01_icici_1_pre-class_ppt_v2 0.pptx

Session 1:The Indian Contracts Act, 1872

This session discusses the law of contracts in detail and the salient features of a contract as provided under the Indian Contracts Act, 1872.

You will first study how contracts are created, as it is important to understand, that we enter into contracts voluntarily, for example, purchase or sale of shares of a company or a plot of land.

There are other types of contracts entered into without our volition, for example, hiring a taxi, buying a book, etc.

Introduction

At the end of this session, you will be able to:

Define a valid contract

Learning Objectives

Differentiate between a contract and agreementClassify contracts according to formation and validity

List the essential features of a contract

Indian Contract Act, 1872 contains the law relating to contracts in India. The Act was passed by British India and is based on the principles of English Common Law.

The Act is applicable to whole of India except the state of Jammu and Kashmir.

The Act determines the circumstances in which promises made by the parties to a contract shall be legally binding on them.

The Indian Contracts Act, 1872

Definition of a Contract

According to the Indian Contracts Act, 1872, a contract is an agreement enforceable by law made between at least two parties as per which rights and obligations are mutually created for both parties.

If the party who had agreed to do something fails to do that, then the other party has a remedy in law.

Example:D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. The airline is under an obligation or duty to take X from Mumbai to Bangalore on 10 January. In case the airline fails to fulfil its promise, X has the right to sue the airlines for breach of contract.

Definition of a Contract

Contracts, irrespective of the method of formation, confer legal rights on one party and subject the other party to some form of legal obligation.

Contracts are the life blood of a business as every business transaction is built on the usage of contracts. Thus, business executives, corporate counsels, entrepreneurs and professionals in different fields frequently deal with contracts.

Contract vs Agreement

In a contract, there are at least two parties. One of them makes a proposal (or offer) to the other to do something with a view of getting approval of the other to such an act.

When the person to whom the proposal is made provides his/her assent, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

Contracts Act defines an agreement as every promise and every set of promises forming a consideration for each other.

The agreement must be enforceable by law to become a contract. Thus, there are certain agreements that do not become contracts as the element of enforceability by law is absent.

AGREEMENTCONTRACT

Contract vs Agreement

• The Contracts Act provides that all agreements are contracts if they are:• made by free consent of parties

competent to contract for a lawful consideration with a lawful object and

• not expressly declared by law to be void.

• agreements between two or more parties

• Certain agreements that do not become contracts as the element of enforceability by law is absent.

“All agreements are not contracts; but all contracts are agreements”

AGREEMENTCONTRACT

The contract which possesses all the elements of a contract as mentioned in the Indian Contracts Act is a __________ .

a) Valid contract

b) Void contract

c) Voidable contract

d) Non-enforceable

01

Check Your Understanding

The contract which possesses all the elements of a contract as mentioned in the Indian Contracts Act is a __________ .

01


a) Valid contract

b) Void contract

c) Voidable contract

d) Non-enforceable

Explain the definition of The Indian Contract Act, 1872

Essentials of a Contract

Essentials of a contract can be classified into:Proposal/Offer

Promise

Agreement

Free Consent

Contractual Capacity

Lawful Consideration/Object

Legal Obligation and Formalities

In this session you will learn about Proposal/Offer, Promise and Agreement. The remaining essentials will be covered in the next session.


Essentials of a Contract

Essentials of a contract can be classified into:

Proposal/Offer

Promise

Agreement



Proposal/Offer

Promise

Agreement

When one person signifies to another his/her willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence.

Essentials of a Contract – Proposal/Offer

Example:

Shyam wants to sell his car. He looks out for potential buyers and finds Anil.

Shyam to Anil – “Sir, are you interested in buying my car for INR 100,000.”

Shyam has made a proposal/offer to Anil. In this example since Shyam made the proposal/offer he is the Proposer (Offerer) and Anil is the Proposee (Offeree).




Proposal/Offer

Promise

Agreement




Proposal/Offer

Promise

Agreement

Intention

Communication

Await Response

While making a proposal or an offer Shyam needs to take care of three things:

Shyam has to make up his

mind to sell the car.




Proposal/Offer

Promise

Agreement

Intention

Communication

Await Response

Shyam informs Anil about his

intention to sell, either verbally

or through written

communication.





Proposal/Offer

Promise

Agreement

Intention

Communication

Await Response

Shyam awaits a response from

Anil





Proposal/Offer

Promise

Agreement

Intention

Communication

Await Response

Shyam awaits a response from

Anil

In the example, Anil may accept or reject Shyam’s offer. Anil can also make an inclination to accept Shyam’s proposal with certain modifications which is known as Counter Offer.



Essentials of a Contract – Promise


Proposal/Offer

Promise

Agreement

When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.


Essentials of a Contract – Promise


Proposal/Offer

Promise

Agreement

Continuing with our previous example - In response to Shyam’s proposal/offer, Anil has given back a positive response.

Anil to Shyam – “Shyam, I am fine with your proposal/ offer.”

When Anil accepts the proposal/offer made by Shyam, the offer is converted into a Promise.


Essentials of a Contract – Promisor/Promisee


Proposal/Offer

Promise

Agreement

Both Shyam & Anil make mutual promises for buying and selling at the agreed price. This mutual promise is called Reciprocal Promise.

The person making the proposal is called the "promisor", and the person accepting the proposal is called "promisee“. In this example, Shyam becomes a Promisor and Anil becomes a Promisee.

Every promise and every set of promises, forming the consideration for each other, is an agreement.

In the example, if Anil accepts Shyam’s offer with a condition - "Can I pay you Rs. 50,000 now and remaining money after a month?". In such a case the acceptance becomes conditional.

In order to convert a proposal/offer into a promise the acceptance should be absolute and unconditional.


Essentials of a Contract – Agreement


Proposal/Offer

Promise

Agreement

___________ is the basic building block on which a contract rests.

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a) Acceptance

b) Offer

c) Consent

d) Promise

Classification of Contracts

Classification

according to

Formation

Express – In writing or by spoken words Implied - Inferred from the conduct of parties or circumstances of the case

Classification

according to

Validity

Contracts can be classified into:

Valid Void

Voidable Non-enforceable

illegal


Classification

according to

Formation

Classification

according to

Validity

Contracts can be classified into: Valid means that the contract possesses all the elements of a contract as mentioned in the Indian Contracts Act.

If one or more of the essential elements are missing, the contract is:• Void – An agreement which is void

from inception and is NOT enforceable by law.

• Voidable – 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.

• Non-enforceable – An agreement which is otherwise valid; but cannot be enforced by law due to some inherent defects in it.

• illegal – An agreement which is against law.


Valid Void


illegal


Classification

according to

Formation

Contracts are also classified as formal or informal on the basis of their formation.

A formal contract is one in which the law gives special effect because of formalities or special language used in creating it. The formalities include legalization by recording the terms and conditions, signatures of parties, witness, notarization, stamp duty etc.

The best example of formal contracts are negotiable instruments such as cheques.

Informal contracts are those in which the law does not require formalities or special language.

Contracts can be classified into:

Classification

according to

Validity


Valid Void


illegal

Here is a recap of what you learnt:

A contract is an agreement enforceable by law made between at least two parties as per which rights and obligations are mutually created for both parties.

Summary

All agreements are not contracts, but all contracts are agreements.Essentials of a contract covered in this session are - Proposal/Offer, Promise and Agreement.

Contracts can be classified into two based on formation and validity. Contracts can also be classified as formal and informal.Contracts classified on the basis of formation are - Express and Implied.

Contracts classified on the basis of validity are – Valid, Void, Voidable, Non-enforceable, illegal.

Thank You

01_icici_1_pre-class_ppt_v2 0.pptx

Documents

indian contracts act

law of contracts

agreementclassify contracts

types of contracts

type of contracts

validity3indian contract

breach of contract

british india