Session 9

THE INDIAN CONTRACT ACT, 1872
Nature and Kinds of Contract

IMT Nagpur - 2012-14 (Section 12-14)
Contract: Inseparable Part of Ones Life

You. Buy groceries from a supermarket Board a train Hire a cab Consult a doctor or solicitor Give your any household gadget for repair Withdraw Money from an ATM
Ever realised!
In each of the above and numerous such situations you enter into a contractual obligation.
The Indian Contract Act, 1872

Indian Contract Act, 1872 control various kinds of commercial and business contracts.
The Act deals with general principles of the Law of Contract and Special Contract.
Scope of the Contract Act, 1872

The Act extends to the whole of India except the State of J&K.
The Law of contract creates jus in personam and not jus in rem.
Case Study 1
What is Contract???
An agreement enforceable by law is contract.

Contract = An Agreement + Enforceable by law.
What is Agreement???
A promise and a reciprocal promise, forming the consideration for each other.
Agreement = Promise + Reciprocal Promise + Consideration.
What is Promise???
A proposal (offer) when accepted becomes a promise.

Promise = Proposal by one person + Its acceptance by another
What is Proposal (Offer)???
When one person signifies another person his willingness to do or abstain from doing anything with a view to obtain the assent of that other to such an act or abstinence, he is said to make a proposal (Offer).
Parties to an agreement / contract
Promisor / Offeror / Proposor : Person making the proposal.
Promisee/ Offeree / Acceptor : Person accepting the proposal.

Essential Elements of a Valid Contract

1. Offer and Acceptance 2. Intention to create Legal relation 3. Lawful consideration 4. Free consent 5. Lawful object 6. Capacity of Parties 7. Agreement must not be expressly declared illegal by law 8. Certainty of meaning 9. Possibility to perform 10. Legal formalities
Essential Elements of a Valid Contract
1. Offer and Acceptance

Offer is the starting point of any contract. Offer should be accepted.
Essential elements of valid contract

2. Intention to create Legal agreement Usual presumption in the business contract, is that the parties intend to create the legal obligations. In social, religious, political, moral agreements, the usual presumption is that the parties do not intend to create legal obligations.
Case Study 2 - 6

3. Lawful consideration Something in return. Consideration is necessary. Consideration must be lawful and should have commercial value. Eg. A promises to pay Rs. 50,000 on a certain date to B without any promise in exchange. This is not a valid contract.

4. Free Consent Acceptance of offer must be made without any force or threat. It should be free and genuine.

5. Lawful object The object of the agreement must not be illegal, immoral or opposed to public policy. It should be lawful.
Case Study 7

6. Capacity of the parties Person entering into contract should have :
1. attained the age of majority, 2. a sound mind & 3. not disqualified under any act.

7. Agreement must not be expressly declared void or illegal Certain legal agreement expressly declared to be void by any particular law.

8. Certainty of meaning
Terms of the agreement must be certain and unambiguous.
If terms are uncertain, then its not a valid contract.

Case Study 8

9. Possibility to perform If parties have agreed on the contract which contains any promise not possible to perform in real life, the contract will not be a valid contract.

10. Legal Formalities
Certain law requires that the contract will be valid only if it is:
1. In Writing. 2. Stamped. 3. Registered.
Forming a Contract: Essential Steps
Offer Acceptance Promise AgreementContract

All agreements are contract if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.
Case Study 9
Types of Contracts
Express contracts and implied contracts Executed, Executory Contracts, Partly Executed and Partly Executory Contract Unilateral contracts and bilateral contracts Valid contracts, void contracts, and voidable contracts Unenforceable contracts and illegal contracts
Types of Contract
Express Contracts Contracts made by Spoken or written words.
A says to B Will you purchase my car for Rs. 1 lacs? B says Yes.
Types of Contract
Implied Contracts Implied through the act or conduct of the parties. Eg.,
1.
2.
A stops a taxi by waving his hand and boards it. There is an implied contract that A will pay the fare on reaching the destination. Withdrawal of money from ATM
Types of Contract
Executed Contracts Both the parties have performed their promises under the contract. A sells his car to B for Rs. 1 lacs. A delivered the car and B paid the price.
Types of Contract
Executory Contracts Both the parties are yet to perform their promises.
A sells his car to B for Rs. 1 lacs. If A is still to deliver the car and B is yet to pay the price.
Types of Contract
Partly Executed and Partly Executory Contracts One Party has already performed his promise and the other party has yet to execute his promise. A sells his car to B. Though A has delivered the car, B has yet to pay the price
Types of Contract
Unilateral Contracts One sided contract. A contract where only one party has to perform his promise.
After the formation of the unilateral contract, only one party remains liable to perform his obligation because the other party has already performed his obligation.
Types of Contract
Unilateral Contracts A promises to pay Rs. 1000 to anyone who finds his lost cell phone. B finds and returns it to A.
From the time B found the cell phone, the contract came into existence.
Now A has to perform his promise, i.e., payment of Rs. 1000
Types of Contract
Bilateral Contracts Both the parties have to perform their respective promises.
A sells his car to B for Rs. 1 lacs and agrees to deliver the car on the receipt of the payment by the end of the week.
Types of Contract
Valid Contracts If the contract entered into satisfies all the essential elements of a valid contract as per the Act.
Types of Contract
Void Contracts A contract which ceases to enforceable by law is void contract.
Types of Contract
Voidable Contracts When the contract has been entered into without the free consent of party, it is voidable.
Act prescribes that voidable contract can be cancelled at the option of parties whose consent is not free.
Types of Contract
Unenforceable Contracts A contract which satisfies all the requirements of the contract but has technical defects is called an unenforceable contract.
Technical defect Means when it does not fulfill the legal formalities required by some other act. Writing, Registration and Stamping
Types of Contract
Illegal Agreement An illegal contract is one which is forbidden by law. All illegal contract are void ab initio.
It cannot be enforced by any court.

A makes a contract with B to beat his competitor. This is illegal agreement.
Types of Contract
Case Study 10-11
Offer and Acceptance of an Offer
Offer and Acceptance of an Offer

Offer An offer is the 1st step in the formation of a contract.
An offer is a proposal by one person to another to enter into contract.
Essential Elements of an Offer

1. 2. 3. 4. 5. Two Parties Communication Willingness With Intention of obtaining Assent Offer may be positive or negative

1. Two Parties There must be 2 parties.
A person cannot make an offer to himself.

2. Communication The offer must be communicated to the offeree.

3. Willingness The offer must show the willingness of the offerror. Eg. Sharing the idea or feelings is not willingness.

4. With intention of obtaining Assent The offer must be made with a view to obtaining the assent of the offeree.
Eg. Prank or Joke is not a valid offer & if accepted cannot make a valid contract.

5. Offer may be positive or negative The offer may involve doing something or not doing something. Eg.
1. 2.
A proposes to B construct flat for him. A proposes to B, if you do not file a suit against me for defamation, I will you Rs. 1 lacs.
Legal Rules as to Offer

Offer is the first step in a valid contract. If the offer is not valid, the contract will never be valid.

Offer should not bind the other party to reply A writes to B. I offer to sell my house for Rs. 10 lacs. If I do not receive your reply by next week, I will assume that you accepted the offer.
If B does not reply, it means the non-acceptance of the offer.

Offer must be definite, unambiguous and certain If the terms of the offer are vague and uncertain, contract cannot come into existence.
A made a contract with B and promised that if he was satisfied as a customer, he would favorably consider for the renewal of the contract.

Offer must be made to create a legal relationship A social invitation is not regarded as an offer because if it is accepted it does not give rise to any legal relationship.
A invites B for dinner. Social invitation.

Invitation to offer is not an offer
A catalogue or the price list of goods or services is not a proposal but the invitation of proposal. A sent a letter to B stating the terms on which he is ready to do business as an agent. It was not an offer but only a statement on intention. A asks B - Will you purchase my house for Rs. 1 lacs? Case Study 12-14
Firm Offer Vs Invitation to Offer

Examples of Invitations to Treat
Auctions Display of goods for sale in shelf An invitation for tenders Red herring prospectus General advertisement of goods

Terms and Conditions must e communicated along with an offer If the terms and conditions are informed after the offer is made or after the contract is made, it is not binding to the offeree. Case Study 15
Types of Offer
Express and Implied Offer Specific and General Offer Cross Offer Continuous Offer Counter Offer
Kinds of Offer
Express Offer Offers made by using words spoken or written.
A says to B Will you purchase my car for Rs 2 lacs.
Kinds of Offer
Implied Offer Offer which could be understood by the conduct or act of parties. Withdrawal of money from ATM by the cardholder.
Kinds of Offer
Specific Offer Offer made to a particular person / persons.
A says to B Will you purchase my car for Rs. 2 lacs? It is a specific offer as it is made to B. Only B can accept.
Kinds of Offer
General Offer If the offer is made to the whole world. It can be accepted by any one.
An advertisement in the newspaper, Anyone who will find my lost certificates will be rewarded with Rs. 1 lac.
Kinds of Offer
Cross Offer
If the two parties made offer to one another in ignorance of the offer made by the other party and the T&C in both the offers are same.
Two cross offers do not conclude a offer.
A offers by a letter to sell 100 tons of steel at Rs. 1000 per ton. On the same day, B also writes to A offering to buy 100 tons of steel at Rs. 1000 per ton.
Kinds of Offer
Continuous Offer / Open Offer / Standing Offer It is the offer which is open for a continuous period of time. A tender to supply goods as and when required, amounts to standing offer.
Kinds of Offer
Counter Offer
The offer made by the offeree in return of the original offer is called as the counter offer.
A offered to sell his pen to B for Rs. 1000. B replied I am ready to pay Rs. 950. On As refusal to sell at this price, B agreed to pay Rs. 1000. Held, there was no contract. As the acceptance to buy it for Rs. 950 was a counter offer, rejection of the offer of A. The subsequent offer to pay Rs. 1000 is a fresh offer from B to which A was not bound to give his acceptance. Case Study 16-18
Lapse of Offer
Notice of Withdrawal Lapse of Time Non fulfillment of condition Counter offer Acceptance not made in prescribed mode Death or Insanity of the Offeror or Offeree
Rejection of the offer by the offeree

Destruction of the subject matter
Lapse of Offer
Notice of withdrawal If notice of withdrawal given by an offeror to the offeree before the acceptance of offer, then the offer cannot be accepted by the offeree.
Lapse of Offer
Lapse of Time The offeree must accept the offer within the time prescribed in the offer, or if no time is prescribed, it must be accepted within a reasonable time.
Lapse of Offer
Non fulfillment of condition attached with an offer When there is a condition in the offer which must be fulfilled before the acceptance of the offer, the offer lapses if the acceptance is given without fulfilling the condition.
Lapse of Offer
Counter Offer As soon as the counter offer is made, the original order stands lapsed.
Lapse of Offer
Acceptance is not made in the prescribed mode by the offeree Sometimes, the offeror prescribes the mode of acceptance. The offer must be accepted in that very manner, otherwise the offer stands lapsed.
Lapse of Offer
Death or Insanity of an Offeror or Offeree Offer lapses by the death or insanity of an offeror, if the fact of his death or insanity comes to the knowledge of acceptor, before he makes acceptance. But if the offer is accepted in ignorance of the fact, there will be a valid contract. Offer comes to an end on the death of the offeree because the acceptance can be given only by offeree.
Lapse of Offer
Rejection of offer by an Offeree The offer is said to be rejected, if the offeree expressly rejects it or accepts it subject to certain conditions.
Lapse of Offer
Destruction of the subject matter The offer lapses if the subject matter of the offer is destructed.
Legal Rules for acceptance

Acceptance Must be Absolute and Unqualified Acceptance Must be communicated Manner of Acceptance Acceptance must be from a competent person Time Limit for Acceptance
Acceptance may be expressed or implied

Mere silence is not acceptance of an offer
Acceptance of Offer
Acceptance Must be Absolute and Unqualified Unqualified = Unconditional A offers to sell his house to B for Rs. 2 lacs. B accepts the offer & promises to pay in 4 installments. This is not valid acceptance as the acceptance is with variation in term of the offer.
Acceptance of Offer
Acceptance Must be communicated Director of a co. received an agreement for supply of materials. Director marked the agreement with the words approved and put the same in drawer and forgot all about it. Held, there was no contract between the parties as the acceptance was not communicated.
Acceptance of Offer
Manner of Acceptance A offers B that the acceptance must be sent my email. B sends his acceptance by courier. It is a valid acceptance unless A insists for acceptance in the prescribed manner.
Acceptance of Offer
Acceptance of offer must be from competent person or an Authorized Person
Acceptance of Offer
Time Limit for acceptance If the offer prescribes the time limit, it must be accepted within a specified time. If the offer does not prescribe the time, it must be accepted within a reasonable time. A applied for shares in a co in June, 2012. Co, allotted (acceptance) the shares in November, 2013. A refused to take shares.
Acceptance of Offer
Acceptance may be expressed or implied Expressed = words spoken or written Implied = Inferred from the conduct or activities of the party.
Acceptance of Offer
Mere silence is not acceptance A offers to B to buy his house for Rs. 5 lacs and writes if I hear no more about it within a week, I shall presume the house is mine for Rs. 5 lacs. B does not respond. Here, no contract is concluded between A & B.
Case Study 19-21
Communication of Acceptance
General Rules as to Communication to Acceptance
In case of Acceptance by Post Where the acceptance is given by post, the communication of the acceptance is complete as against the proposer, when the letter of acceptance is posted.
Delayed or no delivery of letter Where the letter of acceptance is posted by the acceptor but it never reaches the offeror or is delayed in transit, it will not effect the validity of the acceptance.
Acceptance by Telephone, FAX or Telex If communication of the acceptance is made by telephone, telex or FAX, it completes when the acceptance is received by the offeror.
Communication of Offer & Acceptance

Communication of Offer The communication of offer is complete when it comes to the knowledge of the offeree.

Communication of Acceptance - Against Offeror The communication of the acceptance is complete as against the offeror, when it is put in a course of transmission to him. Offeror is bound by acceptance as soon as the letter of the acceptance is duly posted by the offeree.

Communication of Acceptance - Against Offeree The communication of the acceptance is complete as against the offeree, when it comes to the knowledge of the offeror.
Offeree is bound by acceptance when the letter of the acceptance reaches the offeror.

Communication of Revocation of an Offer In case of revocation of the offer, the offeror is bound by revocation of the offer as soon as he duly posts the letter of revocation of the offer. But revocation of the offer is binding on the offeree only if the letter of revocation of the offer is received by the offeree before the letter of acceptance is duly posted by the offeree.

Communication of Revocation of an Acceptance In case of revocation of the acceptance, the offeree is bound by revocation of the acceptance as soon as he duly posts the letter of revocation of the acceptance. But revocation of the acceptance is binding on the offeror only if the letter of revocation of the acceptance is received by the offeror before the letter of acceptance is received by the offeror. Case Study 22 - 23
Thank You

Session 9

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Session 9

Uploaded by

Copyright:

Available Formats

THE INDIAN CONTRACT ACT, 1872

Nature and Kinds of Contract

Contract: Inseparable Part of Ones Life

The Indian Contract Act, 1872

IMT Nagpur - 2012-14 (Section 12-14)

Scope of the Contract Act, 1872

An agreement enforceable by law is contract.

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

A proposal (offer) when accepted becomes a promise.

IMT Nagpur - 2012-14 (Section 12-14)

What is Proposal (Offer)???

IMT Nagpur - 2012-14 (Section 12-14)

Parties to an agreement / contract

Promisor / Offeror / Proposor : Person making the proposal.

Promisee/ Offeree / Acceptor : Person accepting the proposal.

Essential Elements of a Valid Contract

Essential Elements of a Valid Contract

1. Offer and Acceptance

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

Essential elements of valid contract

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

Terms of the agreement must be certain and unambiguous.

If terms are uncertain, then its not a valid contract.

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

IMT Nagpur - 2012-14 (Section 12-14)

Essential elements of valid contract

1. In Writing. 2. Stamped. 3. Registered.

IMT Nagpur - 2012-14 (Section 12-14)

Forming a Contract: Essential Steps

Offer Acceptance Promise AgreementContract

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

IMT Nagpur - 2012-14 (Section 12-14)

It cannot be enforced by any court.

IMT Nagpur - 2012-14 (Section 12-14)

Case Study 10-11

IMT Nagpur - 2012-14 (Section 12-14)

Offer and Acceptance of an Offer

IMT Nagpur - 2012-14 (Section 12-14)

Offer and Acceptance of an Offer

An offer is a proposal by one person to another to enter into contract.

IMT Nagpur - 2012-14 (Section 12-14)

Essential Elements of an Offer