Indian Contract Act Ppt 13

7/29/2019 Indian Contract Act Ppt 13

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Social & Legal Issues

Indian Contract Act 1872


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INDIAN CONTRACT ACT 1872

Indian Contract Act consists of the way we enter into a contract, execute a

contract, implement provisions of a contract and effects of breach of a contract

Provides a framework ofrules and regulations which govern formation and

performance of contract

The Act extends to the whole of India except the State of Jammu and Kashmirand came into effect on 1-9-1872.

There are separate Acts which deal with contracts relating to negotiable

instruments, transfer of property, sale of goods, etc.


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INDIAN CONTRACT ACT 1872

Contract need not be in writing, unless there is

specific provision in law that the contract

should be in writing. A verbal contract isequally enforceable, if it can be proved


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FORMATION OF A CONTRACT

an agreement +

The agreement should

beenforceable by law

WHAT IS AGREEMENT?

Every promise and everyset of promises formingthe consideration for eachother.

Consensus-ad idem

WHEN AGREEMENTBECOMES CONTRACT ?

An agreement, the law willenforce is a contract. Anagreement is a contract when itis made for some consideration,between parties who arecompetent, with their freeconsent and for a lawful object.


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EXAMPLE !!A agrees to pay Rs 100 to B and

B agrees to give him a book which is

priced at Rs 100. This is set of

promises which form considerationfor

each other

IS A CONTRACT !!

A agrees to pay Rs 100 to B, but B

does not promise anything, it is not set

of promises forming consideration for

each other and hence not an

agreement.

NOT A CONTRACT !!

CONSIDERATION : recompense given by the party contracting the other.

ACCEPTANCE : is the consent given to a proposal, and it has the effectof converting the proposal into promise.

PROMISE : A proposal or an offer , when accepted, becomes a promise


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STEPS INVOLVED IN CONTRACT

Offer and its acceptance

Free consent of both parties

Mutual and lawful

consideration for agreement

enforceable by law

Parties should be competentto contract

Contd.


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Social & Legal IssuesObject should be lawful

Certainty and possibility ofperformance

Contract should not havebeen declared as void under

Contract Act or any otherlaw

VOID CONTRACT : A contract whichceases to be enforceable by lawbe-comes void .Thus, initially a contractcannot be void. The simple reason is that

in such a case, it is not a contract at all tobegin with. Hence, only a valid contractcan become void contract due to somesubsequent events. e.g. the person diesor property is destroyed or Government

imposes a ban etc.

ILLUSTRATION :

A agrees to buy a certain horsefrom B. It turns out that the

horse was dead at the time ofbargain, though neither partywas aware of the fact. Theagreement is void.


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Agreement

All contracts are agreements, but all agreements are not

contract.Salmond

The Law of Contracts: is not the whole law of agreement,

nor is it the whole law of obligations (commitment). It is thelaw of those agreements which create obligations and those

obligations which have their source in agreements


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Classification of Contract

On the basis of enforceability:

Valid Contract Void Contract

Voidable Contract

Illegal Contract (Void ab initio)

Unenforceable Contracts

On the basis of mode of Creation:

Express Contract

Implied Contract

Quasi Contract /Constructive contract


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Classification of Contract

On the basis of extent of execution:

Executed Contract Executory Contract

Contingent Contract


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Unenforceable Contract A contract for which there is no legal remedy.

Acceptable alternative ways of describing an unenforceable contract are:

An otherwise valid contract, which the courts cannot do anything about if it is breached.

A contract for which the courts cannot help the injured party.

This is an otherwise valid contract but the courts cannot provide a remedy when there is abreach.

An example of an unenforceable contract is:

A contract made 10 years ago in which performance of one party was completed 9 years agobut the other party did not pay and no action was taken in the next 9 years. The party that wasnot paid cannot get paid now because of the Statute of Limitations so the courts can donothing for the party to whom the money was owed.


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Essential Elements of a Valid Contract

Proposal and Acceptance:

1. Proposal=offer2. Essentials

Essentials of a Proposal

a) Expression of Willingness, to do or abstain from doingsomething

b) Expression must be to another person

c) Must be made with a view to obtain the assent of the other

person.

d) Term of proposal must be definite


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Legal Rules Regarding a Valid ProposalA valid proposal must be in conformity with the following:

a) It should be expressed or implied. For example:

i) A says to B that he will sell his car to B for Rs 80,000. This is an

express proposal.ii) The DTC runs buses on different routes to carry passengers at the

scheduled fares. This is an implied proposal by the DTC.

b) Terms should be certain and not loose or vague

c) Should be capable of creating legal relation.d) An invitation to proposal is not a proposal

e) Communicated to the proposee

f) Should not contain a term the non compliance of which wouldamount to acceptance

g) Can be made subject to any terms and conditions

h) Two identical cross offers do not make a contract.

i) May be specific or general.


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Essentials of Valid Acceptance

1) Acceptance must be absolute and unqualifiedconsensusad idem

2) Acceptance must be expressed in some usual andreasonable manner

3) Mental acceptance is not sufficient in law.

4) Acceptance must be communicated to the proposer

5) Acceptance must be given within reasonable time6) Acceptance of the proposal is the acceptance of terms.

7) Acceptance of the proposal need not always beexpressed in words

8) Acceptance must be by a certain person9) If the act is done in ignorance of the proposal, it is no

acceptance of the proposal


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Essentials of a Valid ConsiderationConsideration (the price for which the promise of the

other party is bought)

must move at the desire of the promisor

b) may move from the promisee or any other person

c) may be past, present, or futured) must be something of value

e) must be legal

f) may be doing something, or abstaining from doingsomething or a promise to do something.


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Consideration No consideration no contract

Exceptions to No Consideration No Contract

An agreement which is registered in writing and based onnatural love and affection is valid and enforceable by law.

Agreement to Compensate for Past Voluntary Service

Consideration is not required for the creation of an agency.

Promise to pay time barred debt is valid if the promise is inwriting and duly signed.

Consideration to charity

Completed Gift


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Capacity of Parties

Who is Competent to Contract?

One who

is of the age of majority

is of sound

is not disqualified from contracting by any law towhich he is subject. (Alien, Enemies, ForeignAmbassadors, Convict, Company/corporation andinsolvents)


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Position of agreements by a Minor

An agreement by a minor is void and inoperative asagainst him

No restitution (cannot be ordered to paycompensation)

Beneficial agreements are valid contracts

No ratification on attaining the age of majority:Contract void ab- initio

Minors liability for necessaries

Minor partner

Contract by minor and adult jointly

Position of Minors parents


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Free Consent: A Consent is Free when it is not caused

By Coercion, Undue Influence, Fraud, Misrepresentation or

Mistake

Subtle in CharacterIts of Violent

character

Character

Its of moral characterMainly of

physical

character

Nature

Consent is obtained by thedominating will of the otherConsent isobtained by

threat of an

offence

Basis

Undue InfluenceCoercionPoints of

Distinction

Distinction Between Coercion and Undue Influence


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Distinction between Fraud and Misrepresentation

This plea can not be

raised in case of fraud ,

except in cases when

silence amounts to fraud

The contract cannot be

avoided if the party whose

consent was so caused, had

the means of discovering

the truth with ordinarydiligence

Effect of Discovering truth

Contract Voidable at the

option of the party injured

and gives right to an

independent action in tort

(civil wrong doing).

Contract Voidable at the

option of the party injured

Effects of Breach

The person making the

statement does not

believe it to be true

The person making the

statement believes it to be

true

Belief of the person making

the statement

False statementdeliberately made to

deceive

A false innocent statementwithout intention to deceive

False statement

There is intention to

deceive

There is no intention to

deceive

Intention to deceive

FraudMisrepresentationPoints of Distinction


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Lawful Objects:

The object of the agreement is unlawful in

following cases: If it is forbidden by law

If it is of such a nature that , if permitted it

would defeat the provision of any law. If it is fraudulent (deceptive).

If it involves or implies injury to a person or

property of another.

If the Court regards it as immoral or exposed to

public policy.


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Contingent Contract

A contingent contract is a contract to do or not to do

something, if some event collateral to such contract

does or does not happen.

Contract of insurance and contracts of indemnity

(protection) and Guarantee (assurance) are examples

of contingent contract. Essentials of Contingent Contract

a) Dependence on a future event

b) Collateral Event: incidental happening as a chance

consequence

c) Uncertain Event unknown


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Quasi Contract

A quasi contract is not a contract

In a Quasi contract the rights and obligations do not arise as a resultof an agreement b/w the parties but the law imposes certainobligations under some special circumstances.

It is based upon the principle of equity that a person shall notbeallowed to get benefit at the expense of another.

Kinds of Quasi Contracts

Claim for necessaries supplied to a person incapable of contacting

Reimbursement of person paying money due by another, in payment of

which he is interested

Obligation of person enjoying benefits of non-gratuitous acts

Responsibility of finder of goods

Liability of a person to whom money is paid, or thing delivered by mistake

or under coercion.


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Example of Quasi Contract

An example of a quasi-contract is the case of a plumber who accidentallyinstalls a sprinkler system in the lawn of the wrong house. The owner of the

house had learned the previous day that his neighbor was getting newsprinklers. That morning, he sees the plumber begin installing them in hisown lawn. Pleased at the mistake, he says nothing, and then refuses to paywhen the plumber hands him the bill, claiming that he never agreed to payfor the sprinklers. If the plumber can prove that the man knew that thesprinklers were being installed mistakenly on his property and failed to

prevent the installation, the court would make him pay under a quasi-contract theory. If that knowledge could not be proven, he would not beliable

The plumber conferred a benefit on the owner by installing the sprinklersystem.

The owner accepted the installation of the sprinkler system by not stoppingthe plumber when he first noticed the mistake.

Without payment, the owner will unfairly benefit at the expense of themistaken plumber.


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Contract Vs Quasi Contract

It only resembles acontract. Its an

implied contract , but

its results resemble

those created by a

contract.

Its a full- fledgedcontract and is binding

Nature

Essentials for

formation of a contract

are absent

The contract has

certain essential

elements

Essential Elements

There is no agreement

at all

Contract is an

agreement

Agreement

It is an obligation

resembling that

created by a contract

Contact results from

the will of the parties

expressed with a view

to create an obligation

Purpose

Quasi ContractContractPts. of Distinction


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Discharge Of A Contract

A contract coming to an end by:

1. Discharge by Performance: Actual and Attempted

2. Discharge by Mutual Consent:

Novation : substitution

Rescission :cancellation

Alteration: Discharges the original contract

Remission: lesser acceptance of sum

Waiver :intentional relinquishment (giving up and abandoning)

3. Discharge by supervening (unexpected )impossibility

Destruction of subject matter

Death of he promissor or personal incapacity

Outbreak of war

Change of law

Non existence of a particular state of things


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Cases not covered by supervening impossibility

Difficulty of performance

Strikes , lockouts and civil disturbance

Commercial Impossibility

Default of a third person

4) Discharge by lapse of time

5) Discharge by operation of Law

Death of the promissor

By insolvency

By merger

6)Discharge by breach of contract


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Contract of Indemnity

A contract by which one party promises to save the other from the loss

caused to him by the conduct of the promisor himself , or by the conduct

of any other person is called a contract of indemnity

Example: A and B go into a shop. B says to the shopkeeper" let A have the

goods, I will see that you are paid The contract is of indemnity

(protection)

Indemnifier: Person who promises to make good the loss.

Indemnified or Indemnity: Person whose loss is to be made good.


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Contract of Guarantee (Security)

A contract of Guarantee is a contract to perform the promise or discharge

the liability of a third person in case of his default.

Ex: A and B go into a shop. A says to the shopkeeper C, Let B have the

goods, and if he does not pay, I will?


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Distinction: Contract of Indemnity vs Contract of Guarantee

The liability of the

surety is secondary

The liability of the

indemnifier is primary

in nature.

Nature of Liability

Three. Principal debtor

and creditor, betweencreditor and surety and

the third between the

surety and the

principal debtor

One between

indemnifier and theindemnified

Number of Contracts

For the surety of thedebt or good conduct

of an employer

Reimbursement of lossObject of Purpose

Three. The creditor,

the principal debtor

and the surety

Two. The indemnifier

and indemnity holder

Number of Parties

Contract of GuaranteeContract of IndemnityPt of Distinction


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Social & Legal IssuesDistinction: Contract of Indemnity vs Contract of

GuaranteeContract of GuaranteeContract of IndemnityPt of Distinction

The surety, after he

discharges the debt

owing to the creditor,

can proceed against

the principal debtor inhis own right

The indemnifier cannot

sue the third party for

loss in his own name.

He can only do so if

there is an assignmentin his favour

Right to Sue

There is existing debt

or duty, the

performance of which

is guaranteed by the

surety

In most cases ,there is

no existing debt or

duty

Existing Debt or Duty

It is necessary that the

surety should give theguarantee at the

request of the debtor

The indemnifier acts

independently withoutany request of the

indemnity holder or

the third party

Request by the debtor

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Bailment and Pledge

Bailment : A bailment is the delivery of goods by one

person to another for some purpose, upon a contract that

they shall , when the purpose is accomplished , bereturned to otherwise disposed of according to the

direction of the person delivering them..

Bailor : The person delivering the goods.

Bailee: The person to whom the goods are delivered .

Pledge: The bailment of goods as security for payment of

a debt or performance of a promise is called pledge.The bailor in this case is called a pawner and the bailee is

called the Pawnee. Pledge is therefore a kind of

bailment.

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Distinction between Pledge and Bailment

No such restriction

exists for the bailee if

the nature of such

transition so required.

The pledger has no

right of using the

goods pledged

Right of using the

goods

No such right of sale

to the bailee

The pledge has a right

of sale, on default after

giving notice to the

pledger.

Right of Sale

Goods may be bailedfor any purpose. Eg.

Repair, sale, custody

etc

Its a bailment for aspecific purpose, i.e

security for a loan

Purpose

BailmentPledgePts of Distinction

Indian Contract Act Ppt 13

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Transcript of Indian Contract Act Ppt 13