Passion alone can make us

surpass ourselves.
Andre Maillet

Sebastian Tharakan, The Businesslawlecturer

The Law of Contract

Indian Contract Act, 1872

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The modes of wealth creation :

Wealth ex factum

Wealth ex contractus
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The Roman Law concept of contract :

Consensus ad idem.

; Unity of minds.

Aggregatio mentium. ; Meeting of minds.

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A Test Question! .
Mr. Mihir Sikka runs away from home. Two days
later, his father: Mr. Sikka Senior places the
advertisement in newspaper: To anyone who finds my
son and brings him home to me, I shall give reward of
Rs.1 lakh.
The next day, Mr. Raghunathan A.,
while sitting in the railway station reading a newspaper,
happens to notice Mr. Mihir, and through persuasion
and effort, manages to take Mr. Mihir Sikka home to
his father.
Is there / was there any consensus ad idem here ?
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Definition of contract :
Sec. 2(h) of the Indian Contract Act, 1872 :

An agreement enforceable by law, is a contract.

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The key word in the definition =

enforceable

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Conditions for enforceability of a contract :

Sec. 10 of Indian Contract Act, 1872 :
All agreements are contracts, if they are made by the free
consent of the parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby
expressly declared to be void.

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Those vital elements for validity of contract :

(1) The parties to the agreement must be willing to
enter into a legal relation. (Ss. 10, & 13 of the Indian
Contract Act )
(2) The agreement must be entered into by parties /
persons who are legally competent / capable to
enter into a contract that results in legally
enforceable rights, duties and obligations.
(Ss. 10, 11 & 12 of the Indian Contract Act )
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(3) The parties must have given their free consent

to the terms of the contract. That is, their
consent should be free from: coercion, undue
influence, fraud, misrepresentation or mistake.
(Ss. 10, 13 to 22 of the Indian Contract Act )
(4) There must be a valid / lawful consideration
and a valid / lawful object for the agreement.
(Ss. 10, 23, 24 & 25 of the Indian Contract Act )
(5) The agreement is not otherwise void.
(Ss. 10, 24 to 30, & other Sections of the Indian
Contract Act )
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All contracts are agreements,

but all agreements are not contracts.

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A Test Question !
Mr. Nirupam Mandal has deep enemity / animosity towards
Mr. Akash Sarkar, and wants to settle a grudge. He
therefore enters into agreement with Mr. Sagnik Brutal
Biswas, offering = I shall pay you Rs.1,000/- if you
break the leg of Mr. Akash. Mr. Brutal Biswas agrees and
goes ahead to successfully complete his mission.
Later, he meets Mr. Nirupam, states that he has fulfilled his
part of the agreement and now demands the price: Rs.1,000/However, Mr. Nirupam refuses to pay the promised money.

Can Mr. Brutal Biswas successfully file a case

against Mr. Nirupam Mandal to recover the agreed price ?

Formation of contract ;
how is a contract made ? :
Sec. 2(a) : offer / proposal :
When one person signifies to another his willingness to do
or to abstain from doing anything, with the view to
obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.
Sec. 2(b) : acceptance of offer / proposal :
When the person to whom the proposal is made, signifies
his assent thereto, the proposal is said to be accepted.

Sec. 2(c) : promisor & promisee :

The person making the proposal is called the promisor,
and the person accepting the proposal is called the
promisee.
Sec. 2(d) : consideration :
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.
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Sec. 2(e) : agreement :

Every promise and every set of promises, forming the
consideration for each other is an agreement.

Sec. 4 : communication, when complete :

The communication of a proposal is complete
when it comes to the knowledge of the person
to whom it is made .

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Sec. 7 : A proposal may prescribe the manner of

acceptance
Sec. 9 : A proposal may be either express or
implied

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. the 2nd paragraph to

Sec. 10 of Indian Contract Act, 1872 =
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.

Kinds of offers :
(1) Express offer or implied offer

(2) Specific offer or general offer

Carlill v. Carbolic Smoke Ball Co. (1893)

Offer distinguished from

invitation to offer ; invitation to treat :
MacPherson v. Appanna (1951) SC
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(3) Standing offers:

B. Anantharajappan v. State of Kerala (2000)
(4) Tenders:

offer to receive offers

Tata Cellular v. Union of India (1996) SC

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Other definitions :
Void agreement Sec. 2(g)
An agreement not enforceable by law is said to be void.
Contract Sec. 2(h)
An agreement enforceable by law is a contract.
Voidable contract Sec. 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.

Consideration
quid pro quo

something for something

the price for the promise .

the terms of the bargain .

Defined in Sec.2(d) of the Indian Contract Act

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Mr. Sebastian Tharakan and family live in a

double-storey house adjacent to the lovely
waterfront (backwaters) at Thevara

in Cochin city .

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The requirement for lawful consideration =

. Sec.23 & Sec.10 of Indian Contract Act

An agreement without consideration is void. =

. Sec.25 of Indian Contract Act

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The Exceptions to the general rule of Sec. 25

When is consideration not necessary ?
(1) Agreements on account of natural love and
affection. Sec. 25(1)
(2) Compensation for past voluntary service.

Sec. 25(2)
(3) Promise to pay a time-barred debt. Sec. 25(3)
(4) Gifts Sec. 25, Explanation 1

(5) Creation of agency Sec. 185

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Illustration No. 1
The father of Ms. Apoorva P. Bhalerao
promises her =
If you obtain the highest mark / top rank in
vibrant subject of Business Law 2010 for
Semester 1, SIBM 2010 MBA Examinations,
I will buy you a diamond earring. .

Ms. Studious Apoorva works hard and succeeds in

obtaining the Top Rank in the Examination. .
She then approaches her father and requests for
his promised reward . However, her father
refuses to fulfill his part of the agreement.
Can Ms. Studious Apoorva file a case
against her father to recover / to obtain the
promised reward ?

Illustration No. 2
Mr. Decent Sharath Chandra finds a purse
belonging to Ms. Ekta Malhotra. The purse is
fully loaded with cash! .

However, Mr. Decent Sharath resists the urge to

steal a few currency notes, and in fact truthfully
approaches Ms. Ekta and returns the purse
intact. .
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Deeply impressed by the honesty of Mr. Decent

Sharath, Ms. Ekta offers =
Mr. Sharath, I shall pay you Rs.500
for your honesty.
Will this offer make a legally binding contract ?

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Illustration No. 3
Mr. Cunning Ketan Gajanan K., a textile
manufacturer, approaches Mr. Creative Abhas
Srivastava, a manufacturer of industrial looms,
for the purchase of a new power loom for his
textile mill. The loom which costs Rs.1,00,000
is supplied, but not paid for. Thus, there is a
breach of contract by Mr. Ketan Gajanan.
However, Mr. Abhas does not initiate any
litigation. Five years have gone by.
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And five years later, Mr. Abhas is again

approached by Mr. Ketan for a new contract
to buy a new power loom. .
Can Mr. Abhas Srivastava and Mr. Ketan
Gajanan revive the earlier time-barred debt as
part of the new second contract ?

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Illustration No. 4

On the happy occasion of the Convocation for

the SIBM 2010-2012 MBA Batch, a grateful
student: Ms. Sushma Pamidi, promises to give a
generous donation of Rs.1,00,000 to SIBM for the
purchase of new LCDs.

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Ms. Sushma Pamidi also issues a cheque to

SIBM for the promised donation amount.
However, the cheque bounces / has been returned
on ground of insufficiency of funds in
Ms. Sushma Pamidis account.
Can Ms. Sushma Pamidi be made liable
for the promised donation?
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Illustration No. 5
Mr. Anil Rakesh Kohli receives an offer to buy a
prime property at Bangalore. However, he is on the
verge of going abroad on an important assignment, and
therefore will not be around to sign the contract.
He therefore wishes to appoint his brother as his
Power of Attorney (agent) to enter / sign the sale
contract on his behalf.

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Would Mr. Anil Rakesh Kohli be legally required

to pay his brother for agreeing to be
his agent for the sale contract ?

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