1. LAW OF CONTRACT INDIAN CONTRACT ACT 1872 PROF. RAJARSHI CHAKRABORTY SESSION 2

2. HIGHLIGHTS ► INTRODUCTION TO THE LAW OF CONTRACT ► OFFER OR PROPOSALS ► ACCEPTANCE ► CONTRACTUAL CAPACITY ► FREE CONSENT ► CONSIDERATION

3. INTRODUCTION ► The main objective of the law is to introduce definiteness in Business Transactions. ► It does not lay down so many rights and duties which the law will protect and enforce. ► It determines the circumstances in which promises made by the parties to a contract shall be legally binding on them ► Its rules define the remedies that are available in the court of Law against a person who fails to perform his contract.

4. CONTRACT ► An agreement enforceable by Law ( Section 2(h) of Indian Contract Act. ► Agreement is defines as every promise and every set of promises forming the consideration of each other (Section 2(e)) ► The two elements of an agreement are Offer or a proposal and An acceptance of that offer or proposal. ► When the person, to which the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

5. CLASSIFICATION The Indian Contract Act may be classified into two main Groups The Indian Contract Act may be classified into two main Groups ► General principles of Contract ► Specific kinds of Contract only.

6. GENERAL PRINCIPLES OF CONTRACT ► Includes rules and laws relating to communication ► Acceptance and revocation of proposals ► Voidable contracts ► Void agreements ► Contingent Contracts ► Performance of contracts ► Consequences of breach of Contract

7. SPECIFIC KINDS OF CONTRACT ► Contracts of Indemnity and Guarantee ► Bailment ► Pledge and ► Agency

8. KIND OF AGREEMENTS ► Valid Agreement : It is an agreement, which is enforceable by Law ► Void Agreement: It is an Agreement, which is not enforceable by Law. ► Voidable Agreement: it is an agreement which is enforceable by Law at the option of one or more of the parties but not at the option of the other

9. KIND OF AGREEMENTS ► Unenforceable Agreement: Such an agreement is valid in the eyes of Law, but cannot be enforced by the court of Law because of some technical defects in procedural matters of formation and enforcement. ► Social Agreements : they are of social nature and do not enjoy the benefits of Law ► Illegal Agreement: It is against the provision of Law. ► Agreements For Future: An agreement to agree in the future is a contradiction and is not a contract.

10. ESSENTIALS OF A VALID CONTRACT ► Agreement : To constitute a contract there must be an agreement. An agreement is composed of two elements, offer and acceptance. The party who is making the offer is known as the offeror and the party to whom the offer is made is know as the offeree. ► Intention to create legal relationship: When two parties enter into an agreement their intention must be to create legal relationship between them. If there is no such intension then there can be no contract between them.

11. ESSENTIALS OF A VALID CONTRACT ► Lawful Consideration: The agreement to be enforced by Law must be supported by consideration on both sides. The term consideration means “ something in return”. The agreement is enforceable only when both parties give something and get something in return. ► Capacities of Parties: The parties to the agreement must be capable of entering into a valid contract. There are lots of parameters based on which it is decided whether the parties can enter into a valid contract.

12. ESSENTIALS OF A VALID CONTRACT ► Free and Genuine consent: it is essential to the creation of every contract that there must be a free and genuine consent of the parties to the agreement. The consent of the parties are said to be free when they agree upon the same thing in the same sense. ► Lawful object: the object of the contract must be lawful. It is lawful unless it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law. If an agreement suffers from any flaw, it would not be enforceable by law.

13. ESSENTIALS OF A VALID CONTRACT ► Agreement not declared Void: The agreement may not have been expressly declared Void by any Law enforced in the country. ► Certainty and Possibility of Performance: The Agreement must be certain and not vague or indefinite. If it is vague and it is not possible to ascertain its meaning, it cannot be enforced. ► Legal Formalities: An agreement may be oral or in writing.

14. OFFER AND ACCEPTANCE ► An offer is a proposal by one party to another to enter into a legally binding agreement with him. It is defined as “when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of that other to such act, he is said to make a proposal.

15. CHARACTERISTICS ► It must be an expression of willingness to do or to abstain from doing something. ► It must be made to another person. ► It must be made with a view to obtain the assent of another person to such act. ► The expression of willingness must be made with a view to create legal obligations.

16. TYPES OF OFFER ► Express and implied offer: Express offer is an offer made by express words, spoken or written. ► When an offer is made otherwise than words, the offer is called an implied offer

17. EXAMPLE OF IMPLIED OFFER ► In a self service restaurant, there is an implied promise to pay for eating consumables. ► A transport company runs a bus on a particular route, there is an implied offer by the transport company to carry passengers for a specified fare.

18. TYPES OF OFFER ► Specific and General Offer: When an offer is made to a specific person, it is called a specific offer. ► When the offer is made to the world at large, which could be accepted by anyone, for e.g. reward to a person supplying information pertaining to someone, is called a general offer or offer at large.

19. TYPES OF OFFER ► Positive and Negative Offer: An offer may be positive or negative. Thus, an offer may be to do something or not to do something. ► An offer must be distinguished from invitation to offer. Invitation to offer are offers to negotiate. On the other hand, offer is a final expression of willingness by the offeror to be bound by his promise.

20. EXAMPLES TO DISTINGUISH OFFER AND INVITATION TO OFFER ► A prospectus issued by a college for admission to various courses is not an offer. It is only an invitation to offer. A prospective student by filling up an application form attached to the prospectus is making the offer. ► A display of goods with a price on them in a shop window is an invitation to offer and not an offer to sell.

21. LEGAL RULES AND ESSENTIALS REGARDING OFFER ► An offer must intend to create legal relationship ► Terms of offer must be definite ► Offer must be communicated. ► The must express the final willingness of the offeror.

22. LEGAL RULES AND ESSENTIALS REGARDING OFFER ► An offer may be made to a specific person, or class of persons or to the world at large. ► The offer may be expressed or implied. ► The offer may be positive or negative.

23. ACCEPTANCE ► When the person to whom the proposal ia made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. ► The person making the proposal is called the promiser, and the person to whom it is made is called the promisee.

24. ESSENTIALS AND LEGAL RULES OF A VALID ACCEPTANCE ► Acceptance must be absolute and unconditional. ► Acceptance must be according to the mode prescribed or usual and reasonable mode. ► Acceptance must be given within a reasonable time. ► Acceptance must be in response to offer. Acceptance cannot precede an offer.

25. ESSENTIALS AND LEGAL RULES OF A VALID ACCEPTANCE ► Acceptance must be made before the lapse of an offer. ► Acceptance must be given by the authorised person. ► Acceptance must intend to show fulfillment of a promise. ► Acceptance may be expressed or implied. It must be communicated to the offeror by spoken or written words or conduct.

26. ESSENTIALS AND LEGAL RULES OF A VALID ACCEPTANCE ► Acceptance of offer means acceptance of all the terms attached with that particular offer. ► Acceptance cannot be implied from silence of the offeree.

27. CONTRACTUAL CAPACITY ► It means the competence of the parties to enter a valid contract. ► Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law. ► The following persons are incompetent to contract a) Minors b) Persons of unsound mind, and c) Persons disqualified by any law to which they are subject.

28. MINORS ► A minor is a person who has not completed 18 years of age. However, a minor for whom a guardian has been appointed by the court, he becomes a major only on his completing the age of 21 years. ► A contract with or by a minor is void and a minor, therefore, cannot bind himself by a contract. He is not competent to contract. ► A minor can be a beneficiary.

29. MINORS ► An agreement made by a minor (during the period of minority) cannot be ratified by him on attaining majority because a minor’s contract is void from the very beginning. ► A minor can always put forth the plea for minority and will not be prevented from doing so even when he has entered into a contract falsely representing himself to be a major. ► A minor cannot be a partner in a partnership firm. ► Minor’s parents will not be liable for the debts incurred by him, however, parents are liable when the minor is acting as an agent for them. ► A minor has no liability in contract.

30. PERSON OF UNSOUND MIND ► A person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it, he is capable of understanding it and of forming rational judgments as to its effects upon his interests. ► A person who is usually of unsound mind but occasionally of sound mind, may make a contract when he is of sound mind. ► A person who is usually of sound mind and occasionally of unsound mind, may not make a contract when he is of unsound mind.

31. PERSON OF UNSOUND MIND ► A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those sound mind intervals. ► A sane man who is suffering from high fever or who is drunk to that extent that he does not understand the contract. ► The tests of soundness of mind are a) The capacity to understand the contents of the business concerned. b) The ability to form a rational judgement.

32. PERSON OF UNSOUND MIND ► Mental incompetents a) Lunatics or insane persons. b) Idiots : Permanently of unsound mind c) Drunkards

33. PERSONS DISQUALIFIED BY ANY LAW ► Alien Enemy: is a person (Including an Indian citizen) who is domiciled in a country which is at war with India. ► Foreign Sovereigns and Ambassadors ► Corporations (Corporate status): it is an artificial person created by law, having a legal existence apart from its members. ► Married Women (Marital Status) ► Bankrupt.

34. FREE CONSENT ► Two or more persons are said to consent when they agree upon the same thing in the same sense. ► Consent is said to be free, when it is not caused by a) coercion. b) Undue influence c) Fraud d) Misrepresentation e) Mistake

35. COERCION ► COERCION is committing or threatening to commit any act forbidden by the Indian Penal Code ► It is the unlawful detention or threatening to detain any property that belong to any person. ► With the intention of causing any person harm to enter into an agreement.

36. UNDUE INFLUENCE ► A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

37. FRAUD ► Fraud means and includes any of the following acts committed by a party to a contract, or by his agent, with the intent to deceive the other party. a) The active concealment of a fact by one having knowledge or belief of the fact. b) A promise made without any intent of performing it. c) Any other act fitted to deceive d) The suggestion as to a fact, of that which is not true, by one who does not believe it to be true.

38. MISREPRESENTATION ► When a person positively asserts that a fact is true, when his information does not warrant it to be so. ► Breach of duty ► Misrepresentation of the subject matter.

39. MISTAKE ► It is defined as an enormous belief in something. Mistake is of following kinds a) Mistake of fact b) Mistake of law c) Mistake as to the subject matter. d) Mistake as to the possibility of performing the contract e) Mistake as to the identity of the person contracted with f) Mistakes as to the nature of the contract

40. CONSIDERATION ► Consideration is a recompense given by the parties contracting with each other. ► It means something which is of some value in the eye of Law. ► A valuable consideration in the sense of the law may consist either in some rights, profit or benefits accruing to one party, or some detriment, loss or responsibility given, suffered or undertaken by the other.

41. THE ELEMENTS OF A CONSIDERATION ► The consideration is an ACT ► Such ACT may be done by the promisee ► Such act is either already executed, or is in the process of execution or may be still executory.

42. LEGAL RULES REGARDING CONSIDERATION ► Consideration is required for both formation and discharge of an agreement or a contract. ► Consideration may be Past: A saves B’s life. B promises to pay A a sum of Rs 1000 out of gratitude. The consideration of B’s promise is a past consideration something done before making of a promise. A saves B’s life. B promises to pay A a sum of Rs 1000 out of gratitude. The consideration of B’s promise is a past consideration something done before making of a promise. ► Consideration may be present : Consideration which moves simultaneously with the promise. E.G. CASH SALES. ► Consideration may be future: A promises B to deliver some goods after 10 days. B promises to pay the price on delivery.

43. LEGAL RULES REGARDING CONSIDERATION ► Consideration may be positive or negative: TO DO OR NOT TO DO. ► Consideration must be done or promised to be done at the desire of the promiser. ► Consideration must be Lawful. ► Consideration (Something in return) need not necessarily be equal to the value of something given (offer) ► Consideration must be real and not illusory.