Revision of Contract Act

The Indian Contract Act extends to the whole of India and it came into force on the first day of September 1872.

WHAT IS A CONTRACT?
An agreement enforceable by law is a contract. (CSS-2009)

Thus for the formation of a contract there must be


1) an agreement

2) the agreement should be enforceable by law An agreement is defined as every promise and every set of promises forming the consideration for each other and a promise is an accepted proposal.

FORMATION OF A CONTRACT
For the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally involves the process of negotiation where the parties apply their minds make offer and acceptance and create a contract.

When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal.

When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.

In order to convert a proposal into a promise, the acceptance must be


1) Absolute and unqualified ? Any departure from the terms of the offer or any qualification vitiates the acceptance unless it is agreed to by the person from whom the offer comes. An acceptance with a variation is no acceptance; it is simply a counter proposal.

2) Expressed in some usual and reasonable manner. ? If the proposer prescribes any particular manner of acceptance it has to be in that manner and where no manner is prescribed it should be in a usual and reasonable manner.


WHO CAN ENTER INTO A CONTRACT?

A person who

a) is of the age of majority according to the law to which he is subject

b) is of sound mind ? A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.

c) is not disqualified from contracting by any law to which he is subject

is competent to contract.

Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity).

The following persons are therefore incompetent to contract

1) Minors

2) Persons of unsound mind

3) Persons disqualified by law to which they are subject


ESSENTIALS OF A VALID CONRACT

All agreements are contracts if they are made


a) BY THE FREE CONSENT OF PARTIES competent to contract ? Consent is said to be free if it is not caused by


>Coercion ? Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property.

>Undue influence ? A contract is said to be induced by "undue influence" where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

>Fraud ? Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract. (a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true (b) active concealment of a fact by a person who has knowledge or belief of the fact, (c) promise made without the intention of performing it.

>Misrepresentation ? When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation.

>Mistake ? Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact. Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract.



b) FOR A LAWFUL CONSIDERATION AND OBJECT ?
Consideration or object is unlawful if
(1) It is forbidden by law,
(2) Is of such a nature if permitted it would defeat the provisions of any law,
(3) It is fraudulent,
(4) The court regards it immoral,
(5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.

c) NOT EXPRESSLY DECLARED TO BE VOID.


(CSS-2009)

1. Agreements void if considerations and objects unlawful in parts.

2. Agreement without consideration is void, unless it is in writing and registered, or it is a promise to compensate for something done, or is a promise to pay a debt barred by limitation.

3. Agreement in restraint of marriage. Every agreement in restraint of the marriage of any person, other than a minor is void. It is the policy of law to discourage agreements, which restrain freedom of marriage. Where a party is restrained from marrying at all, or for marrying for a fixed period or from marrying a particular person, or class of persons, the agreement is void.

4. Agreement in restraint of trade. Every agreement, by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

5. Agreement in restraint of legal proceedings. Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to that extent.

6.Agreements for uncertainty. Agreements the meaning of which is not certain, or capable of being made certain, are void.

7. Agreements by way of wager/ Bet. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on wager, or entrusted to any person to bide by the result of any game or other uncertain event on which any wager is made. (Wager means betting or gambling). However certain prizes for horseracing are exempted.



VOIDABILITY OF AGREEMENTS WITHOUT FREE CONSENT
When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.

Exceptions

1. If such consent was caused by misrepresentation or by fraud and the party had the means of discovering the truth with ordinary diligence, the contract is not voidable

2. A fraud or misrepresentation which does not cause a person to consent to a contract does not render a contract voidable.

BREACH OF CONTRACT

The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or any other law.



Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract.

In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Non-performance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.

REMEDIES

When a party to the contract makes a breach of contract, there are two possible alternatives available to the other party.

Firstly to bring an action for the breach of contract, and secondly he may bring an action for specific performance of the contract.

COMPENSATION IN CASE OF BREACH 1. Compensation for loss or damage caused by breach of contract.
For the breach of contract damages is the most appropriate remedy. When a contact has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew when they made the contract, to be likely to result from the breach of it.

Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach.

2. Compensation for breach of contact where penalty stipulated for.
When a contract has been broken and a sum has been named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether actual damage or loss is proved to have been caused thereby, to receive from the party who as broken the contract reasonable compensation not exceeding the amount so named or, the penalty stipulated for.


3.Party rightfully rescinding contract entitled to compensation

A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract.

SPECIFIC PERFORMANCE
Specific performance means actual execution of the contract as agreed between the parties.

Specific Performance of any contract may, in the discretion of the court be enforced in the following situations ?


>When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or

>When the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.

Exceptions: where compensation would be adequate relief are:



1. Agreement by a landlord for repair of the rented premises;

2. Contract for the mortgage of immovable property;

3. Contract for the sale of any goods, for instance machinery or buffaloes. However, a contract to deliver rare coins would be specifically enforceable, as compensation would not constitute adequate relief in such a case;

4. An agreement to pay money by installments;

5. An agreement for lending money.

BESIDES THE FOLLOWING:

>A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms, cannot be specifically enforced.

>Another situation when a contract cannot be specifically enforced is where "the contract is in its nature determinable". A contract is said to be determinable, when a party to the contract can put it to an end.

>A contract the performance of which involves the performance of a continuous duty, which the Court can not supervise, cannot be specifically enforced.

PERSONS WHO CANNOT OBTAIN SPECIFIC PERFORMANCE

1. The specific performance of a contract cannot be obtained in favour of a person who could not be entitled to recover compensation for the breach of contract.

2. Specific performance of a contract cannot be enforced in favour of a person:

i.who has become incapable of performing the contract that on his part remains to be performed, or

ii.who violates any essential term of the contract that on his part remains to be performed, or

iii.who acts in fraud of the contract, or

iv.who willfully acts at variance with, or in subversion, of the relation intended to be established by the contract.






Regards