The Indian Contract
Act(ICA), 1872
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Nature of Contract
• The fabric of modern industrial society is woven
around economic relationships.
• The relational integration and determination of
mutual rights and obligations are dependent, to a great
extent, on ex contractum terms.
• Contracts arising out of economic and social
relationships.
• Such relations are either contractual or akin to a
contract.
• The market functions on the very premise of effective
functioning of contractual relationship. 2
What is a contract
• A written or spoken agreement intended to be
enforceable by law.
• An agreement enforceable by law is a contract.
[Section 2(h) ]
• A contract is an agreement made between two or
more parties, which the law will enforce.
• Contract is a method through which individuals make
law for themselves by creating rights and
obligations ex contractas. 3
CONTRACT
• Every agreement and promise enforceable at law is a
contract. Pollock.
• An agreement creating and defining obligations
between the parties. Salmond
4
Section 10
• All agreements are contracts if –
• they are made by the free consent of the parties,
• competent to contract,
• for a lawful consideration and,
• with a lawful object, and
• are not expressly declared to be void.
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Essential Elements of a Contract
• At least two or more parties
• Offer & Acceptance
• Consensus ad idem
• Lawful Object & Consideration-Quid pro quo
• Capacity of parties to enter into a Contract
• Free consent
• Agreement not expressly declared void
• Certainty and possibility of performance
• Intention to create legal relationship
• Legal formalities
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Classification of Contracts
a) On the basis of Formation/ Modes of Creation
• Express Contract – written & oral
• Implied contract – conduct of the parties
• Quasi Contract / Constructive Contract – Unjust
enrichment/ equity; Restitution
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b) On the basis of Enforceability
• Void Agreement
• Valid Contract
• Void Contract
• Voidable Contract
• Illegal Agreement/Contract
• Unenforceable Contract
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Elements of Offer
• It must be made by one person to another person.
• It must be an expression of readiness or willingness
to do or to abstain form doing something.
• It must be made with a view to obtain the consent of
that other person.
• Terms of offer must be definite, unambiguous and
certain.
• Offer must be communicated.
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Types of Offer
• Express Offer – by words written or spoken.
• Implied Offer – By conduct or circumstances.
• Specific Offer- Made to a specified or definite person.
• General Offer- Made to public at large
• Counter offer
• Standing offer
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Legal Rules as to Acceptance
1. Must be absolute and unqualified.
2. Must be communicated to the offeror.
3. Must be according to the mode prescribed or usual
and reasonable mode.
4. Must be given within a reasonable time.
5. Cannot precede an offer.
6. Must be given by the party to whom the offer is made.
7. Must be given before the offer lapse or is withdrawn.
8. It cannot be implied from silence.
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Revocation or lapse of Offer (Sec. 6)
• By communication of notice of revocation.
• By lapse of time.
• By non-fulfillment by the offeree of a condition
precedent to acceptance.
• By death or insanity of the offeror.
• If a counter offer is made.
• If an offer is not accepted according to the prescribed
or usual mode.
• If the law is changed. 12
Consideration
• Consideration is some kind of an exchange between the
parties to an agreement.
• Consideration is the price for which the promise of the
other is bought and the promise thus given for value is
enforceable. Pollock
• A valuable consideration in the sense of the law may
consist either –
• in some right, interest, profit or benefit accruing to one
party, or
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Definition
• When at the desire of the promisor, the promisee or
any other person –
• has done or abstained from doing, or
• does or abstains from doing, or
• promises to do or to abstain from doing something
• such act or abstinence or promise is called a
consideration.” [Section 2(d)]
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Capacity to contract
• Every person is competent to contract who-
• Is of the age of majority according to the law to
which he is subject.
• Is of sound mind.
• Is not disqualified from contracting by any law
to which he is subject. (Sec 11)
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Free Consent
• Consent means an act of approval or assenting to an
offer.
• Two or more persons are said to consent when they
agree upon the same thing in the same sense.
• Consent involves ad idem i.e. identity of mind about
the subject matter of contract.
• A mere consent is not enough, it should be free and
voluntary.
• Not to be caused by any vitiating factors given u/s 14.
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Section 14
• Consent is said to be free when it is not caused by –
• a) Coercion.
• b) Undue influence.
• c) Fraud.
• d) Misrepresentation.
• e) Mistake.
• The contract is said to be voidable at the option of the
party whose consent was not free. [Sec. 19] 17
Agreements Opposed to Public Policy
• While a contract serves private interest it should not
conflict with any other private or public interests.
• Public interest policies invalidate any private agreement.
• Section 23 provides that the consideration or object of an
agreement is lawful unless –
• it is forbidden by law,
• is of such a nature that if permitted, it would defeat the
provision of any law, or
• is fraudulent, or
• involves injury to the person or property of another, or
• the courts regard it as immoral or opposed to public policy.
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Private vs Public Interest
Trade Combination
• Trade combination formed to regulate the business
or to fix prices are not void,
• but trade combinations to create monopoly or cartel,
and
• which are against the public interest are void.
19
Performance of Contract
• Performance of a contract is a mode of discharge of
the contract.
• Performance of contract takes place when the parties
to the contract fulfill their respective obligations
under the contract.
• The parties to a contract must either perform or offer
to perform their respective promises,
• unless such performance is dispensed with or
excused under the provisions of this Act, or of any
other law.[Sec 37] 20
Remedies for Breach of Contract
• When the contract is broken, the injured party has
one or more of the following remedies:
• Rescission of the contract.
• Suit for damages.
• Suit upon quantum meruit.
• Suit for specific performance.
• Suit for injunction.
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Rescission of the contract
• Rescission means a right not to perform an
obligation.
• In case of breach of contract the promisee need not
perform his obligation,
• he is not only discharged from his liabilities but also
he is entitled to claim compensation for damages
• which he might have sustained due to non
performance of the contract. [Section 39]
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Suit for damages
• Damages are monetary compensation allowed to the
injured party for the loss suffered.
• The object of awarding damages is not to punish the
party at fault
• but to make good the financial loss suffered by the
injured party due to breach of contract.
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Quasi Contracts
• Sometime a person may receive a benefit which
the law regards another person as better entitled,
or for which the law considers he should pay to
the other person, even though there is no contract
between the parties. Such relationships are called
quasi contracts.
• Because although there is no contract or
agreement between the parties,
• they are put on the same pedestal as though there
was a contract between them.
• This is based on the principles of equity.
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Contracts of Indemnity
• In a contract of indemnity one party promises to
compensate the other party against loss suffered by
the latter.
• Section 125 confines itself to losses occasioned due to
an act of promisor or due to act of any other persons.
• A contract by which one party promises to save the
other from 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. [Sec 124]
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Contract of Guarantee
• A contract of guarantee is essentially a contract
• to perform the promise or
• discharge the liability of a third person
• in case of his default.
• The basic function of a contract of guarantee is
• to enable a person to get a loan, or goods, or an
employment. [Sec 126]
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Essential features of guarantee
• Surety.
• Principal Debtor.
• Creditor.
• Not be vitiated by incapacity, flaw in consent, and
unlawful character of the agreement.
• May be oral and it may either be expressed or implied.
• Concurrence of parties.
• Existence of Principal debt.
• Essential of a valid contract like Consideration and
Free consent.
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Extent of surety's liability
• The liability of surety is coextensive with that of the
principal debtor. [Sec 128]
• The Surety may limit his liability by an express
agreement.
• The liability of the surety arises immediately when a
default is made by the principal debtor.
• The creditor can sue the surety without suing the
principal debtor.
• If the guarantee is conditional upon another person
joining it as co-surety, the guarantee is not valid if that
person does not join. [Sec 144] 28
Contract of Agency
• An agent is a person employed to do any act for
another, or
• to represent another, in dealings with third persons.
• The person for whom such act is done or who is so
represented, is called the principal."
• Whatever the principal can do himself, he may get the
same done through an agent,; and
• What the principal does by another, he does it himself.
• The acts of the agents are the acts of the principal.
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AGENCY
• To protect the interest of the principal in case of his
death or insolvency.
• Not to use information obtained in the course of
agency against the principal.
• Not to make secret profit.
• Not to set up an adverse title.
• Not to put himself in a position where his interest
and duty conflict.
• Not to delegate authority.
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Termination of agency [Sec 201]
Termination of agency by act of parties
• a) Agreement.
• b) Revocation by the principal.
• c) Revocation by agent.
Termination of agency by operation of law
• a) Performance of contract.
• b) Expiry of time.
• c) Death or Insanity.
• d) Insolvency.
• e) Destruction of subject matter.
• f) Principal becoming an alien enemy.
• g) Dissolution of a company. 31
