Lecture 2

INDIAN CONTRACT ACT 1872

CONTRACT

• CONTRACT MAY BE DEFIND AS AN AGREEMENT WHICH CREATES RIGHTS AND OBLIGATIONS BETWEEN THE PARTIES. THESE RIGHTS AND OBLIGATIONS MUST BE OF SUCH A NATURE THAT THESE CAN BE CLAIMED IN THE COURT OF LAW.

MAJOR COMPONENTS

1. AGREEMENT

2. LEGAL OBLIGATION

3. CONSENSUS AD IDEM

AGREEMENT

• THE CONTRACT IS FORMED ONLY ON THE BASIS OF AGREEMENT. IT IS A COMBINED EFFECT OF OFFER AND ACCEPTANCE.

AGREEMENT= OFFER+ACCEPTANCE

ACCORDING TO SECTION 2(e) AGREEMNT IS A PROMISE OR A SET OF PROMISE FORMING CONSIDERATION FOR EACH OTHER

Types of agreements

Intention to create legal relations

Intention to create legal relations

Social and domestic agreements

(Presumption – parties do not intend legal relations

Business or commercial agreements(Presumption – parties do intend

to create legal relations

Domestic agreements Courts will presume that agreements

between friends and/or family members are not intended to be legally enforceable.

CASE: Balfour v Balfour (1919)

The presumption can be rebutted.

CASE: Todd v Nicol [1957] CASE: Roufos v Brewster (1971)

Balfour v Balfour (1919) 2 KB 571

Facts: Mr B promised to pay his wife £30 per month. Mr B had to return to Ceylon. Mrs B was to

remain in England for medical reasons. The couple later separated. Mrs B claimed £30 per month pursuant to Mr

B’s promise.

Balfour v Balfour

Issue: Did this promise by a husband to his wife

amount to a contract?

Balfour v Balfour

Decision: An agreement to pay £30 per month existed. The parties had not intended it to be legally

binding. There is a presumption that domestic

arrangements are not intended to finish up in court.

Todd v Nicol [1957] SASR 72 Facts:

Mrs N resided in South Australia. She wrote to her sister-in-law and niece (the Todds),

in Scotland, inviting them to come and live with her. She promised them free accommodation and that

she would alter her will so that after she died, the house would become theirs.

Mrs T quit her job and she and her daughter moved to Australia.

Later an argument developed and Mrs N told the Todds to leave the house.

Todd v Nicol

Issue: Did the Todds have a contractual right to

stay? Did this family arrangement amount to a contract?

Todd v Nicol

Decision: It was a contract.

Simpkins v Pays [1909] 1 WLR 975

Facts: Three people lived together in a house and

jointly took part in a competition organised by a newspaper.

The entries were made in one name only. One entry won a prize and the defendant, in

whose name the entry was submitted, refused to share it with the other two contributors claiming there was not intention to create legal relations.

Simpkins v Pays

Issue: Was there an understanding between the

parties that their agreement amounted to a contract?

Voluntary agreements

• In cases of voluntary agreements, e.g. where a person volunteers their services, the parties do not normally intend to create legal relations.

Commercial agreements

Courts will presume that agreements arrived at in a commercial context are intended to be legally enforceable.

What is a Contract ?

• An Agreement • Enforceable by law

• Made between atleast two parties• By which rights are acquired by one, &• Obligations are created on the part of

another• And on failure, the other party has a remedy.

AGREEMENT & ENFORCEABILITY

Every promise and

very set of promises forming

consideration for each other.

Enforce by law

“All agreements are not contracts, but all contracts are

agreements”

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What is a contract? Examples

• I promise to bring chocolates to the whole class. Is there a contract?

• I promise to give you Rs1000 if secure first position in the class. Is there a contract?

• I promise to give you a new mobile if you agree not to eat Chinese food for one year. Is there a contract?

ESSENTIALS OF A VALID CONTRACT

1. AGREEMENT

2. CREATION OF LEGAL RELATIONSHIP

CASE LAW- BAL FOUR Vs. BALFOUR(1919)

3. LAWFUL CONSIDERATION

• AGREEMENT IS A MUTUAL EXCHANGE OF PROMISES BETWEEN PARTIES. EACH PARTY MAKING A PROMISE GETS SOMETHING IN RETURN OF HIS PROMISE. IT CONSTITUTES A CONSIDERATION FOR HIS PROMISE.

4. CONTRACTUAL CAPACITY

1. HE MUST BE A MAJOR AGE AND NOT A MINOR

2. HE MUST BE OF SOUND MIND AND NOT LUNATIC

3. HE MUST NOT HAVE BEEN DECLARED DISQUALIFIED BY LAW.

5. FREE CONSENT OF THE PARTIES

1. COERCION

2. UNDUE INFLUENCE

3. MISREPRESENTATION

4. FRAUD

5. MISTAKE

6. LAWFUL OBJECT OF AGREEMENT

• THE OBJECT OF AN AGREEMENT MUST BE TO DO SOME ACT WHICH IS LEGAL. CONTRARY TO IT, AGREEMENTS MADE FOR DOING SOME THING ILLEGAL, IMMORAL OR AGINST PUBLIC POLICY, CANNOT BE ENFORCED IN THE COURT OF LAW.

7. AGREEMENTS NOT DECLARED EXPRESSLY VOID

• THERE ARE CERTAIN AGREEMNTS WHICH HAVE BEEN EXPRESSLY DECLARED VOID BY THE LAW. THUS AN AGREEMENT MADE BY PARTIES SHOULD NOT FALL IN THIS CATEGORY.

Examples

• Agreement in restraint of marriage• Agreement in restraint of trade• Agreement in restraint of legal

proceedings• Wagering agreements

8. CERTAINTY IN THE MEANING OF AGREEMENT

• AGREEMENT MADE BY THE PARTIES MUST BE CERTAIN OR CAPABLE OF BEING MADE CERTAIN IN ITS MEANING. AGREEMENT WITH UNCERTAIN MEANING WILL BRING UNCERTAINTY IN THE RIGHTS AND OBLIGATIONS CREATED BY IT AND THESE RIGHTS AND OBLIGATIONS CANNOT BE ENFORCED IN THE COURT OF LAW.

9. Possibility of performance

• An agreement to do impossible act is void

10. OTHER LEGAL FORMALITIES

• AGREEMENT TO BE ENFORCED, NEEDS TO SATISFY OTHER CONDITIONS OF BEING IN WRITING , REGISTERED AND DULY STAMPED.

CLASSIFICATION OF CONTRACTS

ON THE BASIS OF FORMATION

1. EXPRESS CONTRACT-

EXPRESS CONTRACTS RESULTS FROM EXPRESS AGREEMENTS AND EXPRESS AGREEMENT IS FORMED BY MAKING OFFER AND GIVING ACCEPTANCE IN THE WORDS SPOKEN OR WRITING.

2. IMPLIED CONTRACT

• IN THIS TYPE OF CONTRACT ONE OF THE PARTY CONDUCT HIMSELF OR DOES SOME ACT WHICH IS BEING ACCEPTED BY OTHER PARTY EITHER BY HIS CONDUCT OR COURSE OF HIS DEALINGS OR CIRCUMASTANCES.

3. QUASI CONTRACTS

• THESE CONTACTS ARE BASED ON THE PRINCIPLE OF JUSTICE AND EQUITY. IN SPITE OF NOT HAVING CONTRACT BETWEEN PARTIES , THE RIGHTS AND OBLIGATIONS ARE CREATED BY OPERATION OF LAW RATHER THAN OFFER AND ACCEPTANCE.

4. E-Commerce Contract

• Entered into between the parties via internet

ON THE BASIS OF PERFORMANCE

1. EXECUTED CONTACT- ON THE COMPLETE DISCHARGE OF THE OBLIGATIONS BY THE PARTIES , THE CONTRACT IS SAID TO HAVE BEEN EXECUTED.

2. EXECUTORY CONTRACT- THE CONTRACT HAS NOT BEEN YET PERFORMED.

(i) Unilateral

(ii) Bilateral

ON THE BASIS OF VALIDITY

1. VALID CONTRACT- CONTRACT IS SAID TO BE VALID IF IT SATISFIES ALL CONDITIONS REQUIRED FOR ITS ENFORCEABILITY.

2. VOID CONTRACT- A CONTACT WHICH CEASES TO BE ENFORCEABLE BY LAW BECOMES VOID

3. VOID AGREEMENT- AGREEMENT WHICH IS NOT ENFORCEABLE BY LAW IS VOID AGREEMENT.IN OTHER WORDS IF IT LACKS ANY ONE OF THE ESSENTIAL S OF VALID CONTRACT IT IS CALLED VOID.

4. VOIDABLE CONTRACT-

AN AGREEMENT WHICH IS ENFORCEABLE BY LAW AT THE OPTION OF ONE OR MORE PARTIES , BUT NOT AT THE OPTION OF OTHER OR OTHERS IS A VOIDABLE CONTRACT.

5. ILLEGAL CONTRACT-

IF THE OBJECT IS ILLEGAL THE CONTRACT IS SAID TO BE ILLEGAL.

6. UNENFORCEABLE CONTRACT-

IF DUE TO SOME TECHNICAL REASONS THE CONTRACT MAY NOT BE ALLOWED TO BE ENFORCED IN THE COURT.IT IS UNENFORCEABLE CONTRACT.

EXAMPLES

• 1. X polished Y’s shoes without being asked by Y to do so. Y does not make any attempt to stop X from polishing the shoes. Is Y bound to make payment to X?

• 2. X agrees to pay Rs 100000 to Y if Y does not marry throughout his life. Y promises not to marry at all but later on refuses to pay Rs 100000. Advise

• 3. X threatens to kill Y if he does not sell his house to X for Rs 100000. Y agrees. X borrows Rs 100000 from Z who is also aware of the purpose of the loan. What is the nature of the agreement between X and Y , X and Z

• 4. X agrees to pay Y Rs 100000 if Y kills Z. To pay Y, X borrows Rs 100000 from W who is also aware of the purpose of the loan. Y kill Z but X refuses to pay. X also refuses to repay the loan to W. Advise Y and W.

THANK YOU

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