Indian Contract Act 1872

Contract - Agreement between 2 or more persons which law willEnforce.

Essentials: 2 or more parties Offer and Acceptance – one has to offer and other has to Accept Identity of Minds – Agreed upon the Subject Matter Consideration – Something in return –every contract must be supported by Consideration Capacity – Competent parties to contract Free Consent – Free from flaw, not caused by coercion / Undue influence Lawful Consideration – The consideration must be lawful Legality of Object – recognized and approved by society.

Classification of Contract:I According to Validity – Contract based on agreement – all essentials Are present. If any one is missing then it is void able/ void/ illegal and Unenforceable.

Void able Contract – Enforceable at the option of one or more of partiesEg: A promises to sell his house to B for Rs.2lakhs. His consent was Obtained by force. The contract is void able at the option of A.

Void Contract – A contract which is not enforceable by law – A contractEntered with minor.

Illegal Agreement: Criminal in nature, which is immoral

Unenforceable Contract – Cannot be enforced in court of law becauseOf technical defect – Eg – Time barred, Lapse of time.

II According to Formation:

Express Contract – Terms expressly agreed – by words spoken/ writtenAt the time of formation of contract.

Implied Contract – Conduct of Parties – A lunch taken in a hotel, it is Implied that bill will be paid.

III According to Formation • Executed Contract – Both Parties have performed their obligations

• Executory Contract – Both parties are yet to perform their obligations

• Unilateral contract – One has fulfilled his obligation, other is yet to do his act.

• Bilateral – Similar to Executory Contract.

Offer and Acceptance:The person making the proposal is referred as “Proposor” or “Offeror”The Person accepting the offer - “Offeree” or “acceptor”

Legal rules relating to Offer: u/s 2(a):• It must be definite – definite terms or capable pf being definite• It must be distinguished from Quotation or invitation to offer• Must give rise to legal consequences• Can be made to the individual or entire world• An offer is different from tender.• An offer must be communicated to the offeree.

Acceptance u/s 2(b)

Person to whom the proposal is made signifies his assent thereto, the Proposal is said to be accepted.

Essential of Valid Acceptance:• Communicated in a reasonable manner, expressed in words, spoken, written or may be conduct.• Communication of acceptance may be waived off by the offeror• Acceptance must be made before offer lapses or is revoked or rejected• Acceptance must be absolute and unconditional and should correspond with the terms of offer.• Acceptance once made concludes the Contract.

Consideration: u/s 2(d) – Something in return • Consideration at the desire of the promisor – any thin done voluntarily does not constitute valid consideration• Adequacy – May not be adequate but real and lawful• Past, Present and FutureExceptions: Natural love and affection, Promise to compensate a personWho has voluntarily done something for the promisor, A promise to Discharge a time barred debt..

Capacity to Contract::

u/s 10 Agreement become contract if entered in toBy parties competent to contract.

u/s 11 following persons are incompetent to enter into contract::

• Minor• Person of unsound mind• Persons disqualified by law to which they are subject to• Convict• Bankrupt• Alien enemy• Foreign ambassadors • Insolvent

Free Consent:Consent – Act of accepting the offer by free will ie without any force.u/s 11 following are considered consent which is not free.

• Coercion – u/s 15 A person is compelled to enter into contract by use of force – under threat, threat, threatening to commit, unlawful detention forbidden by IPC 1860

• Undue influence u/s 16 unfair persuasion, one party is in dominant position eg Doctor and patient, Teacher and Student

• Misrepresentation – False statement (information is wrong) Person making it honestly believes to be true non-disclosure of material facts – without intention to deceive other party, positively asserts to be true.

•Fraud u/s 17 False statement made knowingly Facts are not true Active concealment of facts Intention to cheat

• Mistake of Law: Law of the country – ignorance is no excuse Of Foreign Country – u/s 21, such mistake is treated as mistake of fact and agreement in such case is void.

• Mistake of Fact u/s 20• Bilateral Mistakes – Mistakes must be mutual Mistake relate to matter of fact essential to agreement Existence of subject matter, identity of subject matter Quality of subject matter.

• Unilateral Mistake u/s 22 One party is mistaken regarding the subject matter or in expressing or understanding the terms.

Legality of the Object:Consideration and purpose of agreement must be lawfulFollowing consideration or object is unlawful• Object forbidden by law, Object defeats provisions of law, • Court regards the object immoral, oppose to public policy• To commit crime, restrict legal proceedings, contempt of court,• Interference in administration of justice, trafficking,• restraint of paternal rights, restricting personal liberty• Agreement of restraint of marriage, • Agreement in restraint of trade• Agreement to defraud creditors.

Termination and Discharge of Contract: By Performance – Parties have fulfilled their obligations By Agreement or Consent: Agree to substitute new contract or to rescind or alter it, the original Contract is discharged and need not be performed.

Novation – u/s 62 – a new contract is substituted for an existing one between the same parties

Rescission u/s 62 – when all or some of the terms of the contract are cancelled it may occur by mutual consent, where one fails in performing of their obligation, the other party may rescind the contract claim compensation for breach of contract.

Alteration u/s 62 – One or more terms of contract is altered by mutual consent – old contract is discharged.

Remission u/s 63 – acceptance of less fulfillment of promise made Acceptance of lesser sum than what is contacted for in discharge Of whole debt.

Waiver – Parties agree they shall no longer bound by the contract. Mutual abandonment of rights of parties to contract.

Discharge by Impossibility of Performance: Impossibility at the tike of agreement – pre contractual or initial impossibility

Impossibility – Subsequent to the formation of Contract – post contractual – destruction of subject matter, death, incapacity, Change of law, out break of law.

Discharge by Lapse of Time – Limitation Act 1963

Discharge by Breach of Contract Breaking the obligation without legal excuse

Remedies:Recission – may sue to treat the contract as rescinded and refuse Further performance – he is absolved of all his obligations

Damages – monetary Compensation

Ordinary Damages, Special damages, Vindictive damages,Nominal damages, Loss of reputation, Cost of decree,Liquidated damages, Payment of interest, Quantum Meruit,Specific Performance, Injunction – Stay Order.