Indian Contract Act, 1872

Unit-I
Prof. Divya Tiwari
 Steps Followed by the Govt. to make a Act

Form a Committee of Expert from the Required area.

Expert will make a “DRAFT” ,Having Sections, Sub section , Provision, Sub
Provision .

When this Draft is pass in Parliament , its known as “ACT”.

When Act is Written in a form of Book-
“Bare Book” :
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Introduction :
- TheIndian Contract Act, 1872 is the
law relating to Contracts in India.

-It came into force on September 1,

1872.( Date of Enforceability )

- Extended to whole of India except to

the state of Jammu and Kashmir.
( Area of Applicability )
Golden Rule for Understanding Contract:
1: Contact = Agreement + Enforceability.
2: Agreement = Promise + Consideration.
3: Promise = Offer +Acceptance.
Recalling the meaning :

● Every Offer has to be Accepted to form

a Promise.
● Consideration means something in
return ,having a value.
● Enforceability means having
value/Enforceable in the eye.
 Contract
The term 'Contract' has been defined in
Section 2(h) of the Indian Contract
Act, 1872.

● It defines the Contract as an

agreement enforceable by
law.
● An agreement cannot
become a contract unless it
can be enforceable by law.
Answer:

Statement mentioned above is true.

As not all agreement is enforceable in the eye of law.
Hence, Does not qualify to be a valid contract.
According to Section 10 Of Indian contract act,1872

"All agreements are contracts, if they are made by the free

consent of the parties, competent to contract, for a lawful
consideration, with a lawful object and are not
expressly declared by the Act to be void.”
Tip

All the contract

are agreement
but not all
agreements are
contract.
Main Points of the Def.
Under Section 2(h):
1:Free consent of the parties,
2:Competent to contract,
3:For a lawful consideration,
4:With a lawful object and
5:Are not expressly declared
by the Act to be void.
Relationship between Agreement and Contract :

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

Recall:

2 •When agreement is enforceable in the eye of law , it becomes a contract.

Social / Domestic
Agreements are not
enforced by law.

3 •So, All the contract are agreement but not all agreements are contract.
Distinction between an agreement and a contract :
Basis of An agreement : A contract :
distinction :

What constitute Offer and its Agreement and its enforceability

: acceptance constitute constitute a contract.
an agreement.
Creation of May or may not create It will necessarily create a legal
legal a legal obligation. obligation.
obligation:
One in other Every agreement need All contract are necessarily be a
not to be a contract. agreement.

Binding on Agreement are not Contract is concluded and

parties : concluded or a binding on concerned parties.
binding contract.
 Bailment
● Bailment represents a legal relationship wherein the physical possession of
a chattel or personal property is transferred from one individual to another
individual who will subsequently get the property’s possession but not the
entire ownership.
● Bailment surfaces when a property is given to an individual for security
purposes; it is a law-bound course of action which is independent of
contract/tort. For creating a bailment, a bailee needs to have an intent to
possess and actually possess the bailable chattel physically.
● Within a bailment, generally, a bailor is not eligible to utilise a property
when it is in a bailee's possession. This differentiates a bailment from
leasing, wherein the ownership remains with the lessor; however, the
lessee is permitted to utilise the property.
 E-Commerce
● It's an undisputed fact that E-Commerce has become a part of our daily life.
E-Contract is an aid to drafting and negotiating successful contracts for
consumer and business e-commerce and related services. It is designed to
assist people in formulating and implementing commercial contracts
policies within e-businesses. It contains model contracts for the sale of
products and supply of digital products and services to both consumers
and businesses.
● An e-contract is a contract modeled, executed and enacted by a software system.
Computer programs are used to automate business processes that govern e-
contracts. E-contracts can be mapped to inter-related programs, which have to be
specified carefully to satisfy the contract requirements. These programs do not have
the capabilities to handle complex relationships between parties to an e-contract.
 Specific performance of a contract
● Specific performance is equitable relief, given by the court to enforce
against a defendant, the duty of doing what he agreed by contract to do.
Thus, the remedy of specific performance is in contrast with the remedy by
way of damages for breach of contract, which gives pecuniary
compensation for failure to carry out the terms of the contract. Damages
and specific performance are both, remedies available upon breach of
obligations by a party to the contract; the former is a ‘substitution’ remedy,
and the latter a ‘specific’ remedy.
● The remedy of specific performance is granted by way of exception.
 Quasi-contracts
● Quasi-contracts is the agreement imposed by the law, which outlines the
obligation of one party towards another party in case the former possesses
the property of the latter party, i.e., something is acquired by one party at
the expense of another party.  The court creates these to avoid unjust
enrichment of any party overpayment against good or service. Since the
court creates these, so neither party can disagree with the same, and they
are obliged to follow it.
● Quasi-contract refers to the obligation of the contract created out of the order by
court with the aim of not letting one party to get unfair benefit out of the situation at
the expense of other parties where there is the absence of initial agreement among
the parties and there is a dispute between them.
Types of contract on the basis of the following :

2.Validity :
• Valid contract.
3.Performance:
• Void contract.
1.Formation • Executed contract.
• Void agreement.
• Express contract. • Executory contract.
• Voidable contract.
• Implied contract. • Partly Executed and
• Illegal agreement.
Executory contract.
• Unenforceable
contract.
Essential Elements of a Contract
Essential Elements of a
Contract
All the below ingredients must be satisfied in every valid
contract:
● 1. Agreement - Offer and Acceptance
● 2. Legal purpose
● 3. Lawful Consideration
● 4. Capacity to contract
● 5. Consent to contract
● 6. Lawful object
● 7. Certainty
● 8. Possibility of Performance
● 9. Not expressly declared void
● 10. Legal formalities like Writing, Registration etc.
Offer :
● Section 2(a) of the Indian Contract Act, 1872 defines the term
"Proposal" as when one person signifies to another his
willingness to do or to abstain from doing something with a view
to obtaining the assent of the other to such an act or abstinence,
he is said to make a proposal.

● 1.The person making the 'proposal' or 'offer' is called the

'promisor' or 'offeror'.
● 2 The person to whom the offer is made is called the 'offeree'
CASE LAW :
RE: Rose and Frank Co. vs. Crompton and Brothers Ltd. (1925)
● .Fact for the case :

● Even though the contract is a business agreement, but if it has been

expressly mentioned in the agreement that it will not arise any legal
consequences. Hence, this agreement is not a valid offer.
● In the Court of Appeal, Atkin LJ delivered an important dissenting
judgment which was upheld by the House of Lords.
Decision by House of Lords

● Lord Phillimore for the House of Lords, held that the

arrangement of 1913 was not a legally binding contract.
● At the date of the arrangement of 1913 all previous
agreements were determined by mutual consent, but the
orders given and accepted constituted enforceable contracts
of sale.
Acceptance:

Acceptance means the expression of

assent to whom the proposal is made
in a Contract.

Acceptance may be expressed

either:
1: by conduct or
2: by implied circumstances.
However, silence cannot be
prescribed as a mode of acceptance.
Elements for a valid acceptance :

The following elements must be

present in a valid acceptance.

1. Acceptance must be given only by

person to whom the offer is made

2. Acceptance must be absolute and

unqualified

3. Acceptance must be communicated

by the acceptor

4. Acceptance must be given within a

reasonable time and before the offer
lapses or is revoked.
CASE LAW :

RE: Lalman Shukla vs Gauri Dutt, is a popular case

related to the Acceptance of a contract

Fact for the case :

Lalman Shukla is an employee with Pt. Gauri Dutt.
When the nephew of Pt. Gauri Dutt was found missing,
Lalman Shukla was sent for the search. Point to be noted:

Lalmen was not aware

It was announced later that who so ever finds the missing of the “Offer” to find
nephew will be rewarded with Rs. 501. the missing Nephew.
Unaware of the announcement of the reward, Lalman Shukla
located the missing nephew and brought back.
Conclusion :
● It was said that Lalman Shukla has no
right in the reward because he has no
knowledge of the proposal.

● Hence, an action without the knowledge of

the proposal is no acceptance.
Key points for Acceptance :

● Legal rules for a valid

● How to make
acceptance :
acceptance : ● 1.Absolute and unqualified .
● Express acceptance. ● 2.Manner in which acceptance
is to be given.
● Implied acceptance. ● 3.Communication
● 4.By whom
● 5.To whom
● 6.Time limit
● Consideration :
● Section 10 of the Indian
Contract Act states
Consideration as one of the
essential elements to
constitute a contract.

● Consideration means
'something in return'. The
general rule is that "No
consideration, no contract".
 ● According to section 2(d) of the Indian
Contract Act,

"When at the desire of the promisor ,

Consideration is one of the essential element for
an agreement to become a Contract. It is a
requisite for all contracts other than those
made by deed.
the promisee or any other person has
done or abstained from doing, or does
or abstains from doing, or promises
to do or abstain from doing
something, such act or abstinence is
called a consideration for the
promisee."

Consideration may be
past, present or future :
• In regard to time,
considerations may be
past, present or future.
• Those which are present
or future will support a
contract not void for other
reasons.
● Essentials of a valid
Consideration :
● 1. Consideration must move
at the desire of the Promisor
● 2. Consideration may move
from the Promisee or any other
person
● 3. Consideration may be past,
present or future
● 4. Consideration must be of
value.
Exceptions to Consideration :
The general rule is that "No consideration, no contract". So, a
contract made without consideration in it is void.

For example :

Natural love and affection :

For example, a father, out of love and affection towards his son,
makes a formal written registered document as per law, transfers a
piece of land he owns. It is important to
note that except for
In this contact, the consideration is not essential because it arises the consideration,
out of natural love and affection. all other requisites
for an essential
contract will have to
In general, it is essential that the parties of the contract should be be present to be a
"the parties standing in near relation to each other". Thus, a valid contract failing
contract with a person out of family and unrelated to the family which it becomes
cannot enter into a contract without consideration. void.
Capacity to
Contract :
Section 11 of the Indian Contract
Act 1872, provides the requirements
for competency of the parties to the
contract.

It says, "Every person is competent

to contract, who is of the age of
majority, according to law, which
he is subject to also who is of sound
mind and who is not disqualified
from contracting by any law to
which he is the subject.
Discharge of Contract :
A Contract may be discharged in any of the
following ways:

1.Discharge by Performance.
2.Discharge by Mutual Consent or Agreement
3.Discharge by subsequent illegality or impossibility
When one party
4.Discharge by lapse of time fails to follow the
5.Discharge by operation of law terms and
6.Discharge by breach of contract condition of the
1.Anticipatory breach contract , its
2.Actual breach known as
Breach of
contract.
Breach of Contract :
Breach of Contract :

In other words, a breach of contract is

.
a broken promise to do or provide
something. To explore this concept, Remedies for Breach of Contract :
consider the following breach of
contract definition. •Breach means Breaking the contract terms
and condition in simple way.
When any party to a contract, whether •Sections 73 to 75 deals with the
oral or written, fails to perform any of consequences of breach of a contract.
the contract’s terms, they may be
found in breach of contract. While •When a contract is breached , did the injured
party has any right or remedies.
there are many ways to breach a
contract, common failures include •Yes, the injured party is entitled to one or
failure to deliver goods or services, more remedies.
failure to fully complete the job, failure
to pay on time, or providing inferior
goods or services.
● Injured party is entitled for remedies for breach of contract :

● 1.Rescission of the contract.

● 2.Suit for damages.
● 3.Suit upon quantum merit.
● 4.Suit for specific performance of the contract.
● 5.Suit for injunction.
Remedies for Breach of Contract :

1.Rescission of the Contract :

● When one party to the contract breaches the contract, the other
party need not perform his part of the obligations. The aggrieved
party may rescind the contract. In such cases, the injured /
aggrieved party can either rescind the contract of file a suit for
damages.
● In general, rescission of the contract is accompanied by a suit
for damages.
Suit for damages :
● The aggrieved party of the contract is entitled for monetary
compensation when the contract is breached. The objective of Suit for
damages is to put the aggrieved / injured party in a position in which he
would have been had there been performance and not breach. The
aggrieved / injured party must be able to prove the actual loss or no
damages will be awarded. Damages can be of four kinds:
● 1. Ordinary or General Damages
● 2. Special Damages
● 3. Exemplary or Punitive Damages
● 4. Nominal Damages
3 : Suit for Quantum Merit :
● Sections 65 to 70 deal with the provisions relating to suit for Quantum
Merit.
● The term "Quantum Merit" is derived from Latin which means
"what one has earned"

The injured party can file a suit upon quantum merit and may
claim payment in proportion to work done or goods supplied.
4.Suit for Specific Performance :
● The suit for Specific Performance is regulated by the
Specific Relief Act, 1963. Specific Performance means
the actual carrying out of the contract as agreed. The
Court may grant for specific performance where it is
just and equitable to do. Specific Performance may
be granted under the following grounds.:

● 1. Lack of standard for ascertaining the damages

● 2. Where compensation is not adequate relief
● 3. Substantial work done by the plaintiff.
In which the Remedy can't be provided :
● The Court cannot grant the
remedy of specific performance in
the following situations.
● 1. Where monetary
compensation is an adequate
relief
● 2. Where the Court cannot
supervise the actual execution of
the work
● 3. Where the Contract is for
personal services
● 4. Where the Contract is not
enforceable by either party
5.Suit for Injunctions :
● Injunction is an order of the Court restraining
a person from doing a particular act.

● Where the defendant is doing something

which he is promised not to do, then the
injured party will get a right to file a suit for
injunction.
Picture to understand :
 Difference between Void agreement and Voidable Contract :

Basis of difference: Void Agreement: Voidable Contract:

.Void –ab-initio: It is void from the very beginning. It is valid when made and continue
to be so till it is repudiated by
aggrieved party.

.Enforceability: It cannot be enforced by any party. It continues to be enforceable unless

aggrieved party does not repudiate
the contract.

Right of the third Does not acquire any right. A bona –fide third party,acquire a
party : good right/title over goods.

Damages : None of the parties can claim The aggrieved party can claim the
damages. damages from the other party.
Types of contract on the of Performance:
Executed contract.
A contract between two or
more parties is said to be
executed when the act
promised in the contract has
been performed by one,
both or all parties.
Alex goes to the local
coffee shop and buys a cup
of coffee.
Executory contract.
the consideration can only be
performed sometime in the
future, hence the name
executory contract. Here the
promises of consideration
simply cannot be performed
immediately.
Partly Executed and
Executory contract:
The work for the contract is
Half work done / or the
consideration is not yet paid
for the work done.
Furniture made but the
payment is still due for the
same.
Thank You