Indian Contract act 1872 The law of Contract

Indian Contract act, 1872 • The law of Contract is applicable not only to business but also to all day to day personal dealings. For Example • When you ride a bus, you enter into a contract with transport company. • When you purchase a movie ticket, you enter into a contract with theatre owner. • When you purchase a newspaper, you enter into a contract with the vendor of newspaper. • When you purchase bread and butter, you enter into a contract with the vendor of bread and butter.

Indian Contract act, 1872 • According to Section 2(h) of the Indian Contract 1872, “ An Agreement enforceable by law is a contract”. Contract must have the following two elements. A. An agreement, and B. Enforceability of an agreement Contract = An agreement + Enforceability of an agreement What is Agreement? “Every promise and every set of promises forming the consideration for each other is an agreement”. Agreement = Offer/Proposal + Acceptance of Offer/Proposal • What is Promise? “A proposal when accepted becomes a promise”.

Indian Contract act, 1872 • X offers to sell his car for Rs 1, 000 to Y. Y accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between X and Y. • An agreement is said to be enforceable by law if it creates some legal obligations. The parties to an agreement must be bound to perform their promise and in case of default by either of them, must intend to sue. • In case of social or domestic arrangements, the usual presumption is that the parties do not intend to create legal relations. • In commercial or business agreements the usual presumption is that the parties intend to create legal relations.

Indian Contract act, 1872 Basis of distinction An agreement A Contract 1. What constitute? Offer and its acceptance constitute an agreement Agreement and its enforceability constitute a contract 2. Creation of Legal obligation May or may not create a legal obligation Necessarily creates a legal obligation 3. One in other Every agreement is not a contract Every contract agreement 4. Binding Not binding on concerned parties Legal binding on concerned parties the is a the

Indian Contract act, 1872 Basis of Classification of Contract Creation Execution Enforceability • Contracts on the Basis of Creation A. Express Contract: Express Contract is one which is made by words, Spoken or written. Eg: X says to Y “ Will you buy my car for Rs 1, 000? Y says to X, “I am ready to buy your car for Rs 1, 000”. B. Implied Contract: An implied Contract is one which is made otherwise than by words spoken or written. It is inferred from the conduct of a person or the circumstances of the particular case. Eg: X, coolie in uniform picks up the baggage of Y to carry it from railway platform to the taxi without being asked by Y to do so and Y allows it.

Indian Contract act, 1872 • Contracts on the Basis of Execution A. Executed Contract: It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract. Eg: X offers Y to sell his car for Rs 1, 000. Y accepts his offer. X deliver the car to Y and Y pays Rs 1, 000 to X. B. Executory Contract: It is a contract where both the parties to the contract have still to perform their respective obligations. Eg: X offers Y to sell his car for Rs 1, 000. Y accepts his offer. If the car has not yet been delivered by X and the price has not been paid by Y. C. Partly Executed and Partly Executory Contract: It is a contract where one of the parties to the contract has fulfilled their obligations and the other party has still to perform his obligation. Eg: X agrees to give coaching classes to Y, Y agrees to pay Rs 3000 per month. Y paid the fee on the very first day.

Indian Contract act, 1872 • Contracts on the Basis of Enforceability A. Valid Contract: A contract which satisfies all the conditions prescribed by law. * Void Agreement: An agreement not enforceable by law is said to be void. Such agreements are void-ab-initio which means that they are unenforceable right from the time they are made. Eg: X agrees B in consideration of Rs 500 to draw two parallel lines in such a way as to cross each other. The agreement is impossible to perform and therefore , void. B. Void Contract: A contract may be enforceable at the time when it was made but later on it may become void and unenforceable due to some reasons. Eg: A and B contract to marry each other. Before the time fixed for the marriage, A goes mad.

Indian Contract act, 1872 • Contracts on the Basis of Enforceability C. Voidable Contract: An agreement which is enforceable by law at the option of one or more of the parties thereon but not at the option of others, is a voidable contract. It becomes unenforceable only when the aggrieved party chooses to rescind it. It continues to be valid till it is repudiated. Eg: X threatens to kill Y if he does not sell his house for Rs 1, 000 X. Y sells his house to X and receives payment. Here, Y’s consent has been obtained by coercion and hence this contract is voidable at the option of Y, the aggrieved party. If Y decides to avoid the contract, he will have to return the money received from X. If Y does not exercise the option to repudiate the contract within a reasonable time and in meantime Z purchases that house from X in good faith, Y cannot repudiate the contract. C. Illegal Agreement: An illegal agreement is one, the object of which is unlawful. D. Unenforceable Agreement: It is a contract which is actually valid but cannot be enforced because of some technical defect. Such contracts can be enforced if the technical defect is removed.