Indian Contract Act 1872 (S.

2)
Module I: Indian Contract Act 1872 Nature and kinds of contracts, concepts related to Proposal (offer), acceptance and consideration, principles governing capacity of parties and free consent, legality of objects, performance and discharge of contract, breach of contract and its remedies, special contracts of Indemnity and Guarantee, Bailment and Pledge, Agency

Indian Contract Act 1872 (S.2)

Contract: Agreement, enforceable by law Proposal: is an offer to do (or to abstain from doing)
anything in order to obtain the assent of another

Acceptance- giving assent Promise: An accepted proposal Consideration: doing (or abstaining from doing)
anything, having done, or promising to do.

Agreement is a set of promises, forming Consideration for each other.

Contract (Def.)
A contract is an agreement, enforceable by law, made between at least two parties, by which rights are acquired and obligations are incurred by parties. If the party which had agreed to do something fails to do that, then the other party has a remedy. Examples- Sale, Purchase, Franchise, Agency, Employment, Partnership, going to a restaurant and giving an order, etc.

What Agreements are Contracts

All agreements are contracts if they are made by (i)free consent of parties (ii) competent to contract, (iii)for a lawful consideration, (iv) with a lawful object, and (v) are not expressly declared void. Some contracts are required to be made in writing, in the presence of witnesses, affixed with stamps and registered.

Kinds of Contracts
1. 2. 3. 4. 5. Types of Contracts- Indemnity, Guarantee, Bailment, Pledge, Agency Classification of contracts -on the basis of: validity, mode of formation, performance Validity: Valid, Voidable, Void, Unenfoceable, Illegal Mode of Formation: Written, oral, express, implied Performance: Executed, Executory Contingent Contract: contingent on an event Quasi Contract: Relations resembling contracts

Conditions essential for a Valid Contract 1. Parties should be competent to contract[ Age of majority(18 years or more), sound mind, not disqualified from contracting under any law] 2. Agreement should be made by the free consent of parties. Consent should not be caused by coercion, undue influence, fraud, misrepresentation or mistake 3. Agreement should have lawful consideration and lawful object.( Not forbidden by law, not involving injury
to person or property of another, not fraudulent, not immoral, will not defeat the provisions of any law, not opposed to public policyS 23)

Conditions essential for a Valid Contract (contd.)

4. Agreement should not be expressly declared void. [Without consideration ( S 25), In restraint of marriage ( S 26), In absolute restraint of trade ( S 27), In absolute restraint of legal proceedings ( S 28), Wagering agreements ( S 29)]

Free consent (S.14)

Not caused by: Coercion (threat), S.15 Undue Influence (doctor-patient, etc.), S.16 Fraud ( to deceive), S.17 Misrepresentation, S.18, 19 Mistake (mutual mistake of fact,), S.20,21,22.mistake of law. ( mistake of law, mistake of one party) Meaning of agreement should be certain ( S 29) Agreement must be capable of performance ( S 36).

Free consent (Contd.)

Coercion: (1)Committing or threatening to commit any act forbidden by the Indian Penal Code 1860, or,(2) unlawful detaining of any property for causing any person to enter into an agreement (S.15) Undue Influence: Where one of the parties is in a position to dominate the will of the other ( holds real or apparent authority, stands in a fiduciary relation or the mental capacity of one of the parties is affected by age, illness or distress) and uses that position to obtain an unfair advantage over the other. If the transaction appears unconscionable, the burden of proof is on the party who is in a position to dominate the will of the other. (S.16)

Free consent (Contd.)

Fraud: An act intended and fitted to deceive to induce him to enter into the contract, and includes: (i) Suggestion as a fact of that which is not true by one who does not believe it to be true (ii) Active concealment of a fact by one having knowledge or belief of the fact Explanation: mere silence as to facts likely to affect willingness is not fraud, unless there is a duty to speak (s.17)

Free consent (Contd.)

Misrepresentation: Means and includes: (i) Positive assertion, in a manner not warranted by information, of that which is not true, though he believes it to be true (ii) Causing , howoever innocently, a party to make mistake as to the substance of the thing which is the subject of the agreement

Voidability of Agreements without free consent (S 19, 19A)

When consent is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused A party whose consent was caused by fraud or misrepresentation may insist that he be put in a position in which he would have been if the representations made had been true Contract not voidable if the party whose consent was so caused had the means of discovering the truth with ordinary diligence (S.19)

Voidability of Agreements without free consent (S 19, 19A) (Contd.)

Power to set aside contract induced by undue influence. Such a contract is voidable at the option of the party whose consent was so caused. Such a contract may be set aside absolutely or, if the party entitled to avoid has received any benefit, upon such terms and conditions as to the court may seem just.

Void Agreements (S. 24-29)

Agreements are void: (i) If consideration and objects are unlawful in part (ii) Agreement without consideration is void, unless it is in writing and registered (made due to natural love and affection between parties in near relation) or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law, or is a gift (iii) Agreement in restraint of trade is void except an agreement to carry on business of which goodwill is sold

Void Agreements (S. 24-29)(Contd.)

(iv) Agreements in absolute restraint of legal proceedings in respect of a contract are void, except contracts to refer a dispute to arbitration (v) Agreements the meaning of which is not certain are void (vi) Agreements by way of wager are void, except agreements for horse racing carrying a prize of rs 500 or upwards

Void/ Voidable Agreements

An agreement not enforceable by law is said to be void An agreement enforceable at the option of one or more of the parties, but not at the option of the other(s) is a Voidable agreement

Distinction between Void and Voidable Contracts

Legal effect can be repudiated at the option of one party Becomes unenforceable, when that party rescinds Does not affect collateral transactions The person who has received any benefit must restore it, when the contract is rescinded

Example
Collateral Contract: A purchased from B by making a misrepresentation. Later B comes to know about the representation. However, he does not within a reasonable time, repudiate the contract. A sells those goods to C, a bonafide purchaser for value, Cs title shall be good

Essentials of a Valid Contract (S10)

There should be free consent Parties should be competent to contract There should be lawful consideration There should be lawful object Contract should not expressly be declared void or illegal

Examples
1. Mistake: A pays B rs 10,000 in consideration of Bs promise to sell him some goods. The goods had been destroyed at the time of promise. The agreement is void and unenforceable. 2. Impossibility: A promises to pay B Rs 10,000; for Bs promise to make two parallel lines meet. The agreement is void.

Contract when Essentials are Missing

Void Voidable Illegal Unenforceable Examples: 1. A contract for paying bribe is illegal. 2. A contract with an alien enemy is unenforceable 3. An unstamped sale deed is unenforceable, unless the required stamps are fixed and penalty paid

Contracts Expressly Declared Void

1. Agreement with a minor (S.11) 2. Mutual mistake of fact between parties (S.20) 3. Consideration, or a part, unlawful (S.23,24) 4. Agreements without consideration (S.25) 5. Agreements in restraint of marriage (S.26) 6. Agreements in restraint of trade (S.27)

Contracts Expressly Declared Void

7. Agreements in absolute restraint of legal proceedings (S.28) 8. Uncertain agreements (S. 29) 9. Wagering agreements (S. 30)- Insurance, sanctioned lotteries are not wagers 10. Impossible agreements ( S. 56) 11.An agreement to enter into an agreement in future

Duties of an Employee (S.211-221)

To conduct business of his employer according to the directions of the employer. (S.211) In the absence of directions, according to the custom which prevails in doing business of the same kind at that place. When the employee acts otherwise, if any loss is sustained, he must make it good, and, if any profit accrues, he must account for it. (S.211) To use ordinary skill and due diligence (S 212) To render accounts on demand (S 213) Duty to communicate in case of difficulty (S 214) Example

Quantum Meruit
As much as merited: The general rule is that unless a person has performed his obligations in full, he can not claim performance by the other. Quantum Meruit is an exception based on Quasi Contractual Obligations, which the law implies in the circumstances.

When a Suit Lies for Quantum Meruit

Suit for quantum Meruit (as much as merited/earned) It is a claim, based on quasi-contractual obligation, by a party who has not performed his obligations in full, against the party not in default who has received any benefit:
(i) (ii) (iii) (iv) When a contract is discovered to become unenforceable or void (Singer falling ill after part performance-S 65) When one party abandons or refuses to perform the contract (part supply) When a contract is divisible (contract with mile stones) When an indivisible contract is completely but badly performed (cost of making repairs so as to conform to the contract) (S. 73)