INDIAN CONTRACT ACT 1872

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INDIAN CONTRACT ACT
1872
5/2/2017Nitish Saini
Nitish Saini

Introduction
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 Law of contract – Foundation upon which the
superstructure of modern business is built
 Business – promise made between parties –
performance follows later
 Breaking of a promise – without incurring liability –
endless complications

HISTORY OF INDIAN CONTRACT ACT - 1872
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 Enforced w.e.f. September 1, 1872.
 Applicable to whole of INDIA except
J&K
 Concerned with rights in PERSONAM
 As distinguished from rights in REM

Contd -
4
 Law of contract lays down legal rules
relating to promises, their formation,
performance and enforcement
 Applicable not only to business
community but others

Definitions
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 Anson – Legally binding agreement
between two or more person by which
rights are acquired by one or more to Act
or forbearance on the part of the other.
 Salmond – an agreement creating and
defining obligation between parties
 Pollock – Every agreement and promise
enforceable at law is a contract

CONTRACT
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 Sec 2(h) – “ An agreement enforceable by law is a
contract”.
 Two elements -
 An Agreement
 Legal obligation ie, a duty enforceable by law.

Agreement
7
 Section 2(e) – “Every promise and every set of
promises forming the consideration for each
other, is an agreement.”
 Promise – What is a promise?
 Sec 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

Example
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 Ram offers to sell his car for Rs 1,00,000 to Shyam.
Shyam accepts this offer. This offer after acceptance
becomes promise and this promise is treated as an
agreement between Ram and Shyam
 Therefore, an agreement consists of an offer by one
party and its acceptance by the other.
 Agreement = Offer + Acceptance of offer

Enforceability of Agreement
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 An agreement is said to be enforceable by law if it
creates a legal obligation.
 If an agreement is incapable of creating a duty
enforceable by law, it is not a contract.
 Thus, an agreement is a wider term than contract.

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Agreement + Legal obligation
(Enforceability at law) = Contract

Contract Act
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 “All contracts are agreement but all agreements are
not contracts”.
 Agreements of moral, religious or social
nature are not contracts
 they are not likely to create a duty enforceable by law
 parties never intend to create a legal obligation.

Contd -
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 Ex;
 X invites his friend Y to a dinner and Y accepts the invitation.
If Y fails to turn up for the dinner. Can he take his friend to
Court????
X cannot go to the court to claim his loss.
 A father promises to pay his son Rs 1000 as pocket allowance.
Later he refuses to pay. Can the son recover the Amount???
The son cannot recover as its is a domestic
agreement and there is no intention on the part
of the parties to create legal relations

Case
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 Balfour vs Balfour [(1919) 2 K.B. 571]
 A promise by the husband to pay his wife 30 pounds
every month . Later Husband refuses to pay. Wife
goes to court.
 Held: unenforceable as parties never
intended it to be bound by legal
obligations.

contd
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 In commercial or business agreements an
intention to create legal relations is presumed.
Thus, an agreement to buy and sell goods intends
to create legal relationship, hence is a contract,
provided other requisites of a valid contract are
present. But if the parties have expressly declared
their resolve is not to create a legal obligation,
even a business agreement does not amount to a
contract.

Case
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 Rose&Frank Co. vs Corruption Bros [1925
AC 445]
 There was an agreement between R company and C
company by means of which the former was appointed as
the agent of the latter. One clause in the agreement was:
”This agreement is not entered into….as a formal or legal
agreement and shall not be subject to legal jurisdiction in
the law courts.”
 HELD - There was no binding contract as there was no
intention to create legal relationship

Distinction between an agreement and a contract
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 Agreement
◦ Offer and its acceptance
constitute an agreement
◦ An agreement may or
may not create a legal
obligation
◦ Every agreement need
not necessarily be a
contract
◦ Agreement is not
concluded or binding
contract
 Contract
◦ Agreement and its
enforceability constitute
a contract
◦ A contract necessarily
create a legal obligation
◦ All contracts are
necessarily agreements.
◦ Contract is concluded
and binding on the
concerned parties

Enforceabilty Method of
Formation
Extent of
performance
Obligation to
perform
Valid
Voidable
unenforceab
le
Illegal
Void
Executed
Executory
Express
Formal
Simple
Implied Standard
Form
ContingentQuasi
Bilateral
Unilateral
Classification of Contract17

E S S E N T I A L S
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Valid Contract

Essential elements of a valid contract
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 Proper offer and its proper acceptance
 Intention to create legal relationship
 Free Consent
 Capacity to contract
 Lawful consideration
 Lawful object
 Agreement not expressly declared void
 Certainty of meaning
 Possibility of performance
 Legal formalities

Offer and acceptance
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 OFFER
 An offer is the starting point in the making of an
agreement.
 An offer is also called ‘proposal’
 Sec 2(a) – “ A person is said to have made the
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 offer to
such act or abstinence.”

OFFER
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 An offer involves the following essential
elements;
 It must be made by one person to another person
 It must be an expression of readiness or willingness to
do (i.e., a positive act) or to abstain from doing
something (i.e., a negative act)
 It must be made with a view to obtain the consent of
that other person to proposed Act or abstinence

Contd
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 Offeror – The person making the proposal is called
the ‘offeror’ or ‘proposer’.
 Offeree – The person to whom the proposal is made
is called the ‘offeree’ or the ‘proposee’.

Types of offer
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 General offer – When the offer is made to the world
at large
 Specific offer – When the offer is made to a definite
person
 Implied offer – An offer may be implied from the
conduct of the parties or the circumstances of the
case.

Cases
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 General offer
 Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258
 Harbhajan lal vs Harcharan lal (AIR All 539)

Contd-
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 Intention to create legal relationship
 An offer must be such that when it is accepted it will create a
legal relationship
 Certain and unambiguous terms
 If the terms of the offer are vague or indefinite, its acceptance
cannot create any contractual relationship.

Legal rules as to offer
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Certain and
unambiguous
terms
Intention to
create legal
relationship
Different from
an invitation to
offer
Proper
communication
No term of non-
compliance of
which amount
to acceptance
Communication
of special terms
Different from a
mere
declaration of
an intention

Contd -
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 Different from a mere declaration of
intention
 Mere declaration of intention indicates
that an offer will be made or invited in the
future
 A declaration of intention by a person
does not give right of action to another.

Case
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 Harrison vs Nickerson
 An auctioneer advertised in a newspaper that a sale of office
furniture would be held. A broker came from a distant place to
attend that auction, but all the furniture was withdrawn. 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.

Contd -
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 Different from an invitation to offer
 In an invitation to offer the person making an invitation
invites others to make an offer to him
 It is prelude to an offer inviting negotiations or
preliminary discussions
 Case –
 Pharmaceutical Society of Great Britian vs Boots
cash chemists Ltd (1953) 1 QB 401
 Harvey vs facey

Contd-
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 Offer must be communicated
 An offer must be communicated to the person to whom
it is made.
 An offer is complete only when it is communicated to
the offeree
 Acceptance is not possible unless offer is brought to the
knowledge of the offeree. ie, One can accept the offer
only when he knows about it.
 Acceptance in ignorance of offer confers no right. ie,
An offer accepted without its knowledge does not
confer any legal rights on the acceptor.
 Case: Lalman Shukla vs Gauri Dutt

Contd -
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 No term of non-compliance of which amounts to
acceptance
 The offer must not contain a term, the non-compliance of
which amount to acceptance
 Ex: A offers by post to sell his horse to B for Rs 2000. He
writes, “ If you do not reply, I shall assume you have
accepted the offer.” There would be no contract even if B
does not reply

Contd
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 While making the offer, the offeror cannot say that if the
offer is not accepted before a certain date, it will be
presumed to have been accepted
 Communication of special terms or standard terms
of contract
 Special terms of the offer must also be communicated
along with the offer.
 If the special terms of the offer are not communicated,
the offeree will not be bound by those terms.

Acceptance
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 Acceptance means giving consent to the offer.
 It is an expression by the offeree of his willingness
to be bound by the terms of the offer.
 Sec 2(b) – “ A proposal is said to be accepted when
the person to whom the proposal is made signifies
his assent thereto. A proposal when accepted
becomes a promise.”
 Acceptance is the consent given to offer.

Contd-
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 Who can accept
 In case of a specific offer –
To be accepted by that definite person or that
particular group of persons to whom it has
been made and non else.
 In case of general offer –
 An offer made to the world at large or public in
general can be accepted by any person having
the knowledge of the offer by fulfilling the
terms of the offer.

Contd -
35
 How to make acceptance –
 Express acceptance –
An express acceptance is one in which is made by
words spoken or written
 Implied acceptance –
 An implied acceptance is one which is made otherwise
than in words.
It is inferred from the conduct of the parties or the
circumstances of a particular case

Legal rules of valid acceptance
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 Absolute and unqualified
 Manner
 Communication
 By whom
 To whom
 Before the lapse of the offer

Communication of offer and acceptance
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 Must be complete so as to bind the concerned parties
because as soon as the communication is complete
the parties loose the right of withdrawal or
revocation.
 (a) Communication of offer – It is complete when it comes of
the knowledge of the person to whom it is made.

Contd -
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 Communication of acceptance –
As against the proposer –
When it is put in a course of
transmission to him, so as to be out of
the power of the acceptor.
As against the acceptor
• When it comes to the knowledge of
the proposer.

Revocation of offer and acceptance
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 Taking back, withdrawal (sec 5)
 Time for revocation of proposal – A proposal may be
revoked at any time before the communication of its
acceptance is complete as against the proposer, but
not afterwards.

Contd -
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 Time for revocation of acceptance – An acceptance
may be revoked at any time before the
communication of the acceptance is complete as
against the acceptor, but not afterwards.

INDIAN CONTRACT ACT 1872

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INDIAN CONTRACT ACT 1872