The Indian Contract Act, 1872

Unit 1: Nature of Contracts

Paper 2 Mercantile Law Chapter 1
Mr. Varughese Thomas- Asstt. Secy. ICAI, Kanpur

Preface
Laws: Citizens & States

Laws for Business

Govern/ Regulate Trade and Commerce

Outcome of Trade/ Commerce in England

Mainly of English Laws

Contents of Different Chapters

The Indian Contract Act, 1872:- Principles of formation; Not to

involve State or persons not parties; A contract is voluntary

Sale of Goods Act, 1930-;Was Chapter VII of Indian Contract

Act, 1872; Act Underwent amendments; Latest Multimodal
Transportation of Goods Act, 1993

The Indian Partnership Act, 1932; Was in Chapter XI of ICA,

1872.

Objective of ML in syllabus
To Test gen. comprehension of ele.of ML Contents:

ICA, 1872 _ Sec 1 to 75; Gen nature;consideration,

essntl. Elements, performance and breach.
SGA, 1930: Formation sale; conditions & warranties,
transfer & delivery of goods, Unpaid Seller

IPA, 1932:- Nature, Right & Duties; Regn & Dissolution.

Contract

Agreement
Commitments
should be
fulfilled

Legally
binding to
parties

Remedy
through court
of law

Important Aspects
Essential Elements of Contracts

Types of Contracts

Understand Importance of
a) Offer

b) Acceptance

c) Communication

d)Revocation

Distinction Between Agreement & Contract

The Law of Contract: Gen Principles

Complexities of business environment

Contract
defines rights
& duties

Not
exhaustive

Parties to
make rule
legally not
prohibited

Agreement
Every promise &
Every set of promises
Forming consideration for each other

Promise

When Proposer Proposes To Proposee &

Proposee Signifies His Assent (I.E, Accepted)

Contract?

Agreement

Enforceable
By Law

Contract

10

Essentials Elements - Valid Contract

Proper Offer

Proper
acceptance + to
create legal
relationship

Capacity

Lawful Object

Lawful
Consideration

Free Consent

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Types of contract
1. Void Contact

2. Voidable
Contract

3. Illegal
Contract

4.Unenforceable
Contract

5. Express
Contract

6. Implied
Contract

7. Tacit Contract

8. Executed
Contract

9. Executory
Contract

10. Unilateral
Contract

11. Bilateral
Contract

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Void & Illegal Agreements :

Distinction
Scope:Effect on Collateral
transactions:Punishment:Void-ab-initio:-

terms of agreement void, is not illegal.

Illegal agreement always illegal

in case of illegal agreement, collateral also

tainted illegal

No Punishment in Void Agreement

Illegal agreements are void from beginning.

but sometime valid also become void

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Formal Contracts
Formal
Contracts

Contract of
Record

Judgment of court

It is obligation
imposed
by court

Recognisance

It is written
acknowledgment
of a debt due
to the Sate

Contract Under
Seal

Binds through
form alone

It is written +
signed +
sealed +
delivered

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PROPOSAL/OFFER (INTERCHANGEABLE)
1. One person signifies
2. His willingness
3. To do or abstain
4. For assent of other
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Classification of Offer
Special
Offer
General
Offer

Counter
Offer

Cross
Offer

Standing
Offer

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Rules as to offer
a) Legal
Relation

d) Not
invitation

g) To obtain
consent

b) Certain,
definite

e) Specific or
general

h) May be
conditional

c) Expressed
or implied

f)
Communicated

Not to
construe
acceptance

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Offer and invitation to offer:

distinguish:

Offer

Invitation
to offer

Definite

Circulation
offer

Capable
to convert
to contract

To induce
Offer

No
contract

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ACCEPTANCE
1. A proposal or offer made
2. to a person
3. & that latter person assents
4. to do or not to do something
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Rules as to acceptance
Absolute &
unqualified:-

Expressed in usual & Reasonable manner.

No variation in acceptance

Communicated to
Offeree:-

Offer of intended offeree without knowledge is

not acceptance

In prescribed Mode

If proposer does not insist for mode, presume

waived

Time:Silencebno
acceptance
By Conduct

Reasonable time & before lapses

Mere silence is not acceptance

Either in writing or verbally or by performance of some

act
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Communication of offer and

acceptance:
1. When parties
are face to face

2. When
parties at
distance

Instantaneous
offer &
acceptance

No
Instantaneous
offer &
acceptance

No
revocation

Know time of
offer &
acceptance

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Communication of Offer:

Completes when it comes to knowledge of offeree

by post completes when reaches offeree

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Communication of Acceptance
Completes against

Proposer

When put to transmission

to proposer

Acceptor

When comes to
proposers knowledge

Acceptor cannot
withdraw

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Revocation of Offer & Acceptance

Completes against

Revocator

When put to transmission

to intended person

Intended person

When comes to
intended persons
knowledge

Revocator cannot
withdraw

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Modes of Revocation

1.
By Notice

2.

3.

4.

5.

By time

Death/

Conditions

Counter

lapse

insanity

non-fulfilled

Offer

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SUMMARY
Contract

Agreement
enforceable by law

Free consent
Competent
Lawful object
Lawful consideration
Enforceable
by law

Not declared void

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Summary contd

Offer & Acceptance

1. Offeror commits
to do or abstain

If properly
accepted

expressed

Implied

Offer
Certain/ capable
of certain

Capable
of
creating
legal
relation

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Summary contd

Acceptance of offer

Acceptance
must be

Absolute &
unqualified

Prescribed /
Usual mode

Accepted
specifically, if not
offered generally

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Summary contd
Communication of offer & acceptanc, & revocation
thereof:1. Offer is
complete

When offeree gets

knowledge of it

Against offeror

When put in
transmission

2.
Acceptance is
complete
Against
Acceptor

When Offeror
gets knowledge
of it

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Summary contd.
Communication of revocation of an offer or
acceptance is complete
Against maker,
when put in
transmission

transmission has
put out of power of
maker

Against intended
person

When transmission
come to intended
person

Revocation of offer
or Acceptance is
complete

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Question Time

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Q 1. A general offer may be accepted

by:(a) Any person
(b) Promisee only
(c) Legal representative
(d) Any of these
Answer: a) Any person:

(As it is an offer made to the public in

general so anyone can accept)
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Q 2. Communication of acceptance, as
against the proposer, is complete:(a) When the letter of acceptance is put into a course of transmission

(b)When the letter of acceptance reaches the proposer

(c) When the proposer has actually learnt the contents of the letter of
acceptance
(d) None of the above
Answer(a) Q2. (a) When the letter of acceptance is put into a course of
transmission

( Here the acceptance letter is put in course of transmission

to proposer, and the acceptor is also not in power to
withdraw his acceptance.)
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Q 3. Which of the following is

correct?
(a) a promise is a contract.
(b) a set of promise is a contract
(c) a proposal is a contract
(d) agreements enforceable by law is a contract
Answer (d) agreements enforceable by law is a contract
(an agreement is enforceable by law, if it has free consent of the
parties who are also competent to contract , for a lawful object, and
for lawful consideration, and not expressly declared to be void)
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Q 4. Void agreements are

(a) Forbidden under law
(b) Not forbidden under law
(c) Punishable
(d) Legal agreements
Answer (b) Not forbidden under law.

(void agreement are not necessarily illegal. It void due to

some other deficiency, e.g. an agreement caused by
mistake or the terms of which are not certain or
occurrence of an event becomes impossible, hence, not
forbidden under law.)
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Q5. A voidable agreement is enforceable

by
(a) None of the parties
(b) Only one of the parties
(c) All the parties to the contract
(d) One or more but not by the other or others
Answer (d) One or more but not by the other or others

(voidable agreement is enforceable at the option of

the aggrieved party and remains valid until rescinded
by him)
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Q.6. An illegal agreement

(a) is void ab initia
(b) becomes void
(c) void ab initio as well as punishable
(d) Voidable
Answer (c) void ab initio as well as punishable
(ab intio means from the beginning. Illegal
agreements are void from the very beginning and
punishable.)
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Q7. In which of the following cases, there is no

communication of acceptance?
(a) Fall of hammer in auction sale
(b) Keeping agreement in a drawer
(c) Cashing of a cheque
(d) All of the above
Answer (b) Keeping agreement in a drawer
(the communication of acceptance has not been put
in course of transmission to the offeror. Here by puting
in drawer, the acceptor has still power to change his
mind)
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Q8: When the acceptance is by a letter, a

contract is deemed to be made at the place
(a) Where the letter of acceptance is transmitted
(b) Where the letter of acceptance is received
(c)Where the proposer resides
(d) Where the acceptor resides.
Answer (a) Where the letter of acceptance is transmitted

(Communication of acceptance will be complete

against the proposer when the letter of acceptance is
posted, hence the place from where it is transmitted)
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Q 9: Contract in which only one party has to

perform his promise is known as
(a) Executed Contract
(b) Executory Contract
(c) Unilateral Contract
(d) Bilateral Contract
Answer (c) Unilateral Contract
(e.g. Upon an advertisement from M, B finds Ms Son on a reward of
Rs.500/-. Now B has executed his side performance. M has yet to
reward which is called Unilateral contract)
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Q 10: Standing offer means

(a) Offer allowed to remain open for acceptance over a period of time.
(b) Offer made to the public in general.
(c) When the offeree offers to qualified acceptance of the offer
(d) Offer made to a definite person.
Answer (a) Offer allowed to remain open for acceptance over a period of
time.

(it is also called as open or continuing offer, eg.

Tender for supply of goods).
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Lesson Summary

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Thank You

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