Contract act

INDIAN CONTRACT
ACT -1872
Books for reference-
M.C.Kuchhal,Bulchandani,
Avtar Singh

Section 2(h) of the Indian Contract act, 1872 defines
a contract as an agreement enforceable by law.

Contract = An agreement + Enforceability of an
agreement
Thus an agreement which can be enforced in the
court of law is a contract.

Section 2(e) defines agreement “as every promise
and every set of promises forming consideration
for each other”.

According to sec 10 of the Indian Contract Act
1872,
“Every agreement is a contract if it is made by
the free consent of parties, competent to
contract for a lawful consideration and with
lawful consideration and with lawful object
and not hereby expressly declared to be
void”

Following are the essentials of a valid
contract:
2) Agreement
3) Intention to create legal relationship
4) Free Consent
5) Parties competent to contract
6) Lawful Consideration
7) Lawful Object
8) Agreement not expressly declared void

8)Legal Formalities
9)Certainty
10)Possibility Of Performance

 A invites B to a dinner .B accepts the
invitation . A made elaborate
arrangement but B failed to turn up. Can
A sue B for the loss he has suffered?
 M agrees to pay N Rs. 100 and in
consideration N agrees to write for him
100 pages within 5 minutes. Is it a valid
contract.

A. Classification on the basis of validity:
2. Valid Contracts
3. Void Contracts
4. Voidable Contracts
5. Unenforceable Contracts
6. Illegal Contracts

° Classification on the basis of formation:
3. Express Contracts
4. Implied Contracts
5. Quasi Contracts
5 Classification On the basis of Performance:
7. Executed Contracts
8. Executory Contracts
9. Unilateral Contracts
10. Bilateral Contracts

A contract is legally binding agreement. This agreement
results when one person, the offeror or the promisor ,
makes a proposal or offer and the person to whom the
offer is made, the offeree or promisee, accepts it. For
an agreement to arise there must be two parties i.e.
The offeror or the Promisor & the offeree or the
Promisee.
According to section 2(a) of the Indian Contract Act’
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 to such act or
abstinence, he is said to make a proposal.

How to make an offer?
An offer may either be an :
(c) Express Offer (b)Implied offer

To whom an offer is made?
An offer may be General offer or Specific offer.

Essentials of Valid offer:
1.The offer must disclose the intention to create
legal relationship
2.An offer must be certain and definite.

3.An offer must be properly communicated.
4.An offer may be general or specific.
5.An offer may Conditional.
6.An offer must be made with view to obtaining
the assent of the other party

An offer lapses and becomes invalid in the
following circumstances:
1.An offer lapses after stipulated or reasonable
time
2.An offer lapses by not being accepted in the
mode prescribed.
3.An offer lapses by rejection
4.An offer lapses by the death or insanity of the
offeror or the offeree before acceptance.

5.Revocation by non fulfillment of a condition
6.An offer lapses by subsequent illegality or
destruction of subject matter.

A contract emerges from the acceptance of an offer.
The Indian Contract act, 1872 defines acceptance as
follows:
“When the person to whom the proposal is made signifies
his assent thereto, the proposal is said to be accepted”
Thus the acceptance is the act of giving consent to the
proposal.

1. Acceptance must be absolute and unqualified
2. It must be Communicated.
3. It must be according to the mode prescribed
4. It must be given within the time prescribed or
within reasonable time.
5. It must be in response to offer.
6. It must be made before the offer lapses
7. It must be given by the person to whom the
offer is made.

1.Harish says in conversation to Suresh that he
will give Rs. 10,000 to a person whosoever
marries his daughter .Alok marries Harish’s
daughter and files a suit to recover Rs. 10,000.
Will he succeed.
2.P sold his business to Q without disclosing this
to his customers. M,an old customer sent an
order for goods to P by name.Q,new owner,
executed the order. Is M bound to accept the
goods?

Who are Competent To Contract?
Section 11 provides that “Every person is
competent to contract who is of the age of
majority according to the law to which he is
subject, and who is of sound mind, and is not
disqualified from contracting by any law to
which he is subject”
Thus incapacity to contract may arise from :
(i)Minority (ii)Mental incompetence, and
(iii)Status

I. MINORITY:
According to section 3 of the Indian majority Act,
1875,
a minor is a person who has not completed 18
years of age
Indian Contract Act 1872 has given privileged
position to a minor.
The law regarding minors contracts /
agreements can be summed up as follows:

1.A contract with or by minor is void and a
minor , therefore, cannot bind himself by a
contract.
In the leading case – of Mohori Bibi v/s Dharmo Das
Ghosh, a minor executed a mortgage for Rs. 20000 and
received Rs. 8000 from the mortgagee. The mortgagee
filed a suit for the recovery of his mortgagee money and
for the sale of the property in case of default. The Privy
Council held that an agreement by a minor was
absolutely void as against him and therefore the
mortgagee could not recover the mortgage money nor
could he have the minors property sold under his
mortgage.

2.A minor can be a promisee or beneficiary.
3.Minors agreement can not be ratified by him
on attaining the age of majority.
4.If a minor has received any benefit under a
void contract , he cannot be asked to refund
the same.
5.No rule of Estoppel against a minor
6.Specific Performance of a minors contract.

7.Minor cannot be a partner in a partnership
firm.
8.Minors estate is liable to a person who supplies
necessaries of life to a minor.
9.Minors parents are not liable.
10.Minor can be an agent.

II. Persons Of Unsound Mind
An agreement entered by a person of unsound
mind is absolutely void and inoperative as
against him.
c. Contracts by lunatics

d. Contracts by drunkards

III.Disqualified Persons-
Persons disqualified by law to contract are-
a. Alien enemies- an alien living in India can
enter into contracts with citizens of India during
peace time only, and that too subject to any
restrictions imposed by the govt. in that respect.

b.Foreign Sovereigns and ambassadors-
c.Convict-A convict is one who is found guilty
and is imprisoned.
d.Insolvent

1.A, an infant, obtains a loan from B . Can a
asked to repay the money?
2.A minor fraudulently represented toa
moneylender that he was of full age, and
obtained a loan of Rs, 500 . Has the
moneylender any right of action against the
minor for the money lent, or for damages for
fraudulent misrepresentation.
3.A, an infant , borrows Rs 2000 from B and
executes a promissory note for the amount in
favour of B .

On his attaining majority , the minor executes
another promissory note in lieu of the first
which is then cancelled. Is the second
promissory note valid?

What is Free consent ?
Sec 13 says that “When two or more persons agree upon the
same thing in the same sense, they are said to consent.
Free Consent defined u/sec 14:
Consent is said to be free when it is not caused by-
 Coercion

 Undue Influence

 Fraud

 Misrepresentation

 Mistake

For a contract to be valid it is not only necessary
that parties Consent but also that they consent
freely. When there is a consent , but not free
Consent the contract is voidable at the option of
the party whose consent was not free.

Consent is not said to be free when it is induced by,
Coercion: (Sec 15)
Section 15 of Indian Contract Act defines Coercion
as
“Coercion is the committing or threatening to
commit , any act forbidden by the Indian penal
Code, or the unlawful detaining or threatening to
detain , any property to the prejudice of any
person whatever, with the intention of causing
any person to enter into an agreement.”

For Example:
 A threatens to kill B (C’s) son if C does not let out his
house to A . The agreement is caused by coercion.
 ‘X’ beats ‘Y’ and compels him to sell his car for
Rs.75000. Here ‘Y’s consent has been obtained by
coercion because beating someone is an offence
under the Indian Penal Code.
Any act will amount to coercion if the following essentials
are fulfilled:
5. There must be clear ulterance of threat.
6. The threat should commit an act forbidden by the
IPC.
7. It must be uttered with the intention of causing the
other party to enter into an agreement.

Undue Influence consists in the improper exercise
of a power over the mind of one of the
contracting parties by the other. Section 16
defines Undue Influence as,
“a contract is said to be induced by undue
influence where the relations subsisting
between the parties are such that one of the
parties is in a position to dominate the will of
the other and uses that position to obtain an
unfair advantage over the other.”

For Example:
A having advanced money to his son B during his
minority, upon B coming of age ,obtains by misuse of
parental influence , a bond from B for greater amount
than the sum due in respect of the advance. A
employs undue influence.
A person is deemed to be in position to dominate the will
of another
(d) Where he holds real or apparent authority over the
other, or where he stands in a fiduciary relation
(relation of trust & confidence) to the other; for ex.
Such master and servant, between father and son.

(b) Where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by reason of age, illness
or mental or bodily distress. For ex. Such
relation exists between Doctor and his Patient.

Fraud means and includes any of the following acts
committed by a party to a contract with intent to deceive
another party thereto or his agent ; or to induce him to
enter into an contract:
1.The suggestion , as a fact, of that which is not true by one
who does not believe it to be true;
2.The active concealment of a fact by one having knowledge
or belief of the fact ;
3.A promise made without any intention of performing it;
4.Any other act fitted to deceive;
5.Any such act or omission as the specifically declares to be
fraudulent

Misrepresentation is incorrect or false statement
but the falsity or inaccuracy is not due to any
desire to deceive or defraud the other party. It
is innocent. The party making it believes it to
be true.
Section 18 of the contract act classify cases of
misrepresentation into three groups:
(a) Unwarranted Assertion-The positive assertion
is a manner not warranted by the information
of the person making it, of what which is not
true though he believes it to be true.

(b) Breach of duty-any breach of duty which
without an intent to deceive , gains an
advantage to the persons committing it, by
misleading another to his prejudice.
(c) Innocent mistake-Causing , however ,
innocently a party to an agreement to make a
mistake as to the substance of a thing which is
the subject of the agreement.

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 s
should not be under any error and they must agree on
the same thing in the same sense.

Consideration means “something in return” .
Section 2(d)of the Indian Contract Act 1872
defines consideration as follows:
“when at the desire of the promisor, the promisee
or any other person has done or abstained
from doing, something , such act or abstinence
or promise is called a consideration for the
promise”.

In simplest terms , Consideration is what a
promisor demands as the price for his promise.
For example-
A agrees to sell his house to B for Rs. 10,000.
Here B’s promise to pay the sum of Rs. 10,000
is Consideration for A’s promise to sell the
house ;and A’s promise to sell the house is the
consideration for B’s promise to pay Rs.
10000.

The following are the legal rules for a valid
Consideration :
 Consideration must move at the desire of the
promisor.
 Consideration may move from the promisee or
any other person.
 Consideration need not be adequate.
 Consideration must be real and adequate.
 Consideration must be legal.

“NO CONSIDERATION NO CONTRACT”
Section 25 of the Indian contract Act 1872
specifically states that “subject to certain
exceptions , agreements without consideration are
void”. The exception are as follows:
(1)Agreement made on account of natural love and
affection.
(2)Agreement to pay for past voluntary services.

(3)Agreement to pay a time barred debt.
(4)Completed gift
(5)It is Expressed in writing.

An agreement will not be enforceable if its object or
the consideration is unlawful. According to Sec
23,of the act , the consideration and the object of
an agreement are unlawful in the following cases:
1.If it is forbidden by law.
2.If it is of such a nature that if permitted , it would
defeat the provisions of any law.
3.If it is fraudulent.

4.If it involves or implies injury to the person or
property of another.
5.If the court regards it as immoral or opposed to
public policy.

When the rights and obligations arising out
of a contract are extinguished, the contract
is said to be discharged or terminated. A
contract may be discharged in any of the
following ways:

Discharge Of Contract

By
performance By lapse
of time
By Mutual
Consent or By subsequent By operation of
Agreement or supervening law
impossibility

By breach of
Alteration Rescission contract
Novation Remission

1.By Per formance -if both parties to the
contract have performed what they have agreed
to do the contract , the contract is discharged.
2.By Mutual Consent or Agreement – As a
contract is created by means of an agreement ,
Following are the methods to discharge a contract
by mutual consent-
a. Novation- Novation occurs when a new
contract is substituted for an existing contract,
either between the same parties or between
different parties,

b. Alteration- Alteration of a contract means
change in one or more of the material terms of
a contract, the original contract is discharged
by alteration .
c.Rescission – A contract may be discharged,
before the date of performance by agreement
between the parties to the effect that it shall no
longer bind them .
d.Remission- remission may be defined as the
acceptance of a lesser sum than what was
contracted for or a lesser fulfillment of the
promise made.

3.By subsequent or super vening
impossibility- When the performance of a
contract becomes subsequently impossible , the
contract becomes void. Causes of supervening
impossibility are :
 Destruction of the object necessary for the
performance of the contract
 Change of law

 Death or personal incapacity
 Out break of war

4.By Lapse of time-where time is of essence
in a contract, if a contract is not performed at
the fixed time, the contract comes to an end.
5.By operation of law- A contract terminates
by operation of law in the following case:
i)Death ii)Insolvency iii)Merger
6.By breach of contract- this is also a method of
discharge of contract, when a party to the contract
has refused to perform or disabled himself from
performing his promise breach also brings to an
end the obligations created by a contract on the
part of each of the parties.

When ever there is breach of a contract , the
injured party becomes entitled to any one or
more of the following remedies against the guilty
party :
1.Rescission of the contract
2.Suit for damages
3.Suit upon quantum meruit
4.Suit for specific performance of the contract
5.Suit for an injunction

A contract of indemnity is a contract by which one
party promises to save the other from loss
caused to him by the conduct of the promisor
himself , or by the conduct of any other person.
A person who promises to make good the loss,
i.e. the promisor is called the indemnifier and
the person whose loss is to be made good i.e.
the promisee is called the indemnity- holder.
Essentials:
1.Contract of indemnity must contain all the
essentials of a valid contract

1. An indemnity –holder when sued is
entitled to recover from the indemnifier all
damages which he may be compelled to
pay .
2. Costs
3. All sums
4. Suit for Specific performance

A contract of guarantee is a contract to perform
the promise , or discharge the liability of a third
person in case of his default. The person who
gives the guarantee is called the ‘surety’, the
person in respect of whose default the
guarantee is given is called the ‘principal debtor’
and the person to whom the guarantee is given
is called the creditor.
Essentials of contract of Guarantee-
1.There must be debt existing , which should be
recoverable

2. Existence of three parties in a contract of
guarantee
3. There must be distinct promise oral or written
4. There should be some consideration
5.The contract should have all the essentials of a
valid contract.

CONTRACT OF INDEMNITY CONTRACT OF GUARANTEE
1.Parties: there are two parties-
There are three parties-
indemnifier and indemnity
creditor, principal debtor, and
holder.
surety.
2.Liability: liability of the
The liability of the surety is
indemnifier is primary.
secondary.
3.Contingency: the liability of
There is an existing debt
indemnifier arises only on
the happening of a
contingency
4.Contract: There is only one There are three contracts
contract between the
indemnifier and the
indemnified

CONTRACT OF
CONTRACT OF GUARANTEE
INDEMNIT Y
5.Object: the indemnity The contract provides
contract is for surety to the creditor.
reimbursement of
loss.
6.Right to sue: Surety can sue the
indemnifier cannot principal debtor
sue a third party for
the loss suffered.

Contract act

More Related Content

What's hot

Viewers also liked

Similar to Contract act

Recently uploaded

Contract act