Indian Contract

Act 1872

- ANIMESH KUMAR
Contract Defined

 A contract is an agreement made between two parties which the law will
enforce.
 Section 2 (h) of ICA 1872 defines contract as an agreement enforceable by law

1. Offer and Acceptance

2. Intention to Create a Legal Relationship
3. Capacity to Contract
4. Genuine and free Consent
5. Lawful object
6. Lawful Consideration
7. Certainty and possibility of performance
8. Legal Formalities
FREE Consent DEFINED....
 Section 13) Consent Defined- Two or More persons are said to
consent when they agree upon the same thing in the same sense.
 Section 14) Free Consent Defined:- Consent is said to be free when
it is not caused by –
1. Coercion (Section 15)
2. Undue Influence (Section 16)
3. Fraud (Section 17)
4. Misrepresentation (Section 18)
5. Mistake, Subject to the provisions of Sections 20, 21 and 22
Pharmaceutical Society of
Great Britain vs. Boots Cash
Chemists Ltd
 Facts: The defendant ran a self-service shop in which non-prescription drugs and medicines,
many of which were listed in the Poisons List provided in the Pharmacy and Poisons Act
1933, were sold. These items were displayed in open shelves from which they could be
selected by the customer, placed in a shopping basket, and taken to the till where they would
be paid for. The till was operated by a registered pharmacist. However, the claimant brought
proceedings against the defendant for breach of section 18(1) of the Pharmacy and Poisons
Act 1933, which requires the supervision of a registered pharmacist for the sale of any item
in the Poisons List.
 Issues: The question was whether the contract of sale was concluded when the customer
selected the product from the shelves (in which case the defendant was in breach of the Act
due to the lack of supervision at this point) or when the items were paid for (in which case
there was no breach due to the presence of the pharmacist at the till).
 Held: The Court of Appeal held that the defendant was not in breach of the Act, as the
contract was completed on payment under the supervision of the pharmacist. The display of
the goods on the shelves were not an offer which was accepted when the customer selected
the item; rather, the proper construction was that the customer made an offer to the cashier
upon arriving at the till, which was accepted when payment was taken.
Balfour vs. Balfour

 FACTS:The Defendant husband and the Plaintiff wife lived in Ceylon where the Defendant worked.  In
1915, while the Defendant was on leave, the couple returned to England.  When it was time to return
to Ceylon, the Plaintiff was advised not to return because of her health.  Prior to the Defendant
returning, he promised to send the Plaintiff £30 per month as support.  The parties’ relationship
deteriorated and the parties began living apart.  The Plaintiff brings suit to enforce the Defendant’s
promise to pay her £30 per month.  The lower court found the parties’ agreement constituted a
contract.

ISSUE : Does the husbands promise to pay £30 per month constitute a valid contract which
can be sued upon?

 HELD: The court first recognized that certain forms of agreements do not reach the status of a
contract.  An agreement between a husband and wife is often times such a form of agreement.  In
such agreements, one party is give a certain sum of money on a daily, weekly, monthly, etc.. basis. 
Contracts of
Indemnity & Guarantee
The Contracts of Indemnity Sec124 : has been defined as: "A contract whereby one party promises to save
the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person,
is called a contract of indemnity.
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 200 rupees. This is a contract of indemnity. A contracts to indemnify B against
the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees.
This is a contract of indemnity."

Contract of Guarantee: Sec. 126 of the Indian Contract Act 1872, which deals with the contract of guarantee,
has defined it as “A contract to perform the promise, or discharge the liability of a third person in case of his
defaults”.
Example: A advances a loan of Rs.10,000 to B, and C promises A that if B does not repay the loan, I will repay it.
This is a contract of guarantee. It involves three parties namely,
 Surety, who gives the guarantee.
 Principal Debtor, in respect of whose default the guarantee is given.
 Creditor, to whom the guarantee is given.
Difference between Indemnity
and Guarantee
 In a contract of indemnity there are two parties i.e. indemnifier and indemnified. A contract
of guarantee involves three parties i.e. creditor, principal debtor and surety.

 An indemnity is for reimbursement of a loss, while a guarantee is for security of the creditor.

 In a contract of indemnity the liability of the indemnifier is primary and arises when the
contingent event occurs. In case of contract of guarantee the liability of surety is secondary
and arises when the principal debtor defaults.

 The indemnifier after performing his part of the promise has no rights against the third party
and he can sue the third party only if there is an assignment in his favor.

 Whereas in a contract of guarantee, the surety steps into the shoes of the creditor on
discharge of his liability, and may sue the principal debtor.
State Bank of India vs. Mula
Sahakari Sakhar Karkhana
(2006)
Facts :- The Respondent is a cooperative society entered into a

contract for the installation of a Paper Plant on turnkey basis with
Pentagon Engineering Pvt ltd. For a total value of Rs.
3,40,00,000.
 Issue: Whether the statements in the bank guarantee or a
contract of Indemnity ?
 Judgement:- The Hon’ble Supreme Court has observed that a
document must primarily
Contingent Contract
 A "contingent contract" is a contract to do or not to
do something, if some event, collateral to such
contract, does or does not happen.
 Illustration:
 A contracts to pay to B Rs. 10,000 if B's house is burnt.
This is a contingent contract.
Quasi Contract (Section -68 to
72)
 A contract created by the court in the absence of an official
agreement between the parties.
 Let's say you pay for a pizza to be delivered. If that pizza is
delivered to another house, and someone else enjoys your three-
topping special, a quasi contract could be initiated. Now, the
pizzeria could be court ordered to reimburse you for the amount
you paid for that pie. 
Discharge of contract

 Discharge of a contract implies termination of

contractual obligations. This is because when the parties
originally entered into the contract, the rights and duties
in terms of contractual obligations were set up.

 Consequently when those rights and duties are put out

then the contract is said to have been discharged. Once a
contract stands discharged, parties to it are no more liable
even though the obligations under the contract remain
incomplete.
A Contract is deemed to be discharged, that is, concluded and no longer binding, in the
following circumstances

 Discharge by Performance.
 Discharge of Contract by Substituted Agreement.
 Discharge by Lapse of time.
 Discharge by Operation of law.
 Discharge by Impossibility of Performance.
 Discharge by Accord and Satisfaction.
 Discharge by Breach.
Hart v O’Connor [1985] 1 AC
1000
 Hart wished to purchase a farm, with very favourable terms to
Facts:
himself, from O’Connor, the farm’s trustee
 O’Connor agreed to the purchase
 Unknown to both parties, O’Connor was suffering from senile
dementia
 Issue: Could the contract be set aside due to unconscionable
conduct or mental incapacity
 Decision: Yes, for mental incapacity, not unconscionable conduct
 Reasoning: Unconscionable conduct was not present as Hart did
not know of the dementia and the terms were set out by Hart’s
solicitor and merely accepted by Hart, then in turn O’Connor
Breach of Contract

 The Section 73 of the Indian Contract Act, 1872deals with the

compensation for loss or damages caused by a party for breach of
contract.
 When a contract has been broken the injured party can recover from
the other party such damages as naturally and directly arose in the usual
course of things from the breach.
Remedies for the Breach of contract:
1. Recession of the contract
2. Sue for Damages
3. Sue for specific performance
4. Injunction
5. Quantum Meruit
Meaning & Remedies

 Recession of Contract : When one of the parties to a contract does not fulfil his obligations, then the other
party can rescind the contract and refuse the performance of his obligations.
 Sue for Damages :Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal course of business.
 Sue for Specific Performance: Specific performance is a remedy developed by principle of equity. A party
to a contract who is damaged because the contract is breached by another party has the option to file a suit
for specific performance compelling to perform his part of contract
 Injunction : A judicial order restraining a person from beginning or continuing an action threatening or invading
the legal right of another, or compelling a person to carry out a certain act, e.g. to make restitution to an injured
party.
 Quantum Meriut: Payment for the value of goods or services as partial fulfillment of a contract, or when there
is no contract specifying a price in the transaction.
Agency - Creation of Agency

 Creation of Agency: Agency is a relationship between a principal

and an agent in which the principal confers his or her rights on the
agent to act on principal's behalf. Such a relationship is based on
an agency contract.
 Agency system is very popular in the current business scenario.
There are two parties in the agency system one is the principal and
another is the agent. An agent is a person acting on behalf of his
principal.
 By Express or implied Contract
 By Ratification
 By Conduct of party or situation
 By Necessity
Agent and Principal
(Relationship/rights)
 Section 182: Agent and Principle Defined: -An
‘agent’ is a person employed to do so any act for
another or to represent another in dealings with
the third person.

 The Person for whom the such act is done or who is

so represented, is called the ‘Principal’.
Types of Agency
Types of Agents
 Special Agent- Agent appointed to do a singular specific act.
 General Agent- Agent appointed to do all acts relating to a specific job.
 Sub-Agent-An agent appointed by an agent.
 Co-Agent- Agents together appointed to do an act jointly.
 Factor- An agent who is remunerated by a commission (one who looks like
the apparent owner of the things concerned)
 Broker- An agent whose job is to create a contractual relationship between
two parties.
 Auctioneer- An agent who acts a seller for the Principal in an auction.
 Commission Agent- An appointed to buy and sell goods (make the best
purchase) for his Principal
 Del Credere- An agent who acts as a salesperson, broker and guarantor for
the Principal. He guarantees the credit extended to the buyer.
Decided Cases for preparation

 Keighley Maxted and Co. V Durant

 Bolton Partners Vs. Lambert 1889
 Case : D.E.S.U. Vs. Basanti Devi – AIR 2000 SC 43