –
       An express acceptance is one in which is made by words
         spoken or written

      Implied acceptance –
        An implied acceptance is one which is made otherwise than
        in words.
       It is inferred from the conduct of the parties or the
        circumstances of a particular case


38                                                              08/30/12
Legal rules of valid acceptance




39                                08/30/12
CAPACITY OF PARTIES
     Sec.11 says

      “Every person is competent to contract who is of
     age of majority according to the law to which he
     is subject,
     And who is of sound mind,
     And who is not disqualified from contracting by
     any law to which he is subject. ”
     Thus, all the three tests must be applied to determine whether a
     person is competent to contract or not




40                                                                      08/30/12
Who is a MINOR ?
     A minor is a person who has not attained majority.

     According to Section 3 of the Indian Majority Act,1875, a person is
     deemed to have attained majority as under:
       Where a guardian of a         On completion of 21 years
       minor’s person or property is
       appointed under the
       Guardian and Wards Act

       Where minor’s property has On completion of 21 years
       passed under the
       superintendence of the court
       of wards

       In other cases                 On completion of 18 years


41                                                                         08/30/12
Who is a Person of Unsound Mind?

 According to Sec 12 of the Indian Contract Act,
 “A person is said to be of sound mind for
 the purpose of making contract, if at the
 time when he makes it, is capable –

 •To understand terms of contract

 •To form rational judgment to its effect upon
 his interests”

42                                                 08/30/12
Persons disqualified by law




43                                 08/30/12
CONSIDERATION


     Sec. 2(d) of the Indian Contract Act defines consideration as under :



     “when at the desire of promisor, the
     promisee or any other person
      has done or abstained from doing,
      or does or abstains from doing ,
      or promises to do or abstain from doing
     something,
     such act or abstainence or promise is
     called a consideration for the promise"


44                                                                           08/30/12
Essential elements of valid
     Consideration
     i.   It must move at the desire of promisor

     ii. It may move from any person

     iii. It may be past, or present, or future

     iv. It must be of some value

     v. It must be real and not illusory

     vi. Something other than promisor’s existing Obligation

45                                                        08/30/12
CONSENT

     Sec.13 says “Two or more persons
     are said to consent when they
     agree on same thing in same
     sense”

     In English Law, this is called
     ‘consensus-ad-adem’



46                                      08/30/12
FREE CONSENT
     According to Sec.14 consent is said to be
     free when it is caused by

     a)Coercion, or

     b)Undue influence, or

     c)Fraud, or

     d)Misrepresentation, or

     e)mistake
47                                               08/30/12
COERCION
     Coercion means compelling a person to enter into a
     contract under a pressure or a threat.
     According to Section15, a contract is said to be caused
     by coercion when it is obtained by—

     i.Committing an act which is forbidden by the Indian
     Penal Code; or

     ii.Threatening to commit any act which is forbidden by
     Indian Penal Code; or

     iii.Unlawful detaining of any property; or

     iv.Threatening to detain any property.
48                                                          08/30/12
Undue Influence
     The term ‘undue influence’ means dominating the will
     of other person to obtain an unfair advantage over the
     other

     Sec 16(1) says a contract is influence by undue
     influence—

     a)Where the relations subsisting between the parties
     are such that one of the is in position to dominate the
     will of another, and

     b)The dominant party uses that position to obtain an
     unfair advantage over the other
49                                                             08/30/12
Fraud
     The term fraud means a false representation of
     fact made willfully with a view to deceive the other
     party.
     Essential elements of fraud :

     I.By a party to a contract

     II.False representation

     III.Representation as to fact

     IV.Actually deceived

     V.Suffered loss
50                                                          08/30/12
Misrepresentation

     The term ‘misrepresentation’ means a
     false representation of fact made
     innocently or non-disclosure of a material
     fact without any intention to deceive the
     other party.




51                                           08/30/12
MISTAKE



     A mistake is said to have occurred
     where the parties intending to do one
     thing by error do something else.




52                                      08/30/12
Void Agreements

 According to Sec2(g) of Indian Contract Act,
 1872, a void agreement is an agreement which
 is not enforceable by law.


 The agreements which are not enforceable by
 law right from the time when they are made, are
 void -ab-initio



53                                             08/30/12
Types of agreements expressly declared void
     1. Agreements by or with persons incompetent to contract
     2. Agreements entered into through a mutual mistake of fact
        between the parties.
     3. Agreement, the object or consideration of which is unlawful
     4. Agreement, the consideration or object of which is partly
        unlawful
     5. Agreement made without consideration.
     6. Agreement in restraint of marriage
     7. Agreement in restraint of trade
     8. Agreements in restraint of legal proceedings
     9. Wagering agreements
     10.Impossible agreements
     11.An agreement to enter into an agreement in the future



54                                                              08/30/12
Wagering agreements

     An agreement between two persons
     under which money or money’s worth is
     payable, by one person to another on the
     happening or non-happening of a future
     uncertain event is called a wagering
     event.

     Such agreements are chance oriented
     and therefore, completely uncertain
55                                          08/30/12
Contigent contracts

     Contigent contracts is a contract to do or
     not to do something if some events
     collateral to such contract, does or does
     not happen


     Insurance contract provides best
     example of contigent contract

56                                           08/30/12
Distinction between a wagering agreement and contingent contracts


             Basis of distinction Wagering                  Contingent
                                  agreement                 contract
             Reciprocal promise    It consist of reciprocal It may or may not
                                   pronise                  consist of reciprocal
                                                            promise
             Void/ valid           It is void               It is valid
             Main/ collateral      Future event is          Future event is
             future events         essential to contract    collateral to contract
             nature                It is always of          It may not be of a
                                   contingent nature        wagering nature
             Interest of parties   Its parties have no      Its parties may have
                                   other interest in the    other interest as well
                                   subject matter of the
                                   agreement except
                                   winning or losing of
                                   wagering amount
57                                                                                   08/30/12
Breach of contract
     A breach of contract occurs if any party
     refuses or fails to perform his part of contract
     or by his act makes it impossible to perform his
     obligation under the contract.

     In case of breach, the aggrieved party(i.e. the
     party not at fault) is relived from performing his
     obligation and gets a right to proceed against
     the party at fault.


58                                                   08/30/12
Types of breach
       Anticipatory breach                   Actual breach
       Anticipatory breach occurs when       Actual breach may take place
       the party declares his intention of   when
       non performing the contract           •The party to the contract refuses
       before the performance is due         or fails to perform his part at the
                                             time fixed for performance
                                             •Party has performed a part of
                                             contract and then refuses or fails
                                             to perform the remaining part of
                                             contract.




59                                                                                 08/30/12
Remedies for breach of contract




60                                     08/30/12
Quasi contract

     A quasi contract is not a contract at all because one or
     other essential for the formation of a contract is absent
     It is a law upon a person for the benefit of another even
     in the absence of a contract.
     It is based on the principle of equity, which means no
     person shall be allowed to unjustly enrich himself at the
     expense of another
     such obligations are called quasi contracts or implied
     contracts because the outcome of such obligation
     resemble those created by a contract.


61                                                        08/30/12
Kinds of quasi contracts




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Indian Contract Act 1872 Explained

  • 1. INDIAN CONTRACT ACT 1872 1 08/30/12
  • 2. Introduction Law of contract – Foundation upon which the superstructure of modern business is built Business – promise made between parties – performance follows later Breaking of a promise – without incurring liability – endless complications 2 08/30/12
  • 3. Indian Contract Act Law of contract lays down legal rules relating to promises , their formation, performance and enforcement. These rules are not only applicable to business community but others 3 08/30/12
  • 5. CONTRACT Sec 2(h) “An agreement enforceable by law is a contract” 5 08/30/12
  • 6. Proposal When one person signifies to another his willingness to do or abstain from doing anything with a view to obtain his assent on such act or abstinence, he is making proposal. A goes to a hotel and orders tea. He is making proposal. 6 08/30/12
  • 7. Acceptance When one person signifies his assent thereto on the proposal made he is said to accept the proposal. When A orders tea and B supplies tea it is understood that the proposal made by A is accepted by B 7 08/30/12
  • 8. Promise When a person to whom proposal is made signifies his assent thereto, the proposal is said to be accepted. An accepted proposal is known as a promise. When A asks B to lend him a book and B gives his assent to lend him a book . This is a promise i.e. Proposal by A to lend the book Acceptance by B by lending the book 8 08/30/12
  • 9. Consideration Something in return. A offers B to sell his car at Rs.1,00,000 /- B accepts the same. Now for A consideration is Rs.1,00,000/- and for B consideration is a Car. Until and unless there is no consideration there cannot be an agreement. 9 08/30/12
  • 10. Agreement When the proposal is accepted it becomes promise and the promise, when accompanied with consideration it becomes agreement. A offers to sell his car for Rs.1,00,000/- to B. B accepts his offer. This offer after acceptance becomes promise and this promise is treated as an agreement between A & B. 10 08/30/12
  • 11. Enforceability An agreement is said to be enforceable by law if it creates legal obligation. Obligation is a legal tie which imposes upon determinate person or persons the necessity of doing or abstaining from doing a definite act or acts If an agreement is incapable of creating a duty enforceable by law, it is not a contract. 11 08/30/12
  • 12. CONTRACT Proposal + Acceptance = Promise. Promise + Consideration = Agreement. Agreement + Enforceability = CONTRACT. 12 08/30/12
  • 13. Contract Act “All contracts are agreement but all agreements are not contracts”. Agreements of moral, religious or social nature are not contracts  they are not likely to create a duty enforceable by law parties never intend to create a legal obligation. 13 08/30/12
  • 14. Contd - Ex; 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???? X cannot go to the court to claim his loss. A father promises to pay his daughter Rs 1000 as pocket allowance. Later he refuses to pay. Can the daughter recover the Amount??? The daughter cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations 14 08/30/12
  • 15. Case Balfour vs Balfour [(1919) 2 K.B. 571] A promise by the husband to pay his wife 30 pounds every month . Later Husband refuses to pay. Wife goes to court. Held: unenforceable as parties never intended it to be bound by legal obligations. 15 08/30/12
  • 16. contd  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. 16 08/30/12
  • 17. Case Rose&Frank Co. vs Corruption Bros [1925 AC 445] 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.” HELD - There was no binding contract as there was no intention to create legal relationship 17 08/30/12
  • 18. Distinction between an agreement and a contract Agreement Contract ◦ Offer and its acceptance ◦ Agreement and its constitute an agreement enforceability constitute a ◦ An agreement may or may not contract create a legal obligation ◦ A contract necessarily create a ◦ Every agreement need not legal obligation necessarily be a contract ◦ All contracts are necessarily ◦ Agreement is not concluded agreements. or binding contract ◦ Contract is concluded and binding on the concerned parties 18 08/30/12
  • 19. Classification of Contract Enforceabilty Method of Extent of Creation execution Valid Express Executed Voidable Implied Executory Void unenforceable Illegal 19 08/30/12
  • 20. CONTRACTS ON THE BASIS OF CREATION EXPRESS IMPLIED CONTRACT CONTRACT Express contract is one An implied contract is which is made by the one which is inferred words spoken or from the conduct of a written. person or circumstances of a particular case 20 08/30/12
  • 21. CONTRACTS ON THE BASIS OF EXECUTION EXECUTED EXECUTORY PARTLY CONTRACT CONTRACT EXECUTED & EXECUTORY CONTRACT It is a contract where It is a contract where It is a contract where both the parties to both the parties to one of the parties to the contract have the contract have still the contract has fulfilled their to perform their fulfilled his respective respective obligation and the obligations under the obligations other party has still contract to perform his obligation 21 08/30/12
  • 22. Contracts on the basis of enforceability Valid Contract A contract which satisfies all the conditions prescribed by law is a valid contract Void Contract A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable Void Agreements An agreement not enforceable by law is said to be void Voidable Contract A voidable contract is one which can be set aside or repudiated or avoided at the option of the aggrieved party Illegal Agreement An illegal agreement is one the object of which is unlawful Unenforceable Contract The contract which is actually valid but cannot be enforced due to technical defect 22 08/30/12
  • 23. Essential elements of a valid contract  Proper offer and its proper acceptance  Intention to create legal relationship  Free Consent  Capacity to contract  Lawful consideration  Lawful object  Agreement not expressly declared void  Certainty of meaning  Possibility of performance  Legal formalities 23 08/30/12
  • 24. Offer / PROPOSAL When one person signifies to another his willingness to do or abstain from doing anything with a view to obtain his assent on such act or abstinence, he is making proposal. 24 08/30/12
  • 25. OFFER 25 08/30/12
  • 26. Contd 26 08/30/12
  • 27. Types of offer 27 08/30/12
  • 28. Legal rules as to offer 28 08/30/12
  • 29. Contd- Intention to create legal relationship An offer must be such that when it is accepted it will create a legal relationship Certain and unambiguous terms If the terms of the offer are vague or indefinite, its acceptance cannot create any contractual relationship. 29 08/30/12
  • 30. Contd - Different from a mere declaration of intention Mere declaration of intention indicates that an offer will be made or invited in the future A declaration of intention by a person does not give right of action to another. 30 08/30/12
  • 31. Case Harrison vs Nickerson 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. 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. 31 08/30/12
  • 32. Contd - Different from an invitation to offer In an invitation to offer the person making an invitation invites others to make an offer to him It is prelude to an offer inviting negotiations or preliminary discussions Case –  Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401  Harvey vs facey 32 08/30/12
  • 33. Contd- Offer must be communicated An offer must be communicated to the person to whom it is made. An offer is complete only when it is communicated to the offeree 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. Acceptance in ignorance of offer confers no right. ie, An offer accepted without its knowledge does not confer any legal rights on the acceptor. Case: Lalman Shukla vs Gauri Dutt 33 08/30/12
  • 34. Contd - No term of non-compliance of which amounts to acceptance The offer must not contain a term, the non-compliance of which amount to acceptance 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 34 08/30/12
  • 35. Contd 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 Communication of special terms or standard terms of contract Special terms of the offer must also be communicated along with the offer. If the special terms of the offer are not communicated, the offeree will not be bound by those terms. 35 08/30/12
  • 36. Acceptance Acceptance means giving consent to the offer. It is an expression by the offeree of his willingness to be bound by the terms of the offer.  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.” Acceptance is the consent given to offer. 36 08/30/12
  • 37. Contd- Who can accept In case of a specific offer – To be accepted by that definite person or that particular group of persons to whom it has been made and non else. In case of general offer –  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.(Carlil v. Carbolic Smoke Ball Co.) 37 08/30/12
  • 38. Contd - How to make acceptance – Express acceptance – An express acceptance is one in which is made by words spoken or written Implied acceptance –  An implied acceptance is one which is made otherwise than in words. It is inferred from the conduct of the parties or the circumstances of a particular case 38 08/30/12
  • 39. Legal rules of valid acceptance 39 08/30/12
  • 40. CAPACITY OF PARTIES Sec.11 says “Every person is competent to contract who is of age of majority according to the law to which he is subject, And who is of sound mind, And who is not disqualified from contracting by any law to which he is subject. ” Thus, all the three tests must be applied to determine whether a person is competent to contract or not 40 08/30/12
  • 41. Who is a MINOR ? A minor is a person who has not attained majority. According to Section 3 of the Indian Majority Act,1875, a person is deemed to have attained majority as under: Where a guardian of a On completion of 21 years minor’s person or property is appointed under the Guardian and Wards Act Where minor’s property has On completion of 21 years passed under the superintendence of the court of wards In other cases On completion of 18 years 41 08/30/12
  • 42. Who is a Person of Unsound Mind? According to Sec 12 of the Indian Contract Act, “A person is said to be of sound mind for the purpose of making contract, if at the time when he makes it, is capable – •To understand terms of contract •To form rational judgment to its effect upon his interests” 42 08/30/12
  • 43. Persons disqualified by law 43 08/30/12
  • 44. CONSIDERATION Sec. 2(d) of the Indian Contract Act defines consideration as under : “when at the desire of promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing , or promises to do or abstain from doing something, such act or abstainence or promise is called a consideration for the promise" 44 08/30/12
  • 45. Essential elements of valid Consideration i. It must move at the desire of promisor ii. It may move from any person iii. It may be past, or present, or future iv. It must be of some value v. It must be real and not illusory vi. Something other than promisor’s existing Obligation 45 08/30/12
  • 46. CONSENT Sec.13 says “Two or more persons are said to consent when they agree on same thing in same sense” In English Law, this is called ‘consensus-ad-adem’ 46 08/30/12
  • 47. FREE CONSENT According to Sec.14 consent is said to be free when it is caused by a)Coercion, or b)Undue influence, or c)Fraud, or d)Misrepresentation, or e)mistake 47 08/30/12
  • 48. COERCION Coercion means compelling a person to enter into a contract under a pressure or a threat. According to Section15, a contract is said to be caused by coercion when it is obtained by— i.Committing an act which is forbidden by the Indian Penal Code; or ii.Threatening to commit any act which is forbidden by Indian Penal Code; or iii.Unlawful detaining of any property; or iv.Threatening to detain any property. 48 08/30/12
  • 49. Undue Influence The term ‘undue influence’ means dominating the will of other person to obtain an unfair advantage over the other Sec 16(1) says a contract is influence by undue influence— a)Where the relations subsisting between the parties are such that one of the is in position to dominate the will of another, and b)The dominant party uses that position to obtain an unfair advantage over the other 49 08/30/12
  • 50. Fraud The term fraud means a false representation of fact made willfully with a view to deceive the other party. Essential elements of fraud : I.By a party to a contract II.False representation III.Representation as to fact IV.Actually deceived V.Suffered loss 50 08/30/12
  • 51. Misrepresentation The term ‘misrepresentation’ means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party. 51 08/30/12
  • 52. MISTAKE A mistake is said to have occurred where the parties intending to do one thing by error do something else. 52 08/30/12
  • 53. Void Agreements According to Sec2(g) of Indian Contract Act, 1872, a void agreement is an agreement which is not enforceable by law. The agreements which are not enforceable by law right from the time when they are made, are void -ab-initio 53 08/30/12
  • 54. Types of agreements expressly declared void 1. Agreements by or with persons incompetent to contract 2. Agreements entered into through a mutual mistake of fact between the parties. 3. Agreement, the object or consideration of which is unlawful 4. Agreement, the consideration or object of which is partly unlawful 5. Agreement made without consideration. 6. Agreement in restraint of marriage 7. Agreement in restraint of trade 8. Agreements in restraint of legal proceedings 9. Wagering agreements 10.Impossible agreements 11.An agreement to enter into an agreement in the future 54 08/30/12
  • 55. Wagering agreements An agreement between two persons under which money or money’s worth is payable, by one person to another on the happening or non-happening of a future uncertain event is called a wagering event. Such agreements are chance oriented and therefore, completely uncertain 55 08/30/12
  • 56. Contigent contracts Contigent contracts is a contract to do or not to do something if some events collateral to such contract, does or does not happen Insurance contract provides best example of contigent contract 56 08/30/12
  • 57. Distinction between a wagering agreement and contingent contracts Basis of distinction Wagering Contingent agreement contract Reciprocal promise It consist of reciprocal It may or may not pronise consist of reciprocal promise Void/ valid It is void It is valid Main/ collateral Future event is Future event is future events essential to contract collateral to contract nature It is always of It may not be of a contingent nature wagering nature Interest of parties Its parties have no Its parties may have other interest in the other interest as well subject matter of the agreement except winning or losing of wagering amount 57 08/30/12
  • 58. Breach of contract A breach of contract occurs if any party refuses or fails to perform his part of contract or by his act makes it impossible to perform his obligation under the contract. In case of breach, the aggrieved party(i.e. the party not at fault) is relived from performing his obligation and gets a right to proceed against the party at fault. 58 08/30/12
  • 59. Types of breach Anticipatory breach Actual breach Anticipatory breach occurs when Actual breach may take place the party declares his intention of when non performing the contract •The party to the contract refuses before the performance is due or fails to perform his part at the time fixed for performance •Party has performed a part of contract and then refuses or fails to perform the remaining part of contract. 59 08/30/12
  • 60. Remedies for breach of contract 60 08/30/12
  • 61. Quasi contract A quasi contract is not a contract at all because one or other essential for the formation of a contract is absent It is a law upon a person for the benefit of another even in the absence of a contract. It is based on the principle of equity, which means no person shall be allowed to unjustly enrich himself at the expense of another such obligations are called quasi contracts or implied contracts because the outcome of such obligation resemble those created by a contract. 61 08/30/12
  • 62. Kinds of quasi contracts 62 08/30/12
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