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Indian Contract Act 1872

Scope: Constitutes the most important branch of Commercial / mercantile law. Can affect anybody Foundation of the civilized world. Applicability J & K excluded Deals with general principles & rules governing contracts.

Meaning & Definitions: Means an obligation to be met with certain preconditions agreed upon between the parties.

Defined As:

Section 2(h) An agreement enforceable by law. A contract is an agreement creating & defining obligations b/w the parties Salmond Every agreement & promise enforceable at law is a contract Sir Fredrick Pollack

What a contract arises to ???? 1. Agreement - Plurality & Consensus ad idem 2.Obligation - Contractual Agreement : Section 2(e) Every promise & every set of promises, forming the consideration for each other, is an agreement. Promise : Section 2(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.

All contracts are necessarily agreements but all agreements need not be contracts

(1) (2)

Agreements which are not contracts: Agreements relating to social contracts Domestic arrangements b/w husband & wife Famous case :

Balfour Vs. Balfour

Essentials of a Valid Contract: (1) Offer or Proposal - consensus ad idem (2) Legal Relationship (3) Consideration (4) Capacity (5) Free Consent (6) Public Policy (7) Certain terms (8) Contract is capable of being performed & it is not impossible

(1) Offer or Proposal :


Section 2(a) when a 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.

Rules governing offers: Definite Communication Explicit either oral or written General or Specific Famous Case :Carlil Vs. Carbolic Smoke Ball Co.

- Offer & invitation


(1) (2) (3) (4) (5) (6) - Lapse of offer

Time Mode Refusal Death Failure to meet conditions Counter offer Revocation of offer

Acceptance :

u/S : 2(b) :when a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted becomes promise.

Rules governing acceptance: - Express acceptance - Prescribed manner - Meet all conditions - No counter offer - Communication - Silence & acceptance Felthouse vs Bindley (case on sale of horse) - Accept in the given time

Acceptance in different situations:

Standing offers Tickets Contracts by post Contracts over telephone

(2) Intention to create Legal relationship (3) Consideration: u/S 2(d) when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such an act or abstinence or promise is called a consideration for the promise

Need for consideration : Sir Fredrick Pollock defines consideration as : an act of forbearance of one party or the promise thereof is the price for which the promise of the other is bought. -- Rule of quid pro quo Consideration can be at the desire of the promisor Consideration may move from the promisee or any other person Doctrine of privity of contract - Dunlop Pneumatic Tyre Co. Vs. Selfridge Ltd. D supplied tyres to a wholesaler. X, on condition that any retailer to whom X re-supplied tyres should promise X., not to sell them to the public below Ds list price. X supplied tyres to S upon this condition, but nevertheless S sold the tyres below the list price. Held, there was a contract between D & X and a contract between X & S. Therefore, D could not obtain damages from S, as D had not given any consideration for Ss promise to X nor was he party to the contract between D & X.

Exceptions to the doctrine of privity of contract Beneficiaries under Trust Assignee under an assignment Family arrangements HUF Acknowledgement of liability Estoppel Charge on immovable property by a person for the benefit of third party

Kinds of considerations :

1. executory or future 2. executed or present 3. past consideration

Rules governing consideration :

No consideration no contract For an act of abstinence / promise Mutuality b/w the parties Adequacy of consideration Lawful consideration amounts to void agreement Consideration is doing something more than what is already promised (promisor is not bound by his promise, unless some consideration is offered by the promisee)

u/S -- Exceptions to the rule of consideration:

Gifts Compensation to a person who has already done an act voluntarily Clearing of debt of a person charged with by law of limitation Contracts of agency

Flaws in contracts:
Void contracts : agreements having no effects Voidable contracts : law provides aggrieved party an option to get out of his bargain Illegal agreements parties are liable to pay for the damages

Chief flaws in contract:

(1) Incapacity - minors Case : mohiree bebee Vs. Dharmodass ghosh - lunatics - disqualified persons alien enemies - foreign sovereigns/ambassadros - professional persons for fees - corporations (eg: cannot contract to marry. Corporation can only act with the help of its representatives and can sue and be sued) - married woman - flaw in consent (2) Mistake (3) Misrepresentation (4) Fraud (5) Undue influence (6) Illegality (7) Impossibility