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INDIAN CONTRACT ACT 1872

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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

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Contd

Law of contract lays down legal rules


relating to promises, their formation,
performance and enforcement
Applicable not only to business
community but others

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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

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CONTRACT

Sec 2(h) An agreement enforceable by


law is a contract.

Two elements

An Agreement
Legal obligation ie, a duty enforceable by
law.

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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
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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

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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.

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Contract Act

All contracts are agreement but all


agreements are not contracts.
Agreements of moral, religious or social
nature are not contracts

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they are not likely to create a duty enforceable by


law
parties never intend to create a legal obligation.

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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

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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.

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Held: unenforceable as parties never


intended it to be bound by legal
obligations.

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contd

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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.
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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.

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HELD - There was no binding contract as there


was no intention to create legal relationship

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Distinction between an agreement and a contract

Agreement

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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

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Classification of
Contract
Enforceabilty
Valid
Voidable

Method of
Formation
Formal
Simple

Extent of
performance

Obligation to
perform

Executed

Unilateral

Executory

Bilateral

Void
unenforceab
le
Illegal
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Express

Implied

Quasi

Standard
Form

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Contingent

Valid Contract
Essentials

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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

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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.

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OFFER

An offer involves the following essential


elements;

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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

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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.

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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.

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Cases

General offer

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Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258


Harbhajan lal vs Harcharan lal (AIR All 539)

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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

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If the terms of the offer are vague or indefinite, its


acceptance cannot create any contractual
relationship.

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Legal rules as to offer

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Contd

Different from a mere declaration of


intention
Mere declaration of intention
indicates that an offer will be made
or invited in the future

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A declaration of intention by a
person does not give right of action
to another.

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Case

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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.

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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

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Pharmaceutical Society of Great Britian vs


Boots cash chemists Ltd (1953) 1 QB 401
Harvey vs facey

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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
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Contd

No term of non-compliance of which


amounts to acceptance

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The offer must not contain a term, the noncompliance 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

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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

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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.

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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.

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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.

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Contd

How to make acceptance

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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

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Legal rules of valid acceptance

Absolute and unqualified


Manner
Communication
By whom
To whom
Before the lapse of the offer

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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.

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(a) Communication of offer It is complete when it


comes of the knowledge of the person to whom it
is made.

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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.

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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.

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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.

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