INDIAN CONTRACT INDIAN CONTRACT ACT,1872ACT,1872

RAMYA RAJENDRAN

CONTENTCONTENT

Business law is a rule which helps us to regulate and manage Business law is a rule which helps us to regulate and manage

our business transactions and activities system. It has direct relation our business transactions and activities system. It has direct relation

with trade, industry and commerce. with trade, industry and commerce.

e.g. insurance act, contract act, tax act, sale of goods act, agency act e.g. insurance act, contract act, tax act, sale of goods act, agency act

etc.etc.

Business LawBusiness Law

The Indian Contract Act consists of the following two parts:The Indian Contract Act consists of the following two parts:

Enacted byEnacted by Parliament of IndiaParliament of India

Date enactedDate enacted 25 April 187225 April 1872

Date commencedDate commenced 1 September 18721 September 1872

Total sectionsTotal sections 238238

Extent Extent All States of India except All States of India except

the State of Jammu & Kashmirthe State of Jammu & Kashmir

INDIAN CONTRACT ACT, 1872 INDIAN CONTRACT ACT, 1872

What is a Contract? What is a Contract?

An agreement which is legally enforceable alone is a contract. An agreement which is legally enforceable alone is a contract.

Agreements which are not legally enforceable are not contracts but Agreements which are not legally enforceable are not contracts but

remain as void agreements which are not enforceable at all or as remain as void agreements which are not enforceable at all or as

voidable agreements which are enforceable by only one of the parties voidable agreements which are enforceable by only one of the parties

to the agreementto the agreement.

““All contracts are agreements, But all agreements are not contracts.”All contracts are agreements, But all agreements are not contracts.”

OFFER/PROPOSALOFFER/PROPOSAL ACCEPTANCEACCEPTANCE PROMISEPROMISE

Offer/Proposal sec 2(a) Offer/Proposal sec 2(a) - When one person signifies to another his - When one person signifies to another his

willingness to do or to abstain from doing anything, with a view to willingness to do or to abstain from doing anything, with a view to

obtaining the assent of that other person either to such act or abstinence, obtaining the assent of that other person either to such act or abstinence,

he is said to make a proposal. he is said to make a proposal.

Acceptance sec 2(b) Acceptance sec 2(b) - When the person to whom the proposal is made, - When the person to whom the proposal is made,

signifies his assent there to , the proposal is said to be accepted. signifies his assent there to , the proposal is said to be accepted.

Promise sec 2(b) Promise sec 2(b) - A Proposal when accepted becomes a promise. In - A Proposal when accepted becomes a promise. In

simple words, when an offer is accepted it becomes promise. simple words, when an offer is accepted it becomes promise.

Promisor and promise sec 2(c) Promisor and promise sec 2(c) - When the proposal is accepted, the - When the proposal is accepted, the

person making the proposal is called as promisor and the person person making the proposal is called as promisor and the person

accepting the proposal is called as promisee. accepting the proposal is called as promisee.

PROMISEPROMISE

CONSIDERATIONCONSIDERATION

AGREEMENTAGREEMENT

Consideration sec 2(d) Consideration sec 2(d) - When at the desire of the promisor, the - When at the desire of the promisor, the

promisee or any other person has done or abstained from doing promisee or any other person has done or abstained from doing

something or does or abstains from doing something or promises to do something or does or abstains from doing something or promises to do

or abstain from doing something, such act or abstinence or promise is or abstain from doing something, such act or abstinence or promise is

called a consideration for the promise. called a consideration for the promise.

Price paid by the one party for the promise of the other Technical word Price paid by the one party for the promise of the other Technical word

meaning meaning QUID-PRO-QUOQUID-PRO-QUO i.e. something in return. i.e. something in return.

Agreement sec 2(e) Agreement sec 2(e) - Every promise and set of promises forming the - Every promise and set of promises forming the

consideration for each other. consideration for each other.

Contract sec 2(h) Contract sec 2(h) - An agreement enforceable by Law is a contract. - An agreement enforceable by Law is a contract.

AGREEMENTAGREEMENT ENFORCEABLE BY LAWENFORCEABLE BY LAW CONTRACTCONTRACT

As per Section 10 “All agreements are contracts, if they As per Section 10 “All agreements are contracts, if they

are made – by free consent of the parties, competent to are made – by free consent of the parties, competent to

contract, for a lawful consideration and with a lawful object, contract, for a lawful consideration and with a lawful object,

and not hereby expressly declared to be void .”and not hereby expressly declared to be void .”

ESSENTIALS OF A VALID CONTRACT ESSENTIALS OF A VALID CONTRACT

ESSENTIAL ELEMENTS OF A VALID CONTRACTESSENTIAL ELEMENTS OF A VALID CONTRACT

• • Offer and acceptance Offer and acceptance

• • Legal relationship Legal relationship

• • Consensus - ad-idem Consensus - ad-idem

• • Free consent. Free consent.

• • Capacity or competency of partiesCapacity or competency of parties

• • Lawful objectLawful object

• • Lawful consideration Lawful consideration

• • Certainty and possibility of performance Certainty and possibility of performance

• • Agreements not declared to be void Agreements not declared to be void

• • Legal formalities Legal formalities

1.1. Offer and AcceptanceOffer and Acceptance: In order to create a valid contract, there : In order to create a valid contract, there

must be an agreement between two parties. An agreement must be an agreement between two parties. An agreement

involves a involves a valid offer by one party and valid acceptance of the valid offer by one party and valid acceptance of the

same by the other party. same by the other party.

2. Legal relationship2. Legal relationship: When two parties enter into an agreement, their : When two parties enter into an agreement, their

intention must be to create legal relationship intention must be to create legal relationship between them. This between them. This

means that the parties must intend that if one of them falls to perform means that the parties must intend that if one of them falls to perform

his promise, he shall be answerable for that failure in law. his promise, he shall be answerable for that failure in law.

[an agreement of a purely domestic or social nature is not a contract ] - [an agreement of a purely domestic or social nature is not a contract ] -

Husband paying household allowanceHusband paying household allowance

3. Consensus-ad-idem3. Consensus-ad-idem: The minds of both the parties must be ad-idem. : The minds of both the parties must be ad-idem.

In other words, the two parties must have In other words, the two parties must have agreed about the subject agreed about the subject

matter of the contract at the same time and in the same sense.matter of the contract at the same time and in the same sense.

4. Free consent (Permission or Willingness): 4. Free consent (Permission or Willingness): An agreement must have An agreement must have

been made by free consent of the parties. consent is said to be free been made by free consent of the parties. consent is said to be free

when it is when it is not caused by coercion, undue influence, fraud, not caused by coercion, undue influence, fraud,

misrepresentation or mistakemisrepresentation or mistake..

5. Capacity : 5. Capacity : The parties to a contract must have capacity (legal ability) The parties to a contract must have capacity (legal ability)

to make valid contract. to make valid contract. Section 11:- of the Indian contract Act specify that every person is Section 11:- of the Indian contract Act specify that every person is competent to contract provided. competent to contract provided. Is of the Is of the age of majorityage of majority according to the Law which he is subject according to the Law which he is subject Who is of Who is of sound mind sound mind and and Is Is not disqualified not disqualified from contracting by any law to which he is subject. from contracting by any law to which he is subject.

6. Lawful object :6. Lawful object :The The object(purposeobject(purpose) of agreement should ) of agreement should be lawful and be lawful and legal. legal.

Consideration or object of an agreement is unlawful if it Consideration or object of an agreement is unlawful if it IllegalIllegalImmoralImmoralOpposed to a public policy Opposed to a public policy

7. Lawful consideration : 7. Lawful consideration : All contracts must be supported by All contracts must be supported by

consideration. Consideration means consideration. Consideration means “something in return” “something in return” (quid pro (quid pro

quo). It can be quo). It can be cash, kind, an act or abstinence (Self denial of doing an cash, kind, an act or abstinence (Self denial of doing an

act)act). It can be past, present or future. However, consideration should be . It can be past, present or future. However, consideration should be

real and lawful.real and lawful.

A consideration must not be unlawful, immoral or opposed to the public A consideration must not be unlawful, immoral or opposed to the public

policypolicy.

8. Agreement Not declared to void8. Agreement Not declared to void

9. Certainty & Possibility of performance9. Certainty & Possibility of performance

10. Legal formalities 10. Legal formalities •A contract may be oral or in writingA contract may be oral or in writing

ELEMENTS OF A VALID CONTRACTELEMENTS OF A VALID CONTRACT

CONSIDERATIONCONSIDERATION

AGREEMENTAGREEMENTREALITY OF REALITY OF CONSENTCONSENT

CAPACITYCAPACITY

LEGALITYLEGALITY

BARGAINED BARGAINED FORFOR

ACCEPTANCEACCEPTANCE

LEGAL LEGAL DETRIMENT/DETRIMENT/

LAWFULLAWFUL

OFFEROFFER SUBJECT SUBJECT MATTERMATTER

OBJECTIVEOBJECTIVEnot validnot valid• FRAUDFRAUD• MISREPRESENTATIONMISREPRESENTATION• DURESSDURESS• UNDUE INFLUENCEUNDUE INFLUENCE• MUTUAL MISTAKEMUTUAL MISTAKE

not validnot valid•INFANTSINFANTS•MENTALMENTAL•DRUNKARDSDRUNKARDS•CORPORATIONSCORPORATIONS

WRITINGWRITING

ReviewReview

Legal relationshipLegal relationship

Two partiesTwo parties

TYPES OF CONTRACT TYPES OF CONTRACT

ON THE BASIS OF CREATIONON THE BASIS OF CREATION

Express Contracts: Express Contracts: Where the terms of the contract are expressly agreed Where the terms of the contract are expressly agreed

upon in words (written or spoken) at the time of formation, the contract upon in words (written or spoken) at the time of formation, the contract

is said to be express contract.is said to be express contract.

Implied Contracts: Implied Contracts: Implied contracts in contrast come into existence by Implied contracts in contrast come into existence by

implication. implication.

Most often the implication is by law and or by action. Most often the implication is by law and or by action.

Eg: Boarding a Bus.Eg: Boarding a Bus.

Tacit ContractsTacit Contracts: : Tacit contracts are those that are inferred through the Tacit contracts are those that are inferred through the

conduct of parties. conduct of parties.

Quasi Contracts: Quasi Contracts: A quasi contract is created by law. Thus, quasi A quasi contract is created by law. Thus, quasi

contracts are strictly not contracts as there is no intention of parties to contracts are strictly not contracts as there is no intention of parties to

enter into a contract. It is legal obligation which is imposed on a party enter into a contract. It is legal obligation which is imposed on a party

who is required to perform itwho is required to perform it

ON THE BASIS OF VALIDITYON THE BASIS OF VALIDITY

Valid contract : Valid contract : An agreement which has all the essential elements of a An agreement which has all the essential elements of a

contract is called a valid contract. A valid contract can be enforced by law.contract is called a valid contract. A valid contract can be enforced by law.

Void contract : Void contract : "A contract which ceases to be enforceable by law "A contract which ceases to be enforceable by law

becomes void when it ceases to be enforceable". Thus a void contract is becomes void when it ceases to be enforceable". Thus a void contract is

one which cannot be enforced by a court of law. one which cannot be enforced by a court of law.

Eg: A contract to import goods from a foreign country becomes void Eg: A contract to import goods from a foreign country becomes void

when a war breaks out between the importing and exporting country.when a war breaks out between the importing and exporting country.

Voidable contract Voidable contract : Defines that an agreement which is enforceable by : Defines that an agreement which is enforceable by

law at the option of one or more parties but not at the option of the law at the option of one or more parties but not at the option of the

other or others is a voidable contract. other or others is a voidable contract.

Result of coercion, undue influence, fraud and misrepresentation. Result of coercion, undue influence, fraud and misrepresentation.

Unenforceable contract : Unenforceable contract : Where a contract is good in substance but Where a contract is good in substance but

because of some technical defect cannot be enforced by law is called because of some technical defect cannot be enforced by law is called

unenforceable contract. These contracts are neither void nor voidable.unenforceable contract. These contracts are neither void nor voidable.

Example: Writing registration or stamping. Example: Writing registration or stamping.

Illegal contract : CIllegal contract : Contracts those which are forbidden by law. All illegal ontracts those which are forbidden by law. All illegal

contracts are hence void also, because of the illegality of their nature contracts are hence void also, because of the illegality of their nature

they cannot be enforced by any court of law. In fact even associated they cannot be enforced by any court of law. In fact even associated

contracts cannot be enforced. Contracts which are opposed to public contracts cannot be enforced. Contracts which are opposed to public

policy or immoral are also illegal.policy or immoral are also illegal.

““All illegal agreements are void agreements but all void agreements are not All illegal agreements are void agreements but all void agreements are not illegal.”illegal.”

ON THE BASIS OF EXECUTIONON THE BASIS OF EXECUTION

.

Executed contract : Executed contract : An executed contract is one in which both the An executed contract is one in which both the

parties have performed their respective obligation.parties have performed their respective obligation.

Executory contract : Executory contract : An executory contract is one where one or both An executory contract is one where one or both

the parties to the contract have still to perform their obligations in the parties to the contract have still to perform their obligations in

future. Thus, a contract which is partially performed or wholly future. Thus, a contract which is partially performed or wholly

unperformed is termed as executory contract.unperformed is termed as executory contract.

ON THE BASIS OF LIABILITYON THE BASIS OF LIABILITY

Unilateral contract : Unilateral contract : A unilateral contract is one in which only one A unilateral contract is one in which only one

party has to perform his obligation at the time of the formation of the party has to perform his obligation at the time of the formation of the

contract, the other party having fulfilled his obligation at the time of contract, the other party having fulfilled his obligation at the time of

the contract or before the contract comes into existence.the contract or before the contract comes into existence.

Bilateral contract : Bilateral contract : A bilateral contract is one in which the obligation A bilateral contract is one in which the obligation

on both the parties to the contract is outstanding at the time of the on both the parties to the contract is outstanding at the time of the

formation of the contract. Bilateral contracts are also known as formation of the contract. Bilateral contracts are also known as

contracts with executory consideration.contracts with executory consideration.

THANK YOUTHANK YOU