2 contract act 1872
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INDIAN CONTRACT ACT 1872
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Introduction
Law of contractFoundation upon which thesuperstructure of modern business is built
Businesspromise made between parties
performance follows later
Breaking of a promisewithout incurring liability
endless complications
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Contd -
Law of contract lays down legal rulesrelating to promises, their formation,
performance and enforcement
Applicable not only to business
community but others
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Definitions
nsonLegally binding agreementbetween two or more person by whichrights are acquired by one or more to Actor forbearance on the part of the other.
Salmond an agreement creating anddefining obligation between parties
PollockEvery agreement and promiseenforceable at law is a contract
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CONTRACT
Sec 2(h) An agreement enforceable by law is acontract.
Two elements -
An Agreement Legal obligation ie, a duty enforceable by
law.
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Example
Ram offers to sell his car for Rs 1,00,000 to Shyam.Shyam accepts this offer. This offer after
acceptance becomes promise and this promise is
treated as an agreement between Ram and Shyam
Therefore, an agreement consists of an offer byone party and its acceptance by the other.
Agreement = Offer + Acceptance of offer
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Agreement + Legal obligation(Enforceability at law) = Contract
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Contract Act
All contracts are agreement but all agreements arenot contracts.
Agreements of moral, religious or social nature
are not contracts
they are not likely to create a duty enforceable by law parties never intend to create a legal obligation.
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Contd -
Ex; Xinvites his friendYto a dinner andYaccepts the
invitation. IfYfails to turn up for the dinner. Can he takehis friend to Court????
X cannot go to the court to claim his loss.
A father promises to pay his son Rs 1000 as pocketallowance. Later he refuses to pay. Can the son recoverthe Amount???
The son cannot recover as its is a domesticagreement and there is no intention on thepart of the parties to create legal relations
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Case
Balfour vs Balfour [(1919) 2 K.B. 571]
A promise by the husband to pay his wife 30 pounds
every month . Later Husband refuses to pay. Wife
goes to court.
Held: unenforceable as parties never
intended it to be bound by legal obligations.
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contd
In commercial or business agreements anintention to create legal relations is presumed.
Thus, an agreement to buy and sell goods
intends to create legal relationship, hence is a
contract, provided other requisites of a validcontract are present. But if the parties have
expressly declared their resolve is not to create
a legal obligation, even a business agreement
does not amount to a contract.
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Case
Rose&Frank Co. vs Corruption Bros [1925 AC445]
There was an agreement between R company and C
company by means of which the former was appointed
as the agent of the latter. One clause in the agreementwas: This agreement is not entered into.as a formal
or legal agreement and shall not be subject to legal
jurisdiction in the law courts.
HELD - There was no binding contract as there was no
intention to create legal relationship
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Distinction between an agreement and a contract
Agreement Offer and its acceptance
constitute an agreement
An agreement may or
may not create a legalobligation
Every agreement neednot necessarily be acontract
Agreement is notconcluded or bindingcontract
Contract Agreement and its
enforceability constitutea contract
A contract necessarilycreate a legal obligation
All contracts arenecessarily agreements.
Contract is concludedand binding on theconcerned parties
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Enforceabilty Methodof
Formation
Extent of
performance
Obligation to
perform
Valid
Voidable
unenforceab
le
Illegal
Void
Executed
Executory
Express
Formal
Simple
Implied StandardForm
ContingentQuasi
Bilateral
Unilateral
lassificationof ontract
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Cl ifi ti f C t t
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Classifications of Contracts:Enforceability
1. Valid contractA contract that meets all of theessential elements to establish a contract
2. Void contractNo contract exists
a) Is void ( void ab-initio)
b) becomes void
3. Voidable contractthis contract may be
repudiated(cast off) at the will of one of the parties,
until it is not repudiated it remains valid.
4. Unenforceable contractA contract that cannot be
enforced because it lack some item of evidence like
writing, registration, stamping.
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Continued
5. Illegal contract- is one the objective of whicha) Forbidden by law or
b) Defeats the provision of any law
c) Is fraudulent
d) Court regard it as immoral
Eg: A, B and C enters an agreement to kill D. This
agreement is illegal
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Cl ifi ti f C t t
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Classifications of Contracts:Formation(1 of 2)
1. Express contractA contract expressed in oral orwritten words
2. Implied Contract
A contract formed in whole or in part by the conduct (asopposed to the words) of the parties.
Can be implied in fact or implied in law (quasi contract)
a) Implied-in-fact contractA contract inferred fromthe conduct of the parties.
Eg: Asupplies B, a minor withnecessaries for hislife. Ais entitled to be reimbursed from Bsproperty
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Classifications of Contracts:Formation(2 of 2)
b) Quasi-Contract (Implied in Law) A fictional contract imposed on parties by a court in the
interests of fairness and justice, typically to prevent the
unjust enrichment of one party at the expense of the
other.
4. Formal contractA contract that requires a special
form or method of creation
5. Simple/ Informal contractA contract that requiresno special form or mode of creation
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Classifications of Contracts:Performance1. Executed contractA contract that is fully performed
on both sides.
2. Executory contractA contract that is not fully
performed by one or both parties.
3. Bilateral contracta promise for a promise. These aresimilar to executory contract.
Eg: X promises to deliver a car to Y, and Y promises to payX an agreed price.
4. Unilateral contractA promise for an act.
Eg: X offers Y Rs 100 if Y will digs Xs yard.
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Valid Contract
Essentials
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i l l f lid
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Essential elements of a valid
contract
Proper offer and its proper acceptance
Intention to create legal relationship
Free Consent
Capacity to contract
Lawful consideration Lawful object
Agreement not expressly declared void
Certainty of meaning
Possibility of performance
Legal formalities
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OFFER
An offer involves the following essential
elements;
It must be made by one person to another person
It must be an expression of readiness or willingness to
do (i.e., a positive act) or to abstain from doingsomething (i.e., a negative act)
It must be made with a view to obtain the consent of
that other person to proposed Act or abstinence.
Eg: Abhishek offers to sell his book
to Sakshi. (positive act)
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Contd
OfferorThe person making the proposal is calledthe offeror or proposer.
OffereeThe person to whom the proposal is made
is called the offeree or the proposee.
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Types of offer
General offerWhen the offer is made to the worldat large.
Specific offerWhen the offer is made to a definite
person. Eg Pratham offers to sell his home to Sahil
at a certain price. The offer has been made to adefinite person.
Implied offerAn offer may be implied from the
conduct of the parties or the circumstances of the
case.eg If the Lucknow rajdhani train is standing on the
platform of Delhi station, it signifies by this act only
that it will go to Lko.
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Contd-
Intention to create legal relationship
An offer must be such that when it is accepted it will
create a legal relationship
Eg Balfour vs Balfour [(1919) 2 K.B. 571]
Certain and unambiguous terms
If the terms of the offer are vague or indefinite, its
acceptance cannot create any contractual relationship.
Eg. A offers to sell B a hundered quintals of oil. Thisstatement does not show what kind of oil is being offered
to B
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Legal rules as to offer
Certain andunambiguous
terms
Intention tocreate legalrelationship
Different froman invitation to
offer
Propercommunication
No term of non-compliance ofwhich amount to
acceptance
Communicationof special terms
Different from amere declaration
of an intention
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Contd -
Different from a mere declaration of intention
Mere declaration of intention indicates thatan offer will be made or invited in the future
A declaration of intention by a person doesnot give right of action to another.
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Contd -
Different from an invitation to offer In an invitation to offer the person making an invitation
invites others to make an offer to him
It is prelude to an offer inviting negotiations orpreliminary discussions
Case Pharmaceutical Society of Great Br i t ian vs Boo tscash chemis ts L td (1953) 1 QB 401
In a departmental store there is a self-service. The
customer picking up the article and going to the cashersdesk to pay is an offer to buy. When a casher accepts thepayment a contract is entered into.
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Contd-
Offer must be communicated An offer must be communicated to the person to
whom it is made.
An offer is complete only when it is communicated tothe offeree
Acceptance is not possible unless offer is brought tothe knowledge of the offeree. ie, One can accept theoffer only when he knows about it.
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Contd -
No term of non-compliance of which amounts toacceptance
The offer must not contain a term, the non-compliance
of which amount to acceptance
Ex: A offers by post to sell his horse to B for Rs 2000.He writes, If you do not reply, I shall assume you have
accepted the offer. There would be no contract even if
B does not reply
While making the offer, the offeror cannot say that if the
offer is not accepted before a certain date, it will be
presumed to have been accepted
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Contd
Communication of special terms or standardterms of contract
Special terms of the offer must also be communicated
along with the offer.
If the special terms of the offer are not communicated,the offeree will not be bound by those terms.
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Acceptance
Acceptance means giving consent to the offer. It is an expression by the offeree of his
willingness to be bound by the terms of the offer.
Sec 2(b) A proposal is said to be accepted
when the person to whom the proposal is madesignifies his assent thereto. A proposal when
accepted becomes a promise.
Acceptance is the consent given to offer.
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Contd-
Who can accept
In case of a specific offer
To be accepted by that definite person or that
particular group of persons to whom it has
been made and non else. In case of general offer
An offer made to the world at large or public
in general can be accepted by any personhaving the knowledge of the offer by fulfilling
the terms of the offer.
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Contd -
How to make acceptance
Express acceptance
An express acceptance is one in which is made by
words spoken orwritten
Implied acceptance
An implied acceptance is one which is made
otherwise than in words.
It is inferred from the conduct of the parties or the
circumstances of a particular case
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Legal rules of valid acceptance
Absolute and unqualified Manner
Communication
By whom To whom
Before the lapse of the offer
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Communication of offer and
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Communication of offer and
acceptance
Must be complete so as to bind the concerned
parties because as soon as the communication is
complete the parties loose the right of withdrawal or
revocation.
(a) Communication of offerIt is complete when it comes
of the knowledge of the person to whom it is made.
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Contd -
Communication of acceptance
As against the proposer
When it is put in a course of
transmission to him, so as to be out of
the power of the acceptor. As against the acceptor
When it comes to the knowledge of the
proposer.
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Revocation of offer and acceptance
Taking back, withdrawal (sec 5)
Time for revocation of proposalA proposal may be
revoked at any time before the communication of its
acceptance is complete as against the proposer, but
not afterwards.
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Contd -
Time for revocation of acceptanceAn acceptance
may be revoked at any time before the
communication of the acceptance is complete as
against the acceptor, but not afterwards.