THE INDIAN CONTRACT ACT, 1872

DEFINATION
Sec.2(h) An agreement enforceable by law. Agreement + enforceability by law = contract.

Agreement must create a legal obligation or duty.

Agreement

Sec. 2(e), Every promise and every set of promises, forming consideration for each other

promise

Sec.2(b), When a 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. Agreement = Offer + Acceptance.

Social agreements Legal agreements

Legal

agreements are contracts.

Essential elements of a valid contract

Offer and acceptance Intention to create legal relationship Lawful consideration. Capacity of parties Competency Free and genuine consent Lawful object Agreement not expressly declared void Certainty and possibility of performance Legal formalities

Classification of Contract
According to validity Valid contract, voidable contract, void contract, Illegal contract, unenforceable contract.

Classification of Contract
According to formation Express contract, Implied contract, Quasi contract.
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Classification of Contract
According to performance Executed contract, Executory contract, Unilateral and bilateral contracts.

Offer and Acceptance

For an agreement

There has to be a clear and definite offer by one person and,

Its unconditional acceptance by the person to whom the offer is made.

Offer
An offer is a proposal by one party to another to enter in to a legally binding agreement with him. Offer may be expressed(spoken or written words) or implied.(inferred from conduct)

Constituents of an offer (essential elements)

The offer must show the obvious intention on part of the offerer to be bound by it. The offerer must make the offer with the view to obtain the assent of the offeree. It must be definite. It must be communicated to the offeree. Offer may be conditional

Rules of legal offer

1.

2.

3.

Offer must be such that as in law it is capable of being accepted and giving rise to a legal relationship. Terms of offer must be definite, clear and certain. The offer must not thrust a burden of acceptance on the offeree.

Invitation to offer, a few possibilities

Display of goods for sale Price lists, catalogues Advertisements Declaration of intention Auctions Tenders Offer of public issue of shares

Termination of offer

1.

2.

3.

4.

Sec.6 of the Act deals with termination of offer. Revocation-offer may be revoked at any time before its acceptance is complete. Lapse of time.(specified time or reasonable time.) Failure of the acceptor to fulfill the condition precedent to acceptance. Death or insanity of proposer.

Other instances of termination of offer

As per sec.6 of the Act. Rejection Counter offer Failure to accept according to the mode prescribed. Subsequent illegality or destruction of subject matter.

Acceptance

Acceptance is the act of assenting by the offeree to an offer. It indicates that the person making it is willing to be bound by the terms of the offer. Acceptance may be express or implied. Sec.2(b)when the person to whom proposal(offer) is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.(i.e.a contract)

Legal rules as to acceptance

It must be absolute and unqualified. It must be made by the party to whom the offer is made. The acceptance must be expressed in usual or reasonable manner. It must be given in reasonable time. It cannot be made in ignorance of offer. It must be given before the offer lapses. It must be communicated to the offerer. Mere mental acceptance is no acceptance. (possible cases of acceptance by silence)

Communication of offer, when complete

(the spirit of the law is that the message reaches the concerned party.) Sec.4 provides that the communication of proposal is complete when it comes to the knowledge of the person for whom it is made.

Communication of acceptance, when complete

Sec.4 The communication of acceptance is complete as against proposer: when it is put in a course of transmission to him, so as to be out of power of the acceptor. as against the acceptor: when it comers to the knowledge of the proposer.

Certain Examples of Offer and Acceptance and its implication

Mr. X offers to sell his only house at Burdwan to Mr. Y Mr. A rides a public bus. Mr. A says to Mr. B, I will sell you a car. Mr. A is having 5 cars. A husband on leaving his wife promised to pay Rs. 10,000 per month, so long I can manage it. An auctioneer advertised in the newspaper that a sale of office furniture would be held. A broker came from a distant place to attend the auction, but all the furniture was withdrawn. The broker thereupon sued the auctioneer for his lass of time and expenses. Held, a declaration of intention to do a thing did not create a binding contract with those who acted upon it, so the broker could not recover.

Certain Examples of Offer and Acceptance and its implication

Displays of goods by a shop-keeper with prices marked on them. Newspaper advertisements are not offers. A recognised exception to this is a general offer of reward to the public. Mr. M sent his servant Mr. S to trace his missing dog. He then announced that anybody who traced his dog would be entitled Rs. 1,000. Mr. S traced the dog and claimed the reward after knowing that it was announced later after his departure. Mr. A writes to Mr. B, I will sell my motor car to you at Rs. 1,00,000 and if you dont reply within 30 days since today, I shall assume that you have accepted the offer. Tender

Certain Examples of Offer and Acceptance and its implication

Mr. M. made an offer to Mr. B to purchase his house with the possession from 25th July. The offer was followed by an acceptance suggesting procession from 1st August. A hotel put a notice in a bed room, exempting the proprietor from liability for loss of clients goods. MR. P agreed to purchase a machine and signed a contract to the effect. The contract contained a several clauses in small print which P did not read.

Mrs. T. who could not read, took a ticket from a railway company. On the face of the ticket it was written For conditions see back. One of the conditions absolved the railway company form liability for personal injuries to passengers. Mrs. T was injured by a railway accident.

Certain Examples of Offer and Acceptance and its implication

A draft relating to the supply of coal was sent to the manager of a railways company for his acceptance. The manager wrote the word approved and put the draft in the drawer of his table, intending to send it to the companys solicitor for a formal contract to be drawn up. By some oversight the document remained in the drawer. Mr. A makes an offer to Mr. B saying If you accept the offer, reply by e-mail. Mr. B sends the reply by post. Mr. M offered to sell his land to Mr. B at Rs. 5,00,000 on or before 31st June, 2009. Mr. B communicates to accept it on 7th July, 2009.

Certain Examples of Offer and Acceptance and its implication

An actress was engaged by a theatrical company for a certain period. One of the terms of the agreement was that if the play was shown in London, she would be engaged at a salary to be mutually agreed upon.

Certain Examples of Consideration and its implication

Consideration is: an act, i.e. doing something; or an abstinence or forbearance return promise A promise without consideration is purely gratuitous and cannot create any legal obligation. It is often said that no consideration no contract Case: Kedarnath v. Gori Mohamed (1886) 14 Cal. 64. In this case the defendant had agreed to subscribe a certain amount towards the construction of a Town Hall at Howrah. The Secretary, on the faith

Certain Examples of Consideration and its implication

of the promise, called for plans and entrusted the work to contractors and undertook liability to pay them. Held that the agreement is not enforceable by law as it is not supported by consideration. Rules as to consideration: 1. Consideration must move at the desire of the promisor 2. Consideration may move from the promisee or any other person Case: The case of Chinnaaya v. Ramayya In this case, A, a lady, by a deed of gift transferred to her daughter, with a direction that the daughter should pay an annuity to As brother, as had been

Certain Examples of Consideration and its implication

Case: The case of Chinnaaya v. Ramayya done by A. On the same day the daughter execute a writing in favour of the brother of A, agreeing to pay the annuity. Afterwards, she declined to fulfill her promise saying that no consideration had moved from her uncle (As brother). Consideration need not to be adequate It must be something which the promisor is not already bound to do.
(There was a promise to pay to the Lawyer an additional sum if the suit was successful. Held that the promise is void for want of consideration. The lawyer is under a pre-existing contractual obligation to render the best of his services under the original contract.)

3. 4.

Certain Examples of Consideration and its implication

It may be act, abstinence or forbearance or a return promise. (e.g. promise to pay higher interest for
not filing a case; higher maintenance allowance)
6.

5.

7.

7.

Consideration must be real and competent to be performed It must not be illegal, immoral or opposed to public policy. It may be past, present or future.

Certain Examples of Consideration and its implication

No consideration, exceptions:Love and affection no contract: certain

Compensation for voluntary services Completed gifts

Agency
Promise to pay a time-barred debt.

Modes of Discharge of Contract:

By performance (Actual or attempted) By agreement or consent (Novation,
Rescission,

Alteration, Remission, Waiver, Merger)

By impossibility of performance (known, not known,

supervening impossibility)

By lapse of time By operation of law (ex. Insolvency)

By breach of contract

Cases where doctrine of supervening impossibility applies-- Destruction of subject matter

Failure of ultimate purpose Death or personal incapacity of the Promisor

Change of law
Outbreak of war

Remedies for breach of Contract:

When the contract is broken, the injured party (i.e. the party who is not in breach) has one or more of the following remedies: a) Rescission of the contract

b) Suit for damages

c) Suit for quantum meruit (i.e. as much as earned) d) Suit for specific performance of the contract e) Suit for injunction (in case of breach of negative terms
of a contract)

Remedies for Breach of contract:

Quantum Meruit arises when:
A contract is subsequently discovered to be void for some technical reasons
a person rendering goods or services has not done so gratuitously when there is no contract as to remuneration for work rendered, a reasonable amount is to be paid

Damages
are decided consequences based on remoteness of

only for loss actually suffered Also for inconvenience suffered or loss of reputation aggrieved party should try to mitigate loss

Different kinds of damages:

Ordinary or general or compensatory damages Special damages (i.e. damages in contemplation of the parties at the time of the contract) Exemplary, punitive or vindictive damages Nominal damages Liquidated Penalty