INDIAN CONTRACT ACT-1872
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Meaning
• A Contract is an agreement creating
and defining obligations between the
parties.
• Sec 2(h) defines contract as an
agreement enforceable by law.
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Definitions…….
• Halsbury - An agreement between two or
more persons which is intended to be
enforceable at law & is constituted by the
acceptance by one party of an offer made
to him by the other party to do or to
abstain from doing some act.
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Definitions …….
• Pollock - Every agreement and promise
enforceable at law is a contract.
• Sir William Anson - A legally binding
agreement between two or more persons by
which rights are acquired by one or more to
acts or forbearances (abstaining from doing
something) on the part of the others.
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……..Definitions
• Sec 10 – All agreements are contracts if they
are made by the parties competent to
contract, for a lawful consideration and with a
lawful object and are not hereby expressly
declared to be void.
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Agreement & Promise
• Sec 2 (e) defines an agreement as – every
promise or set of promises forming
consideration for each other.
• Sec 2 (b) – When a person to whom a
proposal is made signifies his assent thereto,
the proposal is said to be accepted. A proposal
when accepted becomes a promise.
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COMPONENTS OF CONTRACT
An Agreement
It involves proposal or offer by one party and acceptance of the
same by the other party.
AGREEMENT = OFFER + ACCEPTANCE
Enforceable at law
An agreement to become a contract must give rise to legal
obligations. It must create legal relations and not merely social
or domestic relations.
Leading Case: BALFOUR V. BALFOUR
CONTRACT = AGREEMENT+ENFORCEABILITY AT LAW
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Consensus ad idem
• Consensus ad idem – meeting of minds of the
parties in full and final agreement.
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Offer/Proposal
• Sec 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 to such act or
abstinence, he is said to make a proposal.
• Thus, a ‘proposal’ can be to do a positive act
or abstinence from act (i.e. negative act).
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Promise
• Sec 2(b) - When the person to whom the
proposal is made signifies his assent thereto,
the proposal is said to be accepted. A
proposal, when accepted, becomes a promise.
• Thus, when a proposal (offer) is accepted, it
becomes a ‘promise’. As is clear from the
definition, only person to whom proposal is
made can signify his assent. Other person
cannot accept a proposal.
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PROMISOR AND PROMISEE
• Sec. 2(c) - The person making the proposal is
called the “promisor”, and the person
accepting the proposal is called the
“promisee”.
• RECIPROCAL PROMISES - Promises which form
the consideration or part of the consideration
for each other are called reciprocal promises.
[section 2(f)].
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Characteristics of a Proposal….
• At least 2 parties
• A proposal may be positive or negative
• A proposal must be made to obtain assent
• Proposal must be made with an intention to
create legal relations
• Offer must be definitive
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…..Characteristics of a Proposal
• It must be signified or communicated.
• Terms and conditions must be communicated
with the offer
• The offer should not bind the other party to
reply
• A tender may be an offer or a standing offer.
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Acceptance
• Sec 2(b) – When a person to whom a proposal
is made signifies his assent thereto, the
proposal is said to be accepted. A proposal
when accepted becomes a promise.
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Who can Accept
• Specific Offer
• General Offer
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Essentials of a valid Acceptance…..
• Absolute and unconditional
• In the prescribed manner
• By performance of conditions
• By acceptance of Consideration
• Express or implied
• Must be given within a specified or reasonable
time
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…..Essentials of a valid Acceptance
• Must be given while the offer is in force
• Must not precede the offer
• Must be given by the person to whom offer is
made
• Acceptance must be communicated
• Must be from a competent person
• Must be communicated to the offeror himself
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Communication of Offer
• When it comes to the knowledge of the
person to whom it is made
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Communication of Acceptance
• As against the offeror- When it is put in the
course of transmission to him so as to be out
of power of the acceptor.
• As against the acceptor- When it comes to the
knowledge of the offeror.
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Revocation
• As against the person who makes it - When it
is put in the course of transmission to him so
as to be out of power of the person who
makes it.
• As against the person to whom it is made -
When it comes to the knowledge of the
person to whom it is made.
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Modes of Revocation
• by the communication of notice of revocation by
the proposer to the other party
• by the lapse of the time prescribed in such
proposal for its acceptance, or, if no time is so
prescribed, by the lapse of a reasonable time,
without communication of the acceptance;
• by the failure of the acceptor to fulfill a condition
precedent to acceptance
• by the death or insanity of the proposer, if the
fact of his death or insanity comes to the
knowledge of the acceptor before acceptance.
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Elements of a Valid Contract…..
• Two or More Persons
•Offer and acceptance
• Intention to create legal relationship
• Lawful consideration –QUID PRO-QUO
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….Elements of a Valid Contract
• Capacity of parties (Sec. 11)
Minor;
Persons of unsound mind;
Persons disqualified by law to which they
are subject;
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Minor
• A person who has not completed eighteen
years of age.
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Rules as to Minors
• The Law must protect minors
• The law should not cause unnecessary
hardship to other party
• Enforcement of agreement possible if minor is
a beneficiary or promisee
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Effects of Minor’s Agreements
• Void ab initio
• Minor can be a promisee or beneficiary
• No ratification
• Restitution/Compensation possible
• No estoppel can plead minority
• No specific performance
• Contract by parent/guardian
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Persons of Unsound Mind
• Idiot
• Lunatic
• Delirious person
• Drunken or intoxicated person
• Hypnotised persons
• Mental decay
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Persons Disqualified by Other Laws
• Alien enemy
• Foreign Sovereigns, diplomatic staff etc.
• Corporations and Companies
• Insolvents
• Convicts
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….Elements of a Valid Contract
• Free consent (Sec. 13) -Two or more
persons are said to consent when they
agree upon the same thing in the same
manner.
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Free Consent
• Consent given by parties under their free will
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Free Consent
• Not caused by…….
• Coercion
• Fraud
• Mistake
• Undue Influence
• Misrepresentation
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Coercion (Sec. 15)
• Coercion is the practice of forcing another
party to behave in an involuntary manner
(whether through action or inaction) by use of
threats, rewards or intimidation or some other
form of pressure or force.
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Remedies for Coercion
• Voidable Contract
• Restitution
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Undue Influence (Sec. 16)
• When a dominant party misuses his influence
to dominate the will of the weaker party, to
get unfair advantage, in a contract, it is said to
be under undue influence.
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Essential Elements of Undue
Influence
• The relation between the parties
• The use of dominant position
• The dominant party obtains unfair advantage.
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Effect/Remedies of Undue
Influence
• Voidable Contract
• Absolute rescission by the court
• Conditional rescission
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Fraud (Sec. 17)
"Fraud" means and includes any of the following
acts committed by a party to a contract, or
with his connivance, or by his agents, with
intent to deceive another party thereto his
agent, or to induce him to enter into the
contract.
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Fraud
• To prove fraud, it is to be shown that a false
representation has been made:
• Knowingly
• Without belief in its truth
• Recklessly without caring whether it is true or
false.
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Essentials of Fraud….
• the suggestion as a fact, of that which is not
true, by one who does not believe it to be
true;
• the active concealment of a fact by one having
knowledge or belief of the fact;
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….Essentials of Fraud
• 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
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Remedies for Fraud
• Contract voidable
• Insisting for performance
• Restitution
• Claim for damages
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Misrepresentation (Sec. 18)
Misrepresentation means and includes
• the positive assertion, in a manner not
warranted by the information of the person
making it, of that which is not true, though he
believes it to be true
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Misrepresentation
• any breach, of duty which, without an intent
to deceive, gains an advantage to the person
committing it, or any one claiming under him,
by misleading another to his prejudice or to
the prejudice of any one claiming under him;
• causing, however innocently, a party to an
agreement to make a mistake as to the
substance of the thing which is the subject of
the agreement
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Effects of Misrepresentation
• Contract Voidable
• Insisting on performance
• Restitution
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Mistake (Sec. 20,21&22)
• Misconception/Misimpression/Misunderstand
ing/Erroneous belief in contracting.
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Mistake of Law
• Mistake of law of land (Ignorantia juris non
excusat)
• Mistake of foreign law
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Mistake of Fact
• Bilateral mistake
• Unilateral mistake
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Mistake as to Subject Matter
• Mistake as to identity of subject matter
• Mistake as to existence of subject matter
• Mistake as to quality of subject matter
• Mistake as to quantity of subject matter
• Mistake as to price of subject matter
• Mistake as to title of subject matter
• Mistake as to existence of state of affairs
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Mistake as to Possibility of
Performance
• Physical Impossibility
• Legal Impossibility
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Unilateral Mistake
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…..Elements of a Valid Contract
• Lawful object:
• if forbidden by law;
• of such nature that if permitted it would
defeat the provisions of any law;
• fraudulent;
• involves injury to person or property;
• Court regards it immoral or opposed to
public policy.
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Agreement Opposed to Public
Policy…..
• Agreements of trading with enemy
• Agreement for stifling prosecution
• Agreement for improper promotion of
litigation (Maintenance & Champerty)
• Agreement for sale of public offices and titles
• Agreement influencing/interfering with the
course of justice
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…..Agreement Opposed to Public
Policy
• Agreement creating interest opposed to duty
• Agreement interfering with parental rights
and duties
• Agreement in restraint of personal liberty
• Marriage Brokerage Agreement
• Agreement interfering with marital duties
• Agreement to defraud creditors…..etc.
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…..Elements of a Valid Contract
•Certainty of meaning
•Possibility of performance
•Not declared to be void or illegal
•Legal formalities
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Classification of Contracts
• According to Validity
Voidable Contract
Void Agreement
Void Contract
Illegal Agreement
Unenforceable Contract
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Classification of Contracts
• According to Formation
Express Contract
Implied Contracts
Quasi Contracts
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Classification of Contracts
• According to Performance
Executed Contract
Executory Contracts
Unilateral/One sided Contracts
Bilateral Contracts
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Classification of Contracts - According
to Validity ….
• Contract based on agreement – all essentials are
present. If any one is missing then it is voidable/
void/ illegal/ Unenforceable.
• Voidable Contract – Enforceable at the option of
one or more of parties
• Eg: A promises to sell his house to B for Rs.2
lakhs. His consent was obtained by force. The
contract is voidable at the option of A.
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…..According to Validity
• Void Contract – A contract which is not
enforceable by law – A contract entered with
minor.
• Illegal Agreement: Criminal in nature, which is
immoral.
• Unenforceable Contract – Cannot be enforced in
court of law because of technical defect – Eg.
Time barred, Lapse of time.
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According to Formation
• Express Contract – Terms expressly agreed –
by words spoken/ written
• At the time of formation of contract.
• Implied Contract – Conduct of Parties – A
lunch taken in a hotel, it is implied that bill will
be paid.
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According to Performance
• Executed Contract – Both Parties have performed
their obligations
• Executory Contract – Both parties are yet to
perform their obligations
• Unilateral contract – One has fulfilled his
obligation, other is yet to do his act.
• Bilateral – Similar to Executory Contract.
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Discharge of a Contract
• A contract is discharged when parties to a
contract no longer have any obligation under
the contract.
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Modes of Discharge of a Contract
• By Performance
• Actual performance
• Attempted performance or tender
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Modes of Discharge of a Contract
• By mutual agreement / consent
• Novation
• Alteration
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Modes of Discharge of a Contract
• By lapse of time
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Modes of Discharge of a Contract
• By operation of law
• Death
• Insolvency
• Material Alteration
• Merger of Rights
• Rights and liabilities becoming vested in the
same person
• Loss of evidence of contract
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Modes of Discharge of a Contract
• By impossibility of performance
• Initial impossibility
• Subsequent impossibility
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Modes of Discharge of a Contract
• By breach of contract
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Breach of Contract
• Refusal or failure of any one party to perform
his contractual obligations.
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Actual Breach of Contract
• On due date
• During the course of performance
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Anticipatory Breach of Contract
• When a party to the contract disables himself
from performing or refuses to perform the
contract before the due date it is anticipatory
breach of contract.
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Remedies for Breach of Contract
• Suit for rescission of the contract
• Suit for damages
• Suit for quantum meruit
• Suit for specific performance
• Suit for injunction
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Breach of Contract
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Breach of Contract
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