Introduction

The law relating to contracts is

contained in the Indian Contract Act,
1872. For PGDM students contract law is
tremendously significant because it is
related to all major areas of law
affecting business. The general
principles of the law of contracts are
covered in 75 sections.
Indian Contract Act, 1872

According to Sec 2 (h) of the Contract Act,

1872 “an agreement enforceable by law is
contract.”

(i) Agreement
(ii)Legal Obligation

An offer when accepted gives rise to an

agreement.
Agreement
According to Sec 2(e) of the Indian
Contract Act, 1872 “Every promise
and every set of promises, forming
consideration for each other, is an
agreement.”
Thus there are following characteristics
of an agreement:
(i) Plurality of persons
(ii) Consensus-ad-idem
Balfaur vs Balfaur (1919)
 The plaintiff wife and defendant husband
were married in 1900. The husband was a
Civil servant in England. He was posted in
Ceylon. His wife could not accompany him
on account of ill health. The husband
promised her to pay 30 BP per month as
maintenance but failed to keep his promise.
Held promise was of domestic nature with no
intention of giving rise to legal obligations.
Promise
 According to the Sec 2 (b) of the Act,
“A proposal when accepted,
becomes promise”.

Therefore,
Agreement = Offer + Acceptance
The party making the offer is known as offerer
or proposer and the party to whom the offer
is made is known as offeree. When the offeree
gives his assent to the offer he is known as
‘acceptor’
Conditions of Enforceability
According to Sec 10, “All agreements
are contracts if they are made by the
free consent of the parties
competent to contract, for a
lawful consideration and with a
lawful object and are not hereby
expressly declared to be void”.
Essentials of Contract
(i) Offer & Acceptance
(ii) An Intention to Create Legal Relations
(iii) Lawful Consideration
(iv) Capacity of Parties
(v) Free Consent
(vi) Lawful Object
(vii)Writing and Registration
(viii)Certainty
(ix) Possibility of Performance
(x) Not Expressly Declared void
Proposal or Offer
The term proposal has been defined in Sec
2(a) as: “when one person signifies to
another his willingness to do or abstain
from doing anything, with a view to
obtaining the assent of that other to
such act or abstinence, he is said to
make a proposal.”

The term proposal used in the Contract Act

is synonymous with the term offer used in
English Act.
Offer & Invitation to Treat or invitation to
receive offer distinguished
Sec 64 (2) Sale of Goods Act, 1930
Auction sale.---

In the case of a sale by auction---

(1) where goods are put up for sale in lots, each lot is
prima facie deemed to be the subject of a separate contract
of sale;
(2) the sale is complete when the auctioneer
announces its completion by the fail of the hammer
or in other customary manner; and, until such
announcement is made, any bidder may retract his
bid;
Harris vs Nickerson
The Defendant placed an advertisement in
London papers that certain items, including
brewing equipment and office furniture,
would be placed up for auction over three
days in Bury St.Edmunds. The Plaintiff
obtained a commission to buy the office
furniture and expended time and expense to
travel to Bury St. Edmunds to bid for the
office furniture. On the third day, the lots for
the office furniture were withdrawn. The
Plaintiff sued for loss of time and expense.
It was held that he was not entitled for the
same as there was yet no contract between
two parties, which could make the defendant
liable.
Communication of offer necessary
The offer has to be communicated to the
offeree in in order that the offeree can
accept it.

According to Sec 4, “the communication of

a proposal is complete when it comes to the
knowledge of the person to whom it is
made.”
Cross offer: Tinn vs Hoffmann (1873) 800
tons of iron at 69 shillings per ton.
Specific & General Offer

Carlill vs Carbolic Smoke Ball Co. (1873)

-carbolic smoke ball – a preventive remedy 3

times a day for two weeks, against
influenza.

₤100 award to anyone contracting influenza,

cold or any disease caused by taking cold.
Doctrine of Estoppel
This precludes a person from asserting
something contrary to what is implied by a
previous action or statement of that person
or by a previous pertinent judicial
determination.
Case: Pournami Oil Mills vs State of
Kerala AIR 1987 SC 590
on 11.04.79 Sale Tax and Purchase Tax
Waiver were announced. However, on
21.10.80 the waiver on PT was withdrawn.
Held by SC as illegal.
(A) Unliquidated Damages

(B)Privity of Contract Exceptions: (i)

Beneficiary (under Trust etc)
(ii) Marriage Settlement, Partition or other
family arrangements (iii) Acknowledgement
of payment (iv) Agreement relating to land
(v) Contracts through an agent (vi) Holder in
due course of a Negotiable Instrument

(C) Right in rem and right in personam

Consideration
The term consideration may be defined
as the price of the promise or quid pro
quid (something in return).
Validity of Agreement without Consideration
 An agreement without consideration is valid
if it is made out of (i) natural love and
affection, (ii)made in writing &
registered and (iii) The agreement
must be between the parties who are
in near relation.

e.g. promise to pay for past voluntary

services, promise to pay a time-barred debt
(3 years), completed gifts, agency.
Capacity of Parties to Contract

(i) Minor (who is under 18 years of age)

A minor however can be beneficiary
(ii)Persons of unsound mind –
According to Sec 12, “A person is said to
be of sound mind if at the time when he
makes contract, he is capable of
understanding it and of forming a
rational judgment as to whether what he
is about to do is to his interest or not.”
(iii) Disqualified Persons – According to Sec
11 persons disqualified from contracting by any
law to which they are subject are incompetent to
contract-eg
(a) Alien enemies
(b) Foreign Sovereign & Ambassadors
(c) Convict – is a person guilty & convicted
(d) Married women- can not enter into
contract wrt husband’s property.
(e) Insolvent
Consent & Free Consent
 Sec 13 defines consent as “Two or more
persons are said to consent when they agree
upon the same thing in the same sense.
 Sec 14 lays down that consent is said to be
free when it is not caused by –
(i) Coercion Sec 15, or
(ii) Undue Influence Sec 16,or
(iii) Misrepresentation Sec 17, or
(iv) Fraud Sec 17, or
(v) Mistake of Fact & Mistake of Law
Void Agreements
(i) Agreements in restraint of marriage Sec 26
(ii) Agreements in restraint of trade Sec 27
(iii) Agreements in restraint of legal proceedings
Sec 28
(iv)Agreements the meaning of which is uncertain
Sec 29
(v) Agreements by way of wager Sec 30
(vi)Agreements Contingent on impossible events
Sec 36
(vii) Agreements to do impossible acts Sec 56
Form
The Indian Contract Act does not insist upon a
written contract. However, in following cases
agreement should be in writing and if required
by law registration must be observed.

(i) An agreement to pay a time barred loan

(ii) Transfer of share certificate
(iii) Hire Purchase Agreements
(iv) An assignment of Copy Right
(v) Contracts for sale of immovable property
(vi) Negotiable Instrument are required by law
to be in writing & duly signed
 Kinds of Contracts
(i) Valid Contracts : A valid contract is an
agreement enforceable by law. An agreement
becomes enforceable by law when all the essential
elements of a valid contracts are available.

(ii) Voidable Contracts: According to Sec 2 (i) “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.
(iii) Void Contracts: Void means ‘not binding in
law. Sec 2 (j) lays down “A contract which ceases
to be enforceable by law becomes void, when it
ceases to be enforceable.” such as contingent
contracts becomes void on prior or subsequent
impossibility.

Case: Mohiri Bibi vs Dharmodas Ghosh

(iv)Unenforceable Contracts: Unenforceable

contract is one which is valid in itself, but is not
capable of being enforced in a court of law
because of some technical defect such as absence
of writing, registration etc.