The Indian Contract Act, 1872

Definition of a Contract
Agreement
 Agreement/Obligation
Type of Agreement/Obligation Whether the law of contract covers such
agreement/obligation
1. Agreements where the parties intend YES
to create legal obligation
2. Agreement where the parties do not NO
intend to create legal obligation eg. Social
agreements
3. Obligations which arise out of YES
agreements
4. Obligations which do not arise out of NO
contract
 Essential Elements of a Contract
1. Offer and Acceptance
2. Consideration
3. Free Consent
4. Capacity to contract
5. Lawful object
6. Certainty and Possibility of Performance
7. Term of contract should be clear
8. Agreement not to be declared void
9. Legal formalities
 Legal rules for a valid offer
• Rule # 1 : Intention to create legal
relationship

An invitation to join a friend for dinner is a social

activity.
 Rule # 2 .Certain and unambiguous terms

• A agrees to sell 100 quintals of oil , without

indicating what kind of oil is a vague offer.
 Rule # 3 . Different from a mere
declaration of intention

• A father wrote to his would be son in law that

his daughter would have a share of what he
left after the death of his wife.
 Rule # 4. Different from an invitation to
offer
• A prospectus issued by a company for
subscription of its shares and debentures is
only an invitation to offer

• Advertisement inviting quotations

 Rule # 5. Proper Communication
• S offered a reward to anyone who traces his
lost son. F brought the son without any
knowledge of the offer of reward. Hence F not
entitled to reward as F cannot be said to have
accepted something which he did not know
 Rule # 6. No term the non compliance of
which amount to acceptance

• X writes a letter to Y stating that he wishes to

sell his car for Rs. 5,00,000 and if he does not
receive any reply by next Friday, he would
presume that the offer is accepted
Rule # 7 . Communication of special terms

• P deposited his bags in the cloakroom at the

railway station and one of the conditions on
the receipt was that the liability for loss of
package would only be upto Rs. 1000/- . P lost
the bag and claimed actual worth i.e Rs.
2400/-
 Legal rules for a valid acceptance
1. Absolute and unqualified
2. Manner in which acceptance is to be give
3. Communication
4. By whom
5. To whom
6. Time limit
7. Before lapse of offer
 Rule # 1. Absolute and unqualified

• X offered to sell two plots of land to Y at a

certain price . Y accepted the offer for one
plot
 Rule # 2 . Manner of acceptance
• If nothing prescribed – usual & reasonable
manner
• If prescribed – in that manner
X sends a letter by post to Y of Delhi offering to
sell his car for Rs. 1,00,000 and also writes “
send your acceptance by telegram”. Y accepts
by ordinary post
 Rule # 3. Communication

• X offered to supply coal to a Railway

Company. The manager of the company
accepted the offer and put it in the drawer of
his table and forgot all about it
 Rule # 4. By whom

• By offeree himself or person authorised

P applied for the post of a headmaster in a

school. The managing committee passed a
resolution approving P to the post but this
was not communicated to P. Subsequently the
committee cancelled the resolution and
appointed someone else.
 Rule # 5. To whom

• To the offerer himself or as instructed.

F offered by a letter to buy a house from B who

never replied to F and but told Z his
auctioneer not to sell his house as he intended
to sell to F. Z sold the house by mistake.
 Rule # 6. Time limit

• As per time prescribed or reasonable

An offer to buy shares of a company was made

in June but the acceptance was
communicated in November
 Rule # 7. Before lapse of offer

• Acceptance before it lapses or it is withdrawn

X offered by a letter to sell his car for Rs.

1,00,000. Subsequently, Z withdrew his offer
by a telegram after which Y send his
acceptance to X
 Consideration - Rules
1. It may be past, present or future
2. Must move at the behest of the promisor
3. May move from the promisee or on the desire
of the promisor, even stranger
4. Need not be adequate
5. Must be real and not illusory
6. Should not be performance of a legal duty
 Rule # 1. It may be past, present
or future
• X renders some service to Y in the month of
May. In June Y promises to pay X Rs. 1000 for his
past services.
• In case of cash sale, promise to pay the price
and promise to deliver goods are performed at
the same time.
• X promises to deliver certain goods to Y after 10
days and Y promises to pay after 10 days from
delivery
 Rule # 3.May move from the promisee or on
the desire of the promisor, even stranger
• May be fulfilled or done by anybody

X , by deed of gift transferred certain property to

his daughter Y with a direction that Y should
pay Z an annuity. Later Y refused to pay on the
plea that no consideration had moved from Z
 Rule # 2 . Must move at the behest of the
promisor

• Act done at the desire of a third party or

without the desire of the promisor cannot
constitute valid consideration
• X spent Rs. 1,00,000 on the construction of
shops at the request of the collector . In
consideration of this Y a shopkeeper promised
to pay some money to X.
 Rule # 4. Need not be adequate
• But must be of some value in the eyes of the
law and Court may consider inadequacy to
decide whether consent was free or not.

A agrees to sell a house worth Rs.100,000 for

Rs.100
 Rule # 5. Must be real and not
illusory

• X engages Y for doing a certain work and

promises to pay reasonable remuneration
 Rule # 6. Should not be performance of a
legal duty
• Existing Obligation not permitted

X had received summons to appear before a court

of law as witness . X asked Y for some money
so that he shall on behalf of Y appear before
the Court.
 Exceptions to rule
“No consideration No Contract”
1. Love and affection
2. Voluntary services
3. Time barred debt
4. Gift
5. Agency
 Free Consent
1. Coercion ( forbidden by IPC )
2. Undue Influence ( dominate the will )
3. Fraud ( wilful )
4. Misrepresentation ( of fact or non disclosure)
5. Mistake ( void agreement )
 Capacity of Parties
1. Major
2. Sound mind ( idiot , lunatic, drunkard )
3. Not disqualified under any existing law in
force ( alien enemy, convicts , insolvents )
 Unlawful Object & Consideration
1. Is forbidden by law
2. Is of such a nature , if permitted, would defeat
the provisions of law.
3. Is fraudulent
4. Involves or implies injury to the person or
property of another
5. Court regards it as immoral, or opposed to
public policy
 Agreements must not be declared
void
By incompetent parties
Under mutual mistake of fact material to the agreement
With unlawful consideration or object ( immoral & illegal
agreements and agreements opposed to public policy )
Agreement unlawful in part
Agreement in restraint of marriage
Agreement in restraint of legal proceedings
Agreements which are uncertain and ambiguous
Wagering agreements ( betting )
Agreements to do impossible acts
 Performance of Contract
• Who may perform
• Promisor, Agent , Legal representative , third Party
and Joint Promisors
• Who can demand performance ?
• Promisee , Legal representative , third parties and
Joint promisees
• What is reciprocal promises ?
• Promise which forms the consideration or part of
the consideration
• What is assignment of contracts
• It means transfer of contractual rights and
liabilities to a third parties by parties
themselves or by law ( death , insolvency )
• What is appropriation of payment ?
• It means application of payment to a
particular debt
 Discharge of Contract
• By performance
• By mutual agreement
• By operation of law ( death, insolvency )
• By impossibility of performance
• By lapse of time
• By Breach ( Actual or Anticipatory )
 Remedies
• Rescission of Contract
• Suit for damages
• Suit for specific performance
• Suit for injunction
• Suit for Quantum Meritum
 Quasi Contracts
• Implied Contracts
1.Supply of necessaries to persons incompetent
to contract
2.Money paid for another person
3.Recovery for non-grateful act
4.Responsibility of finder of goods
5.Recover to whom money is paid or thing is
delivered by mistake or under coercion