Indian Contract Act 1872

What is a Contract?
• A Contract is an agreement enforceable by law [Section2(h)].

• An agreement is enforceable by law, if it is made by the free consent

of the parties who are competent to contract and the agreement is
made with a lawful object and is for a lawful consideration, and is not
hereby expressly declared to be void [Section10].

• All contracts are agreements but all agreements are not contracts.
Agreements lacking any of the above said characteristics are not
contracts.
FORMATION-What is a contract?

• It must have an offer and acceptance

• It must have the 3 C’s.
• It must not be prohibited by law.

(Note : a social agreement is not a contract because it does not have

any legal intention between the parties.
Essentials of valid contract
Offer
Acceptance
Capacity
Consideration
Consent
Offer
1. It must be precise ; capable of being understood and communicated.
2. It must not contain a clause that does away with acceptance
3. Special terms must be brought to the notice of the offeree
4. It need not be in writing though in immoveable property contracts it
must be in writing.
5. Under certain circumstances an advertisement can become an offer.
6. An offer can be revoked before it is accepted
7. In a digital contract, the offer has been communicated once it has
entered the computer of the offeree.
Acceptance
1. An acceptance must be in response to an offer.
2. It must be in the mode prescribed.
3. It must be made by the person to whom the offer has been made.
4. It must be unqualified and unconditional.
5. Acceptance must be made within the time provided or reasonable
time.
6. Acceptance can be revoked before it reaches the offeree.
3 C’s of a Contract
CAPACITY

CONSIDERATION

CONSENT
CAPACITY
• A minor and an unsound person and an insolvent person cannot enter
into contracts . It is void ab – initio.
• Reason: The contract creates legally binding obligations on the
parties and hence only those who have the capability (capacity) to do
so should be allowed otherwise they(minor/unsound/insolvent) may
harm themselves.
C - Consideration
1.Consideration is the price of a contract.
2. A contract without consideration is void.
3. Consideration must be decided by the parties themselves.
Consideration can be fulfilled by third parties.
4. Consideration must have some legal value in the eyes of law.
5. Strangers to a contract have no claims.
C- Consent
1. Consent must be free and genuine.
2. A consent is not free and genuine when it is induced by =
- coercion
- undue influence
- fraud
- misrepresentation
- mistake
Coercion:
Coercion is the committing or threatening to commit any act, forbidden
by the Indian Penal Code (IPC) or the unlawful detaining or threatening
to detain, any property, to the prejudice of any person with the
intention of causing any person to enter into an agreement (Section
15)

Undue influence:
When one party to a contract is able to dominate the will of the other
and uses the position to obtain an unfair advantage, the contract is said
to be induced by undue influence. (Section 16). Such contract is
voidable, not void.
Fraud:
Fraud exists when a false representation has been made knowingly with an
intention to deceive the other party, or to induce him to enter a contract
(Section 17). Contract in the case is voidable.

Misrepresentation:
Means a misstatement of a material fact made believing it to be true,
without an intent to deceive the other party (Section 18). Contract will be
voidable in this case.

Mistake:
When both the parties are at a mistake to a matter of fact to the agreement,
the agreement is altogether void.
Classification of contract
Valid Contracts
The Valid Contract as discussed in the topic on “Essentials of a Contract” is an
agreement that is legally binding and enforceable. It must qualify all the essentials
of a contract.

Void Contract Or Agreement

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 is no longer valid and
becomes void due to the non-enforceability of the agreed terms.
Types of contract
Voidable Contract
•These types of Contracts are defined in section 2(i) of the Act: “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.”
•Eg:Suppose a person A agrees to pay a sum of Rs. 10,0000 to a person
B for a chair. This contract would be valid, the only problem is that
person B is a minor and can’t legally enter a contract.
Types of contract
Illegal Contract
•An agreement that leads to one or all the parties breaking a law or not
conforming to the norms of the society is deemed to be illegal by the
court. A contract opposed to public policy is also illegal.
•Several examples may be cited to illustrate an illegal contract. For
example, A agrees to sell narcotics to B. Although this contract has all
the essential elements of a valid contract, it is still illegal.
Types of contract
Unenforceable Contracts
•Unenforceable contracts are rendered unenforceable by law due to
some technical. The contract can’t be enforced against any of the two
parties.
•For example, A agrees to sell to B 100kgs of rice for 10,000/-. But
there was a huge flood in the states and all the rice crops were
destroyed. Now, this contract is unenforceable and can not be
enforced against either party.
Breach of contract
A contract can be said to be breached or broken when either of the
parties fails or refuses to perform his obligations, or his promise under
the contract. Therefore, it can be said that when a binding agreement
is not honoured by one or more parties by non-performance of his
promise, the agreement can be said to be breached.
Remedies to Breach of Contract
1] Recession of Contract
•When one of the parties to a contract does not fulfil his obligations,
then the other party can rescind the contract and refuse the
performance of his obligations.
•As per section 65 of the Indian Contract Act, the party that rescinds
the contract must restore any benefits he got under the said
agreement. And section 75 states that the party that rescinds the
contract is entitled to receive damages and/or compensation for such
a recession.
Remedies to Breach of Contract
2] Sue for Damages
•Section 73 clearly states that the party who has suffered, since the other
party has broken promises, can claim compensation for loss or damages
caused to them in the normal course of business.
•Such damages will not be payable if the loss is abnormal in nature, i.e.
not in the ordinary course of business.
There are two types of damages according to the Act,
Liquidated Damages: Sometimes the parties to a contract will agree to
the amount payable in case of a breach. This is known as liquidated
damages.
Unliquidated Damages: Here the amount payable due to the breach of
contract is assessed by the courts or any appropriate authorities.
Remedies to Breach of Contract
3] Sue for Specific Performance
•This means the party in breach will actually have to carry out his duties
according to the contract. In certain cases, the courts may insist that the
party carry out the agreement.
•So if any of the parties fails to perform the contract, the court may order
them to do so. This is a decree of specific performance and is granted instead
of damages.

•For example, A decided to buy a parcel of land from B. B then refuses to sell.
The courts can order B to perform his duties under the contract and sell the
land to A.
Remedies to Breach of Contract
4] Injunction
•An injunction is basically like a decree for specific performance but for
a negative contract. An injunction is a court order restraining a person
from doing a particular act.
•So a court may grant an injunction to stop a party of a contract from
doing something he promised not to do. In a prohibitory injunction, the
court stops the commission of an act and in a mandatory injunction, it
will stop the continuance of an act that is unlawful.
Remedies to Breach of Contract
5] Quantum Meruit
•Quantum meruit literally translates to “as much is earned”. At times
when one party of the contract is prevented from finishing his
performance of the contract by the other party, he can claim quantum
meruit.
•So he must be paid a reasonable remuneration for the part of the
contract he has already performed. This could be the remuneration of
the services he has provided or the value of the work he has already
done.
 Sale of Goods Act -1930
• This act defines a contract wherein the seller of particular goods
transfers or agrees to transfer the goods to the buyer for some price.
• This mercantile law was formed on the 1st of July 1930 when India
was under the British Raj. This law had been borrowed mostly from
the Sale of Goods Act, 1893 of Great Britain.
• As per section 2 of this act, a contract of sale is a generic term which
refers to both sale and agreement to sell and is characterized by:An
offer to buy goods for a price or an offer to sell goods for a price
andAcceptance of the offer.
Essentials of contract of sale
Two parties:
A contract of sale is between two parties, where one party transfers goods
to another party.

Goods:
The subject of the contract must be goods. This is usually the most
important element in a contract of sale because if the goods are not
described precisely, confusion could result.

Transfer of ownership:
Ownership of the goods must be moved from the seller to the buyer, or
there should be an agreement in which the transfer of ownership is made.
Essentials of contract of sale
Price:
The buyer in the contract must pay a price for the goods.

A sales contract is a special type of contract.

In order for it to be valid, it must contain clauses about free consent and the
competency of the signing parties.

A sale and an agreement to sell are part of a sales contract.

No formalities.
There is no particular form to define a valid contract of sale. A contract of sale can
be made simply by offering and accepting.
Rights of Buyer
1. He has the right to have delivery of the goods as per the contract.
2. If the seller does not send, as per the contract, the right quantity of
goods to the buyer, the buyer can reject the goods.
3. The buyer has a right not to accept delivery of the goods by
installments by the seller.
4. If the goods are sent by sea route by the seller, the buyer has a
right to be informed by the seller so that he may get the goods
insured.
5. The buyer has a right to examine the goods which he has not seen
earlier before giving his acceptance for the same.
Rights of Buyer
6. If the seller wrongfully refuses to deliver the goods to the buyer as
per the contract, the buyer may sue the seller for damages for non
delivery. The amount of damages will be the difference between
the contract price and the market price of the goods.
7. If the buyer has already paid the price and the seller has not
delivered the goods as per the contract, the buyer can recover the
amount paid.
8. If the contract is for the sale of specific or ascertained goods, the
buyer may sue the seller for the specific performance of the
contract in case of breach of contract by the latter.
Rights of Buyer
9. The buyer may sue the seller for damages for the breach of any
implied warranty as per the provisions of this Act.
10. If the seller rejects the contract before the date of delivery, the
buyer may either treat the contract as still existing and wait till the
date of delivery or he may treat the contract as cancelled and sue
the seller for damages for the breach. The second case is known as
the anticipatory breach of contract.
11. If, in view of the breach of contract by the seller, the price has to be
refunded to the buyer, the buyer has a right to claim interest on the
amount.
Duties Of Buyer
1. It is the duty of the buyer to accept the goods and pay for them in
accordance with the terms of the contract.
2. It is the duty of the buyer to apply for delivery.
3. It is the duty of the buyer to demand delivery of the goods within a
reasonable time.
4. If the contract specifically provides for the delivery of the goods by
the seller by installments, the buyer shall accept such a delivery.
5. It is the duty of the buyer to take the risk of deterioration in the
goods which is necessarily incident to the course of transit.
Example: Rusting of iron.
Duties Of Buyer
6. If the buyer refuses to accept the goods, it is his duty to inform the
seller about it.
7. If the seller delivers the goods as per the contract, it becomes the
duty of the buyer to take delivery of the same within a reasonable
time. He remains liable to the seller for any loss arising on account
of his refusal to take delivery.
8. If the ownership rights have already been passed on to the buyer by
the seller, the former has the duty to pay the price as per the terms
of the contract.
9. If the buyer wrongfully refuses to accept and pay for the goods, he
will have to compensate the seller for damages for non-acceptance.
Conditions
• A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives the right to repudiate the contract
and to claim damages. (Sec 12 (2)). We can understand this with the
help of the following example:
• Say ‘X’ wants to purchase a car from ‘Y’, which can have a mileage of
20 km/lt. ‘Y’ pointing at a particular vehicle says “This car will suit
you.” Later ‘X’ buys the car but finds out later on that this car only has
a top mileage of 15 km/ liter. This amounts to a breach of condition
because the seller made the stipulation which forms the essence of
the contract. In this case, the mileage was a stipulation that was
essential to the main purpose of the contract and hence its breach is
a breach of condition.
Warranty
• A warranty is a stipulation collateral to the main purpose of the said
contract. The breach of warranty gives rise to a claim for damages.
However, it does give a right to reject the goods or treat the contract
as repudiated. (Sec 12(3)).
• Example- A man buys a particular car, which is warranted to be quite
to drive and very comfortable. It turns out that after some days the
car starts to make a very unpleasant noise every time it is operated.
Also sitting inside it is also not very comfortable.
• Thus the buyer’s only remedy is to claim damages. This is not a
breach of the condition but rather a breach of warranty, because the
stipulation made by the seller was only a collateral one.
Rights of an Unpaid Seller
 Rights against buyer
 Rights against goods
Rights of an Unpaid Seller- Rights against buyer

1- Suit for the price

When any goods are passed on to the buyer and the buyer has
wrongfully neglected or refused to pay as per the terms and conditions
of the contract, the seller may sue him as per the Section 55(1) because
once the property has been passed the buyer is bound to pay the price.

2- Suit for damages

In case there is a wrongful refusal on the part of buyer for acceptance
of goods and payment of money, the seller can sue him for damages of
non-acceptance as per Section 56.
Rights of an Unpaid Seller- Rights against buyer

3- Suit for interest

As stated under Section 61, where there is a specific agreement between
buyer and seller with regards to interest on the price of goods from the date
on which payment becomes due, the seller may recover interest from a
buyer. But if there were no such agreement the seller may charge interest
from the day he notifies the buyer.
If there is no contract to the contrary, the court of law may award interest to
the seller at such rate as it thinks fit on the amount of the price from the
date on which amount is payable.

4- Repudiation of the contract before the due date

According to Section 60, the rule of anticipatory breach contract applies,
wherein, if buyer repudiates the contract before the date of delivery the
seller can consider the contract as rescinded and can sue for damages of the
breach.
Rights of an Unpaid Seller- Rights against goods

a- Lien
Lien is a right which seller of goods can exercise when a buyer has not
paid the price of goods, under this right seller can retain the possession
of goods as an agent or bailee for the buyer. The seller can retain his
possession as per Section 47 under the following circumstances:

1- In case the buyer is insolvent.

2- When the term of goods sold on credit is expired.
3- Goods sold without any stipulation as to credit.
Rights of an Unpaid Seller- Rights against goods

b- Stoppage
When the goods have been transferred to carrier or bailee for the
purpose of transmission to the buyer, who has become insolvent, the
seller has the right to stop the goods in transit in order to protect
himself against the loss that may arise due to insolvency.

c- Resale
Exercising the right of lien or stoppage does not rescind the agreement
but reselling of goods does and without this right, the other two rights
of lien and stoppage would not be of much usage because he can only
retain goods under these right till the buyer pays back the money.