INDIAN CONTRACT ACT, 1872

Presented by

Neha Ghorad

INDIAN CONTRACT ACT, 1872( T O P I C S A L R E A D Y C OV E R E D )

Indian Contract Act, 1872

Contract Definition

Elements of Valid Contract

Classification of Contracts

Offer and Acceptance

Properties of Contract

Indian Contract Act, 1872• Law relating to contracts in India framed by British India.

Is applicable to all states of India except J&K. • It lays down principles related to formation, performance

and enforceability of Contracts

Contract Definition• A contract is an agreement enforceable by law. The

contract must be definite & its purpose should create a legal relationship.

Introduction & Definition

1. Agreement 6. Lawful Object

2. Legal Obligation 7. Agreement not declared Void

3. Free & Genuine Consent

8. Certainty of Meaning

4. Parties Competent to Contract

9. Possibility of Performance

5. Lawful Consideration 10. Necessary Legal formalities

Elements of Valid Contract

Classification of Contracts• Express – words spoken/written• Implied – Inferred from Contract• Tacit – Inferred from conduct of contract

Offer and Acceptance• Executed, Executary, Completed, Unilateral,

Bilateral.• Valid, Void & Voidable.

Classification & Offer

• Consideration • Illegal Agreements• Capacity to Contracts • Termination of

contracts• Free Consent • Breach of Contracts• Agency • Indemnity and

Guarantee• Legality of Objects and Consideration

Contract Properties

It is the price for which the promise of the other is bought.

A contract is basically a bargain between two parties, each receiving something of benefit to them. This something is described as consideration.

Eg.: Price for the goods sold

Consideration

Who is a competent party?• Of majority age i.e., not a minor• Of sound mind – not a lunatic, idiot,

drunkenness state• Not disqualified by any law to which he is

subject.

Flaw if any, contract becomes unenforceable, except in exceptional circumstances

Capacity to Contracts

Two or more persons are said to consent when they agree upon the same thing in the same sense.

Contract should not be obtained by:• Misrepresentation• Fraud• Undue influence• Coercion• Mistake

If any of above flaw exists in a contract it will be held as void

Free Consent

Legal Object• Not disapproved by law• Does not defeats any provision of law• Where it is not fraudulent• Not injurious to another person or property• Not immoral• Not opposed to public policy

Legality of Objects

Legal Consideration• Is price for the promise of the other• Need not be in terms of money• If not supported by consideration, contract

is not enforceable• Must be real & lawful• Each party must promise something and

receive something

Legal Consideration

Although an agreement contains all the elements yet, certain agreements are declared illegal or void agreements, such as:

• Restraining marriage • Restraining trade • Restraining legal proceedings • Wagering agreements

Illegal Agreement

Termination is the discharge of contractual relationship between parties.

Modes of Termination of Contract:1. By Performance or Tender2. By Mutual consent3. Subsequent Impossibility of Performance4. By Operation of Law - By death, insolvency, merger, unauthorised alteration of terms5. By lapse of Time - Contracts must be performed within the period of limitation, ie after expiry period court will not enforce contract6. By Breach of Contract - Refusal of performance

Termination of Contracts

• Refusal of performance is a breach. When one party refuses to perform, other party is discharged from its liability

• Types:• Minor - a partial breach or immaterial breach• Material -  failure to perform that permits other party to

either compel performance, or collect damages• Fundamental - permits the aggrieved party to terminate

performance of the contract• Anticipatory -  unequivocal indication that the party will not

perform when performance is due, or a situation in which future non-performance is inevitable

Breach of Contracts

An indemnity is an obligation by a person to provide compensation for a particular loss suffered by another person. A contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused. A typical example is an insurance contract, whereby one party (the insurer) agrees to compensate the other (the insured) for any damages or losses, in return for premiums paid by the insured to the insurer.

Indemnity & Guarantee

A promise or assurance, especially one in writing, that something is of specified quality, content, benefit, etc., or that it will perform satisfactorily for a given length of time.Something that assures a particular outcome or condition

A written guarantee given to purchaser of a new appliance, automobile, or other item by the manufacturer or dealer, usually specifying that the manufacturer will make any repairs or replace defective parts free of charge for a stated period of time.

Guarantee & Warranty

Relationship that exists when one person or party (the principal) engages another (the agent) to act for him, e.g. to do his work, to sell his goods, to manage his business.

The law of agency thus governs the legal relationship in which the agent deals with a third party on behalf of the principal. 

Agency

Contracts of agency are based on two important principles:

• Whatever a person can do personally shall also be allowed to be done through an agent except in case of contracts involving personal services such as painting, marriage, singing, etc.

• He who does not act through a duly authorized agent does it by himself, i.e., the act of the agent are considered the acts of the principal (Sec. 226)

Any person who is of the age of majority according to the law to which he is subject and who is of sound mind, may an agent.

The function of an agent is to bring his principal into connectional relations with third parties.

The agent is merely a connecting link between the principal and third parties

Agent

To Conduct the business of agency according to the principal’s directions

The Agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business

To render proper (Anand prashad v. Dwarkanath)

In cases of difficulty to communicate with the principal

Not to make any secret profits

Not to deal on his own account

Agent is not entitled to remuneration for business misconducted

Agent Duties

By express - person appointed agent by word of mouth or writing

By implied - arises from conduct, situation or relationship of parties By authority ratification - Where an agent does an act for his principal but without knowledge or authority or where he exceeds the given authority, the principal is not held bound by the transaction.By holding - some affirmative conduct by principal is necessaryBy estoppels - Person has by his conduct or statements induced others to believe that a certain person is his agent, he is can’t deny later. By necessity – There is no express or implied appointment of a person as agent for another but he is forced to act on behalf of a particular person

Modes of Agency Creation

It ends in a variety of ways:• Principal revoking the agency• Agent renouncing the business of agency• Business of agency being completed• Principal being adjudicated insolvent

Termination of Agency