An important component of Mercantile Law of the country. It envisages that the promises made in a contract should be kept & hence this act holds great importance in the commercial sector. The Indian Contract Act, 1872 made it obligatory that the various types of commitments entered into the industrial &

This Act was enacted by The Constituent Assembly of India on 25th April, 1872. It came into force on 1st September, 1872. In the beginning, the act had a very wide scope & included in it what are called the Indian Partnership Act & the Indian Sale of Goods Act. But presently the scope of the act has been

1. Basic Principles Sections 1 to 75.



Sale of Goods Act Sections 76 to 123. *(Excluded from Present Act)

2. Indemnity & Guarantee Sections 124 to 147. 3. Bailment Sections 148 to 181. 4. Agency Sections 182 to 238.

Generally speaking, a contract is an agreement or an understanding regarding some promise between 2 or more parties. According to Salmond A contract is an agreement creating & defining obligations between the parties. According to Section 2(h) of Indian Contract Act,1872 A contract is an agreement

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An Agreement between the parties. Contractual obligation to execute the Agreement. The Agreement should be enforceable by law.

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3.

For a contract to be there, the presence of an agreement is the primary essential element ; without an agreement there can be no contract. Just as only fire can give birth to smoke, similarly only an agreement can give birth to a contract.

An agreement is a proposal & its acceptance, by which 2 or more persons or parties promise to do or abstain from doing an act. According to Section 2(e) of ICA,1872 Every promise or every set of promises forming the consideration for each other is an agreement.

For an agreement to take place, the commitment of the parties must meet or there must be consensus ad idem. For example A has 2 buildings no.1 & no.2, he wants to sell building no.1 to B but B wants to purchase building no.2 from A. As such, since there is no consensus between A & B, there is no possibility of any agreement or contract taking place between them.

An Agreement has a much wider scope than a Contract, because only those agreements become contracts that fulfill the other 2 essential conditions of being a contract contractual obligation & enforceability by law. As such we can say that All contracts are agreements but all agreements are not

An agreement can impose any religious, cultural, social or moral obligations ; but it can become a contract only when it imposes some legal obligation on the parties involved. Hence, all those agreements that do not impose any legal obligation & are confined to only religious, cultural, social or moral obligations would always remain agreements, they cannot

Contractual Obligation refers to a legal tie which imposes upon a person or persons the necessity of doing or abstaining from doing a definite act or acts. For example A invites B to Dinner & B accepts this invitation. This is an agreement & not a contract because it entails only social obligation on the parties & not any legal obligation to fulfill their promise. Reference Case Verdict given by Justice

An agreement can become a contract only when it is enforceable by law which is possible only when it is based on valid & legal grounds & its objective or consideration is not an illegal one. For example If A promises B to do physical harm to C for which B promises to pay Rs.1000 to A ; such an agreement cant be called as a contract as it is not enforceable by law because of its object

Basis of Difference
Section in which defined Definition

Agreement
Section 2(e) Every promise or every set of promises forming the consideration for each other. Wide as all contracts are agreements. Covers both legal & nonnonlegal affairs. Based on proposal & acceptance of proposal. No legal obligation to perform. Not enforceable by law.

Contract
Section 2(h) An agreement enforceable by law.

Scope

Limited as all agreements are not contracts. Covers only legal affairs. Based on agreement.

Nature Base

Legality Effect

Legal obligation to perform. Enforceable by law.

Based on Obligation :Unilateral Contracts One party has fulfilled the commitment while the other has yet to do it. Contracts Both parties have to fulfill a commitment or commitments simultaneously such that each partys promise is a consideration for the other party. The promises made in a bilateral contract are called Reciprocal Promises.

a)

b) Bilateral

Based on Mode of Creation :Express Contracts When a proposal is made & accepted explicitly, by word of mouth or in writing. Contracts When a proposal is not expressed orally or in writing but is reflected in the thinking, behavior, rites & customs of the parties concerned.

a)

b) Implied

Based on Performance :Executed Contract Executed means that which has been done. These are the contracts in which the parties involved have performed their respective obligations. Executory Contracts Executory means that which needs to be done. These are the contracts that remains to be executed & the parties have yet to perform their obligations.

a)

b)

Based on Enforceability :Void Contracts A contract that is valid & binding on the parties when it is entered into but later becomes unenforceable & hence void due to some changed circumstances. As per section 2(j) of ICA,1872 A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Examples ::A contract between international traders may becomes void later on when a war breaks out between the importing & exporting countries.

a)

i.

b)

Voidable Contract Any contract which does not have the essential element of free consent - it is caused by coercion, undue influence, misrepresentation or fraud is voidable at the option of the party whose consent is not free. But the party that have the right to repudiate or rescind such contract needs to exercise their right at the proper time, otherwise they lose such right & the contract becomes valid. As per Section 2(i) of ICA,1872 A voidable contract is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others. Example If A threatens to kill B & makes him sign a contract to sell his property to A at a throwthrow-

1) 2)

3) 4)

A Contract that fulfills the following provisions given under Section 10 of ICA,1872 known as Essentials of a Valid Contract is a Valid Contract. If one or more of these elements are missing, the contract is not valid & is void or voidable as discussed earlier ::Agreement Proposal & Acceptance. Competency or Contractual Capacity of Parties. Free consent of Parties. Lawful Consideration & Legal Object.

As discussed earlier, the primary element of a valid contract is an Agreement. To reach an Agreement, there must be the existence of a promise between the parties involved. When one party makes a Proposal & the other party Accepts the Proposal ; it becomes a Promise.

According to Section 2(a) When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of the other to such act or abstinence, he is said to make a Proposal. Proposal. British Law refers to it as an Offer. Offer. According to Section 2(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be Accepted. Accepted. A proposal, when accepted, becomes a

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Existence of Two or More Parties :A valid proposal essentially involves 2 or more parties because an individual cannot make a proposal to himself. As per Section 2(c) of ICA, 1872 The person making the proposal is called the Promisor & the person accepting the proposal is called the Promisee. Promisee. Choice to do or not to do (abstain) :A proposal reflects the desire of the party making the proposal for the other party to do or abstain from doing something. Example If A says to B that he wants to sell his watch to him for Rs.150; its a proposal from A

2) 

Every proposal has an object the person making the proposal wants the acceptance by the person to whom the proposal is made. Accordingly, the following 2 situations cant be considered as proposals ::Intention to make an offer At times, a person might declare his intentions to make an offer in the future & not actually make the offer. Such declaration gives no right of action to another party since no proposal has been made till now. Reference case Harris vs Nickerson. Nickerson. Invitation to make an offer In this situation, one

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The offer must be made to create a legal obligation. Case Balfour vs Mrs.Balfour. Mrs.Balfour. The terms of the offer must be unambiguous & definite. The offer may be general or specific. Case Carlill vs Carbolic Smoke Ball Co. The offer may be expressed or implied. The offer should be a request & not an order.

Specific Proposal When an offer is made to a particular person, it can be accepted or rejected only by that particular person. Acceptance by any other person is not considered as a valid acceptance. Case Boulton vs Jones. Jones. General Proposal In case of a general proposal, anybody who has a knowledge of the proposal can accept or reject it. Case Carlill vs

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Acceptance must be absolute & unconditional Acceptance must confirm with the offer. Acceptance must be unqualified (a qualified acceptance is a counter offer). Acceptance must be made in the prescribed manner [Sec.7(2)] Acceptance must be made by the promisee in the manner prescribed by the promisor regarding mode, timing etc.

2.

3.

The proposer cannot prescribe the method of refusal. An offer, once rejected, becomes a dead offer & cannot be accepted until it is renewed. Acceptance must be communicated to the offeror [Sec. 9] Mere mental acceptance not evidenced by words or conduct is not considered as a valid acceptance in the eyes of law. Cases Brogdon vs Metropolitan Rail Co. - Powell vs Lee. - Felthouse vs Bindley. Acceptance may be expressed or implied/tacit [Sec.8]

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An acceptance without the knowledge of the proposal is no acceptance Without the knowledge of the proposal, even if the actions confirm to the conditions of the proposal, it is not considered as an acceptance. Acceptance can be given only by the person to whom the proposal is made; if a person does not have the knowledge of the proposal, naturally the proposal has not been made to him.

Legal rules for communication of proposal, acceptance & revocation are required when the parties are at a distance & not present face-to-face & hence face-toproposal, acceptance or revocation needs to be communicated among the parties. As per Section 3 The communication of an offer, its acceptance & revocation are deemed to be made by an act or its

The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. If A makes an offer by post to sell his car to B for Rs.1,00,000 ; the proposal would deem to has been made when B receives the letter, read it & understood the conditions of the proposal.

As against the Proposer :The communication of acceptance is complete as against the proposer, when it is put in a course of transmission to him, so as to be out of power of the acceptor. In case of acceptance by post bearing complete & correct address of the proposer, the communication of acceptance against the proposer is deemed to be completed when the letter is posted by the acceptor even if it

As against the Acceptor :The communication of acceptance is complete as against the acceptor, when it comes to the knowledge of the proposer. Thus, the acceptor has the option to revoke his acceptance of the proposal before such acceptance reaches the proposer. The conclusion regarding communication of acceptance is that the proposer is bound as soon as the

Revocation implies taking back or withdrawal. It may be a revocation of a proposal or its acceptance. Revocation of Proposal :- A proposal may be revoked at any time before the communication of acceptance is complete as against the proposer, but not afterwards. Revocation of Acceptance :- An acceptance may be revoked at any time before the communication of acceptance is

A stranger to a contract is anybody who is not a party to the contract, even if the contract is to his advantage or he is the receiver or giver of consideration. A contract does not confer rights or impose obligations arising under it on any person other than the parties to it & as such a stranger to a contract cannot sue. sue.

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Beneficiary in a Trust Agreement The beneficiary in whose favor a trust or other interests in immovable property has been created can enforce it even though he is not a party to the contract. Acknowledgement or Estoppel When the promisor acknowledges himself as an agent of a third party by his conduct, he incurs an obligation towards that third party. For example If A receives some money

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Contracts entered into through an agent The principal can enforce a contract entered into by his agent provided the agent has acted within the scope of his authority & in the name of the principal. Marriage settlement, Partition or other Family arrangements When an arrangement is made in connection with marriage, partition or any other family matter, and a provision is made for the benefit of a person, such person can file a suit although he is not a party to the

4.

CAPACITY here means competence of the parties to enter into contract. Section11 defines the person who is competent to contract: a) has attained the age of majority. b) is of sound mind c) Not be disqualified by any law.

In terms of Indian Majority Act1875,every Indian attains majority on the completion of 18yrs. Of age. But there is exception to it, where a guardian of a minors person or property has been appointed, the person attains majority after 21years of age.

Contract with minor is absolutely VOID. Reference Case: Mohri Bibi vs. Dharmodas Ghose Contract for necessaries of life- food & clothing are the basic necessities but these may vary according to status.
Contract by parents or guardians of minor
contract made for his

Guardian has the right to make contract benefit

Minors contract cannot be ratified on his becoming a major.  No refund of benefit.  Minor as an agent.  Minor as a partner section (30), minor can be admitted for profit only.  Position of minor in a limited company.  Suretys liability for minor.


Position of minor in negotiable instrumentsinstrumentssection (26) of NEGOTIABLE INSTRUMENT ACT, minor can be promisor,can draw deliver or endorse a bill. Minors right to hold property &interest therein. Minor cannot be declared insolvent

If at the time of entering into contract is capable of understanding & forming rational judgment. Section 12 defines any person with unsound mind is incompetent to contract: a) Idiot- completely lost his mental powers & Idiotalways insane b)Lunatic- lost his mental powers because of b)Lunaticaccident, illness etc. c)Drunkard- intoxicated by drinkings or drugs c)Drunkardetc.

  

1. Alien Enemy -with whose country INDIA is at war. 2.President of India 3.Professional Ineligibility- IN EGLAND, a barrister Ineligibilitycannot file a suit to claim his fee for professional service.

4.Disqualification due to Legal StatusStatus-convicts undergoing imprisonment, -debtors who have been declared insolvent

Section 13 defines, Two or more persons are Two said to consent when they agree upon the same thing in the same sense. Consent is said to be free when it is not caused by: 1. Coercion(Section 15) 2. Undue influence(section 16) 3. Fraud(section 17) 4. Misrepresentation(section 18) 5. Mistake(section20,21,22)

Committing any act forbidden by IPCIPC- include murder, dacioty, kidnapping, torture etc. Threatening to commit any act forbidden by IPC- to commit suicide IPCUnlawful detention of property. E.g. an agent refused to hand over the books of account to a new agent till such time that the principal released him from all obligations.

 

Threatening to detain property unlawfully. Coercion can be by any party against any other party, but the purpose is to compel the party to agree to the terms of contract

 

Contract made by use of coercion is voidable. The party can repudiate the contract or can fulfill his obligation under the contract.

BURDEN OF PROOF:


The party that wants to repudiate a contract has to prove the usage of coercion by other contracting party.

Section 16(1) defines,

one party is in a position to influence the free consent of the other& gain undue advantage over the other. e.g. A is a rich landowner & B a poor farmer has a cow valued at Rs.5,000. I f A uses his authority &forces B to sell cow for Rs. 2,000.

  

One party holds real or apparent authority over the other- teacher & student, father & son. otherParty stands in a fiduciary relationship- trust relationship& confidence When the party makes contract with a person whose mental capacity is temporarily / permanent impaired. Effects: According to section 19(A)19(A)contract is voidable

Basis of difference 1.Meaning

Coercion Consent is obtained by use of force or threat to use force Involves physical force &sometimes threat No definite relation Contract is voidable

Undue influence Consent is obtained by one party misusing his dominating position, Involves only moral pressure. Must be some kind of relationship Contract is voidable or court may set it aside or enforce it in a modified form.

2. Type 3.Relation of parties 4.Effect

 

In terms of section 17 of the act, fraud includes any of the following act: active concealment of the fact e.g. director of a company issues prospectus containing misstatement knowing fully well about it. Promise made without any intention of performing it Act meant to deceive Any such act as to law specially declared to be fraudulent

  

Silence is also fraud e.g. A sells his horse in an auction to B. A knows that the horse is unsound, but he does not say anything.

  

Right to repudiate the contract. Right to affirm the contract. Claim for restitution.

It is made up of two words mis + representation, which means false statement. Indian Contract Act Classifies misrepresentation as:

Fraudulent

Innocent
made unknowingly

knowingly & willfully made

According to section 18 of the Indian Contract Act: By Positive statement -section 18(1) By breach of duty without intention to deceive section 18(2) Causing mistake by innocent misrepresentation section 18(3)

1) 2)

3)

   

Right to repudiate the contract Right to affirm the contract Right to restitution no right to damages

basis of difference 1. Intention 2. Right of the aggrieved party

fraud To deceive the other party

misrepresentatio n not to deceive

a) Repudiate a) Repudiate the contract, b) affirm the the contract contract, b) affirm the contract, c) claim the damages. Cannot be a valid contract Intentional & deliberate Deemed to be a valid contract Result of being ignorant of fact or

3. Legality 4. Nature

 

it is defined as wrong belief about something. may be a mistake of law or a mistake of fact.

1) Mistake as to the law

law of country - ignorance of law is no excuse. excuse.  foreign law- mistake may be excusable in foreign lawcountry  private rights
 

2) Mistake as to the fact Unilateral Mistake- if mistake is on the part of Mistake-

Bilateral mistake - when both the parties to the contract are under a mistake as to matter of fact essential to the contract. E.g. if one party believes that he is the owner of something & has the right to sell it , and the party buys it believing that the first party is the lawful owner.

According to section 20, if the parties to an agreement are mistaken about an essential subject matter of the agreement, the agreement is void.

Any Queries ?????????