CONTRACT ACT

1872
CONTRACT

DEFINITION &
FORMATION
• S.2 (h) states “A contract is an
agreement enforceable by law.”
A contract is formed if:
– There is an agreement and,
– The agreement is enforceable by law.

• Contract = Agreement + Enforceability.

“S.2(e) – An agreement is every promise & every
set of promises forming the
consideration for each other.

AGREEMENT = PROMISE + CONSIDERATION

“S.2(b) – Proposal when accepted becomes a

promise

PROMISE = OFFER + ACCEPTANCE

 Offer S.2(a)

• “When one person signifies to another his

willingness to another to do or abstain
from doing anything with a view to
obtaining the assent of that other to such
act or abstinence, he is said to make a
proposal”
An offer must be distinguished from
• An invitation to make an offer. e.g. window
display, menu card with prices in a restaurant.
• A mere statement of intention. e.g. an
announcement of a coming auction sale.
• A mere communication of information of
Information in the course of negotiation e.g. A
statement of the price at which one is prepared
to consider negotiating the sale of piece of land
(Harvey V Facey)
 Types of offer

• General offer
• Specific offer
• Counter offer
• Cross offer
• Standing offer
 RULES OF OFFER:-

• Must be capable of creating legal relations

• Must be certain, definite & not vague
• May be express or implied
• May be specific or general
• Must be communicated
• Must be with a view to obtaining the consent of
the offeree
• May be conditional
• Should not contain a term, the non-compliance
of which would amount to acceptance
 RULES OF ACCEPTANCE:-

• Must be absolute & unqualified

• Must be communicated to offeror
• Must be in the mode prescribed
• Must be given before the offer lapses or within
a reasonable time
• Mere silence is not acceptance
• Acceptance by conduct
 Enforceability – S.10

 “All agreements are contracts if

they are made by free consent of
parties competent to contract for a
lawful consideration and with a
lawful object and are not hereby
expressly declared to be void.”
CONDITIONS:

1) There should be lawful offer and lawful

acceptance.
2) There must be lawful consideration.
3) The parties should be competent to contract.
4) There must be free consent of the parties to
the contract.
5) Their object should be lawful.
6) Agreement should not be expressly declared
to be void by any other law in force.
7) To create a legal relationship.
8) Must be possible of performance
Classification Of Contracts/Agreement

Basis Of Basis Of Basis Of

Enforceability Formation Performance

- Contract - Express - Executed

- Void Contract Contract
Agreement - Tacit Contract - Executory
- Void Contract - Implied / Contract
- Unenforceable Quasi Contract (a) Unilateral
Contract (b) Bilateral
- Illegal
Agreement
DEFINITION – S.2(d)

“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, such an
act or abstinence or promise is called
consideration for the promise .”
 RULES OF CONSIDERATION:
1) Move at the desire of the promisor.
2) Move from promisee or any other person.
3) Executed & executory
4) Abstinence is valid consideration.
5) Adequacy of consideration.
6) May be past, present or future
7) Performance of what one is legally
bound to perform
8) Must not be unlawful, immoral or
opposed to public policy
 EXCEPTIONS TO THE RULE OF
CONSIDERATION:

1) Natural love & affection.

2) Compensation for past voluntary services.
3) Time-barred Debt
4) Agency
5) Promise to charities
 SUIT BY THIRD PARTY ON
AN AGREEMENT:

1) Trust
2) Family Settlement
3) Certain Marriage Contracts
4) Assignment
5) Estoppel by Acknowledgment
POSITION OF MINOR’S AGREEMENT:-

An agreement entered into by a minor is altogether

void
Minor can be a beneficiary
Minor can always plead minority
Ratification on attaining majority is not allowed
Contract by guardian – how far enforceable
Liability for necessaries
 Consensus ad idem S 13
• The parties should mean the same
thing in the same sense and agree
voluntarily. That is when they are said
to be in consensus ad idem
• S.14 states that not only consent is
required but consent should be free
• Consent is said to be free when it is
not caused by coercion, undue
influence, fraud, misrepresentation or
mistake.
 Coercion S. 15
• The committing or threatening to
commit any act forbidden by the
Indian Penal Code, or the unlawful
detaining or threatening to detain any
property to the prejudice of any
person whatever with the intention of
causing any person to enter into an
agreement.
• English Law: Duress
• Chikkam Amiraju V Ch Sheeshamma
• Ranganaya Kamza V Attwar Setti
 Undue Influence S.16
• A contract is said to be produced by
undue influence where the relations
subsisting between the parties are
such that one of the parties is in a
position to dominate the will of the
other an duses that position to obtain
an unfair advantage of the other.
• E.g. Father and son
• Doctor and patient
• Spiritual master and disciple
• Police officer and the accused
 Contd…..
• Trustee and beneficiary
• Teacher and student
• Solicitor and client
• Exceptions :
• Landlord and Tenant
• Moneylender and his client
• Husband and wife except Pardanashin
woman
• Case studies:
• Manusingh v Umadutt Pandey
• Raneeanapurni V Swaminathan
 Fraud Sec 17
• Fraud means and includes any of the
following acts committed by a party to
a contract, or with his convinnance or
by his agent with intent to deceive
another party thereto or his agent, or
to induce him to enter into the
contract:
• The suggestion as to a fact, of that
which is not true by one who does not
believe it to be true;
• The active concealment of a fact by
one having knowledge of the fact;
 Contd.
• A promise made without the intention
of performing it;
• Any other act fitted to deceive;
• Any such act or omission a to law
specially declared to be fraudulent.
• Exception: Silence as a rule is not
fraud but when you are required to
speak and you don’t then it is fraud.
• Case studies: Rex V Klysant
• Shireen V John
• Derry V Peek
Misrepresentation Sec 18
• Where a person asserts something
which is not true, though he believes
it to be true, his assertion amounts to
misrepresentation.
• Misrepresentation may be either
innocent or without reasonable
ground.
• Misrepresentation is mis-statement of
facts by one, which misleads the
other who, consequently, can avoid
the contract
 Mistake Sec 20
• When both the parties to an
agreement are under a mistake to a
matter of fact essential to he
agreement, then such an agreement is
altogether void.
• Sec 21 Effect of mistake as to law- A
mistake as law in India cannot be
avoided, however a mistake as to
Foreign law is considered as a
Mistake of fact.
• Sec 22- Unilateral mistake does not
render the contract void.
Void agreements are those
entered into:

• Due to mistake of fact

• By minor
• Without lawful consideration
• In restraint of marriage.
• In restraint of trade
• In restraint of judicial proceedings
• Based on uncertainty
• By way of wager
• Impossibility of performance
Quasi contract Sec 68 to 72
• Sec 68-Claim for necessaries supplied
to persons incapable of contracting
• Sec 69-Right to recover money paid
for another person.
• Sec 70-Obligation of a person ejoying
benefits of non-gratuitous act
• Sec 71-Responsibility of a finder of
goods.
• Sec72-Liability for money paid or thing
delivered by mistake or under
coercion.
 DEFINITION -

 Discharge of contract means termination of the

contractual relationship between the parties.
The rights and obligations created by the
contract come to an end, the parties to the
contract are said to be discharged.

 A contract is said to be discharged –

 By performance.
 By impossibility of performance.
 By agreement or mutual consent.
 By lapse of time.
 By operation of Law.
 By breach of contract.