The Contract Act 1871 (R)

THE CONTRACT ACT 1871
According to section 2(h) of the Indian Contract Act: An agreement enforceable by law is a contract. All agreements are not enforceable by law and, therefore, all agreements are not contracts. Some agreements may be enforceable by law and others not. For example, an agreement to sell a two wheeler may be a contract, but an agreement to go to see a movie may be a mere agreement not enforceable by law. Thus, all agreements are not contracts. However, all contracts are agreements. Only those agreements mentioned in section 10 become contracts.

AGREEMENT: According to section 2(e) : every promise and every set of promises forming the consideration for each other is an agreement. A promise is a result of an offer(proposal) by one person and its acceptance by the other. Section 2(b) of the Act defines promise as 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 there is a proposal from one side and the acceptance of that proposal by the other side, it results in a promise. This promise from the two parties to one another is known as an agreement.

An agreement enforceable by law is a contract. All such agreements which satisfy the conditions mentioned in section 10 of the Act are contracts. Section 10 is as under: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration & with a lawful object and are not hereby expressly declared to be void. Therefore, the essential elements of a valid contract are: Proper offer and its proper acceptance. Intention to create legal relationship. Free consent. Capacity to contract

The essential elements of a valid contract(contd) Lawful consideration. Lawful object. Agreement not expressly declared void Certainty of meaning Possibility of performance Legal formalities

COMPETENT TO CONTRACT: According to section 11, of the Indian Contract Act, every person is competent to contract: I. Who is of the age of majority according to law to which he is subject, and II. Who is of sound mind III.Who is not disqualified from contracting by any law to which he is subject.

LAWFUL CONSIDERATION: According to section 2(d), consideration is defined as when, at the desire of the 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 abstinence or promise is called consideration for the promise. In short, Consideration means quid pro quo i.e. something in return. An agreement must be supported by a lawful consideration on both sides.

LAWFUL CONSIDERATION: The consideration or object of an agreement is lawful, unless and until it is1.forbidden by law, or 2.is of such nature that ,if permitted ,it would defeat the provisions of any law ,or 3.is fraudulent ,or involves or implies injury to the person or property of another ,or 4.the court regards it as immoral ,or opposed to public policy. 5.consideration may take in any form-money, goods, services, a promise to marry, a promise to forbear etc.

FREE CONSENT: According to section 14,consent is said to be free when it is not caused by: 1) Coercion 2) Undue influence 3) Fraud 4) Misrepresentation 5) Mistake

Coercion: According to section 15,"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. Undue Influence: According to section 16(1), a contract is said to be induced by undue influence a) where the relations subsisting between the parties are such that one of them is in a position to dominate the will of the other, and b) the dominant party uses that position to obtain an unfair advantage over the other.

Undue Influence(cont..) Essentials of undue influence: In order to constitute undue influence, it is necessary to prove that: 1. 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 2. Such a person uses his dominant position to obtain an unfair advantage over the other.

Undue Influence(cont..) Person in dominant position & obtaining of unfair advantage: In the following cases, a person is deemed to be in a position to dominate the will of another: Where he holds a real or apparent authority over the other, or, Where he stands in a fiduciary relation to the other, or, 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.

Fraud: The term fraud means a false representation of fact made wilfully with a view to deceive the other party. Essential elements of fraud: By a party to a contract False representation Representation as to a fact Actually deceived Suffered loss

Misrepresentation: The term misrepresentation means a false representation of fact made innocently or nondisclosure of a material fact without any intention to deceive the other party. Essential elements of misrepresentation: By a party to a contract False representation Representation as to fact Object Actually acted.

Mistake: A mistake is said to have occurred where the parties intending to do one thing by error do something else. Mistake is an erroneous belief concerning something. The mistake can be of two types: 1. Mistake of law 2. Mistake of fact

CLASSIFICATION OF CONTRACTS: On the basis of creation: a) Express contract b) Implied contract On the basis of execution: a) Executed contract b) Executory contract c) Partly executed & partly executory contract

CLASSIFICATION OF CONTRACTS On the basis of enforceability: a) Valid contract b) Void contract c) Void agreement d) Voidable contract e) Illegal agreement f) Unenforceable contract

Valid contract: A contract which satisfies all the conditions prescribed by law is a valid contract. Void contract: According to section 2(j) of the Indian Contract Act,1872, A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Void agreement: According to section 2(g), An agreement not enforceable by law is said to be void. Voidable contract: According to section 2(i) of the Indian Contract Act,1872, A voidable contract is one which can be set aside or repudiated at the option of the aggrieved party.

OFFER & ACCEPTANCE: An offer is the starting point in the making of an agreement. An offer is also called proposal. According to section 2(a) of the Indian Contract Act,1872, A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence. Types of Offers: An offer may either be express or implied. Express Offer: an express offer is one which is made by words spoken or written. Implied Offer: an implied offer is made otherwise than in words. It is inferred from the conduct of the person

OFFER & ACCEPTANCE: Types of Offers: An offer may either be specific or general. Specific offer: a specific offer is one which is made to a definite person or particular group of persons. General Offer: a general offer is one which is not made to a definite person, but to the world at large or public in general.

LEGAL RULES FOR A VALID OFFER: i. Intention to create legal relationship. ii. Certain & unambiguous terms. iii.Different from a mere declaration of intention. iv.Different from an invitation to offer. v. Proper communication. vi.No term the non-compliance of which amount to acceptance. vii.Communication of special terms.

CONSIDERATION: Essential elements of a valid consideration: I. Move at the desire of the promisor. II. Move from any person. III.Past/present/future IV.Of some value V. Real & not illusory. VI.Something other than the promisors existing obligation. VII.Lawful

Exceptions to the general rule: No consideration, No contract: Agreements made on account of natural love & affection. Promise to compensate. Promise to pay time barred debt. Completed gifts. Agency

CAPACITY OF PARTIES: The parties who want to enter into a contract must have a capacity to do so. Capacity refers to competence of the parties to enter into a valid contract. Section 11 of the Indian Contract Act makes clear the parties who are competent to contract. Thus, section 11 declares the following persons to be incompetent to enter into a contract: a. Minors b. Persons of unsound mind c. Persons disqualified from contracting by the law to which they are subject.

MINORS: A person who has not completed his 18th year of age is considered to be minor in the eyes of law(Section 3 of the Indian Minority Act, 1875) The position of agreements with or by a minor: 1. Validity 2. No Estoppel 3. In case of fraudulent representation of age by minor 4. Ratification on attaining the age of majority 5. Validity of minors agreement jointly with a major person. 6. Minor as a partner. 7. Minor as an agent 8. Minor as a shareholder or member of a company.

PERSONS OF UNSOUND MIND: According to Section 12 of the Indian Contract Act, A person is said to be of sound mind for the purpose of making a contract, if at the time when he makes it, is capable a. To understand the terms of the contract. b. To form a rational judgment as to its effect upon his interests. If a person is not capable of both, he is said to have suffered from unsoundness of mind. The examples of persons having an unsound mind include idiots, lunatics & drunken persons.

PERSONS OF UNSOUND MIND: Position of a person who is usually of Unsound mind but Occasionally of Sound Mind: According to Section 12,A person who is usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind. Position of a person who is usually of sound mind but Occasionally of Unsound Mind: According to Section 12,A person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is of unsound mind.

PERSONS DISQUALIFIED BY LAW: Alien enemies Foreign Sovereigns & Ambassadors Convicts Company under the Companies Act or Statutory Corporation under the Special Act of Parliament. Insolvents

PROVISIONS RELATING TO FREE CONSENT: Coercion: Coercion may proceed from any person, and may be directed against any person, even a stranger. Effect of Threat to file a suit Effect of Threat to Commit Suicide Effects of Coercion: a. Option of aggrieved party to avoid the contract. b. Obligation of aggrieved party to restore benefit. c. Obligation of other party to repay or return. Burden or Onus of Proof

PROVISIONS RELATING TO FREE CONSENT: Undue influence: The term undue influence means dominating the will of the other person to obtain an unfair advantage over the other. Presumption of domination of will: According to Section 16(2), a person is deemed to be in a position to dominate the will of another in the following three circumstances: a. Where he holds a real or apparent authority over the other b. Where he stands in a fiduciary relation to the other c. 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

PROVISIONS RELATING TO FREE CONSENT: Undue influence: No presumption of Domination of Will There is no presumption of undue influence in the following relationships: a) Husband and wife(other than pardanashin) b) Landlord and tenant c) Creditor and debtor Effect of Undue Influence: When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

PROVISIONS RELATING TO FREE CONSENT: Undue influence: Burden of Proof Contracts with Pardanashin Woman: A woman who observes complete seclusion(i.e. who does not come in contact with people other than her family members) is called pardanashin woman. Legal Presumption: A contract with a pardanashin woman is presumed to have been induced by undue influence. Burden of Proof: the other party who enters into a contract with a pardanashin woman must prove that: he made full disclosure of all facts to her she understood the contract & implications of the contract

PROVISIONS RELATING TO FREE CONSENT: Comparison/Distinction between Coercion & Undue Influence: Basis of Coercion Undue influence distinction Relationship Parties to a Parties to a contract contract may or are related to each may not be other under some related to each sort of relationship. other. Consent is obtained Consent is by dominating the obtained by giving will. a threat of an offence or committing an offence.
Consent

PROVISIONS RELATING TO FREE CONSENT: Comparison/Distinction between Coercion & Undue Influence: Basis of distinction Coercion Undue influence
Nature of pressure It involves It involves moral physical pressure pressure Who can exercise It can be exercisedIt can be exercised even by a strangeronly by a party to to the contract a contract Restoration of The aggrieved The party avoiding benefit party has to the contract may restore the benefit or may not return received the benefit

Comparison/Distinction between Coercion & Undue Influence: Basis of distinction Coercion Undue influence Presumption Coercion has to be It may be proved by the presumed by the party alleging it, in law under certain no case it is circumstances. presumed by the The party against law whom such presumption lies must disprove it. It doesnt involve The party any criminal committing the liability crime may be
Nature of liability

PROVISIONS RELATING TO FREE CONSENT: Fraud: The term fraud means a false representation of fact made wilfully with a view to deceive the other party. Effects of fraud: A. The party whose consent was caused by fraud can rescind(cancel) the contract. B. The party whose consent was caused by fraud may, if he thinks fit, insist that the contract shall be performed & that he shall be put in the position in which he would have been if the representation made had been true.

PROVISIONS RELATING TO FREE CONSENT: Fraud: Silence as to fraud: General Rule: According to explanation to Section 17, Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud. Exceptions to the General Rule: The general rule that silence doesnt amount to fraud has the following exceptions: i. Where parties stand in fiduciary relationship like parent-child, trustee-beneficiary. ii. Where the silence itself is equivalent to speech iii.Half truth

PROVISIONS RELATING TO FREE CONSENT: Misrepresentation: A false representation of fact made innocently or nondisclosure of a material fact without any intention to deceive the other party. Effects of Misrepresentation: a. Right to rescind the contract b. Right to insist upon performance

PROVISIONS RELATING TO FREE CONSENT: Mistake: According to section 20, An erroneous opinion as to the value of the thing which forms the subject matter of the agreement is not to be deemed a mistake as to a matter of fact. Unilateral Mistake: According to section 22, A contract is not voidable merely because it was caused by one of the party to it being under a mistake as to a matter of fact. Exceptions: the agreement is void where a unilateral mistake relates to the identity of the person contracted with or as to the nature of the contract.

VOID AGREEMENTS: Following types of agreements have been expressly declared void under various sections of the Indian Contract Act: Agreements by or with persons incompetent to contract. Agreements entered into through a mutual mistake of fact between the parties. Agreement, the object or consideration of which is unlawful. Agreement, the object or consideration of which is partly unlawful Agreement made without consideration Agreements in restraint of marriage.

VOID AGREEMENTS: Agreements expressly declared void (contd..) Wagering agreement Impossible agreement An agreement to enter into an agreement in future.

WAGERING AGREEMENTS: Meaning: An agreement between two persons under which money or moneys worth is payable, by one person to another on the happening or the non-happening of a future uncertain event is called as a wagering agreement Essentials of wagering agreement: Promise to pay money or moneys worth. Uncertain event Mutual chances of gain or loss Neither party to have control over the event No other interest in the event.

Distinction between contracts of insurance & wagering agreement: Basis of distinction Contracts of Insurance Insurable interest Person having an insurable interest can insure his life or property. Actual amount payable Wagering agreement
Parties to a wagering agreement need not have insurable Except life interest insurance, the actual In case of amount payable wagering need not necessarily agreement, the be the full amount actual amount for which the payable is property is insured. usually fixed.

Distinction between contracts of insurance & wagering agreement: Basis of distinction Contracts of Insurance Beneficial/against public policy Gamble These are regarded as beneficial to public policy Wagering Agreement
These are considered to be against public policy These are Such agreements considered to be do not against public tantamount to policy. Being gambling as they chance oriented involve the these are closer to element of gambling. investment &

CONTINGENT CONTRACT: Meaning: 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. Essential features of a contingent contract: Dependence on a future event Collateral event Uncertain event

Rules regarding contingent contracts: Kind of contingent contract Contracts contingent upon the happening of an uncertain future event(Section 32) Rule regarding enforcement
Such contracts cannot be enforced by law unless & until that event has happened. If the event becomes impossible, such contracts become void. Such contracts can be Contracts contingent upon enforced when the the non-happening of a happening of that event certain future event(Sec. becomes impossible & not 33) before

Rules regarding contingent contracts: Kind of contingent contract Contracts contingent upon the future conduct of a living person(Section 34) Rule regarding enforcement If the uncertain event is the future conduct of a living person, such event shall be considered impossible if that such person does anything by which it becomes impossible to perform the contract within any definite time. Such contracts become void if before the expiry of fixed time a) Such event does not
Contracts contingent upon the happening of an uncertain specified event within a fixed time(Section 35)

Rules regarding contingent contracts: Kind of contingent contract Contracts contingent upon the non-happening of an uncertain specified event within a fixed time Agreements contingent upon impossible events(Section 36) Rule regarding enforcement Such contracts can be enforced by law if before the expiry of fixed time- a) such event does not happen, or b) it becomes certain that such event will not happen Such agreements are void whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made

Distinction between a Wagering Agreement & a Contingent Contract: Basis of Wagering Contingent distinction Agreement Contract Reciprocal promises It may or may not consist of reciprocal Void/Valid promises Main/collateral It is void It is valid future event Future event is Future event is essential to the collateral to the Nature contract. contract. It is always of a It may not be of a Interest of parties contingent nature. wagering nature Parties have no Its parties may other int in the have other interest It consists of reciprocal promises

PERFORMANCE OF CONTRACT: A contract is said to have been performed when the parties to a contract either perform or offer to perform their respective promises. According to Section 37 of the Indian Contract Act, The parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law

PERFORMANCE OF CONTRACT: Types of performance: Actual Performance: Where a promisor has made an offer of performance to the promisee & the offer has been accepted by the promisee, it is called an actual performance. Attempted Performance(or Tender): Where a promisor has made an offer of performance to the promisee, & the offer has not been accepted by the promisee, it is called an attempted performance. Effects of Tender: a. The promisor is not responsible for non-performance.

PERFORMANCE OF CONTRACT: Types of Tender: Types of tender
Meaning
Tender of goods or services Where the promisor offers to deliver the goods or services but the promisee refuses to accept the Tender of money delivery Where the promisor offers to pay the amount but the promisee refuses to accept the same.

PERFORMANCE OF CONTRACT: Essentials of a valid tender: Unconditional At proper time At proper place Reasonable opportunity to promise For whole obligation To proper person Of exact amount in legal tender

PERFORMANCE OF CONTRACT: Effect of refusal of a party to perform promise wholly: According to Section 39 of this Act, when a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. Persons who can demand performance: Promisee Legal representative

Persons who can demand performance: Joint promisees Case Who can demand the performance of promise
In case all promisees are alive All the promisees jointly. In case of death of any of joint Representatives of the promisees deceased promisee jointly with the surviving promisee(s) In case of death of all joint Representatives of all of them promisees jointly

PERFORMANCE OF CONTRACT: Persons who must perform: o Promisor o Promisors agent o Legal representatives o Third party o Joint Promisors Case Who must perform the promise In case all promisors are alive All the promisors jointly. In case of death of any of joint Representatives of the promisors deceased promisor jointly with the surviving promisor(s) In case of death of all joint Representatives of all of them

The Contract Act 1871 (R)

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THE CONTRACT ACT 1871