INDIAN CONTRACT ACT

1. What is law ?
Answer: According to Holland "law is, a rule of external human action
enforced by the sovereign political authority."

2. What are the sources of law.

Answer:
1. Statutes of Indian legislatures.
2. English mercantile law .
3. Judicial decisions or precedents .
4. Custom and usages.

Statutes of Indian legislatures.

The legislature is the main source of law in modern times. In India, a
central and the state legislatures possess law making powers
extensively. The greater part of Indian commercial is statutory.

English mercantile law.

Many rules of English mercantile law have been incorporated into Indian
law through statutes and judicial decisions.

Judicial decisions or precedents.

Judges interpret and explain statutes. Rules of equity and good
conscience are in corporated into law through judicial decisions.

According to Article 141 of Indian Constitution, decisions of Supreme

Court of India is binding on all subordinate courts in India. So the
interpretation of various provisions of statutes by Supreme Court of India
is binding on all subordinate courts in India.

Custom and usage.

The customary rule is binding where it is ancient, reasonable and not
opposed to any statutory rule. A custom becomes legally recognised when
it is accepted by a court and is incorporated in a judicial decision. Custom
may be defined as the uniformity of conduct of people under similar
circumstances. Custom is a law for those who observe it.

3. Scope of law.
The scope of law is large. Different law prescribes different scopes to deal
with different subject matter. As example we can say The Indian contract
Act, 1872 deals with various issues of a contract. On the other hand The
Negotiable Instrument Act, 1881 is dealing with defining and amending
the law relating to promissory notes, Bills of exchange and Cheques. If
the statute is a civil statute the procedure of adjudication will be guided
by Civil Procedure Code and is the statute is a penal statute the procedure
of adjudication will be guided by Criminal Procedure Code.

4. Need of law.
The law is undoubtedly a remedy for greater evils of society. It is needed
to maintain law and order in society. According to Plato "mankind must
either give themselves a law and regulate their lives by it or live on better
than the wildest of the widest". The need of law is that the discipline of
the soul, the improvement of morals and preservation of life, property
and reputation.

So firstly the need of law is to maintain law and order within a given

society and has to be done at any cost. Secondly the need of law is to
maintain status quo (sthir avastha in bangla) in society. Thirdly the need
of law is to enable individuals to have the maximum freedom to assert
themselves. Fourthly the need of law is for maximisation of satisfaction of
needs of people in society.

5. Objectives of law.
i. To establish social justice.
ii. To establish natural justice.
iii. To maintain social welfare.
iv. To establish moral conduct.
The Indian Contract Act , 1872

1. What are the objects and scope of The Indian Contract Act,
1872 .
The law of contract deals with the agreements which can be enforced
through courts of law. The law of contract is the most important part of
commercial law because every commercial transactions starts from an
agreement between two or more persons.

The object of law of contract is to introduce definiteness in commercial

and other transactions. How this is done can be illustrated by example. X
enters into a contract to deliver 10 tons of coal of Y on a certain
date. Since such a contract is enforceable by the courts, Y can plan his
activities on the basis of getting the coal on the fixed date . If the contract
is broken, Y will get damages (compensation) from the court and will not
suffer any loss.
2. What is the application of the contract act.
This Act lays down certain general rules regarding contracts. The Act is
not exhaustive. There are other acts relating to particular types of
contract that is, the negotiable instruments Act, etc.

3. What are the essentials of a valid contract.

1.  Offer and acceptance.
There must be a lawful offer by one-party and a lawful acceptance of the
offer by the other party or parties. The term lawful implies here that the
offer and acceptance must conform to the rules laid down in the Indian
Contract Act regarding offer and acceptance.

2.  Intention to create legal relationship .

There must be an intention, among the parties, that the agreement shall
result in or create legal relations between parties. This relation is,
commercial or financial relation.

3.  Lawful consideration.

An agreement is legally enforceable only when each of the parties to it
gives something and get something. The something given or obtained is
called consideration.

4.  Capacity of parties.

The parties to an agreement must be legally capable of entering into an
agreement. A party whose age is below 18 years is incapable. A party
who is not a man of sound mind is incapable. A party who do not
understand the terms of the contract is incapable. A party who is
prohibited by law to enter into contract is incapable.

5.  Free Consent.

In order to be enforceable, an agreement must be based on free consent
of all the parties. The consent will be free when it is not influenced by
coercion, undue influence, mistake, misrepresentation, fraud.

6.  Legality of the object.

The object for which the agreement has been entered into must not be
illegal, or immoral or opposed to public policy.

7.  Certainty.
The agreement must not be vague. It must be possible to ascertain the
meaning of the agreement. Otherwise it cannot be enforced.

8.  Void agreement.

An agreement so made must not have been expressly declared to be
void. Void means which is illegal unenforceable.
4. Give examples of void agreements.
The agreement in restraint to marriage, agreement in restraint of trade,
agreement in restraint of proceedings(legal, administrative), agreements
having uncertain meaning.

5. Classification of contracts
On the basis of formation of the contract contracts may be classified into
i. Express contract.-which is expressed in words spoken or written.
ii. Implied contract. -- conditions of which to be understood from the
acts, the conduct of the parties and the course of dealing between them.
iii. Quasi Contract. -there are certain dealings which are not contracts
strictly, though the parties act as if there is a contract.

On the basis of time of performance.

i. Executed contract. -- the contract which already been executed, as
soon as the contract is formed.
ii . Executory contract. -In this contract obligations of the parties are to
be performed at a later time.

On the basis of parties of the contract.

i. Bilateral contract. -- at least two parties should be in the contract.
ii. Unilateral contract. -- where one-party has to fulfill his obligations
whereas the other party has already performed his obligations.

On basis of legality, enforceability, validity of the contract.

i. Valid. -- an agreement which satisfy all the essential elements of a
contract as prescribed in the Indian Contract Act.
ii. Void. -- an agreement not enforceable by law.
iii. Voidable. -- an agreement which is enforceable by law at the option
of one party.
iv. Illegal.-an illegal agreement is one which is against the law of India.
v. unenforceable. -- an agreement which cannot be enforced in a court
of law.

5. Definitions of following terms.

Offer. -- a proposal.
As example we can say, When Mr. X signifies Mr. Y's willingness to do or
abstain from doing anything, with a view to obtaining the assent of Mr Y
to such act or abstinence, Mr X is said to make a proposal.

Acceptance.
a person to whom a proposal has been made, signifies his willingness to
do something or abstain from doing something and his willingness and
such willingness has been communicated to the person who made the
proposal, the proposal is said to be accepted. The whole process is said to
be acceptance.

Consideration.
Consideration is "something". Something is given to the promisee of
proposal, for doing something or for abstain from doing something by the
maker or promisor of the proposal.
According to Indian Contract Act, 1872
consideration means "when, at the desire of the promisor, the promisee
or any other person has done or abstained from doing, or does or
abstains from doing, promises to do or to abstain from doing, something,
such act or abstinence or promise is called consideration."

6. Can a offer be expressed or implied.

Answer. Yes.

7. Should an offer be made to a definite person.

Answer. Yes.

8. Is a mere statement of intention a offer.

Answer. No.

9. Should an offer be communicated to the offeree.

Answer. Yes.

10. What are the circumstances in which conditional offers are

invited.
Answer. Lack of reasonable notice. Unreasonable terms.
Breach of fundamental rights. Tortious action by the offeror.

11. Who can accept ?

Answer. The person for whom the offer is intended. We can say the
person to whom the offer has been made.

12. What are the rules of acceptance.

Answer. Acceptance must be an absolute and unqualified. An acceptance
with a variation is no acceptance. Seeking classification of offer is nice is
no acceptance. Acceptance must be communicated to usual methods of
communication. The acceptance must be made in the mode prescribed by
the promisor. The acceptance must be made while the offer is in
force. Acceptance must be made in reasonable time.

13. Can offer and acceptance be made through telephone.

Answer. Yes. But offer and acceptance must be audible, heard and
understood.
14. How offer can be revoked or when does an offer lapses.
Answer. An offer comes to an end, and is no longer open to acceptance
under the following circumstances.
By notice.
By lapse of time.
After expiry of reasonable time.
By failure of a condition precedent.
By death or insanity.
Counter offer.
By refusal.

15. What are the types of consideration.

Answer.
Past consideration--when the consideration of one party was given before
the date of the promise.
present consideration -- consideration which moves simultaneously with
the promise is called present consideration or executed consideration.
Future consideration. -- when the consideration is to move at a future
date, it is called future consideration.

16. What are the rules of consideration.

Answer.
Desire of the promisor is essential.
The consideration must be real.
Consideration need not be adequate.
Consideration must be legal, moral.
Consideration may be present past or future.

17. A promise without consideration is a gift.

Answer. This is a true statement.

18. Give few exceptions in which valid contract may be made

without consideration..
Answer.
i.Gift-in case of give no consideration is required.
ii. Natural love and affection -- where there is a relation of love ,
affection, no consideration is required to make a contract.
iii. Voluntary compensation -- a promise made without any
consideration is valid if, it is a promise to compensate wholly or in part,
person who has already voluntarily done something for the promisor, or
something which the promisor was legally , compellable to do.
iv. Time barred debt -- a promise to pay, wholly or in part a debt which
is barred by the law of limitation can be enforced in the promise is in
writing and is signed by the debtor or his authorised agent.
v. completed gift.-in case of completed gift no consideration is required.
19.What do you understand by the term capacity of the parties.
Answer. A person is capable of entering into contract
i. If he has attained 18 years of age.
ii. He is of sound mind.
iii. He is not disqualified to enter into contract.

20. Can a minor be agent.

Answer. Yes. A minor can draw, make, endorse and deliver negotiable
instruments so as to bind all parties except himself. A minor cannot be
adjudicated an insolvent.

21. What do you mean by the term sound mind.

Answer. A person will be called of sound mind if he is able to understand
the terms and conditions and capable of making a judgment as to the
effect of the contract upon him.

22. What is the definition of free consent.

Answer. The consent is said to be free when it is not caused by coercion,
undue influence, fraud, misrepresentation and mistake.

23. What is coercion.
Answer. Coercion means i. Commenting or threatening to commit an act
forbidden by Indian Penal Code,ii. The unlawful detaining or threatening
to detain any party.

24. What is undue influence.

Answer. A contract is said to be induced by undue influence
where ( i). One of the parties is in a position to dominate the will of the
other,(ii). He uses the position to obtain an unfair advantage over the
other.

25. What is misrepresentation.
Answer. The positive assertion, in a manner not warranted by the
information on the person making it, of that which is not true, though he
believes it to be true.

26. What is fraud.
Answer. The term fraud includes all acts committed by a person with a
view to deceive another person. To deceive means to induce a man to
believe that a thing is true but in reality which is false.

Fraud means and includes.

False statement.
Active concealment.
Intentional nonperformance.
Deception.
Fraudulent act or ommission.

27. Can silence be fraudulent.

Answer. Mere silence as to the fact is likely to affect the willingness of a
person to enter into contract is not fraud, unless the circumstances of the
case are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is equivalent to speech.

From the above the following rules can be made.

The general rule is that mere silence is not fraud.Silence is fraudulent, if
the circumstances of the case are such that, regard being had to them, it
is the duty of the person keeping silence to speak. The duty to speak that
is disclose all acts, exists where there is a fiduciary relationship between
the parties. Fiduciary means relation between father and son or relation
between Guardian and ward.
Silence is fraudulent where the circumstances are such that silence is in
itself equivalent to speech.

28. Distinction between fraud and misrepresentation.

1. In misrepresentation there is no intention to deceive. Fraud implies an
intention to deceive.
2. The difference between misrepresentation and fraud depends on the
belief of the person making the statement. If the statement is honest,
even though it was wrong, there is only misrepresentation. If the
statement is dishonest it is a case of fraud.
3. In case of fraud the party aggrieved can rescind the contract. He can
also sue for damages. In case of misrepresentation the only remedy is
recession. There can be no suit for damages.
4. In case of misrepresentation in the circumstances are such that the
aggrieved party might have discovered the truth with ordinary diligence,
the contract cannot be avoided. The same is the case where there is a
fraudulent silence. But in other cases of fraud and this is no defence. Even
if there were independent sources of discovering truth which are not
availed of, the aggrieved party can rescind the contract and May file a suit
for damages.

29. Define mistake.
Mistake may be defined as an erroneous belief concerning
something. Consent cannot be said to be free when an agreement is
entered into under mistake. An agreement is valid as a contract only
when the parties agree upon the same thing in the same sense.
Mistakes are of two types.
Mistake of law and mistake of fact.

30. Give some examples of agreements against public policy.

Answer. Trading with the enemy, agreements interfering with the course
of justice, maintenance(when one person helps another by money in
litigation in which he is not himself interested), agreement creating an
interest opposed to duty, agreements restraining personal freedom,
agreements interfering with parental duties, agreements interfering with
marital duties, marriage brokerage agreements.

31. When an agreement becomes void.

Answer.
i. Lack of capacity of parties.
ii. Mutual mistakes of fact.
iii. Unlawful consideration or object of the agreement.
iv. Consideration or object partly unlawful.
v. Agreements without consideration.
vi. Agreements in restraint of trade.
vii. Agreements in restraint of legal proceedings.
viii. Uncertain agreements.
ix. Agreements by way of wager.
x. Impossible acts.
xi. Agreement contingent on impossible event.
xii. Reciprocal promises where there are void promises.

32. Is negative stipulation in service contracts valid.

Answer. Yes. As example we can say any company may ask its employee
not to do certain things, in course of his job. Instructing not to do is the
negative stipulation here.

33. What are the methods of termination or discharge of a

contract.
Answer.
i. By performance of the promise or tender.
ii. By mutual consent cancelling the agreement or
substituting a new agreement in place of the old.
iii. The subsequent impossibility of performance.
iv. By operation of law that is death, insolvency,
merger.
v. By lapse time.
vi.By material alteration without the consent of the
other parties.
vii. By breach made by one-party.