The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key act regulating Indian contract law. The Act is based on the principles of English Common Law. The indian contract_act_1872 for BCOM, MCOM.CA,CMA, CS AND OTHER COMMERCE STUDENTS AND PROFESSIONAL AND CORPORATE FOR BETTER UNDERSTANDING OF CONTRACT ACT FOR DRAFTING OF LEGAL DOCUMENTS, DEEDS ETC.
2. Applicability:-
> The Act was passed by British
India and is based on the principles
of English Common Law.
> It is applicable to all the states of
India except the state of Jammu and
Kashmir.
3. Development
• The Act as enacted originally had 266
Sections, it had wide scope and included.
• General Principles of Law of Contract-
Sections 01 to 75
• Contract relating to Sale of Goods-
Sections 76 to 123
• Special Contracts- Indemnity, Guarantee,
Bailment & Pledge- Sections 124 to 238
• Contracts relating to Partnership- Sections
239 to 266
6. CONTRACT
According to sec.2(h) of ICA, a contract is defined as
“an agreement which can be enforciable by law”
Agreement
Legal obligation
Contract
“All contracts are agreements but all
agreements are not contracts.”
7. • Agreement Sec 2(e)
• Every promise And
• Every set of promises, forming the consideration for each
other,
• Is an agreement
Example :-After sometime we hire a car to go to our work place,
we pay or agree to pay the car hire charges for
using the service of car. This is also an agreement/contract
between the car service provider and us.
8. Elements of contract
Offer
Acceptance
Intention to create legal relationship
Capacity of parties
Free consent
Consideration
Legality of object
Not declared to be void
Certainty and possibility of performance
12. On the basis of the formation of contract
1. Express Contracts: A contract which is made by words either spoken or written is
said to be an express contract. According to Section 9 insofar as the proposal or
acceptance of any promise is made in words, the promise is said to be express.
• Example: A tells B on telephone that he offers to sell his house for ` 2 lacs and B in
reply informs A that he accepts the offer, this is an express contract.
2. Implied Contract: By implied contract means implied by law (i.e.) the law implies a
contract though parties never intended. According to Section 9 insofar as such
proposal or acceptance is made otherwise than in words, the promise is said to be
implied.
For example, A delivers by mistake goods at B’s warehouse instead of at C’s place.
Here there is an obligation on the part of B to return the goods to A, though they
never intended to enter into a contract.
3. Tacit Contract is said to be tacit when it has to be inferred from the conduct of the
parties. Examples: Obtaining cash through automatic teller machine, sale by fall of
hammer at an auction sale.
4. Quasi-Contract: A quasi-contract is not an actual contract but it resembles to a
contract. It is created by law under certain circumstances the law creates and
enforces legal rights and obligations when no real contract exists. Such obligations
are known as quasi-contracts.
• Example: Obligation of finder of lost goods to return them to the true owner or
liability of person to whom money is paid under mistake to repay it back cannot be
said to arise out of a contract even in its remotest
13.
14.
15.
16. On the basis of the performance of the contract
1. Executed Contract: If the consideration for the promise in a contract (i.e., any act or forbearance)
is given or executed, such type of contract is called contract with executed consideration.
Example: When a grocer sells a sugar on cash payment it is an executed contract because
both the parties have done what they were to do under the contract.
2. . Executory Contract: It is so called because the reciprocal promises or obligation which serves
as consideration is to be performed in future.
Example: Where G agrees to take the tuition of H, a pre-engineering student, from the next
month and H in consideration promises to pay G ` 1,000 per month, the contract is executory
• because it is yet to be carried out.
3. Unilateral Contract: A unilateral contract is a one-sided contract in which only one party has
to perform his promise or obligation to do or forbear.
Example: M advertises of payment of a reward of ` 500 to anyone who finds his missing boy
and brings him. as soon as B traces the boy, there comes into existence an executed contract
because B has performed his share of obligation and it remains for M to pay the amount of
reward to B. This type of executed contracts are also called unilateral contract.
4. Bilateral Contract: Where the obligation or promise in a contract is outstanding on the part
• of both the parties, it is known as bilateral contract
17. OFFER
According to sec.2(a) of ICA ”when one person
signifies to another his willingness to do or abstain
from doing anything with a view to obtain the assent
of that other to such act or abstinence he is said to
make a proposal”
The person making the offer is called offeror
and the person to whom it is made is called
offeree……
18. Elements of a valid offer
The offer must be communicated
The terms of the offer must be definite and
clear
The offer must be capable of creating legal
relation
An offer must be made with a view to obtain
the assent of other
Offer may be conditional
Offer may be expressed or implied
An offer should not contain a term the non
compliance of which amounts to acceptance
An invitation to offer is not an offer
Example: An advertisement for sale of goods by auction is an invitation to the offer. It
merely invites offers/bids made at the auction
Example: The price list of goods does not constitute an offer for sale of certain goods
on the listed prices. It is an invitation to offer.
.
20. Types of Offer
Specific offer- Specific person
Ex:-Bibek offers to sell his camera to S for Rs 1000.
General offer-Public at a large
Ex:- Bibek advertised in a Newspaper that he would give Rs 2000 to anyone
who finds and returns his lost dog.
Express offer-Words(spoken or written)
Ex:- (i) P says to Q, “Will you purchase my car fof rs 17,000?” It is an oral offer.
(ii) P, through a letter asks Q to buy his car for Rs 17,000. It is a written offer.
Implied offer- By conduct
Ex- Public Transports, like, Railways, DTC in Delhi or MEST in Mumbai offer
tocarry passengers for a certain fare on a particular route.
Standing offer- offer allowed to remain open for acceptance over a
certain period of time
Ex- Mr x Continuous supply good 500kg of suger ever month for 1years.
Counter offer-Acceptance in the form of offer
Ex- S offered to sell his car to Y for Rs 50,000. Y gave a counter offer of Rs
40,000. S rejected the offer. The offer stand revoked by counter offer by Y.
Cross offer-Identical offer to each other
Ex- Exchange of identical offer by both parties.
21. Revocation of offer
Notice of revocation
Laps of time
Death or insanity of the offeror
Counter offer
Non fulfillment of conditions
Rejection by the offeree
Non acceptance according to the mode
prescribed
22.
23. ACCEPTANCE
According to sec.2(b) of ICA acceptance is defined as
”when the person to whom the offer is made signifies
his assent there to, the proposal is said to be
accepted. A proposal when accepted becomes a
promise
24. Elements of accptance
Acceptance must be absalute and unconditional
It must be communicatad to the offeror
It must be made with the time prescribed
It must be made in the mode prescribed
It may be expressed or implied
It must be made by the offeree
Acceptor must be aware of the proposal
It must be made only after the offer is made
It must be made before the offer is revoked
25. CONSIDERATION
According to sec 2(d) consideration is defined as
“when at the desire of the promisor , or promisee or
any other person has done or abstained from doing
or does or abstains from doing ,or promises to do or
to abstain from doing , something , such an act or
absinence or promise is called a consideration for the
promise .
If there is no consideration, there is no contract
26. Elements of a consideration
It must move at the desire of the promisor
It may move from promisee or any other
person
It may be past, present, future
It need not be adequate
It must be real and not illusiory
It must be lawful
It may be either positive or negative
It must be something which the promisee is not
already bound to do
27. Exeption to the rule of no consideration
no contract
Agreement based on natural love and affection
Agreement to pay compensation for past voluntary
services
Agreement to pay a time barred debt
Gifts
Agency
29. CAPACITY OF PARTIES
Sec.2 of ICA deals with competency of parties which
provides that “every person is competent to contract
who is
Of the age of majority according to the law to which he
is subject
Of sound mind
Not disqualified from contracting by any law to which
he is subject
SO WHO IS DISQUALIFIED..???
30. Minor
Usually 18 years
Rules of minor
Agreement with minor is void ab initio
Minor can be beneficiary
No ratification
He is not bound to return the benefits
received
Restitution of property from a minor
No estoppel against minor
Minor is liable for necessities
Minor as an agent
Minor as a partner
Minor as insolvant
31. The rights of the minor are as follows:
A Minor cannot - A Minor can -
(a) Enter into an agreement. If he enters into an
agreement, it is void ab initio, i.e. from the very
beginning.
(b) Ratify any act, on attaining majority.
(c) Be forced to refund any benefits received.
(d) Be adjudged insolvent.
(e) Be held liable even in case of fraudulent
representation of age.
(f) Become a Partner.
(g) Ask for specific performance of a contract.
(h) Parents or Guardian are not liable for breach
of contract by the Minor.
A Minor can -
a) Enter into contracts of Apprenticeship,
Service, Education or Instructions, that are
beneficial to him.
(b) Be a Beneficiary.
(c) Be admitted to the benefits of a Partnership.
(d) Be an Agent and bind his Principal/parents
or guardian acting in capacity of Principal.
(e) Plead minority.
(f) Be held liable in tort, i.e. civil wrong.
[However, where the tort arises out of a
Contract, Minor will not be liable].
(g) Minor’s Estate/Property is liable for supply of
necessaries including
32. sound mind (Section 12)
• A person is said to be of sound mind for the
purposes of making a contract if, at the time when
he makes it, he is capable of understanding it and
of forming a rational judgment as to its effect upon
his interests.
• • A person who is usually of unsound mind, but
occasionally of sound mind, may make a contract
when he is of sound mind.
• • A person who is usually of sound mind, but
occasionally of unsound mind, may not make a
contract when he is of unsound mind.
• Means:-
• (i) He/she is capable of understanding the contract.
• (ii) He /she is capable of forming a rational judgment
33. Persons of unsound mind
According to sec.2 of the ICA, “a person is said to
be sound mind for the purpose of making the
contract if at the time when he makes the contract,
he is capable of understanding it and forming a
rational judgement as to its effects upon his
interest.”
Unsound persons include……..
A. Idiots
B. Lunatics
C. Drunken person
34. Persons disqualified by law
A. Alien enemies
B. Convicts
C. Foreign sovereign and ambassadors
D. Companies and corporations
E. insolvant
35. FREE CONSENT
According to sec.14 of ICA, “two or more persons are
said to be in free consent when they agree upon the
same thing in the same sense.”
CONSENT IS NOT FREE IF IT IS
CAUSED BY;
A. Coercion
B. Undue influence
C. Fraud
D. Misrepresentation
E. Mistake
37. Coertion
According to Sec 15 coercion means “Committing or
threatening to commit any act forbidden by Indian Penal
Code 1860 or unlawful detaining or threatening to
detaining any other persons property with a view to
enter into an agreement. It is immaterial whether the IPC
is or is not in force where the coercion is employed”
Example: X threaten to implicate Y in false theft case if he does not
agree to sell his car to him for `5000.Y accepted the offer due to threat of
X. This is a case of coercion and the consent will not be treated
free.
The threat amounting to coercion need not
necessarily be from a party to contract , it may
also proceed from a stranger to the contract.
38. Undue influence
Section 16 defines undue influence as follows
“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”
It may be presumed in the following cases
A person holds real or apparent authority
A person stands in fidutiory relationship
The other person is mentally incapacitated
39. There is however no presumption of undue influence in case
of relationship of—
• landlord and tenant
• debtor and creditor
• husband and wife.
In these relationships undue influence has to be proved.
Examples:
Mr A, having advanced money to his son, B, during his minority, Upon B’s coming
of age obtains, by misuse of parental influence, a bond from B for a greater amount
than the sum due in respect of the advance. A employs undue influence.
40. Fraud
According to Sec 17 fraud means and
includes any of those acts committed by a
party to contract or with his connivance or by
his agent with an intent to deceive or induce a
person to enter a contract:
The suggestion that a fact is true when it is not true
and the person making it does not believe in into be true
The active concealment of a fact by a person having
knowledge or belief of the fact
A promise made without any intention of performing it
Any other act fitted to deceive
Any such act or omission as the law specially declares
to be fraudulent
41. • Explanation :
• Mere silence as to facts likely to affect the willingness of a person
to enter into a contract is not fraud, unless the circumstances of the
case are such that, it is the duty of the person keeping silence to
speak, or unless his silence is, in itself, equivalent to speech.
• Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A
says nothing to B about the horse’ sun soundness. This is not fraud
in A.
(b) B says to A - “If you do not deny it, I shall assume that the horse is
sound”. A says nothing. Here, A’s silence is equivalent to speech.
Example:-
a) Mr. A purchases good from Mr. B, he has no intention of paying
for it. The contract is caused by fraud and is voidable at the option
of Mr.B.
• b) A comes to B’s house as a financial expert and asks him to
deposit with him Rs10,000 which will be doubled in next two
months. He run away with the amount. This amounts to fraud.
42. Misrepresentation
According to Sec 18 there is misrepresentation:
When a person positively asserts a fact is true when his
information does not warrant it to be so, though he believes it
to be true
When there is any Breach of duty by a person which brings
an advantage to the person committing it by misleading
another to his prejudice
When a party causes however innocently the other party to
the agreement to make a mistake as to the substance of the
thing which is the subject of the agreement
Example –
45. Mistake
It is a misconception or error. It implies a wrong belief
about the existence of certain facts, subjects, or subject
matter of a contract. Contracting parties have different
things in mind about the subject matter.
What kind of mistakes happening in
our daily life…???
47. Illustration
A and B make a contract grounded on the erroneous belief that a particular
debt is barred by the Indian Law of Limitation; the contract is not voidable.
(b) Mistake of fact
Where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement,
the agreement is void.
Examples: A agrees to sell to B a specific cargo of goods supposed to be o
its way from England to Bombay. It turns out that, before the day of the bargain
the ship conveying the cargo had been cast away and the goods lost. Neither
party was aware of the facts. The agreement is void.
48. Mistake of fact
• Mistake of fact may be either
• (a) Bilateral or
• (b) Unilateral.
• In bilateral mistake both the parties are mistaken about the
material fact
• Unilateral mistake only one party is under some mistake.
• Bilateral mistakes may in turn be about :
• (a) Mistake about subject matter – Where both the parties are
working under a mistake regarding the
• subject matter, the agreement is void.
• (b) Mistake about possibility of performance – Mistake about
subject matter may in turn be of following
• types.
49. Contract caused by mistake of one party, as a
matter of fact (Section 22)
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 fact.
51. CONTINGENT CONTRACTS
• Contingent contract (Section 31)
• A “contingent contract” is a contract to do
or not to do something, if some event,
collateral to such contract, does or does
not happen.
• Illustration
56. QUASI-CONTRACTS
• A quasi contract is a fictitious contract created under legal
obligations, similar to a valid contract.
• These contracts are also known as implied-in-law contracts. What
makes this different is that the parties involved do not intend to
create a contract. A quasi contract is created by the Court. For the
same reason, there is no actual offer or acceptance or an
agreement between the parties.
• Features of a Quasi Contract
• The salient features of a quasi contract are as under:
• (i) It is imposed by law and does not arise by agreement.
• (ii) The duty of a party and not the promise of any party is the basis of
such contract.
• (iii) The right under it is always a right to money and though not always to
a liquidated sum of money.
• (iv) The right is available against specific persons and not the whole
world.
• (v) A suit for breach may be filed in the same way as in case of a
complete contract.
59. Quantum Meruit
• Meaning of Quantum Meruit
• The term ‘quantum meruit means as much as merited or
‘as much as earned’. In other words, it means
• payment in proportion to the amount of work done.
Generally, one cannot claim performance from another
unless one has performed his obligation in full but in
certain cases, a person who has performed some work
under a contract can claim remuneration for the work
which he has already done.
• The right to claim on ‘quantum meruit’ does not arise out
of a contract as the right to damages does.
