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INDIAN CONTRACT ACT 1872 11/21/11 santhi narayanan

Introduction Law of contract – Foundation upon which the superstructure of modern business is built Business – promise made between parties – performance follows later Breaking of a promise – without incurring liability – endless complications 11/21/11 santhi narayanan

Contd - Law of contract lays down legal rules relating to promises, their formation, performance and enforcement Applicable not only to business community but others 11/21/11 santhi narayanan

Definitions Anson – Legally binding agreement between two or more person by which rights are acquired by one or more to Act or forbearance on the part of the other. Salmond – an agreement creating and defining obligation between parties Pollock – Every agreement and promise enforceable at law is a contract 11/21/11 santhi narayanan

CONTRACT Sec 2(h) – “ An agreement enforceable by law is a contract”. Two elements - An Agreement Legal obligation ie, a duty enforceable by law. 11/21/11 santhi narayanan

Agreement Section 2(e) – “Every promise and every set of promises forming the consideration for each other, is an agreement.” Promise – What is a promise? Sec 2(b) - When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise 11/21/11 santhi narayanan

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 by one party and its acceptance by the other. Agreement = Offer + Acceptance of offer 11/21/11 santhi narayanan

Enforceability of Agreement An agreement is said to be enforceable by law if it creates a legal obligation. If an agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus, an agreement is a wider term than contract. 11/21/11 santhi narayanan

Contract Act “ All contracts are agreement but all agreements are not 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. 11/21/11 santhi narayanan

Contd - Ex; X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for the dinner. Can he take his friend to Court???? X cannot go to the court to claim his loss. A father promises to pay his son Rs 1000 as pocket allowance. Later he refuses to pay. Can the son recover the Amount??? The son cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations 11/21/11 santhi narayanan

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. 11/21/11 santhi narayanan

contd In commercial or business agreements an intention 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 valid contract 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. 11/21/11 santhi narayanan

Case Rose&Frank Co. vs Corruption Bros [1925 AC 445] 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 agreement was: ”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 11/21/11 santhi narayanan

Distinction between an agreement and a contract Agreement Offer and its acceptance constitute an agreement An agreement may or may not create a legal obligation Every agreement need not necessarily be a contract Agreement is not concluded or binding contract Contract Agreement and its enforceability constitute a contract A contract necessarily create a legal obligation All contracts are necessarily agreements. Contract is concluded and binding on the concerned parties 11/21/11 santhi narayanan

Classification of Contract 11/21/11 santhi narayanan Enforceabilty Method of Formation Extent of performance Obligation to perform Valid Voidable unenforceable Illegal Void Executed Executory Express Formal Simple Implied Standard Form Contingent Quasi Bilateral Unilateral

Valid Contract Essentials 11/21/11 santhi narayanan

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 11/21/11 santhi narayanan

Offer and acceptance OFFER An offer is the starting point in the making of an agreement. An offer is also called ‘proposal’ Sec 2(a) – “ A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence.” 11/21/11 santhi narayanan

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 doing something (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 11/21/11 santhi narayanan

Contd Offeror – The person making the proposal is called the ‘offeror’ or ‘proposer’. Offeree – The person to whom the proposal is made is called the ‘offeree’ or the ‘proposee’. 11/21/11 santhi narayanan

Types of offer General offer – When the offer is made to the world at large Specific offer – When the offer is made to a definite person Implied offer – An offer may be implied from the conduct of the parties or the circumstances of the case. 11/21/11 santhi narayanan

Cases General offer Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258 Harbhajan lal vs Harcharan lal (AIR All 539) 11/21/11 santhi narayanan

Contd- Intention to create legal relationship An offer must be such that when it is accepted it will create a legal relationship Certain and unambiguous terms If the terms of the offer are vague or indefinite, its acceptance cannot create any contractual relationship. 11/21/11 santhi narayanan

Legal rules as to offer 11/21/11 santhi narayanan

Contd - Different from a mere declaration of intention Mere declaration of intention indicates that an offer will be made or invited in the future A declaration of intention by a person does not give right of action to another. 11/21/11 santhi narayanan

Case Harrison vs Nickerson An auctioneer advertised in a newspaper that a sale of office furniture would be held. A broker came from a distant place to attend that auction, but all the furniture was withdrawn. The broker thereupon sued the auctioneer for his loss of time and expenses. Held - A declaration of intention to do a thing did not create a binding contract with those who acted upon it, so that the broker could not recover. 11/21/11 santhi narayanan

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 or preliminary discussions Case – Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401 Harvey vs facey 11/21/11 santhi narayanan

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 to the offeree Acceptance is not possible unless offer is brought to the knowledge of the offeree. ie, One can accept the offer only when he knows about it. Acceptance in ignorance of offer confers no right. ie, An offer accepted without its knowledge does not confer any legal rights on the acceptor. Case: Lalman Shukla vs Gauri Dutt 11/21/11 santhi narayanan

Contd - No term of non-compliance of which amounts to acceptance 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 11/21/11 santhi narayanan

Contd 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 Communication of special terms or standard terms 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. 11/21/11 santhi narayanan

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 made signifies his assent thereto. A proposal when accepted becomes a promise.” Acceptance is the consent given to offer. 11/21/11 santhi narayanan

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 person having the knowledge of the offer by fulfilling the terms of the offer. 11/21/11 santhi narayanan

Contd - How to make acceptance – Express acceptance – An express acceptance is one in which is made by words spoken or written 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 11/21/11 santhi narayanan

Legal rules of valid acceptance Absolute and unqualified Manner Communication By whom To whom Before the lapse of the offer 11/21/11 santhi narayanan

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 offer – It is complete when it comes of the knowledge of the person to whom it is made. 11/21/11 santhi narayanan

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. 11/21/11 santhi narayanan

Revocation of offer and acceptance Taking back, withdrawal (sec 5) Time for revocation of proposal – A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. 11/21/11 santhi narayanan

Contd - Time for revocation of acceptance – An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. 11/21/11 santhi narayanan

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