THE INDIAN CONTRACT ACT, 1872

The act came into force on the First day of September 1872
It applies to the whole of India except the state of Jammu and Kashmir.
It’s 1^st Article on Indian contract act and here we are going to learn about NATURE OF CONTRACTS

[I] Agreement {SEC 2(E) } : OFFER / PROPOSAL + ACCEPTANCE

Example: Mr. A told to Mr. B will you sell your house for Rs. 10 lakhs, This is an offer.

If Mr. B says YES to Mr. A, Then this is acceptance and combinedly they form AGREEMENT.

Every promise or set of promise forming consideration to each other is called an agreement .

NOTE: It may be expressed (writing or oral) or implied.

[II] Contract {SEC (H) } : Accepted Proposal + Enforceability by law

NOTE: Enforceable by law = If one party denies performing his promise, the other party may file suit in the court and court will force him not to deny.

It comes from intention of party to create legal obligation

“ Every contract is an agreement but every agreement is not a contract”

ESSENTIAL ELEMENTS OF A VALID CONTRACT

I. Proper offer and proper acceptance to create legal obligation
II. Lawful consideration and lawful object: Consideration is Quid pro quo ( I.e Something in return ). It may be cash or something of the kind.

III. Capacity to contract: Following person doesn’t have the capacity to contract (a) Minor (b) Unsound mind ( c) Person expressly disqualified.
IV. Free consent of parties: There must be consensus-ad-idem (same sense, same time). Free consent missing means it may be the case of coercion, undue influence, fraud or misrepresentation.
V. The agreement should not be declared void by law.
VI. The meaning of agreement must be certain.
VII. There must be possibility of work
VIII. Must complete necessary formalities – Writing, attestation, registration otherwise unenforceable.

TYPES OF CONTRACTS

[I] On the basis of validity

{a} Valid contract

{b} Void contract

{c} Voidable contract

{d} Illegal contract

{e} Unenforceable contract

[II] On the basis of formation

{a} Express contract

{b} Implied Contract

{c} Quasi contract

{d} Tacit contract

[III] On the basis of performance

{a} Executed contract

{b} Executory Contract

{c} Unilateral contract

{d} Bilateral contract

ON THE BASIS OF VALIDITY

[1] Valid contract: An agreement which is binding and enforceable, which contains all essential elements of valid contract

[2] Void contract: A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable

[3] Voidable contract: An agreement which is enforceable at the option of one party but not at the option of the other party. Such contract is affected due to coercion, undue influence, fraud or misrepresentation.

[4] Illegal contract: An agreement for an act which is either forbidden by law or punishable

Note: Collateral contract with the illegal contract also becomes void.

[5] Unenforceable contract: A contract is good in substance but becomes unenforceable in court ‘due to some technical hitch.

ON THE BASIS OF FORMATION

[1] Express contract: A contract which is made either in written or oral form.

[2] Tacit contract: By conduct offer and acceptance is made

Example: auction sale – fall of a hammer

[3] Implied contract: When party do not contract to each other, but due to the operation of law they have to perform

NOTE: Here parties don’t have any intention to create a contract.

[4] Quasi contract: Not an actual contract but it resembles to be a contract {will explain about it in the last unit of contract act }

ON THE BASIS OF PERFORMANCE

[1] Executed contract: When both the party has given these considerations it becomes executed contract

Act already performed

Example: Mr A supplied sugar to Mr B and Mr B paid 1000 to Mr A this is an executed contract.

[2] Executory contract: Contract yet to be performed also known as a bilateral contract.

Example: Mr A will supply sugar to Mr B in next month and Mr B will pay for that after 15 days it is a bilateral contract

[3] Unilateral contract: Only one party has yet to perform.

FORMAL CONTRACTS

* Not applicable in India.
* Applicable in U.K

[a] Contract of record: due to the order of court parties has to perform.

[b] Contract of seal: Due to an agreement in writing, sealed and delivered, also known as a deed or specially contracted.

OFFER

* Also known as proposal
* When one person signifies to another his willingness to do or to abstain from doing something with a view to obtaining the assent of other, it is said to be Proposal.
* Offer may be a positive act or negative act.

NOTE: The person who is making the offer is called ‘offeror’ OR ‘promisor’

The person who is accepting is called ‘offeree’ OR ‘promisee’.

CLASSIFICATION OF OFFER

* GENERAL OFFER: Anyone can accept from public

The offeree is not definite.

* SPECIAL OFFER: Offer to a definite person or can be accepted only by the person to whom it is made.
* CROSS OFFER: the Second offer on same term or identical offer is made in ignorance

Example: Mr A made an offer to sell his house for Rs. 1 lakh and after some days Mr B asked Mr A will you sell your house for Rs. 1 lakh

* COUNTER OFFER: Second offer made on changed terms.

Example: If in above example Mr A replied will you purchase my house for Rs. 2 lakhs.

Now terms are changed this is known as the counter offer.

* STANDING / OPEN / CONTINUING OFFER: When an offer remains open for acceptance over a period of time or up to happening of some event.

RULES REGARDING VALID OFFER

[1]Capable to create a legal obligation.

[2]Certain and not vague

[3]Express or implied

[4]Specific or general.

[5]Offer must be communicated.

[6]Made with the view to obtain the consent of offeree.

[7] Conditional

[8]Offer should not contain a term the non-compliance of which would amount to acceptance

[9]Offer and invitation to offer -> Anyadvertisementt to attract customer is not an offer it is only an invitation to offer

Note: An offer may lapse by

[a] notice of revocation

[b] lapse of time

[c] death or insanity

[d]non-fulfilment of the condition.

[e]counter offer.

ACCEPTANCE

When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted When a proposal is accepted it becomes a promise.

Rules regarding valid acceptance

Acceptance must be absolute and unconditional.
Must be communicated to offer.
Acceptance must be in the mode prescribed. {if no mode is prescribed it can be given in any mode}
Must be at the reasonable time. {Reasonable time is prescribed as per circumstances}
Mere silence is not acceptance.

[A] COMMUNICATION OF OFFER: It completes when it comes to the knowledge of offeree.

[B] COMMUNICATION OF ACCEPTANCE: When it is put in course of transmission in such a way so that it cannot be withdrawn.

[C] REVOCATION OF OFFER: An offer may be revoked before completion of communication of acceptance

[D] REVOCATION OF ACCEPTANCE: An acceptance may be revoked before completion of communication of acceptance.

Indian contract act – 1872

THE INDIAN CONTRACT ACT, 1872

ESSENTIAL ELEMENTS OF A VALID CONTRACT