The Indian Contract Act 1872

Are these Contracts?

• A & B promise to marry each other.
• A takes seat in a public Vehicle.
• A invites B to a card party. B accepts the
invitation.
• Buying a flat in building.
• A free pass given to a prominent sports person
by an Airline.
• In India, all contracts are covered/governed by
the Indian Contract Act, 1872, unless
stipulated otherwise by parties

• Contract may be oral or written ( Special

Contract needs to be in written)
Definition
• Indian Contract Act 1872 Sec.2(h)
“An agreement enforceable by law.”

Contract = Agreement + Enforceability at Law

• Agreement?

• Enforceability?
 Agreement
• A very wide term

• Social Agreement Or Legal Agreement

• Consensus on same subject matter

• Existence to legal obligation

 Agreement

• “Every promise and every set of promises forming consideration

for each other.”( Sec2e)

• Agreement= Offer + Acceptance

• When a person to whom the proposal is made signifies his assent

thereto the proposal is accepted.

• A proposal / offer when accepted becomes promise.

 Essential Elements of Contract
• Offer and acceptance
• Intention to create legal relationship
• Lawful consideration
• Capacity of parties
• Free consent
• Lawful object
• Agreement not declared void
• Legal Formalities
• Certainty and possibility of performance.
 Classification of Contracts

Validity Formation Performance

▪Voidable Contract ▪Express Contract

▪Void Agreement ▪Implied Contract
• Executed Contract
▪Void Contract ▪Quasi Contract
• Executory Contract
▪Illegal Agreement ▪E-commerce
▪unenforceable Contract
Agreement
• Voidable Contract (sec 2(i)).
An Agreement enforceable by law at the option of one
or more of the parties there to , but not at the option of
others, is a voidable contract.

• Void Agreement(sec 2(g))

An Agreement not enforceable by law is said to be
void.
• Void Contract (sec 2(g))
A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable.
 True or false???????
• All contracts are agreements but all agreements
are not contracts.

• A voidable contract is always void ab initio.

• All Agreements between parties are enforceable in

a court of law.

• All Void agreements are illegal.

 Offer
• Is it an offer????

A Menu card brought by a waiter in a restaurant.

 Offer (Sec 2(c))
• A person is said to have made an offer , when
he, “ signifies to another his willingness to do
or to abstain from doing anything with a view
to obtaining the assent of that other to such
act or abstinence”.

• Ex- A says to B ,”will u purchase my car for Rs

50000?”
 What Constitutes an offer?
• The offer must show an obvious intention to
perform.
• The offeror must make the offer with a view to
Obtaining the asset.
• The offer must be definite.
• It must be communicated to the offeree.
 Essentials of a Valid Offer
1. Offer must give rise to legal relationship.
2. Terms of offer must be definite, unambiguous and
certain.
3. Offer must be communicated.
4. Offer must be made with a view to obtaining the
assent
5. Offer should not contain non compliance term.
6. A statement of price is not an offer.
7. Offer must be distinguished from:
I. A declaration of intention and announcement
II. An invitation to make an offer or do business
III. Newspaper advertisements are not offers.
 Tenders
• A tender( in response to an invitation to offer)
is an offer, it may be

1. A definite offer to supply specified goods or

services.

2. Standing offer
 Acceptance
• When the offeree signifies his assent to the
offer , offer is said to be accepted.

• Acceptance may be express or implied.

• Who can accept?

 Legal Rules to Acceptance
• Absolute & unqualified (Neale v. Merret,1930)
• Must be communicated ( Felthhouse v. Bindley,1862)
• Must be according to mode prescribe
• Must be given within time
• It can not precede an offer
• Must show intention to fulfill terms of offer.
• Must be given by parties to whom offer is made
• Must be given before the offer lapses.
• It cannot be implied from silence.
“ A MERE SILENCE IS NOT ACCEPTANCE”.
Communication of Offer ,Acceptance and Revocation

• Offer, acceptance or revocation may be

communicated by words spoken, written or by
conduct.

• Ex- A Weighing machine at a public place

• Communication is complete,

• Offer:- When it comes to the knowledge of

the person to whom it is made.

• Acceptance:- when it comes to the knowledge

of proposer.

• Revocation:- The person to whom it is made

when it comes to his knowledge.
 Revocation / Lapse of Offer
• By communication of notice of revocation
• By Lapse of time
• By non fulfillment of the preceding condition
to acceptance
• By Death or insanity of offeror
• If a Counter offer is made
• If an offer is not accepted according to
prescribed or usual mode
• Law is changed
 Consideration (Sec 2 d)

When at a desire of a promisor, the

promisee or any other person has done or
abstain from doing or promises to do or
abstain from doing something such act or
abstinence or promise is called a consideration
for the promise.”

Case:- Kedarnath V Gauri Mohamed (1886)

 Legal Rules as to Consideration
• It must move at the desire of the promiser
• It may move from the promisee or any other person
• It may be an act , abstinence or return promise.
• It may be past present or future
• It need not be adequate
• It must be real and not illusory
• It must be something which the promisor is not
already bound to do.
• It must not be illegal, immoral or opposed to public
policy
Lost Courier Packet
-A Case Study
 Capacity to Contract
• “An Agreement becomes contract if it is entered in to
between the parties who are competent to contract.
(sec 10)

• Every person is competent to contract,(sec 11)

a) Who is of the age of majority according to law to
which he is subject
b) Is of sound mind
c) Is not qualified from contracting by any law to
which he is subject
 Minor
• A minor is a person who has not completed 18
years of age.

• Majority at 21.
 Minor’s Agreement: Legal Rules
• An agreement with or by minor is void ab initio.
(Mohribibi v/s Dharmodas Ghose 1903)
• Promisee or beneficiary.
• Ratification by attaining the age of majority.
• He can always plead minority
• No specific performance of the agreement
• contract of partnership
• Insolvency
• Necessaries
• Agent
• Parents/ Guardians are not liable for minor’s Act
 Persons of Unsound Mind
• A person is said to be of sound mind for the
purpose of making a contract if at the time
when he makes it, he is capable of
understanding it and of forming a rational
judgement as to its effect upon his interests.

• Lunatics:- (intermittent interval of sanity and

insanity)
• Idiots:- (completely lost mental powers)
• Drunken persons:-Temporary incapacity to
contract
 Other persons
• Alien Enemies

• Foreign Sovereigns

• Corporations

• Insolvents
Free Consent (Sec 13 &14)
Consent is said to be free when it is not caused
by
• Coercion
• Undue influence
• Fraud
• Misrepresentation
• Mistake
Baladebi v. S. Majumdar (1956)
 Coercion
• Is committing or threatening to commit, any
act forbidden by Indian penal code.

• Raganayakamma v. Alwar Shetty(1889)

• Threat to commit suicide—Is it Coercion??

Undue influence

• A contract is said to be induced by “undue

influence” where the relations subsisting
between parties are such that one of the
parties is in position to dominate the will of
the other and uses that position to obtain an
unfair advantage over the other.”
• A person is deemed to be in a position to
dominate will of another,

1. Where he holds a real or apparent authority over

the other

2. Where he stands in a fiduciary relationship\

3. Where he makes a contract with person whose

mental capacity is temporarily or permanently
affected by reason of age, illness or mental or
bodily distress.(Mannu singh v. Umadat Pandey,
1890)
Contract with Pardanashin woman
• Presumed to have been induced by undue
influence.

• Burden of proof lies on the party entering in to

contract with pardanashin woman.
 Difference between Coercion and Undue
influence
• Consent

• Character: Physical or Mental

• Intention

• Criminal Act
 Misrepresentation
• A False Statement which the person making it
honestly believes to be true or which he does not
know to be false.

• Also includes nondisclosure of material fact or

facts without any intent to deceive the other
party

• Derry V. Peak (1889)

 Requirements of Misrepresentation
1. It must be a representation of a material fact.

2. It must be made before the conclusion of the contract

with a view to inducing other party to enter in to
contract.

3. It must be wrong but the person who made it

honestly believed to be true

4. It must not be made with an intention to deceive the

other party
Babul V. R.A.Singh (1986)
 Consequences of Misrepresentation

1. Avoid or rescind the contract

2. Accept the contract but insist that he shall be

put in the same position if representation
made had been true
 Fraud(sec 17)
• Fraud exists when,

1. A False representation has been made (a)

knowingly (b) without belief in its truth or ©
recklessly

2. There is concealment of a material fact , with

an intention to deceive the party
Essential elements of fraud
• There must be a representation or assertion and
it must be false.
• The representation must relate to material fact
which exist now or in past
• It must have made before conclusion of the
contract
• It must have been made with a knowledge of its
falsity
• The other party must have been induced to act
upon
• The party must have been deceived.
 Distinction between fraud and
misrepresentation
• Intention

• Belief

• Rescission and damages

• Discovery
 Mistake
• An erroneous belief about something .

• Mistake of Law

• Mistake of Fact
1. Bilateral Mistake
2. Unilateral Mistake
Bilateral Mistake
• Both the parties to an agreement are under
Mistake
• Mistake must be mutual
• The mistake must relate to a matter of fact
essential to agreement
Unilateral mistake
• When only one party is mistaken

Exceptions

• Mistake as to identity of the person

contracted with

• Mistake as to nature of contract

Court Case:Cundy v.
Lindsay
Performance of a contract
• Performance of a contract when parties to the
contract fulfill their obligation under contract.

• Parties to contract must either perform or offer

to perform their respective promise.

• When promisor offers to perform his obligation

under the contract at the proper time and place
but the promisee does not accept the
performance. This is known as Tender.
Requisites of a valid tender
• It must be unconditional
• It must be of the whole quantity contracted
for or of the whole obligation
• It must be by a person who is in position and
willingness to perform the promise
• It must be made at the proper time an place.
• It must be made to the proper person.
• It may be made to one of the several joint
promisees
• It must give opportunity to inspect the goods
Performance By whom ?
• Promisor himself
• Agent
• Legal Representatives
• Third Persons
• Joint Promisors
Time as the essence of the contract

• When time is of the essence

Mahabir Pershad V. Durga Dutt(1961)

• When time is not of the essence

Hind Construction Contractors V. State of

Maharashtra (1979)
 Assignment of Contracts
• To assign means to transfer
• An obligation of the party to a contract may be,
1.)Personal 2.) Impersonal Obligation

Assignment can take place,

1. By Act of Parties
Parties by mutual agreement can drop
out from the performance of promise.

2. By Operation of law

(1) Death of a party to contract

(2) Insolvency of a partner
 Discharge of Contract
• Discharge means termination.
• A Contract can be discharged by ,
1. By performance
2. By death
3. By refusing tender of performance
4. By breach of contract
1) Actual breach 2) anticipatory breach of contract
5. By impossibility of performance( Doctrine of Frustration)
6. By agreement or by consent
1) by novation 2) by accord & satisfaction 3) by remission & waiver 4)
by rescission
7. By promise ailing to facilities for performance
8. By operation of law
9. By unauthorized material alteration of a contract
10. Discharge by lapse of time.
 Doctrine of Frustration
Due to some event subsequently happens
performance under a contract becomes impossible or
unlawful.

Some grounds of frustration

❖ Destruction of subject matter
❖ Death or personal incapacity of parties
❖ Change of law
❖ Declaration of war
❖ By an act of God
 Remedies to Aggrieved party
Suit for specific Performance

Suit for injunction

Suit for damages, for the loss sustained

Suit upon Quantum Meruit

Means as much as earned.
• A claim can be made for part of performance.
1.The injured party can claim reasonable compensation
2.When contract is void , compensation can be
asked from benefiting party

3. Where a contract is divisible, party in default

may sue on quantum meruit.

4. When an indivisible contract for lump sum is

completely performed but badly, party can
claim for lump sum less deduction