MODULE-3

CHAPTER-1
THE INDIAN CONTRACT ACT - 1872

NATURE OF CONTRACT
- Most important branch of Business Law
- Circumstances created by parties shall be legally binding on them
- Sir William Anson - ‘What a man has been led to expect shall
come to pass’
- Realization of the reasonable expectation of man
- Defines legal remedies available in Court of Law
- Rights in personum as against rights in rem
- Limiting principles
- Salmond - ‘Not the whole law of agreements, nor the
whole law of obligations. It is the law of
agreements which create obligations and
those obligations which have their sources
in agreements’
- Torts, civil wrongs, quasi contracts, judgements of courts

DEFINITION
1. Sec. 2(h) - INDIAN CONTRACT ACT
“A contract is an agreement enforceable at Law”

2. POLLOCK
“Every agreement and promise enforceable at law is a contract”

3. SIR WILLIAM ANSON

 “A legally binding agreement between two or more persons by which
rights are acquired by one or more to acts of forbearance
(Abstaining from doing something) on the part of the others”

4. SALMOND
“An agreement creating and defining obligations between parties”

5. HALSBURY
“An agreement between two or more persons which is intended to
be enforceable at law and is constituted by the acceptance by one
party of an offer made to him by the other party to do or abstain from
doing some act”

DEFINITION OF AGREEMENT - Sec. 2(e)

“Every promise and set of promises, forming consideration for each
other”

CONSENSUS AD-IDEM
Eg. Hansraj and Rajhans

EXCLUSION OF TWO TYPES OF CONTRACTS

a) Personal Contracts
b) Agreements between Husband and Wife
Case Law : Balfour .Vs. Balfour

THE INDIAN CONTRACT ACT 1872

1. General Principles of Law of Contract (Secs. 1 - 75)
2. Special Contracts (Secs. 124 - 238)
- Indemnity and Guarantee
- Bailment and Pledge
- Agency

ESSENTIAL ELEMENTS OF A VALID CONTRACT

Sec. 10 - “All agreement are contracts if they are made by ‘FREE
CONSENT’ of Parties ‘COMPETANT TO CONTRACT’,
for a ‘LAWFUL CONSIDERATION’ and with ‘A LAWFUL
OBJECT’ and are ‘NOT DECLARED TO BE VOID”

Therefore “All agreements are not contracts but all contract are
agreements”

Contracts do not include future agreements:

1. Offer and Acceptance

2. Intention to create a legal relationship

Case Laws : Balfour .Vs. Balfour
Rose and Frank Co. .Vs. Crompton Bros.
Simpkins .Vs. Pays

3. Lawful consideration

4. Capacity of Parties
5. Free and Genuine Consent

6. Lawful Object:
- Forbidden by law
- Defeats the provisions of law
- Fraudulent
- Involves injury to person and property
- Immoral and opposed to public policy

7. Agreement not declared void

8. Certainity and possibility of performance

9. Legal formalities

10. Consensus Ad-Idem

CLASSIFICATION OF CONTRACTS

VALIDITY FORMATION PERFORMANCE

1. Valid Contracts 1. Express Contract 1. Executed Contract
2. Void Contract and 2. Implied Contract 2. Executary Contract
Void Agreement 3. Constructive or 3. Unilateral Contract
3. Voidable Contract Quasi Contract 4. Bilateral Contract
4. Illegal Agreement
5. Unenforceable
Agreement
 CHAPTER-2
OFFER AND ACCEPTANCE

OFFER
- Inception of every Contract
- Definite Proposal
- Unqualified Acceptance
- Concluded Contract

DEFINITION
Sec. 2(a) : A person is said to have made a proposal, when he “signifies
to another his willingness to do or to abstain from doing
anything with a view to obtaining the assent of the that other
to such Act or Abstinence.”
Eg.: ‘A’ says to ‘B’ “Will you purchase my car for Rs.1 Lakh?”

- Offerer, Proposer or Promisor

- Offeree, Proposee / Acceptor or Promisee

HOW AN OFFER IS MADE

1. Express Order
2. Implied Order

TO WHOM AN OFFER CAN BE MADE

1. Specific Offer
2. General Offer
Case Law - Carlil Vs. Carbolic Smoke Ball Co.
LEGAL RULES AS TO OFFER
1. Offer must be such that it is capable of being accepted and giving
rise to a legal relationship
Case Law - Balfour Vs. Balfour

2. Offer must be definite, unambiguous, certain and not loose and

vague
- Conditions for ascertaining
Case Law - Scammel Vs. Ousten

3. Offer must be communicated

Case Law - Lalman Shukla Vs. Gauri Dutt

4. Offer must be made with a view to obtain assent

5. Offer must not contain a term the non-compliance of which amounts

to acceptance

6. A mere statement of price is not an offer

Case Law - Harvey Vs. Facey

7. Offer to be distinguished from :

- A declaration of intention and an announcement
Eg. : Auction Sale
- An invitation to make an offer to do business
- Catalogues
 - Prospectus
- Communication of information
- Advertisement for Tenders

8. An offer may be conditional

9. Lapse of an Offer
- Death
- Not accepted Specified Time
Reasonable Time
- Counter Offer
- Revocation

CROSS OFFERS

COUNTER OFFERS

ACCEPTANCE
- Contract emerges from acceptance of an offer
- Act of assenting
- Expression of willingness to be bound
- A lighted match to a trail of gun powder

DEFINITION
Sec. 2(b) : When the Offeree signifies his assent to the Offeror, the offer
is said to be accepted.
An offer when accepted becomes a promise.
ACCEPTANCE HOW MADE
1. Express Acceptance
2. Implied Acceptance

WHO CAN ACCEPT

1. General Offer
2. Specific Offer
Case Law - Boulton Vs. Jones

LEGAL RULES AS TO ACCEPTANCE

1. Acceptance to be absolute, unconditional, unqualified and should
confirm with the terms of the Offer

2. Acceptance to be communicated
Case Law - Felthouse Vs. Bindley

3. Acceptance to be communicated in the mode prescribed

4. It must be within reasonable time

5. It cannot precede an Offer

6. The Acceptor must be aware of the proposal at the time of

acceptance.
Case Law - Lalman Shukla Vs. Gowri Dutt
7. It must show an intention on the part of the Acceptor to fulfill the
terms of the Offer

8. It must be given to the party making the Offer

9. It must be given before the Offer lapses or is withdrawn

10. It cannot be implied from silence

Exceptions : a. Reasonable opportunity to speak and has obtained
benefit
b. Previous dealings

AGREEMENT SUBJECT TO CONTRACT, FUTURE CONTRACT AND

APPROVAL OF SOLICITORS

COMMUNICATION OF OFFER, ACCEPTANCE AND ITS REVOCATION

- Offer, Acceptance and Revocation to be completed must be
communicated
- Face to face
- Distance and Time span

MODE OF COMMUNICATION
- Act
- Omission
Eg. : Weighing Machine
WHEN COMMUNICATION IS COMPLETE (Sec. 4) ?
COMMUNICATION OF OFFER (Sec. 4 Pr1)
- Is complete when it comes to the knowledge of the person to whom
it is made

COMMUNICATION OF ACCEPTANCE (Sec. 4 Pr2)

a) As against the Proposer when it is
i) put in the course of transmission to him
ii) out of the power of Acceptor to withdraw the same
b) As against the Acceptor when it comes to the knowledge of the
Proposer

COMMUNICATION OF REVOCATION (Sec. 4 Pr3)

a) As against the person who makes it
i) It is put in the course of transmission
ii) Out of his control
b) As against the person to whom it is made
- When it comes to his knowledge

- An offer can be revoked before it is accepted and an acceptance

can be revoked before it is communicated
 CHAPTER-3
CONSIDERATION

- Essential element
- Contract without consideration - Nudum Pactum  Bare agreement
- No action arises
- Law will not enforce it
- Foundation of every contract
- Quid Pro Quo  Something in return
- Pollock  “Price at which the promise of the other is bought and
the promise thus given for value is enforceable”
- Consideration may take any form - Money, Goods, Services,
Promise to Marry, Forbear from Suing
- Sign and symbol of every bargain

DEFINITION
A. CURIE Vs. MISA - JUSTICE LUSH
- “A valuable consideration in the sense of law may consist either in
some right, interest, profit or benefit accruing to one party, or some
forbearance, detriment, loss or responsibility given, suffered of
undertaken by the other.”
To be added :
“The benefit accruing or the detriment sustained was in return for a
promise given or received.”
Eg. : Lending of bicycle

B. JUSTICE PATTERSON - THOMAS Vs. THOMAS

 “Consideration means something which is of some value in the eye
of law ..... It may be some benefit to the Plaintiff or some detriment
to the Defendant.”

C. CASE LAW ABDUL AZIZ Vs. MASUM ALI

D. KEDARNATH Vs. GAURI MOHAMED

E. Sec. 2(d) - INDIAN CONTRACT ACT

“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 abstain from doing, something, such act
or abstinence or promise is called a consideration for the promise.”

Therefore, consideration is
a) An Act i.e. doing Something
b) An Abstinence or Forbearance
c) A Return promise
i.e. Something for Something

NEED FOR CONSIDERATION

- Something for Nothing - Gratuitous promises - not recognised nor
enforceable by Law - whims of man

LEGAL RULES AS TO CONSIDERATION

1. It must move at the desire of the Promisor

2. It may move from the Promisee or any other person

 Case Law - Chinnaya Vs. Ramayya

3. It may be an Act, Abstinence, Forbearance of a Return Promise

a) Forbearance to sue
b) Compromise of a disputed claim
c) Composition with creditors

4. It may be Past, Present or Future

5. It need not be adequate

6. It must be real and not illusory

a. Physical impossibility
b. Legal impossibility
c. Uncertain consideration
d. Illusory consideration

7. It must be something which the Promisor is not already bound to do

8. Consideration must be lawful

a. Not forbidden by Law
b. Defeats the provisions of Law
c. Fraudulent
d. Involves injury to person or property
e. Court regards it as immoral or opposed to public policy

9. It must not be Illegal, Immoral or Opposed to Public Policy

STRANGER TO CONTRACT
GENERAL RULE - Only parties to a contract may sue and be sued on
that contract
- “PRIVITY OF CONTRACT”

Implies relationship subsisting between the parties

who have entered into contractual obligations

TWO CONSEQUENCES OF THE DOCTRINE:

i) Person not party to contract cannot sue on it
ii) Rights and obligations are conferred only on parties to a contract
Case Law - Dunlop Pneumatic Tyre Co. Ltd. Vs. Selfridge & Co. Ltd.

EXCEPTIONS
1. Trust or Charge
2. Marriage Settlement, Partition or other Family Arrangement
3. Acknowledgement or Estoppel
4. Assignment of a Contract
5. Contracts entered through an Agent
6. Covenants running with land

A CONTRACT WITHOUT CONSIDERATION - VOID - EXCEPTIONS

GENERAL RULE - “Ex Nudo Pacto Non Oritur Actio”
1. Love and Affection
2. Compensation for Voluntary Services
3. Promise to pay a Time Barred Debt
4. Completed Gift
5. Agency
6. Charitable Subscription