The Indian Contract Act, 1872By S.K Tannan

Introductiony We enter into contracts almost every day. y Taking a seat in a bus amounts to entering into a contract. y You go to restaurant and take snacks, you have entered into a

Contract. y However, in such situations, we do not realize that we have entered into a Contract. y The people who are engaged in trade, industry and commerce, they carry on business by entering into contracts. y The law relating to Contracts is found in the Indian Contract, 1872

INTRODUCTIONy The law of contracts differs from the other branches of law. y It does not lays down so many precise rights and duties which

the law will protect and enforce. y It only contains a number of limiting principles, subject to which parties may create rights and duties for themselves. y The law will uphold those rights and duties.

What is a contracty Section 2 (h) of the Indian Contract Act, 1872 defines a

contract as an agreement enforceable by law. y Section 2 (e) defines agreement as every promise and every set of promises forming consideration for each other y Section 2 (b) defines promise as 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

What is a contract acty The Contract Act is e law of those agreements which create y y y y

obligations, and in the case of breach of a promise by one party to the agreement, the other has a legal remedy. All legal obligations are not contractual in nature. A legal obligation having its source in an agreement only will give rise to a contract. An obligation which does not have its origin in an agreement does not give rise to a contract. Some of the obligations are: torts or civil wrong, judgments of courts, Contracts of records etc

Essential ELEMENTS OF A VALID CONTRACTo As per section 10 of the Act, All agreements are

contracts if they are made by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void o The essential elements of a valid contract are: (1) Agreement (1) Intention to create legal relationship (2) Free and genuine consent (3) Parties competent to contract (4) Lawful consideration

Essential ELEMENTS OF A VALID CONTRACT(5) Parties Competent to Contract (6 ) Lawful object (7) Agreements not declared void or illegal (8) Certainty of meaning (9) Possibility of performance (10) Necessary legal formalities

Essential Elements of a Valid Contract(1) Agreement:y y (a) (b) y y y y

To constitute a Contract, there must be an agreement. An agreement is composed of two elements: Offer An Acceptance The party making an offer is known as offeror, and the party to whom the offer is made , is known as the offeree. Thus there are essentially to be two parties to an agreement.. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem.

Essential Elements of a Valid Contract(2) Intention to create legal relationship:y There should be an intention on the part of the parties to

create a legal relationship. y An agreement of a purely social or domestic nature is not a contract. y However, even in the case of agreements of purely social or domestic nature, there may be an intention of the parties to create legal obligations. y In that case, the social agreement is intended to have legal consequences.

Essential Elements of a Valid Contract(3) Free and Genuine Consent:y The consent of the parties to an agreement. y The consent of the parties should not be obtained by

misrepresentation, fraud, undue influence, coercion or mistake. y If the consent is obtained by any of these sources, then the contract is not valid.

Essential Elements of a Valid Contract(4) Parties competent to contract: y According to Section 11 of the Indian Contract Act, every person is competent to contract if he or she is: (i) Of the age of maturity (ii) Of sound mind (iii) Not disqualified for contracting by any law to which he or she is subject to y Therefore, if a party to a contract is suffers from any of these flaws, the contract is unenforceable except in certain exceptional circumstances

Essential Elements of a Valid Contract(5) Lawful Consideration:y The agreement must be supported by consideration from y y y y

both sides. Each party to the agreement must give or promise something and receive something or a promise to return. Consideration is the price for which the promise of the other party is sought. However, this price need not be in terms of money, it can be in terms of kind. The consideration must be real and lawful.

Essential Elements of a Valid Contract(6) Lawful Object:y The object of the agreement must be lawful and not one

which the law disapproves.

(7) Agreement not declared illegal orVoid:y There are certain agreements which have been declared

illegal or void by the law. y In such cases, even if an agreement possesses all the elements of a valid contract, the agreement may not be enforceable by the law.

Essential Elements of a Valid Contract(8 ) Certainty of Meaning:y The meaning of the agreement must be certain

or capable of being made certain , otherwise the agreement will not be enforceable by law. y For example, A agrees to sell 10 metres of cloth. But this does not show what type of cloth is intended for sale. y Therefore, the agreement may not be enforceable by law. y However, if the special description of the cloth is expressly stated, say Terry cot (80:20), the agreement would be enforceable by law as there is no uncertainty about its meaning.

Essential Elements of A Valid Contract(9) Possibility of Performance:y The terms of the agreement should be capable of

performance. y An agreement to do an act impossible in itself cannot be enforced by law. y For instance, A agrees with B to discover treasure by magic. y Such types of agreements cannot be enforced.

Essential Elements of A Valid Contract(10) Necessary legal Formalities:y A contract may be oral or in writing. y However, if a particular type of contract is required by

the law to be in writing , it must comply with necessary formalities as to writing, registration, attestation etc, if necessary. y If such legal formalities are not carried out, then the contract is not enforceable by the law.

Void Agreementsy An agreement which is not enforceable by either of the

parties is a void agreement. y Such an agreement is without any legal effect. y Under Section 11, an agreement with a minor is void. y Some instances of void agreements are: (i) Agreements entered into through a mutual mistake of fact between the parties (ii) Agreements, the object or consideration is unlawful. (iii) Agreements part of the consideration or object is unlawful.,

Void Agreements(iv) Agreements made without consideration. (v) Agreements in restraint of trade (vi) Agreements in restraint of legal proceedings (vii) Uncertain agreements (viii) Impossible agreements (ix) An agreement to enter into an agreement in future. (x) Wagering agreements.

Void Agreementsy An illegal agreement is one which transgresses some

rules of basic public policy or which is criminal in nature. Or which is immoral. y Such an agreement is a nullity and has a much wider import than a void agreement. y All illegal agreements are void, but all void agreement are not necessarily illegal. y An illegal agreement is not only void as between the immediate parties, but this has further effect that even collateral transactions to it become tainted with illegality.

Void Agreementsy For example, A borrows Rs 15000/ from B, and enters into a

contract with F, a foreigner, to import goods which are prohibited by law. y B has the knowledge of the purpose of the loan. y The agreement between A and B is collateral to the main agreement between A and F. y Since the main agreement is illegal, therefore, the collateral is also tainted with illegality.