THE INDIAN CONTRACT ACT, 1872

Nature & Kinds of Contracts Concepts related to Offer Acceptance & Consideration
Important Definitions Section 2(a) When one person 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, he is said to make a proposal; Section 2(b) When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when a accepted, becomes a promise; Section 2(c) The person making the proposal is called the "promisor", and the person accepting the proposal is called "promisee", Section 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 act or abstinence or promise is called a consideration for the promise; Section 2(e) Every promise and every set of promises, forming the consideration for each other, is an agreement; Section 2(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises; Section 2(g) An agreement not enforceable by law is said to be void; Section 2(h) An agreement enforceable by law is a contract; Section 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; Section 2(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. Jus in rem means a right against or in respect of a thing; - it is available against the world at large. Ex: Mr. X is the owner of a land. He has a right to have quite possession and enjoyment of that land against every member of the public. Similarly, every member of the public is under an obligation not to disturb Mr. Xs possession or enjoyment. This right of Mr. X is jus in rem Jus in personam means a right against or in respect of a specific person; - available only against particular person. Mr. A owns a certain sum of money to Mr. B. Mr. B has a right to recover this amount from Mr. A. this right can be exercised only by Mr. B and none else against Mr. A. this right of Mr. B is jus in personam

Conesnsus-ad-idem means the meeting of mind i.e., the parties to the agreement must have agreed about the subject matter of the agreement in the same sense and at the same time. Unless there is Conesnsus-ad-idem there cannot be any contract. The term contract has been defined by many management authors, but as per Indian contract act 1872 the term has been defined under Section 2(h) as An agreement enforceable by law is a contract. As per the definition given in the Indian contract Act 1872 a contract must essentially consist of the following elements: 1) An Agreement; 2) Enforceability by Law An Agreement: The term Agreement has been defined under Section 2(e) of the Indian contract Act as Every promise and every set of promises, forming the consideration for each other, is an agreement. Enforceability by Law: an Agreement, to become a contract must give raise to a legal obligation. The term obligation is defined as a legal tie, which imposes upon a definite person or persons the necessity of doing or abstaining from doing a defiant act or acts. It may be social or legal matters. An agreement, which gives raise, to a social contract is not a contract. In order to give raise to a contract the agreement must be a legal agreement. Therefore Contract = Agreement + Enforceability by Law. Agreement = Offer + Acceptance + Enforceability by Law

Classification of contracts
Based on the validity: An agreement becomes a contract when all the essential elements of a contract are present. In such case such agreement becomes a contract. If any of the essential elements are missing than such contact is voidable, void, illegal or unenforceable. Voidable contract: the term voidable contract has been defined under Section 2(i) as 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. This happens in the case where the consent of the party has not been obtained in accordance with law or has been obtained by force or coercion or undue influence, misrepresentation, mistake. In such case the party whose consent is not free has the right to recent or accept the contract. Void Agreement: the term void agreement has been defined under Section 2(g) as An agreement not enforceable by law is said to be void. A void agreement does not create any legal right or obligation. Such agreement is void-ab-initio from the beginning itself. E.g., agreement with minor or an agreement with out consideration is void-ab-initio. Void contract: the term void contract has been defined under Section 2(j) as A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. In this case when the contract was entered into, may be valid and binding on the parties as per law, but subsequently it has become void. E.g., in the case of import contract, the agreement is enforceable, but if subsequently war brakes out then the agreement becomes void contract. Illegal agreements: an illegal agreement is one, which transgresses (against) some basic rule of Public Policy or criminal in nature or is immoral. All illegal agreement is void, but all void agreements are not illegal. An illegal agreement is not only void between the immediate

parties but has its further effect that even the collateral transactions to it become tinted with illegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principal contract. Ex: Mr. B borrows Rs.5,000 from Mr. A and enters into a contract with an alien to import prohibited goods. Mr. A knows of the purposes of agreement. The transaction between Mr. B and Mr. A is collateral to the main agreement. It is illegal since the main agreement is illegal. Unenforceable contract: an unenforceable contract is one which cannot be enforced in a court of law because of some technical defect such as absence of consideration or absence of contract in writing. The parties to the contract may fulfill their obligations but in the event of breach of contract the other party cannot enforce it. Based on formation: Express contracts: if the terms of the contract are expressly agreed upon (whether by words spoken or written) at the time of formation of contract, such a contract is said to be an expressed contract Implied contracts: in this case the contract comes into existence by the acts or conducts of the parties or of course of dealing between them. E.g., - Getting into a Public bus. Taking a cup of tea in a restaurant CL: a fire broke out in Ss firm. He called upon the upton fire brigade to put out the fire which the latter did. Mr. S firm did not come under the free service zone although he believes to be so. Held, he was liable to pay for the service rendered, since the services was rendered on the implied promise to pay (Upton Rural District Council vs. Powell) Quasi contract: strictly speaking quasi contracts are not contracts. A contract is one, which is entering into with the consent of the parties to the contract. A quasi contract is one, which is created by law. It is based on the principle that a person shall not be allowed to enrich himself unjustly at the expense of another.

ESSENTIAL ELEMENTS OF A CONTRACT

According to Section 10: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. 1) 2) 3) 4) 5) 6) 7) 8) Offer and Acceptance Intention to create a legal relationship Lawful Consideration Capacity of the Parties Free Consent Lawful Object Agreement not declared as void Possibility of Performance

9) Legal formalities Intention to create a legal relationship When two parties enter into any agreement, their intention must be to create a legal relationship between them. If there is no such intention on the part of the parties, there is no contract between them. Agreements of a social or domestic nature do not contemplate legal relationship. As such they are not contracts. Case law: a husband promised to pay his wife a household allowance of $30 every month. Later the parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held, agreements such as these were outside the realm of contract altogether. (Balfour v/s Balfour)

Offer and Acceptance

There must be two parties to an agreement, i.e., one party making the offer and the other party accepting it. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional. The acceptance must also be according to the mode prescribed and must be communicated to the offeror. 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 that other to such act or abstinence, he is said to make a proposal {Section 2(a)} A person making the offer is called Offeror, Proposer or Promiser and the person to whom the offer is made is called as the Offeree or Proposee and when the offer is accepted by the offeree then he is called Acceptor or Promisee. Kinds of offer: Expressed offer: when the offer is made by express words, spoken or written. E.g., when A says: will you buy my car for Rs.15000/-? Or advertises the same in the News Paper, This is an express offer. Implied offer: an offer may be implied by the conducts of the parties or the circumstance of the case. E.g., - Getting into a Public bus. Taking a cup of tea in a restaurant Weighing machine at the Railway Station. Specific offer: when the offer is made to a specific person then such offer is called specific offer. The acceptance to such offer can be given by the person to whom the offer is made and not by any one else. General offer: when the offer is made to the world at large. E.g., Advertisements A company advertises in several Newspapers that a reward of $100 would be given to any person who contracted with the influenza after using the smoke balls of the company in accordance with the printed instructions. One Mrs. Carlill used the smoke ball as per the instructions given by the company but contracted influenza. Held, she could recover the

amount as by using the smoke balls she accepted the offer. (Carlill v/s Carbolic Smoke Ball Co.,)

Legal rules to offer

The offer must be given with an intention to create legal relationship: a proposal will not become a promise even after it has been accepted unless it was made with an intention to created legal relationship. A social invitation even if it is accepted, does not create a legal relationship because it is not intended so. The terms of the offer must be definite: the terms of the offer must be definite and certain and must not unambiguous or vague. The offer must contain certain terms on which the proposer is willing to act, even though the proposer is free to lay down any terms and conditions in his offer, but they should be certain and legal. Otherwise the acceptance cannot create any legal relationship. Case law: A offered to take a house on lease for three years at $ 285 per annum if the house was put into through repair and drawing room handsomely decorated according to the present style. Held, the offer was too vague to result in a contract relationship. (Taylor v/s Portington)

There is a clear difference between offer, invitation to offer or an announcement: An announcement: a declaration by a person that he intends to do something gives no right of action to another. Such a declaration only means that an offer will be made or invited in the future and not that an offer is made now. E.g., Auction sale, will, etc. CL: An auctioneer advertised in a newspaper that a sale of office furniture would be held. A broker comes from a distinct place to attend that auction, but all the furniture was withdrawn from the auction. The broker thereupon sued the auctioneer for his loss of time and expenses. Held, a declaration of intention to do a thing did not create a binding contract with those who acted upon it, so that the broker could not recover. (Harris vs. Nickerson) An invitation to make offer: display of good by the shopkeeper with a price marked on it does not make an offer, but merely gives an invitation to the public to make an offer to buy the goods at the price marked on it. E.g., quotations, catalogues, advertisements, prospectus issued by the company, etc. Case law: good are sold in shop under the self-service system. The Customers select the goods in the shop and take them to the cashier for payment of the price. The contract, in this case, is made, not when the customer selects the goods, but when the cahier accepts the offer to buyer and accepts the price. (Pharmaceutical Society of Great Britain v/s Boot Cash Chemist) Offer must be communicated: an offer to be complete must be communicated to the person to whom the offer is made. Mere by acting to the terms of the offer without knowledge, the offer cannot be treated as accepted. An acceptance of offer in ignorance of offer is no acceptance and does can not confer any right on the acceptor.

Case law: S sent his servant, L to trace his missing nephew. He than announced that anybody who traced his nephew would be entitled to a certain reward. L traced the boy in ignorance of this announcement. Subsequently when he come to know of the reward, he claimed it. Held, he was not entitled to reward. (Lalman v/s Gauri Dutt) A statement of price is not an offer: a mere statement of price is not construed as an offer to sell. Case law: three telegrams were exchanged between Harvey and facey. 1. Will you sell your bumper hall pen? Telegraph lowest cash price answer paid 2. Lowest price for bumper hall pen $900 (Facey to Harvey) 3. We agree to buy bumper hall pen for the sum of $900 asked by you (Harvey to Facey) Held, there was no concluded contract between Harvey and facey. (Harvey v/s Facey) Offer must not contain a term the non-compliance of which may be assumed to amount to acceptance: the person making the offer cannot say that if acceptance is not communicated by a certain time, the offer would be considered as accepted

Legal rules as to acceptance

Acceptance is defined under Section 2(b) as When a 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. Acceptance may be implied or expressed. In express acceptance, while that given by conduct is termed as implied acceptance. A lady invited her niece to stay with her in the same house and promised to settle on her immovable property. The niece stayed with her residence till the time of her death. Niece was held to be entitled to property because she has accepted the offer of the aunt by conduct i.e., by going to her house and staying with her as desired. (V. Rao v/s A. Rao) Acceptance must be Unconditional: an acceptance in order to be binding must be absolute and unconditional. The acceptance must be to all term of offer, whether material or immaterial to the contract. If the parties are not consensus-ad-idem to all the terms and conditions of the contract, there is no contract. Case law: A made an offer to B to purchase a house with possession from 25 th July, the offer was followed by an acceptance suggesting possession from 1st August. Held there was no concluded contract (Routledge v/s grant) It must be communicated to the offeror: to conclude a contract between the parties, the acceptance must be communicated in some perceptible (noticeable) form. A mere resolve or mental determination on the part of the offeree to accept the offer is not sufficient and does not result in contract. Case law: a draft agreement relating to supply of coal was sent to the manager of a railway company for his acceptance. The manager wrote the ward Approve and put the draft in the drawer of his table intending it to send it to the companys solicitor for a formal contract to be drawn up. By some oversight the document remained in the drawer. Held, there is no contract. (Brogden v/s Metropolitan Rail Co.,)

Acceptance must be given in the mode prescribed by the offeror: if the acceptance is not according to mode prescribed, or some usual or reasonable, there is no contract. Where the offeror has not prescribed any mode, than, it must by a reasonable mode, which depends upon the facts of the case. If the acceptance is not according to the mode prescribed by the offeror, than the may insist the offeree to communicate the acceptance as per the mode prescribed. A makes an offer to B and says: if you accept the offer, reply by wire. B sends the reply by post. It will be a valid acceptance unless A informs B that the acceptance is not according to the mode prescribed. It must be given in a reasonable time: if any time limit is specified, the acceptance must be given with in that time. If no time limit is specified by the offeror, than it must be given with in a reasonable time and it depends on the facts of the case CL: on 08th June, Mr. M offered to take shares in R Company. He received a letter of acceptance on November 23. He refuses to take the shares. Held, Mr. M, was entitled to refuse as his offer has lapsed as the reasonable period during which it could be accepted had elapsed (Ramsgate Victoria Hotel Co., vs. Monteflore) It cannot precede an offer: if the acceptances precede an offer, it is not a valid acceptance and does not result in any contract. It must be given by the party or parties, to whom the offer is made: when an offer is made to a particular person, it can be accepted by him alone. If it is accepted by another person, there is no valid acceptance CL: Boulton brought a hose-pipe business from Brocklehurst. Jones to whom Brocklehurst owed a debt, place an order with Brocklehurst for the supply of certain goods. Boulton supplied the goods even though the order was not addressed to him. Jones refused to pay Boulton for the goods because he, by entering into contract with Brocklehurst, intended to set off his debt against Brocklehurst. Held, the offer was made to Brocklehurst and it was not in the power of Boulton to step in and accept and therefore there was no consent (Boulton vs. Jones) It must be given before the offer lapses or withdrawn. It cannot be implied for the silence: the acceptance of an offer cannot be implied from the silence of the offeree, unless the offeree has, by his previous conduct inducted that his silence means the acceptance. Once the offer is rejected it can not be accepted by the offeree, unless the offeror renews the offer.

COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

When the contracting parties are face to face and negotiate in person, a contract comes in existence the movement the offeree gives his absolute and unqualified acceptance to the proposal made by the offeror. When the parties are at the distance and the offer and the acceptance and their revocation are made through post, i.e., by letter or telegram. The rules are as follows

Mode of communication: The communication of proposals, the acceptance of proposals, and the revocation of proposals respectively, are deemed to be made by any (a) act or (b) omission of the party proposing, accepting or revoking. Such act or omission must however have the effect of communicating such offer, acceptance or revocation. Thus installation of a weighing machine at a public place is an offer, putting a coin in the slot of the machine is the acceptance of the offer, and switching off the machine amounts to revocation of the offer.

Communication when complete The communication of a proposal is complete- when it comes to the knowledge of the person to whom it is made.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 10th July. It reaches B on 12th July. The communication of the offer is complete when B receives the letter, i.e., on 12th July. The communication of an acceptance is complete -as against the proposer, when it is put in a course of transmission to him so at to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer. E.g., in the above case, when B accepts As Proposal, by a letter sent by post on 13 th instant. The letter reaches on 15th instant. The communication of acceptance is complete, as against A, when the letter is posted, i.e., on 13th, as against B, when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao) The communication of a revocation is complete -as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge. E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on 19th May. The telegram reaches B on 21st May. The revocation is complete as against A when the telegram is dispatched, i.e., on 19th May. It is complete as against B when he receives it, i.e., on 21st May. Time for Revocation of Proposals and Acceptance A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but no afterwards. Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the letter is posted on the 01st of the month. Mr. B accepts the proposal by a letter sent by post on the 04th. The letter reaches Mr. A on the 06th. Mr. A may revoke his offer at any time before Mr. B posts his letter of acceptance, i.e., 04th but not afterwards Mr. B may revoke his acceptance at any time before the letter of acceptance reaches Mr. A, i.e., 06th, but not afterwards

Loss of letter of acceptance in postal transit: Acceptance is complete as against the offeror as soon as the letter of acceptance is posted. The contract is complete even if the letter of acceptance goes astray or is lost through an accident in the post. But in order to bind the offeror, it is important that the letter of acceptance is correctly addressed, adequately stamped and posted, otherwise the acceptance is not complete as per section 04 of the Act. Revocation how made A proposal is revoked (1) by the communication of notice of revocation by the proposer to the other party; (2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance; (3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or (4) by the death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance.

* CONSIDERATION *
Consideration: the term consideration has been defined under Section 2(d) as 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 act or abstinence or promise is called a consideration for the promise; Consideration is one of the essential elements of the contract, subject to some exemptions. An agreement made with out consideration is void. Consideration is a technical term used in the sense of Quid-Pro-Que (i.e., some thing in return). When a party to an agreement promises to do some thing, he must get some thing in return. This some thing in return is defined as consideration. E.g., A agrees to sell his car to B for Rs.15000/-, for As promise the consideration is Rs.15000/- and for Bs promise the consideration is the car. Case Law: the Secretary of the Mosque Committee filled a suit to enforce a promise, which the promisor had made to subscribe Rs.500 to the re-building of a mosque. Held, the promise was not enforceable because there was no consideration in the sense of benefit, as the person who made the promise gained nothing in return for the promise made, and the secretary of the committee to whom the promise was made, suffered no determent as nothing had been done to carry out the repairs. Hence the suit was dismissed. (Abdul Aziz v/s Masum Ali) The facts of this case were similar to those of the previous case, but the Secretary in this case incurred a liability on the strength of the promise. Held, the amount could be recovered, as the promise resulted in a sufficient detriment to the secretary. The promise could, however, be enforced only to the extent of the liability incurred by the secretary. (Kedar Nath v/s Gouri Mohamed) The reason why the law enforces only those promises which are made for consideration is that gratuitous or voluntary promises are often made rashly and without due deliberation. The law looks with disfavor (disapproval) upon an exchange of promises which would result in one of the parties obtaining something for nothing.

Legal Rules of Consideration

It must move at the desire of the promisor: an act constituting consideration must have been done at the desire or request of the promisor if it is done at the desire of the third party or without the desire of the promisor it will not be a good consideration. E.g., A saves B goods from fire without being asked to do so. A cannot demand consideration for his services. Case law: during the strike by the workers in the coal mine, the police authorities thought it is enough to provide a mobile force for the protection of the mine, the colliery manager wanted a stationary guard. It was ultimately agreed to provide a stationary guard at the payment of Rs.2200/-. Subsequently the company refused to pay pleading absence of consideration. Held, the contract was supported to consideration and the company was liable to pay. The Police authorities provided a stationary guard at the expressed desire of the manager of the company for the protection of the mine. (Glasbrook Bros. V/s Glamorgon Country Council) It may move from the Promisee or any other Person: consideration may move from the Promisee or any other Person, i.e., even a stranger. This means that as long as there is a consideration for a promise it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if he is a party to the contract. Case law: an old lady, by a deed of gist, made over certain property to her daughter D, under the direction that she should pay her aunt, S (Sister of old lady), a certain some of money annually. The same day D entered into an agreement with her aunt S to pay her the agreed amount. Later, D refused to pay the amount on the plea that no consideration has moved from S to D. Held, S was entitled to maintain suit as consideration had moved from the old lady, sister of S, to the daughter, D. (Chinnaya v/s Ramayya) It may be Past, Present or Future: the word used in Section 2(d) are has done or abstained from doing (Past), or does or abstains from doing (Present), or promises to do or to abstain from doing (Future), something, Past consideration: when the consideration by the party for the present promise was given in the past, i.e., before the date of promise, it is said to be past consideration. Present consideration: when consideration is given simultaneously with promise, i.e., at the time of the promise, it is said to be present consideration. E.g., cash sale. Future consideration: when consideration for one party to the other is to pass subsequently to the making of the contract, it is future consideration. It need not be adequate: consideration as said some thing in return and something this some thing in return need not be equal in value to Something given. The law requires that the contract must be supported by consideration and not the adequate consideration. The adequacy of the consideration is to be determined by the parties to the contract at the time of entering into it, but the court has no right to determine the adequacy of the consideration. It must be real: although consideration need not be adequate, it must be real and of some value in the eye of law. There is no real consideration in the following cases: Physical impossibility: A promises to put life into Bs dead wife on the consideration of Rs.999. As promise is physically impossible to perform.

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 Legal impossibility: A owes Rs.500 to B. he promises to pay Rs.50 to, C the servant of B, who in return promise to discharge A from the liability. This is legally impossible, because C cannot discharge A from the debt due to B. Uncertain consideration: A engages B for doing a certain work and promises to pay a Reasonable some. There is no recognized method of ascertaining the Reasonable Some. The promise is unenforceable due to uncertainty.
It must be lawful: the consideration given for an agreement must not be unlawful. A consideration to the contract must not be against Public Policy, Immoral and illegal It must be something which the promisor is not already bound to do: a promise to do what one is already bound to do, either by general law or under an existing contract, is not a good consideration for the new promise, since it adds nothing to the pre-existing legal or contractual obligation. CL: There was a promise to pay to the vakil an additional sum if the suit was successful. Held, the promise was void for the want of consideration. The vakil was under a pre-existing contractual obligation to render the best of his services under the original contract. (Ramachandra Chintaman vs. Kalu Raju)

A CONTRACT WITHOUT CONSIDERATION IS VOID - EXEMPTION

Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law An agreement made without consideration is void, unless Love and Affection: where an agreement is expressed in writing and registered under the law for the time being in force for the registration of the documents and is made on account of natural law and affection between parties standing to the near relation to each other, it is enforceable even is there is no consideration (Ram Dass vs. Krishan Dev) CL: A Hindu husband, after referring to quarrels and disagreement between him and his wife executed a registered document in favour of his wife agreeing to pay her maintenance. But no consideration moved from the wife. Held, the agreement was void for want of consideration (Rajlukhy vs. Bhoothnath) Promise to pay a time-bared debt: A promise to pay a time-bared debt by the debtor is enforceable provided it is made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay wholly or in part debt. The debt must be such of which the creditor might have enforced payment but for the law for the limitation of suits Completed gift: that nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made. Explanation 2 to Section 25 provides that an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given. Agency: Section 185 of the contract Act provides that no consideration is necessary for creation of agency.

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