Indian Contract Act of 1872

Indian Contract Act of 1872

• This governs contract law in India
• It was passed by British India
• It is based on English Common Law principles
• It applies to all of India, including Jammu and Kashmir
• It took effect on September 1, 1872
• Consists of 266 sections

General Provisions

• Sections 1-75 of the Indian Contract Act

Sales of Goods

• Sections 76-123 of the Indian Contract Act

Indemnity and Guarantee

• Sections 124-147 of the Indian Contract Act

Bailment and Pledge

• Sections 148-181 of the Indian Contract Act

Agency

• Sections 182-238 of the Indian Contract Act

Partnership

• Sections 239-266 of the Indian Contract Act

Key Definitions

• Proposal (Section 2(a)): Signifies a person's willingness to do or abstain from doing something, aiming to get the other's assent.
• Acceptance (Section 2(b)): Signifies agreement to a proposal which then becomes a promise
• Promisor vs Promisee: The person making the proposal is the "promisor", the person accepting is the "promisee"
• Agreement (Section 2(e)): Every promise and set of promises forming the consideration for each other; Agreement = Offer + Acceptance
• Void Agreement (Section 2(g)): An agreement that is not enforceable by law
• Contract (Section 2(h)): An agreement enforceable by law; Contract = Agreement + Enforceability.
• Not every agreement is a contract

Agreements

• A promise or commitment by one party to another
• It includes an offer made by one person and acceptance by another
• Agreements require consideration
• Needs two or more parties

Essential Elements of Forming an Agreement

• Parties: Minimum of two
• Offer/Proposal: Made by one party, clearly understood by the other
• Acceptance: The offeree must accept the proposal
• Promise: Accepted proposal
• Consideration: There must be a price for the promise

Types of Obligations

• Social Obligations: Are not contracts and not covered under the Indian Contract Act (ICA) of 1872; An example includes agreements to go to the cinema
• Legal Obligations: These are contracts and covered under the ICA, 1872

Agreement Types

• Written Agreements: Includes terms and conditions accepted by parties with consideration
• Oral Agreements: Gestures and terms agreed upon through spoken communication.

Contracts

• Contract defined: a legally enforceable agreement
• In order for there to be a contract, all parties must accept it
• A contract gives rights and obligations to all involved
• All contracts are agreements, but not all agreements are contracts

Valid Contract Essentials

• Two Parties: At least two, one making the offer, one accepting to make it enforceable
• Legal Obligation: Parties must intend to enter a legal obligation; Social agreements are not contracts
• Certain Terms: Contracts must have clear and defined meaning; An example includes defining house pricing and payments
• Possibility of Performance: Valid contracts should not involve impossible acts.
• Free Consent: All parties give free consent to enter the contract
• Competency: Parties must be legally competent to enter a Contract. According to Section 11 of the Indian Contract Act, people must be of the age of majority as per law, of sound mind, and not disqualified by law.
• Consideration: Contract must involve this as per the principle of 'quid pro quo' or something in return; Must be something of value
• Legal Consideration: As per Section 23, legal considerations must not be forbidden by law

Contract Characteristics

• Offer
• Acceptance
• Consideration
• Desire to establish legal relations
• Authority and ability
• Certainty
• Absence of these will void a contract
• Mutual agreement and consensus along the terms and conditions of each contract
• Enforceable with the intention to create legally binding relationship
• Lawful purpose and cannot be for illegal activity or contract will be considered unenforceable
• Parties must have legal capacity and mental competence to understand terms and obligations

Free Consent Within Contracts

• The consent of the parties must be free from duress, undue influence, fraud, or misrepresentation. Each party must enter into the contract voluntarily and without being coerced or deceived.

Writing

• Certain contracts must be written to be enforceable like:
  • Real estate sales
  • Anything that can't be performed within 1 year
  • Sales of goods over a certain value
  • As required by the Statute of Frauds

Consideration

• Contracts come with forgoing agreements
• It can include items like cash, products, services, or real estate
• Ex: Employment contracts mean the employee provides work and the employer provides employment (and pay)

Power & Capability

• Parties must be of legal age to give consent and understand conditions of agreements
• Agreements may be null/void if there is no legal competence

Contract Types (Formation Basis)

• Verbal: Agreements made orally without written documentation, based on trust, legally enforceable
• Written: Recorded agreements w/ signatures from both parties for clarity and reduce potential disputes
• Express: Agreements with terms explicitly stated (verbal or written), legally binding

Contract Types (Other)

• Implied: Agreements inferred from actions/behavior, based on conduct rather than explicit agreement
• Quasi: Legal agreements created by court when no actual contract exists, based on equity to prevent unjust enrichment
• E-contracts: Formed over the internet or via electronic means, legally binding and enforceable

Contract Types (Nature Basis)

• Valid: Meets all legal requirements, binding and enforceable
• Void: Not legally binding, no legal effect from the start
• Voidable: Legal binding, but one/both parties can void/cancel due to legal/factual defects, enforceable unless avoided/cancelled

Other Contract Types

• Unenforceable: Valid agreements that cannot be enforced due to legal or factual reasons (lack of written agreement/expiration)
• Illegal: Involves illegal act/against public policy, void and unenforceable
• Unilateral: One party promises something for a specific action by the other party formed when the action is performed
• Bilateral: Both parties make promises to each other, formed when both agree to terms
• Unconscionable: One party takes advantage of other's weaker position w/ unfair terms, unfair/unconscionable
• Adhesion/Standard Form: One party has bargaining power, presents take-it-or-leave-it offer
• Aleatory/Contingent: Performance depends on uncertain event, formed when that event occurs
• Option: Grants one party right to buy/sell asset at specific price within a timeframe, other party not obligated to act
• Executory: One/both parties obligations not fully performed, still being executed
• Executed: Both parties fully performed obligations, contract completed

Discharging a Contract

• Discharging means to terminates the contractual relationship
• Rights and duties ends
• This ceases legally binding power
• By performance: Fulfilling duties in contracts discharges it
• By mutual agreement: Parties modify or create new contracts
• By lapse of time: Non-completion within a time leads to discharge; failing this can lead to Limitation Act in 1963 being filed
• By operation of law: Fulfillment isn’t possible due to death, insolvency, merger, etc.
• By supervening impossibility: Contract becomes impossible/illegal, becoming void and known as doctrine of frustration
• By breach: Party refuses/fails to act or disabled themselves with their conduct; may may discharge actual or anticipatory breach

Contract of Indemnity

• Arrangement where one party tries to help compensate the other if loss is incurred
• The indemnifier grants indemnity to the indemnity holder/indemnified
• Indemnity protects from future losses, protection includes the contract terms; party compensates for any loss
• Rights of indemnity-holder - Enforces from indemnifier's contract, including; Suit damages, Defending cost legally, & Compromise amounts of amounts

Right of Indemnity-Holders

• Can request overall transactional losses of a suit ofr compensation
• Insurance policies are examples of indemnity

Indemnity: Liability Commencement

• Indemnity isn't given just for repayment, it requires the other party to never have to pay
• Indemnity bonds permits the withdrawal from employment prior to the agreed period with some penalization

Contract of Guarantee

• The promise to perform or discharge liability of a 3rd person if they default; guarantee can be oral/written
• Surety - The person or entity that gives the guarantee
• Principal Debtor - The person or entity whos default the guarantee is based
• Creditor - Person or entity whom has been given the guarantee

Guarantee

• Guarantee simply means that a person is providing surety for someone else
• Liable to pay if they don't do so for the credit as per contract
• Liable for full payments if there is any default or performing any duties as per the contract
• Guarantee provider gets the rights to obtain losses from the debtor
• i.e.: B buys goods from A on credit and C becomes the guarantee for B

Key Features of Guarantees

• Principal debtor is required
• Securing for debt so the the surety is only for securing the existing debt
• Must align to essential for a valid contract + a valid consideration
• Void if the surety is incompetent
• Invalid if misrepresented, especially if the creditor is silent on material circumstances

Contract of Bailment

• An oral or written mutually agreed upon with potential consideration from the person taking the possession and the one giving it up temporarily
• As defined by Section 148 of the Indian Contract Act, 1872 is the delivery of goods by one person to another for some specific purpose, upon a contract that these goods are to be returned when the specific purpose is complete.
• i.e. someone bringing in their car for service

Bailment Essentials

• Delivery of possession is the leading aspect, in terms of for a temporary purpose.
  • Constructive delivery made via something which puts the goods in the possession of the intended bailee.
• There should be a contract
• The goods would be returned for the agreed purpose or conditions

Kinds of Bailment (Reward Basis)

• Gratuitous: No charges or reward required
• Non Gratuitous: Reward or charges is a contract requring payment to be made

Kind of Bailment (Benefit Basis)

• For the exclusive benefits of the bailor
• For the exclusive benefits of the bailee
• For the mutual benefit of both

Contract of Agency

• A legal agreement between two parties (principal and agent), where the former authorizes the latter to act on their behalft w/ responsibilities
• i.e.: Appointing a sales agent for expanding market presence

Characteristics of Agency Contracts

• Principal-Agent Relationship: Where the agent acts as an extension of the principal's authority.
• Fiduciary Duty: Duty to act in the his/her best interests, maintaining confidentiality, and avoiding conflicts of interest.
• Limited Authority: Limited to the scope defined in the contract from principal.
• Consensual: Requires mutual consent and understanding on the agreed contract.
• Bilateral Nature: The contracts are set for for both parties in terms of rights and obligations
• Representation: The agent represents the principal, making decisions or conducting transactions on their behalf.
• No Personal Interest: Obligated to prioritize the principal's interests over agent's.

Agency Relationship Creation

• Follows these steps and considerations:
  • Offer and Acceptance: Authority offered by the principal to the appointed agent
  • Legal Capacity: Both must follow contract parameters
  • Consideration: Specs of compensation or other contracts should be included
  • Written Agreements: Especially for complex contracts, that can be advisable

Agency Formation Requirements

• Competent Principal: Person appointing agent is of sound mind and of competent age
• No Required Competence for Agent: the agent does not require to follow contracts necessarily
• No Consideration Required: N/a
• Creation of Agency: Expressed or implied or by subsequent act

Types of Agents

• General: Can act on a wide range of situations and have broad decision making authority, i.e. a manager
• Co-Agent: Appointed to help with the works for the first agent, but their contact is directly with the agent, and not the principal
• Broker: Makes business deals between buyers and sellers and receives funds on the final commission

Terms For the Many Agent Types

• Del Credere Agent: They ensure that that buyer always pays the seller for goods and products and will pay if they can't
• Commission Agent: a percentage of their sales in terms of payment
• Factor: Sells good that they own, from another person, and has full discretionary authority

Rights and Duties of Agents

• Specific rights that agents have within an relationships
  • Remuneration: Paid the commission agreed from contracts
  • Right to retention: Can keep funds from business balances
  • Right of Lien: Can hold on property until they are paid -Indemnity: Principal pays and covers all losses due to agent carrying out respective duties -Can get compensation for any harm derived that was based on the principal's negligence

Termination of Agencies

• Can be terminated by multiple different means

  • By Agreement: Mutual termination between the parties (agent/principal)
  • Expiry of Time: Contract with an end date will be terminated once that occurs
  • Fulfillment of Purpose: Once purposes are complete, the agency will discontinue
  • Revocation or Renunciation: Happens at any time depending on if the party is willing

• Death or Insanity: Self explanatory and immediate