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Unit – 1

Indian Contract Act 1872


By
Dr. Hardik Parikh
GNLU, Gandhinagar
The Indian Contract Act 1872
A Parent Legislation

Sec. 1 - 75 Sec. 76 - 123 Sec. 124 - 238 Sec. 239 –


General Sale of Special Contracts
266
Principles of Indemnity & Guarantee
Goods Bailment & Pledge
Of
Contract Partnership
Agency
Repealed
The Sale of Repealed
Goods Act The Indian
1930 Partnership
Act 1932

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• Originally XI Chapters – 266 Sections
• Chapters Repealed:
– Chapter VIII – Section 76 – 123 – Sale of Goods
– Chapter XI – Section 239 – 266 - Partnership

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Scheme of Indian Contract Act
1872
• Preliminary – Sec. 1, 2 – Interpretation Clause
• Ch. 1 – Sec. 3 – 9 – Communication, Acceptance &
Revocation of Proposals
• Ch. 2 – Sec. 10 – 30 – Contracts, Voidable Contracts & Void
Agreements
• Ch. 3 – Sec. 30 – 36 – Contingent Contracts
• Ch. 4 – Sec. 37 – 67 – Performance of Contracts
• Ch. 5 – Sec. 68 – 72 – Quasi Contracts
• Ch. 6 – Sec. 73 – 75 – Consequences of Breach of Contract
• Ch. 8 – Sec. 124 – 147 – Indemnity & Guarantee
• Ch. 9 – Sec. 148 – 181 – Bailment
4
• Ch. 10 – Sec. 182 – 237 - Agency
What is Contract?

• Contract is an agreement
enforceable by law – Section
2(h)
• Legal Deal that results in a
business

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Dr. William Anson

• Only that obligation is a contract which


directly contemplates and creates
obligation and is intended to have any
legal consequence.

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• Contract = Agreement + Enforceability

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What is Agreement?

• Every promise and every set of promises,


forming the consideration for each other,
is an agreement – Section 2 (e)
• Agreement = Meeting of Minds – Secured
through dialogue and communication.
• Combination of Proposal + Acceptance

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What is an offer?

• Sec. 2 (a) – When a person signifies to the


other his willingness to do or to abstain
from doing anything with a view to
obtaining the assent of that other to such
act or abstinence, he is said to make a
proposal.

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How the legal offer should be?

• Capable of creating a legal relationship


• Definite and certain terms (No ambiguity)
• Must be Communicated – Lalman v.
Gauridutt (1913)
• May be conditional
• May be general or specific
• Must be made with intent to obtain consent
• Different from INVITATION TO OFFER
• Must not have burden of acceptance
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How an Offer may be revoked?
– Section 6
• By Notice – Oral or Written
• By lapse of time
• By non fulfillment of condition
• By death / insanity of proposer
• By COUNTER OFFER
• By rejection

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What is an Acceptance?

• 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.

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Promisor & Promisee?

• Sec. 2 (c) – The person making the


proposal is called the ‘promisor’ and
the person accepting the proposal is
called the ‘promisee’

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How the acceptance should be?

• Absolute and Unconditional


• Expressed in a usual manner
• By the person to whom proposal is given
• Must be communicated to the proposer
• Must be made within a reasonable time
• May be made by performing work as per
the offer – Carlil v. Carbolic Smoke Ball
Ltd. (1893) 14
What agreements are
contracts?
• All agreements are contracts if they
are made by the free consent of
parties competent to contract, for a
lawful consideration and with a
lawful object and are not hereby
expressly declared to be void. –
Section 10

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Essentials of Valid Contract

1. Minimum Two 6. Free Consent


Parties
7. Lawful Object
2. Offer and
Acceptance 8. Must not be
declared Void by
3. Intention to create Law
a Legal
Relationship 9. Possibility of
Performance
4. Lawful
Consideration 10.Other Legal
Formalities
5. Competent Parties 16
Legal Relationship?

• Parties must intend that the transaction


should be attended by legal consequences
and create legal obligations.
• Contract – Outside the preview of Social /
Domestic Relationship.
• Case: Balfour v. Balfour (1919)

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Lawful Consideration

• Sec. 2 (d) – When at the desire of the


promisor,
• the promisee or any other person
– has done or abstained from doing, or
– does or abstains from doing or
– promises to do or to abstain from doing
something,
• such act, abstinence or promise is called
consideration for the promise. 18
Promisor & Promisee?

• Sec. 2 (c) – The person making the


proposal is called the ‘promisor’ and
the person accepting the proposal is
called the ‘promisee’

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• Something in return
• Contract without consideration is void.
• Rules relating to consideration
• Exceptions to Consideration

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Rules regarding consideration

• Must move on the desire of both parties


• May be paid by promisee or third person
• Can be of past, present or future
• May be act or abstinence.
• Need not to be adequate
• Must be legal

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Exception to the rule – No
Consideration, No Contract – Sec. 25

• Agreement by Natural Love & Affection


• Compensation for Voluntary Services
• Promise to Pay Time Barred Debt
• Contract of Agency
• Gifts

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Competent Parties

• Sec. 11 – 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 to which he is subject
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Persons Incompetent to Contract

• Minor
• Below 18
• Below 21
• Person with Unsound Mind
• Idiots
• Lunatics
• Drunkards
• Person Disqualified by Law
• By Status
• By Incapacity 24
Disqualifications

• By Status • By Incapacity
– Foreign Kings – Prisoners
– Foreign – Insolvents
Representative – Alien Enemies
– Companies

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Position of Contract With Minor

• Minor’s Agreement is Void – Void ab initio


– Mohariibi v. Dharmadas Ghosh
• Necessities supplied to minor can be recovered
• Minor Can not Ratify Contract on Majority
• No Rule of Estopple is applicable to Minor
• Minor can be a promisee / beneficiary
• Minor can not be a partner
• Minor can not buy shares
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• Minor can not be declared insolvent
• Minor can be an agent
• Joint Promisor along with minor is responsible
• Minor’s Guardian/Parents are not Liable
• Minor is Liable for Tort
– Burnand v. Heggis
• No Specific Performance with Minor

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Consent ?

• Section 13 – When two or more


persons agree upon same thing in
same sense, they are said to have
consent.

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Free Consent ?

• Section 14 – When Consent is not


obtained by
• Coercion as per sec. 15,
• Undue Influence as per Sec. 16,
• Fraud as per Sec. 17,
• Misrepresentation as per Sec. 18 and
• Mistake as per Sec. 20, 21 and 22
• The Consent is said to be free.
29
Coercion – Sec. 15
• Coercion means,
– Committing or Threatening to commit any act
forbidden under the Indian Penal Code 1860 or
– Detaining or Threatening to detain property of any
person in a manner prejudicial to him
With intention of causing any person to enter into an
agreement
Exp. It is immaterial whether the Indian Penal Code is or
not in force in the place where the coercion is employed.

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Undue Influence – Sec. 16

• When, the relationship subsisting between the


parties are such in nature that-
• One of the party is in the position to dominate the
will power of the another
• And if he uses such position to obtain unfair
advantage over the other for any contract,
• The Contract is said to have been made by
Undue Influence

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Position of Dominance

• Apparent / Real Authority


• Fiduciary Relationship
• Dependence due to disease, old age etc.
• Main Point:- In case of unconscionable
bargain only.

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Fraud – Sec. 17

• Fraud means and includes any of the following


acts committed by a party or his agent with
intention to deceive another party or his agent or
to induce him to enter into a contract
• Suggestion of False Things
• Suppression of True Things
• Promising without intention to perform
• Committing any act fitted to deceive
• Any act or omission as declared fraudulent by law

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Basic Questions

• What is Fraud?
• Who may commit Fraud?
• Whether Silence amounts to Fraud?
• What if the intention to cheat is absence?
• A fraudulent act which does not deceive is
not fraud.

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Misrepresentation – Sec. 18

• Means a false representation made


innocently.
• A false representation may be made by a
person who either knows that it is false or
honestly himself believes it to be true.
• Also called as ‘Breach of Duty’ or
‘Negligence’

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Mistake – Effects on
Contract

Mistake of Facts Mistake of Law

Bilateral Unilateral Mistake of Mistake of


Mistake Mistake Indian Law Foreign Law

Contract Contract Contract Same as


is Void is Valid is Valid Mistake
Section Section Section of Facts
20 22 21

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Legality of Objects

• Sec. 23 – Lawful considerations and


objects
• Sec. 24 – Objects and considerations are
unlawful in part

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Sec. 23

 Consideration or object of an agreement is


lawful unless –
 It is forbidden by law or
 It may defeat the provisions of any law or
 Involves injury to the person or property of
another or
 It is immoral, or opposed to public policy

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Void Agreements

• Agreement in restraint of marriage – Sec. 26


• Agreements in restraint of trade – Sec. 27
• Agreements in restraint of legal proceedings –
Sec. 28
• Agreements the meaning of which is not certain
– Sec. 29
• Agreement by way of wager – Sec. 30
• Agreements to do impossible act – Sec. 56
39
Essentials of Valid Contract

1. Minimum Two 6. Free Consent


Parties
7. Lawful Object
2. Offer and
Acceptance 8. Must not be
declared Void by
3. Intention to create Law
a Legal
Relationship 9. Possibility of
Performance
4. Lawful
Consideration 10.Other Legal
Formalities
5. Competent Parties 40
Can we Say?

All Agreements are not Contracts but all


Contracts are Agreements..

All Indians are not Gujarati but all


Gujarati are Indian

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Types of Contract /
Classification of Contracts
• By View Point of Enforceability
• By View Point of Formation
• By View Point of Performance

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Classification of Contracts

Enforceability Formation Performance


View View View

1. Valid Contract 1. Express Contract 1. Executed Contract


2. Void Contract 2. Implied Contract 2. Executory Contract
3. Voidable Contract 3. Quasi Contract 1. Unilateral
4. Void Agreement 2. Bilateral
5. Unenforceable
Agreement

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Void Contract – Sec. 2 (j)

• A contract which ceases to be enforceable


by law becomes void when it ceases to be
enforceable

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Voidable Contract – Sec. 2 (i)

• An agreement which is enforceable by


law at the option of one or more of the
parties thereto but not at the option of
the other or others is voidable contract

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Void Agreement – Sec. 2 (g)

• An agreement not enforceable by law


is said to be void agreement
• Also called – Void ab initio – Void from
the beginning.

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Discharge of Contracts

• Modes to be free from contractual


relationship
• Also known as dissolution of contracts.
• Puts end to the contract and parties
subsequently are freed from their mutual
obligations.

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Various Modes of Discharge

• By Performance of Contract
• By Mutual Consent or Agreement
• By Lapse of Time
• By Impossibility
• By Operation of Law
• By Breach of Contract

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1. Discharge By Performance
of Contract
• Actual Performance
• Attempted Performance
–Tender of Performance

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2. Discharge by Mutual
Consent
• Various Methods:
– Novation – Novatio – New Contract
– Alteration – Changes in Terms
– Rescission – Cancellation of Contract
– Remission – Accepting Lessor amount
– Waiver – To give away right to perform
– Extension – Time limit enhancement

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3. Discharge By Lapse of Time

• If time is given .
–At the end of stipulated time
• If time is not given
–At the end of reasonable time

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4. Discharge by Impossibility

• Law does not compel anyone to do what


is impossible to perform. – Sec. 56
• After entering into a contract, if
performance becomes impossible, the
parties are discharged.
• Known as – Doctrine of Frustration.

52
Various Ways in which this
doctrine applies

• Destruction of Subject Matter


– Taylor v. Caldwell
• Non-Existence of the State of things
– Krell v. Henry
• Death or Insanity
• Declaration of War
• Changes in Law
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Exceptions to the Doctrine of
Frustration
• Difficulty of Performance
• Commercial Impossibility
• Failure of third person
• Strike or lockout
• Failure of one of the objects

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5. Discharge by Operation of
Law
• By Death
• By Insolvency
• By Merger

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6. Discharge by Breach of
Contract
• Actual Breach
–On the date of performance
• Anticipatory Breach
–Before the date of performance
–Hochster v. De La Tour

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Remedies for the Anticipatory
Breach of Contract

• Person may elect to wait till the date of


performance and then filing the case of
breach
• He can immediately treat the contract to be
repudiated and file a case of breach

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Remedies for the Breach of
Contract
• Suit for Rescission of Contract
• Suit for Damages
• Suit for Quantum Meruit
• Suit for Specific Performance of Contract
• Suit for Injunction

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Suit for Damages

• Purpose of Damages – To put the party


whose rights has been violated in the same
position as he was earlier.
• Damages – By way of compensation for
the loss suffered by the injured person and
not to punish the wrong – doer

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Types of Damages

• Ordinary or Compensatory Damages


• Special Damages
• Exemplary or Vindictive Damages
• Nominal or Token Damages

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Ordinary Damages

• Damages which arises in the ordinary


course of events from the breach of the
contract.
• Damage which is immediately flowing out
the breach of contract

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Special Damages

• Arises due to special circumstances


known to the parties
• Available in special cases only by
discretion of courts

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Exemplary or Vindictive
Damages
• Not awarded in ordinary cases
• Awarded for damage to reputation of a
person
• Only in exceptional cases
– In case of promise to marry
– In case of wrongful dishonor of cheque by
banker

63
Nominal or Token Damages

• In case where no actual damage is suffered


by the parties
• Awarded in form of fine or penalty
• Contains nominal amount

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Rules regarding the payment
of damages
• Based on the judgement of
• Hadely v. Baxendale.
• Rules in section 73 to 75

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Various Rules for Damages

1. Actual Loss / Ordinary damages shall be


recovered
2. Damages as raised due to usual loss be given
3. No remote damages shall be paid
4. Special damages may be given in some cases
5. Duty of the parties to mitigate the loss
6. Damages for loss of reputation may be given
7. Damages for mental pain, inconvenience may be
claimed 66