Published on November 9, 2016
1. THE INDIAN CONTRACT ACT (ICA), 1872
2. What is a contract? Section 2(h) “An agreement enforceable by law is a contract”. Thus, Contract = Agreement + Enforceability at Law
3. Agreement? Section 2(e) Promise/(s) Promise/(s) = Agreement (in exchange for)
4. Promise? Section 2(b) Promise = Proposal/Offer + Acceptance Proposal? Section 2(a) Expression of willingness With a view to seek the assent of the other Thus, mere expression of willingness doesn’t constitute offer/proposal.
5. Acceptance Section 2(b) Giving of assent to the proposal. Enforceability by Law Agreements which are not enforceable Illegal/unlawful agreements, e.g., to smuggle/to kill Social Agreements (Balfour vs. Balfour)
6. Agreements Declared Void under ICA e.g. Agreement with or by a minor Agreement in restraint of trade Marriage brokerage contract Wagering/Betting Agreements
7. Kinds of Contracts From the point of view of Enforceability Void Voidable Valid
8. Void Agreement vs. Void Contract Void Agreement i.e., void-ab-initio i.e. unenforceable from the very beginning Becomes void (Void Contract) Voidable i.e., void + able i.e., capable of being declared void (unenforceable) at the option of one of the parties to the contract but not at the option of the other.
9. Valid Contract Section 10 To be a valid contract, it must satisfy the following: 1. Offer and Acceptance 2. Consensus-ad-idem (Meeting of minds) i.e., persons must agree to the same thing in the same sense and at the same time. 3. Intention to create legal relationship as against social relationship or illegal/unlawful relationship.
10. 4. Free and Genuine Consent, i.e., free from coercion undue influence fraud misrepresentation mistake 5. Parties competent to contract 6. Lawful consideration and object, i.e., something in return and that must be lawful.
11. Valid Contract (‘Object’ and ‘Consideration’ usually overlap. However, there may be difference at times e.g., object may be to kill competition and for that purpose in view, a senior manager of the competitor may be paid a certain amount to give unrealistically high quotation.) Here: Object is to kill competition. Consideration is : (i) payment of money (ii) giving high quotations
12. Valid Contract 7. Agreement not declared void. 8. Certainty of Meaning: e.g. sale and purchase of 100 tonnes of oil. But which oil? Thus, agreement being uncertain – not valid. But, if the seller deals only in one kind of oil and one variety, then it shall be valid since it is capable of being made certain.
13. Valid Contract 9. Possibility of performance: Impossibility whether known to the parties or not, renders a contract invalid. 10.Necessary legal formalities: e.g. sale-deed of immovable property.
14. Void vs. Illegal Agreements Void Agreement Illegal Agreement 1. Unenforceable 2. Not Punishable 3. Collateral transactions unaffected. 1. Unenforceable 2. Punishable (fine or imprisonment or both) 3. Collateral transactions are also void.
15. Specific and General Offer Specific Offer: made to a specified person or a group of persons. can be accepted only by the person to whom made. Thus, if offer is addressed to ‘A’, ‘B’ cannot accept it. Case Law: Boulton vs. Jones
16. Specific and General Offer General Offer: which is not a specific offer. made to the world at large. can be accepted by anyone by complying with the terms of the offer. Case Law: Carlill vs. Carbolic Smoke Ball Co.
17. Offer vs. Invitation to offer Illustrations of Invitation to Offer: Prospectus issued by a college. Prospectus issued by a company. Invitation of bids in an auction. Price-catalogues, price lists, quotations Display of goods with a price-tag in a shop window.
18. Special Terms in a Contract Examples: Dry cleaner’s receipt, courier’s receipt, shipment receipt, insurance policy, etc. Binding if communicated or attention drawn to the fact that there are certain special terms and conditions. Not binding if attention is not drawn and the other party not aware of.
19. Cross Offers & Counter Offers Cross Offers Identical offers cross each other and none of the parties is aware of the same. Doesn’t result in a contract unless one of them is accepted. Counter Offer Instead of accepting an offer, the offeree makes a counter offer, i.e., accepts the same subject to certain conditions or qualification.
20. Contracts through Post Communication of Offer is complete when the offeree has the knowledge of the same. Communication of Acceptance It has two aspects, viz., As against the proposer As against the acceptor
21. As against the proposer Communication is complete as soon as a duly addressed letter of acceptance is put into the course of transmission. Whether the same reaches the proposer or not. As against the acceptor Communication is complete only when the proposer has received the letter and learnt the contents thereof.
22. Communication of Revocation Communication of revocation (of offer or acceptance) is complete: As against the person who makes it when it is put into the course of transmission. As against the person to whom it is made, when it comes to his knowledge.
23. Comparing ‘offer’ to a ‘train of gunpowder’ and ‘acceptance’ to a ‘lighted match stick’ – How far correct? William Anson’s observation though valid in the English context doesn’t hold good in India since in India acceptance is revocable.
24. Claim for Damages Damages U/S Section 73 Damages U/S Section 74 Only damages naturally flowing From breach (Ordinary Damages) Special Damages (No claim for consequential loss unless in the Contemplation of the parties (Hedley v. Baxendale Exemplary Damages Nominal Damages Pre-fixed Damages Penalty Liquidated Damages (What can be recovered is actual loss or amount prefixed, whichever is less)