The Indian
Contract Act extends to the whole of India and
it came into force on the first day of September
1872. |
WHAT
IS A CONTRACT? |
An agreement
enforceable by law is a contract. |
| Thus for
the formation of a contract there must be |
|
1.
|
an
agreement |
| 2. |
the
agreement should be enforceable by law
An agreement is defined as every promise
and every set of promises forming the
consideration for each other and a promise
is an accepted proposal. |
|
| FORMATION OF A CONTRACT |
For the
formation of a contract the process of proposal
or offer by one party and the acceptance thereof
by the other is necessary. This generally involves
the process of negotiation where the parties apply
their minds make offer and acceptance and create
a contract. |
When one
person signifies to another his willingness to
do or abstain from doing anything with a view
to obtaining the assent of the other to such act
or abstinence, he is said to make a proposal. |
When the
person to whom the proposal is made signifies
his assent thereto, the proposal is said to be
accepted. |
In order
to convert a proposal into a promise, the acceptance
must be |
|
1. |
Absolute
and unqualified – Any departure
from the terms of the offer or any qualification
vitiates the acceptance unless it is agreed
to by the person from whom the offer comes.
An acceptance with a variation is no acceptance;
it is simply a counter proposal. |
| 2. |
Expressed
in some usual and reasonable manner. –
If the proposer prescribes any particular
manner of acceptance it has to be in that
manner and where no manner is prescribed
it should be in a usual and reasonable manner. |
|
| WHO CAN ENTER INTO A CONTRACT? |
Any person
who |
|
a. |
is
of the age of majority according to the
law to which he is subject |
| b. |
is
of sound mind – A person is said
to be of sound mind for the purpose of
making a contract, if, at the time when
he makes it, he is capable of understanding
it and of forming a rational judgement
as to its effect upon his interests. |
| c. |
is not disqualified from
contracting by any law to which he is subject
|
|
| is competent to contract. |
Therefore
a minor is not competent to contract and an agreement
by a minor is void ab initio. He can not ratify
an agreement on attaining the age of majority
and validate the same. (Void ab initio means it
has at no time had any legal validity). |
The following
persons are therefore incompetent to contract |
|
1. |
Minors |
| 2. |
Persons
of unsound mind |
| 3. |
Persons disqualified by
law to which they are subject |
|
ESSENTIALS
OF A VALID CONRACT |
All agreements
are contracts if they are made |
a.
BY THE FREE CONSENT OF PARTIES competent to contract
– Consent is said to be free if it is not
caused by |
|
• |
Coercion
– Consent is said to be
caused by coercion when it is obtained
by pressure exerted by either committing
or threatening to commit an act forbidden
by the Indian Penal Code or unlawfully
detaining or threatening to detain any
property. |
| • |
Undue
influence – A contract
is said to be induced by "undue influence"
where the relation subsisting between
the parties are such that one of the parties
is in a position to dominate the will
of the other and uses that position to
obtain an unfair advantage over the other. |
• |
Fraud
– Means and includes the
following acts done with the intention
to deceive or to induce a person to enter
into a contract. (a) the suggestion that
a fact is true when it is not true and
the person making the suggestion does
not believe it to be true (b) active concealment
of a fact by a person who has knowledge
or belief of the fact, (c) promise made
without the intention of performing it. |
• |
Misrepresentation
– When a person positively
asserts that a fact is true when his information
does not warrant it to be so, though he
believes it to be true, it is misrepresentation.
A breach of duty which brings an advantage
to the person committing it by misleading
the other to his prejudice is also a misrepresentation. |
• |
Mistake
– Where both parties to
an agreement are under a mistake as to
a matter of fact essential to the agreement,
the agreement is void. An erroneous opinion
as the value of the thing, which forms
the subject matter of the agreement, is
not deemed as mistake as to a matter of
fact. Unilateral mistake, i.e. the mistake
in the mind of only one party does not
affect the validity of the contract. |
|
b.
FOR A LAWFUL CONSIDERATION AND OBJECT –
|
|
Consideration or object is unlawful if |
|
1. |
It
is forbidden by law, |
2. |
Is
of such a nature if permitted it would defeat
the provisions of any law, |
|
3. |
It is fraudulent, |
4. |
The court regards it immoral, |
5. |
The
court regards it opposed to public policy.
Every agreement of which the consideration
or object is unlawful is void. |
|
c.
NOT EXPRESSLY DECLARED TO BE VOID. |
|
VOID AGREEMENTS |
1.
Agreements void if considerations and
objects unlawful in parts. |
2.
Agreement without consideration
is void, unless it is in writing and registered,
or it is a promise to compensate for something
done, or is a promise to pay a debt barred by
limitation. |
3.
Agreement in restraint of marriage. Every
agreement in restraint of the marriage of any
person, other than a minor is void. It is the
policy of law to discourage agreements, which
restrain freedom of marriage. Where a party is
restrained from marrying at all, or for marrying
for a fixed period or from marrying a particular
person, or class of persons, the agreement is
void. |
| 4.
Agreement in restraint of trade. Every
agreement, by which one is restrained from exercising
a lawful profession, trade or business of any
kind, is to that extent void. |
5.
Agreement in restraint of legal proceedings.
Every agreement by which any party thereto is
restricted absolutely from enforcing his rights
under or in respect of any contract, by the usual
legal proceedings in the ordinary tribunals, or
which limits the time within which he may thus
enforce his rights is void to that extent. |
6.
Agreements for uncertainty. Agreements
the meaning of which is not certain, or capable
of being made certain, are void. |
7.
Agreements by way of wager/ Bet. Agreements
by way of wager are void; and no suit shall be
brought for recovering anything alleged to be
won on wager, or entrusted to any person to bide
by the result of any game or other uncertain event
on which any wager is made. (Wager means betting
or gambling). However certain prizes for horseracing
are exempted. |
VOIDABILITY
OF AGREEMENTS WITHOUT FREE CONSENT |
When consent
to an agreement is caused by coercion, fraud or
misrepresentation, the agreement is a contract
voidable at the option of the party whose consent
was so caused. |
A party to
a contract, whose consent was caused by fraud
or misrepresentation, may, if he thinks fit insist
that the contract shall be performed, and that
he shall be put in the position in which he would
have been if the representations made had been
true. |
Exceptions
|
|
1. |
If such consent was caused by misrepresentation
or by fraud and the party had the means
of discovering the truth with ordinary diligence,
the contract is not voidable |
2. |
A fraud
or misrepresentation which does not cause
a person to consent to a contract does not
render a contract voidable. |
|
| BREACH OF CONTRACT |
The parties
to a contract must either perform or offer to
perform, their respective promises, unless such
performance is dispensed with or excused under
the provisions of the Act, or any other law. |
Promises
bind the representatives of the promisor in the
case of death of such promisor before performance,
unless a contrary intention appears from a contract.
|
In a contract
the agreement being enforceable by law, each party
to the contract is legally bound to perform his
part of the obligation. Non-performance of the
duty undertaken by a party in a contract amounts
to breach of contract, for which he can be made
liable. |
| REMEDIES |
When a party
to the contract makes a breach of contract, there
are two possible alternatives available to the
other party. |
Firstly to
bring an action for the breach of contract, and
secondly he may bring an action for specific performance
of the contract. |
| COMPENSATION IN CASE OF
BREACH |
1.
Compensation for loss or damage caused by breach
of contract. |
For the breach
of contract damages is the most appropriate remedy.
When a contact has been broken, the party who
suffers by such breach is entitled to receive,
from the party who has broken the contract, compensation
for any loss or damage caused to him thereby,
which naturally arose in the usual course of things
from such breach, or which the parties knew when
they made the contract, to be likely to result
from the breach of it. |
Such compensation
is not to be given for any remote or indirect
loss or damage sustained by reason of the breach. |
2.
Compensation for breach of contact where penalty
stipulated for. |
When a contract
has been broken and a sum has been named in the
contract as the amount to be paid in case of such
breach, or if the contract contains any other
stipulation by way of penalty, the party complaining
of the breach is entitled, whether actual damage
or loss is proved to have been caused thereby,
to receive from the party who as broken the contract
reasonable compensation not exceeding the amount
so named or, the penalty stipulated for. |
3.
Party rightfully rescinding contract entitled
to compensation |
A person
who rightfully rescinds a contract is entitled
to compensation for any damage, which he has sustained
through non-fulfillment of the contract. |
| SPECIFIC PERFORMANCE |
Specific
performance means actual execution of the contract
as agreed between the parties. |
Specific
Performance of any contract may, in the discretion
of the court be enforced in the following situations
– |
|
• |
When
there exists no standard for ascertaining
the actual damage caused by the non-performance
of the act agreed to be done; or |
• |
When
the act agreed to be done is such that compensation
in money for its non-performance would not
afford adequate relief. |
|
| Exceptions: where compensation
would be adequate relief are: |
|
1. |
Agreement
by a landlord for repair of the rented premises;
|
2. |
Contract
for the mortgage of immovable property;
|
| 3. |
Contract
for the sale of any goods, for instance
machinery or buffaloes. However, a contract
to deliver rare coins would be specifically
enforceable, as compensation would not constitute
adequate relief in such a case; |
| 4. |
An agreement to pay money
by installments; |
| 5. |
An agreement for lending
money. |
|
| BESIDES THE FOLLOWING:
|
|
• |
A
contract which runs into such minute or
numerous details or which is so dependent
on the personal qualifications or volition
of the parties, or otherwise from its nature
is such, that the court cannot enforce specific
performance of its material terms, cannot
be specifically enforced. |
• |
Another
situation when a contract cannot be specifically
enforced is where "the contract is
in its nature determinable". A contract
is said to be determinable, when a party
to the contract can put it to an end. |
• |
A contract
the performance of which involves the performance
of a continuous duty, which the Court can
not supervise, cannot be specifically enforced. |
|
| PERSONS WHO CANNOT OBTAIN
SPECIFIC PERFORMANCE |
1.
The specific performance of a contract cannot
be obtained in favour of a person who could not
be entitled to recover compensation for the breach
of contract. |
2.
Specific performance of a contract cannot be enforced
in favour of a person: |
|
1. |
who
has become incapable of performing the contract
that on his part remains to be performed,
or |
2. |
who
violates any essential term of the contract
that on his part remains to be performed,
or |
| 3. |
who
acts in fraud of the contract, or |
| 4. |
who willfully acts at variance
with, or in subversion, of the relation intended
to be established by the contract. |
|
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