Unit – 1

Indian Contract Act, 1872 Part 1

1.1           Law of Contract

Introduction

The Indian Contract Act, 1872 prescribes the law regarding contracts in India and is that the key act regulating Indian law.

The Act relies on the principles of English Common Law. It’s applicable to all or any the states of India. It determines the circumstances during which promises made by the parties to a contract shall be legally binding.

Under Section 2(h), the Indian Contract Act defines a contract as an agreement which is enforceable by law.

Objective of the Act

The purpose of the Contract Act is to make sure that the rights and obligations arising out of a contract are honored which legal remedies are made available to an aggrieved party against the party failing to honor his a part of agreement. The Indian Contract Act makes it obligatory that this is often done and compels the defaulters to honor their commitments.

Extent and Commencement

• It extends to the entire of India except the State of Jammu and Kashmir
• It came into force on the primary day of September, 1872.
• The sale of goods was repealed from this Indian Contract Act in 1930. Contracts regarding partnership were repealed in 1932.

Development

The Act as enacted originally had 266 Sections, it had wide scope

• General Principles of Law of Contract – Sections 01 to 75
• Contract regarding Sale of goods – Sections 76 to 123
• Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency – Sections 124 to 238
• Contracts concerning Partnership – Sections 239 to 266

At present the Indian Contract Act could also be divided into two parts:

• Part 1: deals with the overall Principles of Law of Contract Sections 1 to 75
• Part 2: deals with Special sorts of Contracts like Contract of Indemnity and Guarantee and Contract of Bailment and Pledge

Steps Involved Within the Contract

1. Proposal and its communication

2. Acceptance of proposal and its communication

3. Agreement by mutual promises

4. Contract

5. Performance of Contract

Definition of Contract and Agreement

Contract

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”. In other words, we will say that a contract is anything that's an agreement and enforceable by the law of the land.

This definition has two major elements in it viz – “agreement” and “enforceable by law”. So as to know a contract in the light of The Indian Contract Act, 1872 we need to define and explain these two pivots within the definition of a contract.

Agreement

The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2 (e), the Act defines the term agreement as “every promise and each set of promises, forming the consideration for each other”.

Now that we know how the Act defines the term “agreement”, there may be some ambiguity within the definition of the term promise.

An agreement enforceable by law could also be a contract.

Difference between Agreement and Contract

Let us see how a contract and agreement are different from one another. This can assist you summarize and make a map of all the important concepts that you simply have understood.

Contract Agreement

Essential Requirements of a Valid Contract

• Offer and its acceptance
• Free consent of both parties
• Mutual and lawful consideration for agreement
• It should be enforceable by law. Hence, intention should be to make legal relationship. Agreements of social or domestic nature aren't contracts
• Parties should be competent to contract
• Object should be lawful
• Certainty and possibility of performance
• Contract shouldn't are declared as void under Contract Act or the other law

Types/Kinds / Classification of Contracts

1. On the idea of validity

a)     Valid contract: An agreement which has all the essential elements of a contract is named a legitimate contract. A legitimate contract are often enforced by law.

b)    Void contract [Section 2(g)]: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It's going to subsequently become void. -- There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law-

c)     Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of 1 or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it's repudiated by the aggrieved party.

d)    Illegal contract: A contract is against the law if it's forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to an individual or property of another, or court regards it as immoral or against public policy. These agreements are punishable by law. These are void-ab-initio.

“All illegal agreements are void agreements but all void agreements aren't illegal.

e)     Unenforceable contract: Where a contract is good in substance but due to some technical defect can't be enforced by law is termed unenforceable contract. These contracts are neither void nor voidable.

2. On the idea of formation

a)     Express contract: Where the terms of the contract are expressly prescribed in words (written or spoken) at the time of formation, the contract is claimed to be express contract

b)    Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is formed otherwise than in words, promise is claimed to be implied.

c)     Quasi contract: A contract is made by law. Thus, quasi contracts are strictly not contracts as there's no intention of parties to enter into a contract. It's legal obligation which is imposed on a celebration who is required to perform it. A contract is predicated on the principle that an individual shall not be allowed to complement himself at the expense of another.

3. On the idea of Performance

a)     Unilateral contract: A agreement is one during which just one party has got to perform his obligation at the time of the formation of the contract, the opposite party having fulfilled his obligation at the time of the contract or before the contract comes into existence.

b)    Bilateral contract: A contract is one during which the requirement on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts also are referred to as contracts with executory consideration.

4. On the bases of execution

a)     Executed contract: An executed contract is one during which both the parties have performed their respective obligation.

b)    Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract.

5. Other Contracts

Besides the above said classification, there are other kinds of contract also. Contingent Contract is one such type.

Nature of Contract

1.2           Offer and Acceptance:

Definition

Offer Section 2(A):

When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

• May be express or implied
• May be positive or negative
• Must shall create legal relationship
• Terms of offer must be sure
• May be made to a selected person or class of persons or to anybody within the world at large
• Must be communicated to the offeree
• Must be made with a view to get the assent
• May be conditional

Acceptance Section 2(B):

• When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.

Essentials of a Valid Offer and Acceptance

Rules of Valid Offer

Here are some of the few essentials that make the offer valid.

1] Offer must create Legal Relations

The offer must cause a contract that makes legal relations and legal consequences just in case of non-performance. So a social contract which doesn't create legal relations won't be a valid offer. Say for instance a dinner invitation extended by A to B isn't a valid offer.

2] Offer must be clear, not vague

The terms of the offer or proposal should be very clear and definite. If the terms are vague or unclear, it'll not amount to a valid offer. See example the following offer – A offers to sell B fruits worth Rs 5000/-. This is often not a valid offer since what sorts of fruits or their specific quantities aren't mentioned.

3] Offer must be communicated to the Offeree

For a proposal to be completed it must be clearly communicated to the offeree. No offeree can accept the proposal without knowledge of the offer. It makes clear that acceptance in ignorance of the proposal doesn't amount to acceptance.

4] Offer could also be Conditional

While acceptance can't be conditional, an offer could be conditional. The offeror can make the offer subject to any terms or conditions he deems necessary. So A offers to sell goods to B if he makes half the payment in advance. Now B can accept these conditions or make a counteroffer.

5] Offer cannot contain a Negative Condition

The non-compliance of any terms of the offer cannot result in automatic acceptance of the offer. Hence it cannot say that if acceptance isn't communicated by a particular time it'll be considered as accepted. Example: A offers to sell his cow to B for 5000/-. If the offer isn't rejected by Monday it'll be considered as accepted. This is often not a valid offer.

6] Offer is often specific or general

As we saw earlier the offer are often to at least one or more specific parties. Or the offer might be to the public generally.

7] Offer could also be Expressed or Implied

The offeror can make an offer through words or maybe by his conduct.

An offer which is formed via words, whether such words are written or spoken (oral contract) we call it an express contract. And when an offer is formed through the conduct and therefore the actions of the offeror it's an implied contract.

Termination of Offer

• By notice of revocation
• By lapse of your time
• By failure of the acceptor to fulfill a condition precedent to acceptance
• By failure to simply accept consistent with the mode prescribed
• By death or insanity of the offeror
• By rejection

Rules For Valid Acceptance

• Acceptance must be absolute and unconditional
• Acceptance by usual mode as desired by the offer or
• Acceptance cannot precede the offer
• Acceptance could also be express or implied
• Acceptance must tend within an inexpensive time
• Acceptance must be by an ascertained person (offeree)
• Offer can't be accepted after it had been rejected unless it's renewed
• Silence doesn't imply acceptance
• Acceptance must be made before the lapse or revocation of the offer
• Acceptance of offer means acceptance of all terms attached to the offer
• An agreement not enforceable by law is claimed to be void.

Counter Offer

Meaning

A counteroffer may be a response given to an initial offer. A counteroffer means the initial offer was rejected and replaced with another one. The counteroffer gives the first offerer three options: accept the counteroffer, reject it, or make another offer.

There is typically no binding contract between the parties involved until one accepts the other's offer. Counteroffers are prevalent in many types of business negotiations, transactions, and private deals between two individuals. You'll find them in land deals, employment negotiations, and car sales.

Understanding Counter Offers

When two parties get together to negotiate a transaction or deal, one may put an offer on the table. A counteroffer may be a reply thereto original offer and should change the terms of the deal including the price. The price is also greater or but what was originally quoted depending on who makes it. So if the person receiving the first offer doesn't accept or reject it, he may attempt to renegotiate with a counteroffer.

Definition

An offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there's no contract.

Example:

Susan Seller offers to sell her house for $150,000, to be paid in 60 days; Bruce Buyer receives the offer and provides Seller a counter offer of $140,000, payable in 45 days. The first offer is dead, despite the shorter time for payment since the value is lower. Seller then can prefer to accept at $140,000, counter again at some compromise price, reject the counter offer, or let it expire.

There is no limit to the amount of times each party can counter during negotiations. When countering back and forth, each offer should present a price but the previous offer. This conveys to the seller that the customer is nearing his final offer.

Neither party is obligated to settle until they agree on a contract, which occurs once the counteroffer is accepted. This is often when a binding contract is made. The contract is enforceable against either party. The counteroffer voids a previous offer, and therefore the entity that presented that provide is not any longer legally liable for it.

[Important: When negotiating, never let emotions affect negotiations—instead, ask questions, do your research, and invite additional time to think about the new offer.]

Terms of the Counter Offer

A counteroffer may include explanations of the terms of the offer or requests for supplementary information. Finalizing counteroffer negotiations requires the customer and offeror to simply accept the terms with none additional conditions or modifications.

A counteroffer is usually conditional. When the seller receives a low offer, he can counter with a price he feels is cheap. The customer can either accept that provide or counter again. The vendor can counter the offer. The person receiving the counteroffer doesn't need to accept it.

Key Takeaways

• A counteroffer is that the response given to an offer, meaning the original offer was rejected and replaced with another one.

• Counteroffers give the first offerer three options: accept it, reject it, or make another offer and continue negotiations.

• Parties aren't obligated by a contract until one accepts the other's offer.

• Counteroffers are common in business negotiations and transactions, like assets deals, car sales, and employment contracts.

Standing or Open Offer

Introduction

Sometimes an offer could also be of endless nature and is understood as Standing Offer. A standing offer is within the nature of a tender. An advertisement inviting tenders isn't an offer but a mere invitation to supply. It’s the person submitting the tender to provide goods or services that is deemed to possess made the offer. When a specific tender is accepted or approved, it becomes a standing offer. The acceptance or approval of a tender doesn’t, however, amount to acceptance of the offer.

It means the offer will remain open during a selected period which it'll be accepted from time to time by replacing specific orders for the supply of goods. Thus each order placed creates a separate contract.

A standing offer isn't a contract. A standing offer is an offer from a possible supplier to supply goods and/or services at pre-arranged prices, under set terms and conditions, when and if required. It’s not a contract until the govt issues a "call-up" against the standing offer. The govt. Is under no actual obligation to get until that point.

When are Standing Offers Used?

Standing offers are wont to meet recurring needs when departments or agencies are repeatedly ordering the same goods or services. They’ll even be used when a department or agency anticipates a requirement for a spread of goods or services for a selected purpose; however, the particular demand isn't known and delivery is to be made when a requirement arises. Common products purchased this manner include food, fuel, pharmaceutical and plumbing supplies, tires and tubes, stationery, office equipment and electronic processing equipment. Common services include repair and overhaul, and temporary help services.

Standing offers are most suited to goods or services which will be clearly defined to permit suppliers to offer firm pricing. Public works and Government Services Canada (PWGSC) issue standing offers when it's determined that this is often the simplest method of supply. Departments and agencies can also establish their own standing offers.

Why are Standing Offers Used?

The standing offer may be a convenient method of supply that saves time and money. Once a standing offer is issued, the department or agency deals with you on to obtain the goods or services they have. Call-ups against a standing offer are processed faster, involve less paperwork and have pre-set prices and terms already determined. For taxpayers, the advantages are lower government administrative costs and reduced inventory.

How are Standing Offers Issued?

The process of issuing a standing offer is subject to the normal contracting policies and procedures (including procedures required under the trade agreements). You bid on standing offers within the same way you bid on other bid solicitations (see: The Bidding Process). In PWGSC, for instance, most Requests for Standing Offers with an estimated value of $25,000 or more are advertised on the Tenders minisite. For standing offers valued at $25,000 or less, PWGSC will solicit bids from selected suppliers registered in its source lists.

When a standing offer is issued to your company, you're offering to supply certain goods or services at specified prices over a specified period of your time. If and when the govt. Issues a call-up against your standing offer, only then does one have a contract for the amount indicated within the call-up.

When are Standing Offers Issued?

There is no set rule on when standing offers are issued. Generally, they're issued at the beginning of the federal government's financial year (April 1 to March 31) but there are many exceptions. Normally standing offers are in effect for one year, but some cover different periods of your time. The procurement process for a standing offer starts long before the difficulty date, counting on the character and complexity of the need, so it's important to observe for Requests for Standing Offers which will be published several months before the anticipated effective date of a standing offer.

Access the weekly updated Standing Offers and provide Arrangements data to seek out current standing offers in your business.

Types of Standing Offers

There are five sorts of standing offers issued by PWGSC. The sort used depends on the geographic area involved (for example, regional or Canada-wide) and therefore the number of federal departments or agencies involved.

• National Master Standing Offer (NMSO): used by many departments or agencies throughout Canada.
• Regional Master Standing Offer (RMSO): used by many departments or agencies within a specific geographical area.
• National Individual Standing Offer (NISO): used by a specific department or agency throughout Canada.
• Regional Individual Standing Offer (RISO): used by a specific department or agency within a specific geographical area.
• Departmental Individual Standing Offer (DISO): used only by PWGSC on behalf of specific departments and agencies.

How are goods and Services Ordered?

Goods or services covered under a standing offer are ordered employing a call-up document. This document indicates acceptance of the standing offer to the extent of the products or services being ordered and is a notice to the supplier to deliver the goods or to provide the service. A separate contract is entered into whenever a call-up is formed against a standing offer.

There is no contractual obligation on either party until a call-up is formed.

Standing offers aren't contracts within the legal sense and either party may withdraw from a standing offer by notification to the opposite party. However, all call-ups received by a supplier before withdrawing are legally binding and must be honored. Departments and agencies order only the goods or services actually required.

Financial Limitations

Individual call-ups are limited to a maximum total dollar value as laid out in the standing offer.

Can Standing Offers be arranged with more than one Supplier?

Standing offers are often arranged with more than one supplier for an equivalent goods or services. This manner we will make certain that goods or services will always be available.

Supplier Debriefing

If you bid on a standing offer and aren't successful, invite a debriefing. We'll tell you who won and why and the way you'll improve future submissions.

Distinguish Between Offer and Invitation to Offer

An offer and invitation to offer are two different terms, which must not be confused with each other. An offer may be a proposal while a call for participation to supply (treat) is inviting someone to form a proposal. In an offer, there's an intention to enter into a contract, of the party, making it and thus it's certain. On the other hand, an invitation to offer is an act which results in the offer, which is formed with an aim of inducing or negotiating the terms.

So, in a call for participation to supply, the offeror, doesn't make an offer, rather invites other parties to form an offer. Hence, before simply responding to an offer, one must know the difference between offer and invitation to offer, because that creates a difference within the rights of parties.

Concept of Communication and Revocation of Offer and Acceptance (As per Section 3, 5)

Communication, Acceptance and Revocation of Proposals as per Section 3

The communication of proposals, the acceptance of proposals, and therefore the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to speak such proposal, acceptance or revocation, or which has the effect of communicating it.

Communication when Complete as Per Section 4

The communication of a proposal is complete when it involves the knowledge of the person to whom it's made.

The communication of an acceptance is complete,— as against the proposer, when it's put during a course of transmission to him soon be out of the facility of the acceptor; as against the acceptor, when it involves the knowledge of the proposer.

The communication of a revocation is complete,— as against the one that makes it, when it's put into a course of transmission to the person to whom it's made, so on be out of the facility of the one that makes it; as against the person to whom it's made, when it involves his knowledge.

Example

(a) A proposes, by letter, to sell a house to B at a particular price. (a) A proposes, by letter, to sell a house to B at a particular price." The communication of the proposal is complete when B receives the letter. The communication of the proposal is complete when B receives the letter."

(b) B accepts A’s proposal by a letter sent by post. (b) B accepts A’s proposal by a letter sent by post." The communication of the acceptance is complete, the communication of the acceptance is complete," as against A when the letter is posted; as against A when the letter is posted;" as against B, when the letter is received by A. As against B, when the letter is received by A."

(c) A revokes his proposal by telegram. (c) A revokes his proposal by telegram." The revocation is complete as against A when the telegram is dispatched. The revocation is complete as against A when the telegram is dispatched." it's complete as against B when B receives it. It's complete as against B when B receives it." B revokes his acceptance by telegram. B’s revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him. B revokes his acceptance by telegram. B’s revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him."

Revocation of Proposals and Acceptance as Per Section 5

A proposal could also be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards

Example

A proposes, by a letter sent by post, to sell his house to B. A proposes, by a letter sent by post, to sell his house to B." B accepts the proposal by a letter sent by post. B accepts the proposal by a letter sent by post."

A may revoke his proposal at any time before or at the instant when B posts his letter of acceptance, but not afterwards. A may revoke his proposal at any time before or at the instant when B posts his letter of acceptance, but not afterwards." B may revoke his acceptance at any time before or at the instant when the letter communicating it reaches A, but not afterwards. B may revoke his acceptance at any time before or at the instant when the letter communicating it reaches A, but not afterwards."

Revocation how made as Per Section 6

A proposal is revoked

(1) By the communication of notice of revocation by the proposer to the other party;

(2) By the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of an inexpensive time, without communication of the acceptance;

(3) By the failure of the acceptor to fulfil a condition precedent to acceptance; or

(4) By the death or insanity of the proposer, if the very fact of his death or insanity involves the knowledge of the acceptor before acceptance.

Communication of Acceptance

Mode of Acceptance

In this case of communication of acceptance, there are two factors to think about, the mode of acceptance then the timing of it. Allow us to first mention the mode of acceptance. Acceptance are often wiped out two ways, namely

Communication of Acceptance by an Act: this is able to include communication via words, whether oral or written. So this may include communication via telephone calls, letters, e-mails, telegraphs, etc.

Communication of Acceptance by Conduct:

The offeree also can convey his acceptance of the offer through some action of his, or by his conduct. So say once you board a bus, you're accepting to pay the bus fare via your conduct.

Timing of Acceptance

The communication of acceptance has two parts.

As against the Offeror:

For the proposer, the communication of the acceptance is complete when he puts such acceptance within the course of transmission. After this it's out of his hand to revoke such acceptance, so his communication are going to be completed then.

So, for instance, A accepts the offer of B via a letter. He posts the letter on 10th July and therefore the letter reaches B on 14th For B (the proposer) the communication of the acceptance is completed on 10th July itself.

As against the Acceptor:

The communication just in case of the acceptor is complete when the proposer acquires knowledge of such acceptance. So within the above example, A’s communication are going to be complete on 14th July, when B learns of the acceptance.

1.3           Capacities Of Parties to Contract (Under Section 10 -12)

Definition

The parties who enter into a contract must have the capacity to do the contract.

“Capacity “here means competence of the parties to enter into a legitimate contract. According Sec 10, an agreement becomes a contract if it's entered into between the parties who are competent to contract.

According Sec .11, every person is competent to contract who

• Is of the age of majority according to the law to which he's subject
• Is of sound mind
• Is not qualified from contracting by any law to which he's subject.

Thus Sec. 11 declares following persons to be incompetent to contract:

1. Minors

2. Persons of unsound mind

3. Persons disqualified by any law to which they're subject.

1. Minors

According to Sec 3 of the Indian Majority Act, 1875, a minor is a person who has not completed eighteen years of age.

In following cases he attains majority after 21 years aged

• Where a guardian of minor person or property has been appointed under guardians and wards act,1890
• Where the superintendence of minor’s property is assumed by a court of wards.

The position of minor as regards his agreements could also be summed up as under:

• An agreement with or by a minor is void
• He are often a promisee or beneficiary.
• His agreement can't be ratified by him on attain the age of majority.
• If he has received any benefit under a void agreement, he can't be asked to compensate or buy it.

2. Persons of Unsound Mind

One of the essential conditions of competency of parties to a contract is that they ought to be of sound mind.

Sec 12 lays down the soundness of mind “A person is said to be of sound mind for the purpose of making the contract if, at the time when he makes it, he's capable of understanding it and of forming a rational judgment as to its effect upon his interests.

A person, who is usually of unsound mind but occasionally of sound mind, may make a contract when he's of sound mind.

A person, who is typically of sound mind but occasionally of unsound mind, might not make a contract when he's of unsound mind

Eg: an individual may be a lunatic, who is at intervals of sound mind, may contract during those intervals.

Soundness of minds depends on two facts:

• His capacity to know the contents of the business concerned,
• His ability to make a rational judgment on its effect on his interests.
• If an individual is incapable of both, he suffers from unsoundness of mind.

Contracts of Persons of Unsound Mind

1. Lunatics: A lunatic may be a one that is mentally deranged due to some strain or personal experience. He suffers from intermittent intervals of sanity and insanity. He can enter contracts during the amount when he's of sound mind.
2. Idiots: An Idiot may be a one that has completely lost his mental powers. He doesn't exhibit understanding of even ordinary matters. Idiocy is permanent lunacy denotes periodical insanity with lucid intervals. An agreement of an idiot like that of minor is void.
3. Drunken or intoxicated persons: A drunken or intoxicated person suffers from temporary incapacity to contract i.e. at the time when he's so drunk or intoxicated that he's incapable of forming a rational judgment. The position of a drunken or intoxicated person is analogous thereto of a lunatic.

3. Persons Disqualified by any Law to Which They're Subject

• Alien Enemies: An Alien (the subject of foreign state) is an individual who isn't subject of the Republic of India. He could also be Alien friend of Alien enemy.
• Foreign sovereigns, their diplomatic staff and accredited representatives of foreign states: they need some special privileges and usually can't be sued unless of their own undergo the jurisdiction of our law courts. But an Indian citizen has got to obtain a previous sanction of central govt. So as to sue them in our law courts.
• Corporations: an organization is a man-made person created by law, having a legal existence aside from its members. It may are available to existence by a legislative act of legislature or by registration under the companies’ Act, 1956.
• Insolvents: When a debtor is adjudged insolvent, his property vests within the official receiver or official assignee. As such insolvent is bereft of his power to deal therein property.
• Convicts: A convict when undergoing imprisonment is incapable of getting into contract.

1.4           Free Consent and Consideration (as per section 2 and 25)

Concept

When at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.

Definition of Consideration:

Consistent with Pollock, “Consideration is the price for which the promise of other is brought & the promise thus given for value is enforceable.”

According to section 2(d) when at the desire of the promisor, the promisee or any other person:

• Has done or abstained from doing ,or [Past consideration]
• Does or abstains from doing, or [Present consideration]
• Promises to do or abstain from doing something [Future consideration] such act or abstinence or promise are called a consideration for the promise.

EXAMPLE: ‘P’ aggress to sell his car to ‘Q’ for Rs.50, 000 Here ‘Q’s Promise to pay           Rs. 50, 000 is that the consideration for P’s promise and ‘P’s promise to sell the car is that the consideration for ‘Q’s promise.

Importance of Consideration

Consideration explains why a party is entering a contract and what they get from being a part of the contract. A contract must include consideration for each party involved so as to be valid. Essentially, consideration is that the benefit a party gets for entering a contract. During a basic contract, if you pay money for an item at the store and receive the item, that's your consideration. So as to qualify as consideration, each party must change their position.

Consideration usually results from:

• A promise to do something you are not legally obligated to try and do

• A promise to not do something you're allowed to do

What Happens Without Consideration?

If a court believes the contract doesn't have adequate consideration, it can step in and rule the contract unenforceable. This will happen for variety of reasons, including:

A party was already obligated to perform. If one among the parties is already legally obligated to do something, it is not actually consideration.

The promise may be a gift, not a contract. If one party gives something to the other party without expecting anything reciprocally, it's considered a present, not a contract. Because the other party didn't provide anything in exchange for the gift, they need no legal standing if the promise falls apart.

The exchange is past consideration. Consideration doesn't apply if the action has already taken place. For instance, a promise to pay money for a product that somebody has already given you isn't legally binding.

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Legal Rules Regarding Consideration U/S 2

It must move at the will of the promisor: It must be offered by the promisee at the will or request of the promisor. An act done at the will or request of the third party doesn't form a legitimate consideration.

It’s going to move from the promisee or the other person: Consideration may move from the promisee or the other person i.e. even a stranger. It may be an act, abstinence or forbearance or a return promise.

The following are good consideration for the contract:

• Forbearance To Sue
• Compromise Of A Disputed Claim
• Composition With Creditors

It’s going to be present, past or future. i. Past Consideration ii. Present Or Executed Consideration iii. Future or Executory Consideration

Consideration needn't to be adequate but it must have some value. It must be real & not illusory.

There’s no consideration within the following cases:

1. Physical impossibility 2. Legal impossibility 3.Uncertain consideration

It must be something which the promisor isn't already sure to do A promise to try to to what one is sure to do , either by general law or under an existing contract, isn't an honest consideration. It must not be illegal, immoral or against public policy

Unlawful consideration includes any activities:

• Is forbidden by law.
• Is fraudulent.
• Is of such nature that, it'll defeat a provision of any law.
• Involves any injury to the person or property of another.
• The Court regards it as immoral or against public policy.

Exceptions of the rule “No Consideration No Contract” (AS PER U/S 25)

1. On account of natural love & affection u/s 25(1): Such agreements are enforceable even inconsiderately.

2. For voluntary services u/s 25(2): A promise to compensate wholly or partially, an individual who has voluntarily done something for the promisor, is enforceable, even inconsiderately.

3. For promise to pay time-barred debts 25(3): A promise by a debtor to pay a time barred debt is enforceable provided it's in writing and signed by the debtor or his agent.

4. Within the case of completed gifts: The rule no consideration no contract doesn't apply.

5. Within the case of agency: to make workplace relationship consideration isn't necessary.

Unlawful Consideration (AS PER SECTION 23)

According to Section 23, within the following cases consideration or object of an agreement is unlawful:

1. If it's forbidden by law:

Where the object of a contract is forbidden by law, the agreement shall be void. An act is claimed to be forbidden if it's punishable by criminal law or any special statute, or if it's prohibited by any law or order made in exercise of powers or authority conferred by the legislature.

Example:

(1) A and B agreed to deal in smuggled goods. It forbidden by law and thus void.

(2) A committed B's murder within the presence of C. A promise to pay Rs. 500 to C, if C doesn't inform the police about the murder.

The agreement in example No. 2 given above is against the law as its object is unlawful. Besides, A and C are going to be responsible for the act of murder and its concealment under the Indian penal code.

2. If it's of such a nature that if permitted, it might defeat the provisions of the other law:

The object of an agreement might not be directly forbidden but indirectly, it's going to defeat the thing of any other law, and the agreement would be void in such a case.

Example:

(1) A failed to pay his land revenue. Therefore, his estate was sold for arrears of revenue by the govt. By the law, the defaulter is prohibited from purchasing the land again. A asks B to get the estate and afterward, transfer an equivalent to him at an equivalent price. The agreement is void because it will defeat the thing of the law which prohibits a defaulter to get back the land, for indirectly A will again become the owner of the estate.

The second agreement is additionally void because it would defeat the provision or object of the law of limitation.

3. If it's fraudulent:

If the object of an agreement is fraudulent, i.e., to cheat people, it's void. Example:

A, B & C enter into an agreement to sell bogus plots of land in Delhi. The agreement is void because it is fraudulent and thereby unlawful.

4. If it involves or implies injury to the person or property of another: Law protects property and person of its citizens. It cannot permit any contract which ends up in an injury to the person or property of any one.

Examples:

(1) A promises to pay Rs. 500 to B if B beats C. It involves injury to C, hence it's unlawful and void.

5. If the Court regards it as immoral or against public policy: If the thing of an agreement is immoral or against public policy, it'll be void. Morality here means something which the law regards as immoral.

Examples:

(1) A agrees to offer his house on rent to a prostitute for her immoral purpose. A cannot recover the rent of his house if he prostitute refuse to pay. However, he could also be allowed to urge his house vacated from the prostitute because it will put an end to the immoral purpose.

(2) A agrees to offer his daughter on hire to B for concubinage. The agreement is void because it's immoral, though the letting might not be punishable under the Indian penal code.

Effect of Illegality:

1. An illegal agreement is void:

It is not enforceable at law.

2. Collateral transactions to illegal transactions also are void:

Not only the illegal agreement is void but also the collateral transactions are void.

Example:

A borrows Rs. 2,000 from B to shop for a revolver to shoot C. Since the thing of the transaction is against the law, B cannot recover his Rs. 2,000 if he has given the loan, knowing that A is taking the loan to get a revolver to shoot C.

Thus people are going to be discouraged to finance or assist illegal transaction once they know that they're going to not be able to recover their loans.

3. Law doesn't help any party:

Where the agreement is against the law, the law won't help any of the parties. The rationale is that both the parties are equally guilty and therefore the law doesn't help a guilty person. The law wants to discourage both the parties.

Example:

A promise to pay a bribe of Rs. 200 to B, if B does his work. The agreement is against the law. B cannot recover the amount of Rs. 200 after doing A's work. Similarly, if A has paid the bribe in advance, he cannot get it back if B doesn't do his work.

4. Indirectly defendant is helped:

Defendant may be a person against whom the suit is filed. When the law doesn't help any of the parties, it means the party who has paid the amount won't be ready to get it back as we've seen within the above example. The party who has received the quantity is thus helped to stay the money with it and isn't asked by the Court to return it. The Court is neutral and therefore the defendant gets the advantage of the Court's neutrality. Within the example given above, B can keep Rs. 200, even if B doesn't do the work of A. The Court won't ask B to return the quantity. Thus B is indirectly benefited or helped by the refusal of the Court to intervene.

5. In cases of fraud, coercion, etc., money or property transferred is often recovered:

Where the illegality is that the results of coercion and fraud of the other party, the Court can compel the guilty to return the cash paid or property transferred.

6. Agreement partly legal and partly illegal (Sec. 24):

An agreement may contain promises which are legal and illegal. If the legal promise are often separated from the illegal one, the legal promise are often enforced. In Such a case the illegal part are going to be void.

Where the legal promise can't be separated from the illegal one, the entire of it might be void.

Where there's one consideration for one or more unlawful objects, the agreement is void.

Example:

(1) A promises to manage B's factory, where genuine and bogus motor parts are manufactured. B agrees to pay A (Manager) a salary of Rs. 1,000 per month.

The agreement is void as partly it's legal and illegal and therefore the legal part can't be separated because the salary is for both the parts.

7. Reciprocal promises, legal and illegal (Sec. 57):

Where persons reciprocally promise, firstly to do certain things which are legal, and secondly under specified circumstances to do certain other things which are illegal, the first set of promise may be a contract, but the second may be a void agreement.

Example:

A and B agree that A shall sell a house to B for Rs. 10,000 but that if B uses it as a gambling house, he shall pay A Rs. 50,000 for it.

The first set of promise, i.e., to sell the house and to pay Rs. 10,000 may be a contract.

The second set of promise, i.e., B may use the house as a gambling house and pay Rs. 50,000 may be a void agreement.

8. Alternative promise, legal and illegal (Sec. 58):

In the case of an alternate promise, one branch of which is legal and therefore the other illegal, the legal branch alone are often enforced.

1.5           Expressly Declared Void Agreement

Void Agreement:

An agreement not enforceable by law is void.

Agreement Section 2(E):

Every promise and every set of promises, forming the consideration for each other is an agreement.

Void and Voidable Contract

An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract

A contract which ceases to be enforceable by law becomes a void contract.

The section 2(j) of the Act defines a void contract as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. This makes all those contracts that are not enforceable by a court of law as void.

Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs. 8,000. A dies of natural causes in 4 years. The contract isn't any more valid and becomes void due to the non-enforceability of the agreed terms.

Void Agreement: Void Contract means a contract doesn't exist in any respect. The law can't enforce any legal obligation to either party especially the disappointed party because they are not entitled to any protective laws as far as contracts are concerned.

An agreement to carry out an illegal act is an example of a void contract or void agreement.

Example: Contract between drug dealers and buyers could also be a void contract simply because the terms of the contract are illegal. In such a case, neither party can move to court to enforce the contract.

As per Section 2(g) of The Indian Contract Act, 1872 “An agreement not enforceable by law is claimed to be void”, and as per Section 2(j) of The Act “A Contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”

Thus Void Contracts are often of following two types:-

• Void ab initio: - void-ab-initio i.e. unenforceable from the very beginning
• Void due to the impossibility of its performance: A contract can also be void due to the impossibility of its performance. E g: If a contract is formed between two parties A & B but during the performance of the contract the thing of the contract becomes impossible to achieve (due to action by someone or something apart from the contracting parties), then the contract cannot be enforced within the court of law and is thus void.

Void Agreements as per the Provisions of Indian Contract Act, 1872

Any agreement with a bilateral mistake is void (Section 20):-

Where both the parties to an agreement are under a mistake on matter of fact essential to agreement, the agreement is void, for ex. A agrees to shop for from B a specific horse. It seems that the horse was dead at the time of the discount, though neither party was aware of the particular fact. The agreement is void.

But a contract isn't voidable merely because it had been caused by one of the parties thereto being under a mistake on a matter of fact. (Section 22)

Agreements which have unlawful consideration and objects are void (section 23 & 24): The consideration or object of an agreement is unlawful if it's forbidden by law or of such a nature that if permitted, it'd defeat the provisions of any law or is fraudulent or involves injury to the person or property of another or court regards it as immoral or against public policy.

If any a neighborhood of one consideration for one or more objects, or anybody or any a neighborhood of anybody of several consideration for one object, is unlawful, the agreement is void. But where the legal a neighborhood of an agreement is severable from the illegal, the previous would be enforced.

Agreements made inconsiderately is void.(Section 25):

An agreement without the consideration is void unless:

• It's made on account of natural love and affection and it's expressed in writing and registered under the law for the nonce in effect.
• It's a promise to compensate, a private who has already voluntarily done something for the promisor.
• It's a promise to pay a time barred debt.

Agreement in check of marriage of any major person is void (Section 26):

Every agreement in check of the marriage of an individual, apart from a minor is void. It’s the policy of the law to discourage agreements which restrains freedom of marriage. The restraint could even be general or partial, that's to say, the party could even be restrained from marrying within the least, or from marrying for a hard and fast time or from marrying a selected person or class of persons, the agreement is void.

Agreement in check of trade is void. (Section 27): Every agreement by which anyone is restrained from exercising a lawful profession, or trade or business of any kind, is thereto extent void. There are two kinds of exception to the rule, those created by Statutes

Sale of Goodwill: the only exception mentioned within the proviso to section 27 is that regarding sale of goodwill. It states that “One who sells the goodwill of the business may accept as true with the customer to refrain from carrying on the same business, within specified local limits, so long because the buyer, or an individual deriving the title to the goodwill from him, carries on a like business therein: as long intrinsically limits appear to the court reasonable, regard being had to the character of the business.

Partnership Act: There are four provisions within the Partnership Act which validate agreements in restraint of trade. Section 11 enables partners during the continuance of the firm to limit their mutual liberty by agreeing that none of them shall keep it up any business apart from that of the firm. Section 36 enables them to restrain an outgoing partner from carrying on an equivalent business within a specified period or within specific local limits. An equivalent agreement could even be made by partners upon or I anticipation of dissolution.

Exception to the Rule as per Judicial Interpretation:

Exclusive Dealing Agreements: Business practice hip is that a producer or manufacturer likes to market his goods through a sole agent or distributor and thus the latter agrees successively to not affect the products of the opposite manufacturer.

Restraints upon Employee: An agreement of service often contain negative covenants preventing the worker from working elsewhere during the amount covered by the agreement. Trade Secrets, name of consumers etc. are also the property of master and servant isn't imagined to disclose it to anyone else. An agreement of this class doesn't falls within Section 27.

Agreement in check of legal proceedings is void. (Section 28):

An agreement purporting to oust the jurisdiction of the courts is against the law and void on grounds of public policy. Section 28 of the Act renders void two sorts of agreement, namely:

• An agreement by which a party is restricted absolutely from enforcing his legal rights arising under a contract by the quality legal proceedings within the ordinary tribunals.
• An agreement which limits the time within which the contract rights could even be enforced

However this is often also not an absolute rule and it's two exceptions thereto which is as follows:-

This section shall not render illegal a contract , by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be mentioned arbitration , which only the quantity awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Nor shall this section render illegal any accept writing, by which two or more persons suits arbitration any question between them which has already arisen, or affect any provision of any law effective for the nonce on references to arbitration.

But right to Appeal doesn't come within the purview of this section. A celebration to a suit may comply with not appeal against the selection.

An agreement the terms of which are uncertain is void. (Section 29):

Agreements, the meaning of which isn't certain, or capable of being made certain, are void. It is a necessary requirement that an agreement so as to be binding must be sufficiently definite to enable the court to supply it a practical meaning. An agreement to agree within the longer term is void, for there is no certainty whether the parties will be able to agree.

Where only a neighborhood or a clause of the contract is uncertain, but the remainder is capable of bearing a reasonably certain meaning, the contract are getting to be considered.

Similarly, if the agreement is totally silent on price, it'll be valid, for, therein case, Section 9 of the Sale of products Act,1930 will apply and reasonable price shall be payable.

An agreement by way of wager (betting/gambling) is void. (Section 30):

Agreements by way of wager are void; and no suit shall be brought for recovering anything imagined to be won on any wager or entrusted to an individual to abide by the results of any game or other uncertain event on which any wager is made. The section doesn't define “Wager”. But wager are often said as a promise to supply money or money’s worth upon the determination or ascertainment of an uncertain event.

This rule has two exceptions thereto, which is as follows:-

• Horse Race:- This section doesn't render void a subscription or contribution, or an agreement to subscribe or contribute, towards any plate , prize or sum of money of the worth or amount of 500 Rs. Or upwards to the winner or winners of any horse races.
• Crossword Competitions & Lottery: - If skill plays a substantial part within the result and prizes are awarded according to the merits of the solution, the competition isn't a lottery. Otherwise it’s. Thus, literary competitions which involve the applying of skill and within which an effort is formed to select the simplest and most skillful competitor, aren't wagers.

Voidable Contract:

An agreement which is enforceable by law at the choice of the one or more of the parties thereto, but not at the choice of others or others, may be a voidable contract. Voidable Contract is valid unless one of the parties has set it aside. Voidable Contract generally happens when one side of the party is tricked into entering a contract by other party.

Voidable Agreements as per provisions of Indian Contract Act, 1872:-

• Void ability of agreements without free consent: - when consent to an agreement is caused by coercion, fraud or misrepresentation the agreement is voidable at the selection of the party whose consent was so caused. However, a celebration to a contract, whose consent was obtained by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed.

• Power to line aside contract induced by Undue Influence: When consent to an agreement is caused by undue influence, the agreement could also be a contract voidable at the selection of the party whose consent was so caused. A contract is claimed to be induced by undue influence where the relation subsisting between the contracting parties are such during all during a ll|one in every of"> one of one in every of" one of the parties is in a position to dominate the desire of the other.

In such a case the burden of proving that such a contract wasn't induced by undue influence shall lie upon the one that's during an edge to dominate the desire of other.

• Liability of a celebration preventing event on which contract is to require effect:- When a contract contains reciprocal promises and one party to contract prevents the other from performing his promise, the contract becomes voidable at the selection of the party so prevented. Obvious principle is that a private cannot cash in of his own wrong.

For ex. A and B contract that B shall execute certain work for A for a specific sum of money. B is ready and willing to execute the work accordingly, but A prevents him from doing so, the contract is voidable at the selection of B.

• Effect of failure to perform at fixed time, during a accept which period is crucial: When time is essence of contract and party fails to perform in time, it's voidable at the choice of other party. A private who himself delayed the contract cannot avoid the contract on account of (his own) delay.

Consequences of rescission of Voidable Contract:

When an individual at whose option a contract is voidable rescinds it, the other party thereto needn't perform any promise therein contained within which he's promisor. The party rescinding a voidable contract shall , if he has received any benefit there under from another party to such contract , restore such benefit , so far as could even be , to the person from whom it had been received.

Mode of Communicating or revoking rescission of voidable contract:

The rescission of a voidable contract could even be communicated or revoked within an equivalent manner, and subject to the same rules, as apply to the communication or revocation of a proposal.

Void and illegal Agreement: The Contract Act draws distinction between an agreement which is simply void and thus the one which is unlawful or illegal. An illegal agreement is one which is forbidden by law; but a void agreement won't be forbidden, the law may merely say that if it's made, the courts won't enforce it. Thus every illegal contract is void but a void contract isn't necessarily illegal.

The main difference between a void and illegal contract is that, a void contract isn't punishable and its collateral transactions aren't affected but on the contrary illegal contract is punishable and its collateral transactions are also void.

Difference between Void and Voidable Agreement:

A void contract is taken into account to be a legal contract that's invalid, even from the start of signing the contract. On the other hand, a voidable contract is additionally a legal contract which is claimed invalid by one of the two parties, surely legal reasons.

While a void contract becomes invalid at the time of its creation, a voidable contract only becomes invalid if it's cancelled by one of the two parties who are engaged within the contract.

In the case of a void contract, no performance is possible, whereas it's possible during a voidable contract. While a void contract isn't valid at face value, a voidable contract is valid, but is usually declared invalid at any time.

While a void contract is nonexistent and cannot be upheld by any law, a voidable contract is an existing contract, and is binding to a minimum of 1 party involved within the contract.

1.6           Performance of Contracts

Concept

Obligation of parties to contract as per section 37

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 this Act, or of any other law.

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 this Act, or of any other law." Promises bind the representatives of the promisors just in case of the death of such promisors before performance, unless a contrary intention appears from the contract. Illustrations

(a) A promises to deliver goods to B on a particular day on payment of Rs.1,000. A dies before that day. A’s representatives are sure to deliver the goods to B, and B is sure to pay the Rs. 1,000 to A’s representatives. (a) A promises to deliver goods to B on a particular day on payment of Rs.1,000. A dies before that day. A’s representatives are sure to deliver the products to B, and B is sure to pay the Rs. 1,000 to A’s representatives."

Effect of refusal to simply accept offer of performance as per section 38

Where a promisor has made an offer of performance to the promisee, and therefore the offer has not been accepted, the promisor isn't liable for non-performance, nor does he thereby lose his right under the contract.

Where a promisor has made an offer of performance to the promisee, and therefore the offer has not been accepted, the promisor isn't liable for non-performance, nor does he thereby lose his right under the contract." Every such offer must fulfil the subsequent conditions:

(1) it must be unconditional;

(2) it must be made at a proper time and place, and under such circumstances that the person to whom it's made may have a reasonable opportunity of ascertaining that the person by whom it's made is in a position and willing there then to try to to the entire of what he's bound by his promise to do;

(3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is that the thing which the promisor is bound by his promise to deliver. An offer to at least one of several joint promisees has an equivalent legal consequences as an offer to all or any of them.

Effect of refusal of party to perform promise wholly as per section 39

When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance."

(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in weekly during next two months, and B engages to pay her 100 rupees for every night’s performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to place an end to the contract. (a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in weekly during next two months, and B engages to pay her 100 rupees for every night’s performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to place an end to the contract."

Person by whom promise is to be performed as per section 40

If it appears from the nature of the case that it had been the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representative may employ a competent person to perform it. —If it appears from the nature of the case that it had been the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representative may employ a competent person to perform it."

(a) A promises to pay B a sum of cash. A may perform this promise, either by personally paying the cash to B or by causing it to be paid to B by another; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so. (a) A promises to pay B a sum of cash. A may perform this promise, either by personally paying the cash to B or by causing it to be paid to B by another; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so."

(b) A promises to color an image for B. a requirement perform this promise personally. (b) A promises to paint an image for B. a requirement perform this promise personally."

Effect of accepting performance from person as per section 41

When a promise accepts performance of the promise from a 3rd person, he cannot afterwards enforce it against the promisor.

When a promise accepts performance of the promise from a 3rd person, he cannot afterwards enforce it against the party.

DISCHARGE OF CONTRACT

Discharge of a contract implies termination of contractual obligations. This is often actually because when the parties originally entered into the contract, the rights and duties in terms of contractual obligations were found out. Consequently when those rights and duties are put out then the contract is claimed to possess been discharged. Once a contract stands discharged, parties thereto are not any more liable albeit the obligations under the contract remain incomplete.

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