Introduction and Basic Concepts: INDIAN CONTRACT ACT, 1872 The Indian Contract Act, 1872 came into force on 1st September 1872…
Introduction and Basic Concepts:
INDIAN CONTRACT ACT, 1872
The Indian Contract Act, 1872 came
into force on 1st September 1872. It extends to the whole of India except the
state of Jammu & Kashmir. It provides a legal framework for not only the
trade and commercial activities in which contracts are involved but also for
social and familial contracts. A contract binds both the parties by the words written/agreed
by the parties.
into force on 1st September 1872. It extends to the whole of India except the
state of Jammu & Kashmir. It provides a legal framework for not only the
trade and commercial activities in which contracts are involved but also for
social and familial contracts. A contract binds both the parties by the words written/agreed
by the parties.
Structure
of Indian Contract Act, 1872
of Indian Contract Act, 1872
The originally executed act has 266
sections later in 1932, section 239 to section 266 relating to partnership and
in year 1930, section 76 to section 123 relating to sales of goods act were
repealed.
sections later in 1932, section 239 to section 266 relating to partnership and
in year 1930, section 76 to section 123 relating to sales of goods act were
repealed.
Note -1. The sales of goods Act, 1930.
The
Indian Partnership Act, 1932.
Indian Partnership Act, 1932.
Broadly, we can divide Indian
Contract Act in two Parts as shown in Diagram.
Contract Act in two Parts as shown in Diagram.
Essential Elements of a Valid Contract:
1.
Offer and Acceptance:
Offer and Acceptance:
There must be a
‘lawful offer’ and a ‘lawful acceptance’. In other words there are some legal
rules governing offer and acceptance.
‘lawful offer’ and a ‘lawful acceptance’. In other words there are some legal
rules governing offer and acceptance.
[We shall discuss
them in the next chapter]
them in the next chapter]
2.
Intention to Create Legal obligation:
Intention to Create Legal obligation:
Both the parties,
to a contract, must contemplate legal consequences. For example, a husband
offering to take his wife out for a movie is not an agreement intended to
create legal relations.
to a contract, must contemplate legal consequences. For example, a husband
offering to take his wife out for a movie is not an agreement intended to
create legal relations.
3.
Lawful Consideration:
Lawful Consideration:
Consideration is
the price paid for the promise of the other. Consideration may be an act /
abstinence or a promise.
the price paid for the promise of the other. Consideration may be an act /
abstinence or a promise.
It may be past,
present or future.
present or future.
For example,
Robert promises to supply 10 quintals of wheat for a consideration of Rs.5000/-
Robert promises to supply 10 quintals of wheat for a consideration of Rs.5000/-
4.
Capacity of Parties:
Capacity of Parties:
The parties, to
an agreement, must be competent to contract. That is to say
an agreement, must be competent to contract. That is to say
• The parties
must be major
must be major
• The parties
must be mentally sound
must be mentally sound
• The parties
must not be disqualified from contracting by law.
must not be disqualified from contracting by law.
5.
Free Consent
Free Consent
Both parties, to
a contract must enter it out of their free will and consent. Consent is said to
be “free”, when it is not affected by reasons such as
a contract must enter it out of their free will and consent. Consent is said to
be “free”, when it is not affected by reasons such as
• Coercion
• Undue influence
• Fraud
• Misrepresentation
• Mistake
6.
Lawful Object:
Lawful Object:
• Object means
purpose
purpose
• The Act lays
down that the object for which the agreement has been entered into must not be
fraudulent / illegal / immoral or opposed to public policy.
down that the object for which the agreement has been entered into must not be
fraudulent / illegal / immoral or opposed to public policy.
7.
Writing and Registration:
Writing and Registration:
i. It must be clearly
understood that contracts need not necessarily be in writing.
understood that contracts need not necessarily be in writing.
ii. It may be
oral
oral
iii. It may even
be implied
be implied
However, Indian
Contract Act lays down that in certain special cases, for a contract to be
valid, it must only be in writing. Besides, it also needs to be registered.
Contract Act lays down that in certain special cases, for a contract to be
valid, it must only be in writing. Besides, it also needs to be registered.
Thus, for
example:
example:
An agreement for
a sale of immovable property must be in writing and registered.
a sale of immovable property must be in writing and registered.
8.
Certainty:
Certainty:
To ensure that a
contract is valid, the terms of it must be certain. In other words “agreements,
the meaning of which is not certain or capable of being made certain are void”.
contract is valid, the terms of it must be certain. In other words “agreements,
the meaning of which is not certain or capable of being made certain are void”.
For example, Mr.
Sharma agrees to sell his car to Mr. Mukesh at “best competitive price”, since
the price is not clearly ascertainable in this case, the agreement is void.
Sharma agrees to sell his car to Mr. Mukesh at “best competitive price”, since
the price is not clearly ascertainable in this case, the agreement is void.
9.
Possibility of Performance:
Possibility of Performance:
The Contract Act
lays down that “Agreement to do an impossible act is void”.
lays down that “Agreement to do an impossible act is void”.
For example
Nagabushan agrees
to bring a dead body alive in return for a crore of rupees. The agreement is
not enforceable.
to bring a dead body alive in return for a crore of rupees. The agreement is
not enforceable.
10.
Not Expressly Declared Void:
Not Expressly Declared Void:
The Contract Act
has ‘expressly declared’ certain agreements to be void. Following are the
cases:-
has ‘expressly declared’ certain agreements to be void. Following are the
cases:-
• Agreement in
restraint of marriage
restraint of marriage
• Agreement in
restraint of trade
restraint of trade
• Agreement in
absolute restraint of legal proceedings.
absolute restraint of legal proceedings.
Thus, an
agreement should not be expressly declared void by the Act.
agreement should not be expressly declared void by the Act.
Remember:
• A valid
contract is enforceable by both parties
contract is enforceable by both parties
• A valid
contract gives rise to rights and duties.
contract gives rise to rights and duties.
Classification
of Contracts:
of Contracts:
1. Contracts
on the basis of creation:
on the basis of creation:
a.
Express contract
Express contract
It
is one, which is made by words spoken or written
is one, which is made by words spoken or written
b.
Implied contract
Implied contract
It
is one, which can be inferred from the conduct of a person or the circumstances
of case
is one, which can be inferred from the conduct of a person or the circumstances
of case
2. Contracts on the basis of execution:
a.
Executed Contract
Executed Contract
It is a contract
where both the parties have fulfilled their respective obligations under the contract
where both the parties have fulfilled their respective obligations under the contract
b.
It is a contract where both the parties have still to perform their respectiveobligations
It is a contract where both the parties have still to perform their respectiveobligations
3. Contracts on the basis of Enforceability
a.
Valid contract:
Valid contract:
It is a contract, which satisfies all the
essential elements prescribed by law. It is enforceable by both the parties.
essential elements prescribed by law. It is enforceable by both the parties.
Note: A
detailed description of all the essential elements of a valid contract is
presented below.
detailed description of all the essential elements of a valid contract is
presented below.
b.
Void Agreement
Void Agreement
It
is an agreement; where in any of the essential elements of a valid contract is
missing.
is an agreement; where in any of the essential elements of a valid contract is
missing.
c.
Voidable contract
Voidable contract
It is an
agreement, where in free and voluntary consent of one of the parties is missing
and hence the party whose consent is not free can avoid the contract.
agreement, where in free and voluntary consent of one of the parties is missing
and hence the party whose consent is not free can avoid the contract.
Practice Exercise
1. The Contract Act of 1872 was enacted on
A. 25th
April, 1872
April, 1872
B. 25th
March, 1872
March, 1872
C. 25th
August, 1872
August, 1872
D. None
of the above
of the above
Ans: A
2. The Contract Act 1872 was enforced on
A. 1st
July, 1873
July, 1873
B. 1st
August, 1872
August, 1872
C. 1st September,
1872
1872
D. None
of these
of these
Ans: C
3. How many sections does the Indian Contact
Act, 1872 consist
Act, 1872 consist
A. 234
B. 256
C. 238
D. 200
Ans: C
4. An
agreement not enforceable by law is called
agreement not enforceable by law is called
A. Void
agreement
agreement
B. Valid
agreement
agreement
C.
Voidable agreement
Voidable agreement
D. None
of the above
of the above
Ans: A
5. An agreement enforceable by law is called
A. A
Promise
Promise
B.
Contract
Contract
C. Both
(a) and (b)
(a) and (b)
D. None
of the above
of the above
Ans: B
6. An
agreement which is enforceable by law at the option of one or more of the
parties there to but not at the option of other or others is
agreement which is enforceable by law at the option of one or more of the
parties there to but not at the option of other or others is
A. A void
contract
contract
B. A
voidable contract
voidable contract
C. A
valid contract
valid contract
D. All of
the above
the above
Ans: B
7. Name the type of contract that can be
inferred from the conduct of a person or the circumstances of case
inferred from the conduct of a person or the circumstances of case
A. Executed contract
B. Express contract
C. Void
contract
contract
D.
Implied contract
Implied contract
Ans: D
8. An agreement to do an impossible act is
A. Valid
B. Void
C.
Voidable
Voidable
D. None
of the above
of the above
Ans: B
9.
Consent is said to be free when it is not affected by
Consent is said to be free when it is not affected by
A.
Coercion
Coercion
B. Undue influence
C. Fraud
D. All of
the above
the above
Ans: D
10. Sec 126-147 of the Contract Act deals with
A. Sale of Goods
B.
Contract of Agency
Contract of Agency
C. Contract of Pledge
D.
Contract of Guarantee
Contract of Guarantee
Ans: D
11. The
Contract of Pledge is contained under which Sections of the Indian Contract
Act, 1872?
Contract of Pledge is contained under which Sections of the Indian Contract
Act, 1872?
A.
124-125
124-125
B.
126-147
126-147
C.
172-181
172-181
D.
148-171
148-171
Ans: C
12. The
Sections of the Act dealing with agency are?
Sections of the Act dealing with agency are?
A.
124-125
124-125
B.
172-181
172-181
C.
126-147
126-147
D.
182-258
182-258
Ans: D
13. Sec.
124-125 of the Act deals with?
124-125 of the Act deals with?
A.
Partnership
Partnership
B. Agency
C.
Indemnity
Indemnity
D. Guarantee
Ans: C
14.
Bailment has been dealt with in which Sec. of the Act?
Bailment has been dealt with in which Sec. of the Act?
A.
148-171
148-171
B.
172-181
172-181
C.
126-147
126-147
D.
182-258
182-258
Ans: A
15. Which
Sec is the Interpretation clause of the Indian Contract Act, 1872?
Sec is the Interpretation clause of the Indian Contract Act, 1872?
A. Sec. 1
B. Sec. 3
C Sec. 2
D Sec. 4
Ans: C
