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 Business or
agreements commercial agreements
(Presumption – parties do (Presumption – parties do intend
not intend legal relations 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 Enforce by law
very set of promises
forming
consideration for
each other.

“All agreements are not
contracts, but all
contracts are
agreements”

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?

19

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.

Lecture 2

More Related Content

What's hot (20)

Viewers also liked (12)

Similar to Lecture 2 (20)

More from Komma Naveen Kumar (15)

Recently uploaded (20)

Lecture 2