INDIAN CONTRACT ACT - NOTES

INDIAN CONTRACT ACT

BALU ANIL KUMAR PALLA ADVOCATE, JCJ MATERIAL 8142824777

QUASI CONTRACTS

1.     Chapter V of the Act deals with situation under the heading ‘Of certain relations resembling those created by contract’. The chapter avoids the use of the word ‘Quasi Contracts’.

2.     A ‘quasi contract’ has been defined as: “a situation which the law imposes on one person, on the ground of natural justice, an obligation, similar to that which arises from a true contract, express or implied, which has in fact been entered into by him.”

3.     Principle: - A quasi contract rests on the equitable principle that no person shall be allowed to enrich himself unjustly at the expense of another.

4.     Ss.68 to 72 of the Act provides for 5 kinds of quasi contractual obligations

S.68 – Supply of necessaries

S.69 – Payment by an interested person

S.70 – Liability to pay for non-gratuitous act

S.71 – Responsibility of finder of goods

          S.72 – Liability of person to whom money is paid or thing delivered under                                mistake or coercion.

CONTRACT OF INDEMNITY & GUARANTEE

Contract of Indemnity

1. Defined u/S.124: – A contract by which one party promises to save the other from loss caused to him either by the conduct of the promisor himself or by the conduct of any other person is called a contract of indemnity.

2. Illustration: - A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs.2000. This is contract of indemnity.

3. Number of parties: - In a contract of indemnity there are 2 parties viz., a) indemnifier – means a person who promises to make good the loss caused to another party b) indemnity holder – means a person whose loss is made good by another

4. Nature of liability: - The liability of the promisor is PRIMARY

5. Number of agreements: - in contract of indemnity there is only one agreement i.e., an agreement between the indemnifier and the indemnity holder.

6. Nature of contract: - The contract between the promisor (indemnifier) and the promise (indemnity holder) is EXPRESS & SPECIFIC.

7. Protection: - The contract of indemnity protects the promisor from the loss.

8. Right of subrogation: - In case of the contract of indemnity, the promisor can’t file the suit against 3^rd person, unless and until the promisee subrogated his rights infavour of the promisor.

Contract of guarantee

1. Defined u/S.126: - A contract of guarantee is a contract to perform the promise, or discharge the liability of a 3^rd person in case of his default.

2. Illustration: - If A says to C “lend money at interest to B and if B be unable to pay I shall pay” then it is known as a contract of guarantee.

3. Number of parties: - In a contract of guarantee there are 3 parties viz., a) Surety – the person who gives the guarantee b) principal debtor – the person in whose default the guarantee is given and the c) Creditor – the person to whom the guarantee is given

4. Nature of liability: - The primary liability is of principal debtor and the liability of the surety is SECONDARY.

5. Number of agreements: - in contract of guarantee there are 3 agreements viz., an agreement between a) creditor and the principal debtor b) creditor and the surety & c) surety and the principal debtor

6. Nature of the contract: - The contract between the surety and the PD is IMPLIED; between creditor and principal debtor is EXPRESS.

7. Protection: - the contract of guarantee protects the creditor from loss.

8. Right of subrogation: - In case of contract of guarantee, the surety doesn’t require any subrogation for filing of suit. He gets the right to file suit against the PD as & when the surety pays the debt.

ABOUT S.128

1. S.128: -“The liability of a surety is co-extensive with that of the P.D, unless it is otherwise provided by the contract.”

2. the above principle has been expressed by the Hon’ble H.C of A.P in the case of Ch.Sankara Reddy vs. Andhra Bank, rep by its manager, Nellore & another [2006 (4) ALT 427 (AP)]

3. In Bank of Bihar Limited Vs. Dr.Damodar Prasad [AIR 1969 SC 217] their lordships of SC held that the liability of the surety is IMMEDIATE and surety can’t be defended on the ground that, until the creditor has exhausted all his remedies against the PD, the surety can’t be sued.

4. S.128 only explains the quantum of surety’s obligation, when the terms of the contract don’t limit it, as they often do. It doesn’t conversely; the surety can never be liable when the PD can’t be made liable. Thus a surety is not discharged from liability by a mere fact that the contract between the PD & creditor, was voidable at the option of the former AND avoided by the former.

VOIDABLE & VOID CONTRACTS

WAGERING AGREEMENT

Voidable Contract: -

1. Voidable contract is defined in S.2 (i) as “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”

2. A voidable contract remains valid until rescinded.

3. A voidable contract confers enforceable right till it is not rescinded.

4. A contract becomes voidable only when consent to agreement is obtained by Coercion, Undue influence, misrepresentation or fraud.

Void Contract: -

1. Void contract is defined in S.2 (j) as “a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”

2. A void contract can give rise to no legal liability since transaction is nullity

3. A void contract cannot confer any right

4. A void contract cannot be made valid by parties to the contract by their consent 

The following agreements have been expressly declared to be void by the Indian Contract Act, 1872:

·        Agreements by incompetent parties – S.11

·        Agreements made under a mutual mistake – S.20

·        Agreements the consideration or object of which is unlawful – S.23

·        Agreements the consideration or object of which is unlawful in part – S.24

·        Agreements made without consideration – S.25

·        Agreements inrestraint of marriage – S.26

·        Agreements inrestraint of trade – S.27

·        Agreements inrestraint of legal proceedings – S.28

·        Agreements the meaning of which is uncertain – S.29

·        Agreements by way of wager – S.30

·        Agreements contingent on impossible events – S.36

·        Agreements to do impossible acts – S.56

·        In case of reciprocal promises to do things legal and also other things illegal, the second set of reciprocal promises is a void agreement

 Wagering Agreement: -

1.     S.30 of the Indian Contract Act, 1872 declares that agreements by way of wager are void.

2.     A wagering agreement is an agreement to pay money or money’s worth on the happening or non-happening of a specified uncertain event.

3.     Ex: - If A & B enter into an agreement that A shall pay B Rs.100 if it rains on Monday, and that B shall pay A the same amount if it does not rain, it is a wagering agreement.

4.     The following transactions are, however, not wagers –

a)     A cross word competition involving a good measure of skill for its successful solution.

b)    Games of skill, eg., picture puzzles or athletic competitions

c)     Share market transactions in which delivery of stocks and shares is intended to be given and taken

         

Contingent contracts: -

1.     Ss.31-36 deals with contingent contracts

2.     A contract may be a) an absolute contract, or b) a contingent contract

3.     An ‘absolute contract’ is one in which the promisor binds himself to performance in any event without any conditions.

4.     ‘Contingent’ means that which is dependent on something else.

5.     S.31 defines Contigent Contract – “a contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or doesn’t happen.”

6.     Ex: - A contracts to pay to B Rs.100/- if B’s house is burnt. This is a contingent contract.

7.     Contracts of Indemnity, guarantee and insurance are the commonest instances of a contingent contract.