The Indian Contract Act,

1872

Nature of Contract
The fabric of modern industrial society is woven
around economic relationships.
The relational integration and determination of mutual
rights and obligations are dependent, to a great extent,
on ex contractum terms.
Contracts arising out of economic and social
relationships.
Such relations are either contractual or akin to a
contract.
The market functions on the very premise of effective
functioning of contractual relationship.
2

What is a contract
A written or spoken agreement intended to be
enforceable by law.
An agreement enforceable by law is a contract.
[Section 2(h) ]
A contract is an agreement made between two or
more parties, which the law will enforce.
Contract is a method through which individuals make
law for themselves by creating rights and obligation
ex contractas.
3

 Every agreement and promise enforceable at law is a

contract. Pollock.
A legally binding agreement between two or more
persons by which rights are acquired by one or more
to acts or forbearances on the part of the others. Sir
William Anson.
An agreement creating and defining obligations
between the parties. Salmond
4

Proposal, Acceptance, Promise & Agreement

When a 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. [Sec 2(a)]
A proposal is said to be accepted when the person to whom
the proposal is made signifies his assent thereto. A
proposal when accepted becomes promise. [Sec 2(b)]
Every promise and every set of promises forming
consideration for each other is a an agreement. [(Sec 2(e)]
5

Section 10
All agreements are contracts 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 expressly declared to be void.

Classification of Contracts
On basis of Formation
Express Contract
Implied contract Quasi Contract
On basis of Performance
Executed Contract
Executory Contract
7

On basis of Validity
Voidable Contracts
Void agreement
Void Contract
Valid Contract
Illegal Agreements
Unenforceable contract (technical defects)
8

Essential Elements of Contract

Offer
Acceptance
Consensus ad idem
Legal enforceability
Lawful consideration
Capacity of parties
Free consent
Lawful object
Agreement not declared void
Certainty and possibility of performance
Legal formalities

Elements of Offer

It must be made by one person to another person.

It must be an expression of readiness or willingness
to do or to abstain form doing something.
It must be made with a view to obtain the consent of
that other person.
Terms of offer must be definite, unambiguous and
certain.
Offer must be communicated.
Offer not to contain a term the non-compliance of
which may amount to acceptance.
A statement of price is not an offer.
10

Types of Offer
Express Offer by words written or spoken.
Implied Offer By conduct or circumstances.
Specific Offer- Made to a specified or definite
person.
General Offer- Made to public at large

11

An offer must be distinguished from

A declaration of intention and an announcement.
An invitation to make an offer or do business.
A statement of price. [Harvey v. Facey, (1893)]

12

Tenders
A Definite Offer
When tenders are invited for the supply of specified
goods or services,
each tender submitted is an offer.
The party inviting tender may accept any tender he
chooses
thereby bringing about a contractual relationship with the
person (tender) so chosen.
13

Tenders
A Standing Offer
Where goods or services are required continuously
over a certain period,
a trader may invite tenders as a standing offer which is a
continuing offer.
The effect is that as and when goods or services are required,
an order is placed with the person whose tender has been
accepted.

However, at each such time a distinct contract is

made.
14

Special terms in the contract

A term limiting or excluding the liability of offeror.
The special terms should be presented in such a
manner that a reasonable man can become aware of it
before a contract is entered into.
The fact that he did not or could not read does not
alter the legal position.
If the conditions are contained in a voucher or receipt
for payment of money, they do not bind the person
receiving the voucher or receipt.
15

Legal Rules as to Acceptance

1. Must be absolute and unqualified.
2. Must be communicated to the offeror.
3. Must be according to the mode prescribed or usual and
reasonable mode.
4. Must be given within a reasonable time.
5. Cannot precede an offer.
6. Must be given by the party to whom the offer is made.
7. Must be given before the offer lapse or is withdrawn.
8. It cannot be implied from silence.
16

Revocation or lapse of Offer (Sec. 6)

By communication of notice of revocation.
By lapse of time.
By non-fulfillment by the offeree of a condition
precedent to acceptance.
By death or insanity of the offeror.
If a counter offer is made.
If an offer is not accepted according to the prescribed
or usual mode.
If the law is changed.

17

Consideration
Consideration is some kind of an exchange between the
parties to an agreement.
Consideration is the price for which the promise of the
other is bought and the promise thus given for value is
enforceable. Pollock
A valuable consideration in the sense of the law may
consist either
in some right, interest, profit or benefit accruing to one
party, or
some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.
18

Definition
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 to abstain from doing something
such act or abstinence or promise is called a
consideration. [Section 2(d)]

19

Legal Rules as to Consideration

It must move at the desire of the promisor.

It may move from promisee or any other person.
It may be an act, abstinence or forbearance.
It may be past, present or future.
It need not be adequate.
It must be real and not illusory.
It must be something which the promisor is not
already bound to do.
It must not be illegal, immoral or opposed to public
policy.
20

Capacity to contract
Every person is competent to contract who Is of the age of majority according to the law to which
he is subject.
Is of sound mind.
Is not disqualified from contracting by any law to
which he is subject. (Sec 11)

21

The position of Minors Agreements

An agreement with or by minor is void ab initio

No Estoppel
Limited application of Restitution
Contracts for the benefit of Minor
No ratification of agreement on attaining majority
No specific performance
Cannot be adjudged insolvent
He can be an agent
Liability of Minors parents and guardians
Minors liability in Tort
Minor as a Partner
Minor as a Shareholder
Liability of minor for necessities supplied to him

22

Other Persons Disqualified by Law

Alien Enemy
Foreign Sovereigns and Ambassadors
Companies and Corporations
Convicts
Insolvents

23

Free Consent
Consent means an act of approval or assenting to an
offer.
Two or more persons are said to consent when they
agree upon the same thing in the same sense.
Consent involves ad idem i.e. identity of mind about
the subject matter of contract.
A mere consent is not enough, it should be free and
voluntary.
Not to be caused by any vitiating factors given u/s 14.
24

Section 14
Consent is said to be free when it is not caused by
a) Coercion.
b) Undue influence.
c) Fraud.
d) Misrepresentation.
e) Mistake.
The contract is said to be voidable at the option of
the party whose consent was not free. [Sec. 19]

25

Presumption of Domination
Master and Servant,
Parent and Child,
ITO and the Assessee,
Trustee and Beneficiary,
Spiritual Guru and Disciple,
Solicitor and Client,
Guardian and Ward,
Medical Attendant and Patient.

26

Agreements Opposed to Public Policy

While a contract serves private interest it should not
conflict with any other private or public interests.
Public interest policies invalidate any private agreement.
Section 23 provides that the consideration or object of an
agreement is lawful unless
it is forbidden by law,
is of such a nature that if permitted, it would defeat the
provision of any law, or
is fraudulent, or
involves injury to the person or property of another, or
the courts regard it as immoral or opposed to public policy.
27

 Trading with enemy.

Agreements interfering with the administration of justice

a) Interference with justice using improper influence

over judges or officers.
b) Stifling Prosecution by way of an understanding not
to prosecute an offender.
c) Maintenance and Champerty financial or other
assistance to bring or defend a lawsuit when the person
has no legal interest.
Trafficking in public offices or titles.
Agreement creating interest opposed to duty.
28

 Agreements restricting personal liberty.

Agreements in restraint of marriage.
Agreement to commit a crime.
Agreements in restraint of trade.
Agreements in restraint of legal proceedings
a) Agreement restricting enforcement of rights
b) Agreement Limiting the Period of Limitation.
29

Exceptions Restraint of trade

Sale of Goodwill
i) the restriction must relate to the same business;
ii) the restriction must be within a specified local
limit;
iii) the restriction must be for the time so long as the
buyer or any person, carries on a like business in the
specified local limits;
iv) the specified local limit must be reasonable
having regard to the nature of the business.

30

Trade Combination
Trade combination formed to regulate the business or to fix
prices are not void,
but trade combinations to create monopoly or cartel, and
which are against the public interest are void.

31

Performance of Contract
Performance of a contract is a mode of discharge of
the contract.
Performance of contract takes place when the parties
to the contract fulfill their respective obligations
under the contract.
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.
[Sec 37]
32

Requisite of a valid tender

It must be unconditional.
It must be of the whole obligation.
It must be made at a proper time and place.
It must be made to the proper person.
It may be made to one of the several joint promisees.
In case of tender of goods it must give a reasonable
opportunity to the promisee for inspection of the good.
In case of tender of money the debtor must make a valid
tender in the legal tender money.
33

Performance and Demand of Performance

By promisor himself. (S. 40)
Promisors Agent. (S. 40)
Legal representatives.
Third person. (S 41)
Joint promisors.
Promisee
Legal Representative
Third Party
Joint promisee

34

Discharge of Contract
A contract is said to be discharged when it ceases to
operate.
The rights and obligations created by it comes to an end.
A contract may be discharged By Performance
Actual performance doing what the parties intended to
do when they entered in to the contract.
Attempted performance or tender It is the legitimate
attempt on the part of the promisor to perform his
obligations
35

By Mutual Agreement or Consent

Novation
Rescission
Alteration
Remission
Waiver
Merger
36

By operation of Law
By death.
By merger.
By insolvency.
By unauthorized alteration of terms of a written
contract.
By rights and liabilities becoming vested in the same
person.
37

By Impossibility of Performance
Impossibility existing at the time of agreement
Known to the parties the agreement is void ab
initio.
Unknown to the parties the agreement is void on
the ground of mutual mistake.
Impossibility arising subsequent to the formation
of the contract.
38

By Supervening Impossibility
Destruction of subject matter of contract
Non-existence or non-occurrence of a particular state
or things
Death or incapacity for personal services
Change of law or stepping in of a person with
statutory authority
Out break of war
39

By breach of contract
Actual Breach
a) On the due date of performance.
b) During the course of performance of contract.
i) Express Repudiation.
ii) Implied Repudiation.
Anticipatory Breach
a) By express renunciation.
b) Making the performance of promise become
impossible by doing some act.

40

Remedies for Breach of Contract

When the contract is broken, the injured party has
one or more of the following remedies:
Rescission of the contract.
Suit for damages.
Suit upon quantum meruit.
Suit for specific performance.
Suit for injunction.
41

Rescission of the contract

Rescission means a right not to perform an
obligation.
In case of breach of contract the promisee need not
perform his obligation,
he is not only discharged from his liabilities but also
he is entitled to claim compensation for damages
which he might have sustained due to non
performance of the contract. [Section 39]
42

Suit for damages

Damages are monetary compensation allowed to the
injured party for the loss suffered.
The object of awarding damages is not to punish the
party at fault
but to make good the financial loss suffered by the
injured party due to breach of contract.
43

Quantum Meruit
When an agreement is discovered to be void. [Sec 65]
When something is done without any intention to do
gratuitously. [Sec 70]
When there is an express or implied contract to render
service but no agreement as to remuneration.
When the completion of the contract has been
prevented by the act of the other party to the contract.
When a contract is divisible.
When an indivisible contract is completely performed
but badly.
44

Quasi Contracts
Sometime a person may receive a benefit which
the law regards another person as better entitled,
or for which the law considers he should pay to
the other person, even though there is no contract
between the parties. Such relationships are called
quasi contracts.
Because although there is no contract or
agreement between the parties,
they are put on the same pedestal as though there
was a contract between them.
This is based on the principles of equity.
45

Kinds of quasi contracts

Right to recover the price of necessities supplied.
[Sec 68]
Payment by an interested person. [Sec 69]
Right to recover for non-gratuitous Act. [Sec 70]
Responsibility of the finder of Goods. [Sec 71]
When money is paid or things are delivered by
mistake or under coercion. [Sec 72]
46

Thanks

47