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MODULE- II
INDIAN CONTRACT ACT, 1872

2
 Indian Contract Act, 1872
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‡ The Indian Contract Act extends to the whole of India

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 and it
came into force on the first day of September 1872
‡ The law of contract is that branch of law which
determines the circumstances in which promises made
by the parties to a contract shall be legally binding on
them.
‡ The Act deals with:
1. The general principles of the law of contract
2. Some special contracts.


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Section 2(h)-|
 
  










Thus for the formation of a contract there must be
‡ an agreement
‡ the agreement should be enforceable by law

Contract = Agreement + Enforceability at Law

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The definition of Contract u/s2(h) emphasis

‡ an agreement enforceable by law
‡ Consensus-ad-idem
‡ Contractual obligations
‡ Exceptions : Social & Domestic
Agreements
³All contracts are agreements but all
agreements are not contracts´

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1. Agreement- Offer and its acceptance
2. Intention should be to create legal relationship-
Balfour v. Balfour..
. Free consent of both parties
-. Mutual and lawful consideration for agreement.
Î. Parties should be competent to contract
A. Object should be lawful
7. Certainty and possibility of performance
8. Agreement not declared void or illegal.
9. Legal formalities, if any.

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According to sec. 2(a): When one person
signifies to another his willingness to do or
abstain from doing anything with a view to
obtaining the assent of the other to such act or
abstinence, he is said to make a proposal or
offer.
‡ The person making the proposal or offer is
called proposer, offeror or promisor.
‡ The person to whom the offer is made is called
offeree.
‡ When the offeree accepts the offer, he is called
acceptor.
9
 Types of Offer
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1. Express offer.
2. Implied offer.
. Specific offer.
-. General offer.
Î. Cross offer.
A. Counter offer.

10
 Rules of Offer |
 



‡ Offer must create legal relationship.

‡ Offer must be definite & certain.
‡ Offer must be communicated to the other party- Lalman
Shukla v. Gauri Dutt.
‡ Offer must be made with a view to obtaining the assent.
‡ Offer should not contain a term the non-compliance of
which may amount to acceptance.
‡ A statement of price is not an offer- Harvey v. Facey.
‡ An offer may be general or specific- Carlill v. Carbolic
Smoke Ball Co.

11
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‡ It must be absolute and unqualified.
‡ The acceptance must be communicated to the offeror. Ô


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‡ An offer can only be accepted by the offeree, that is, the person to
whom the offer is made.
‡ An offeree is not bound if another person accepts the offer on his
behalf without his authorization.
‡ It must be given before the offer lapses and before the offer is
withdrawn
‡ It must be according to the mode prescribed and must be given
within a reasonable time.
‡ Silence cannot be construed as acceptance.  

 

12
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‡ By communication of notice
‡ By lapse of time
‡ By non-fulfillment of a condition
‡ By death or insanity of the offeror
‡ If offer is not accepted in usual manner
‡ Counter offer is made
‡ If law is changed

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‡ An agreement with or by a minor is void
‡ Can be a promisee or a beneficiary
‡ NO ratification of agreement on the age of majority
‡ If he has received any benefit under the void agreement
he cannot be asked to pay for it.
‡ Minor can always plead minority
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 - for necessities, the item contracted for must
be necessary for minor¶s existence, the value must be up
to that of the current standard of living or financial/social
status (not excessive in value).
‡ Minor is not liable for tort or a civil wrong which arises
out of contract.
‡ Can act as a agent
‡ Cannot be a partner in a firm or adjudged insolvent
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 Consideration |
 



‡ Consideration is a central concept in the Indian contract

act:
It is value paid for a promise or the inducement, price or
motive that causes a party to enter into an agreement or
contract. Consideration is needed for a valid contract.
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` If you sign a contract with a man, agreeing
to buy his car for an amount of money, your
consideration is the car, which he promises to give to
you. His consideration is the money that you pay for the
car. However, a contract saying that he would give you
his car for nothing would not be valid per se, because
you aren't giving him any consideration.

17
 Legal Rules for Consideration
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1. Moved at the desire of the promisor

2. It may be moved from promisee or any other person- Chinnaya V.
Rammaya
. It may be an act ,abstinence or forbearance or a return promise
-. It may be past , present or future
Î. It need not be adequate
A. It must be real and not illusory
7. It must be something which the promisor is not already bound to do
8. It must not be illegal ,immoral or opposed to public policy

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1. Love and affection
2. Compensation for voluntary services
. Payment for time barred debt
-. Completed gift
Î. Charitable subscription

18
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U/S1. Two or more persons are said to consent when
they agree upon the same thing in the same sense.
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U/S1-. Consent is said to be free when it is not caused
by²
(@) coercion, as defined in section 1Î, or
( ) undue influence, as defined in section 1A, or
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) fraud, as defined in section 17, or
() misrepresentation, as defined in section 18, or
() mistake, subject to the provisions of sections 20, 21 and
22.

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 Consent is said to be caused by coercion when it is
obtained by pressure exerted by either committing or threatening to
commit an act forbidden by the Indian Penal Code or unlawfully
detaining or threatening to detain any property.
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  A contract is said to be induced by "undue
influence" where the relation subsisting between the parties are
such that one of the parties is in a position to dominate the will of the
other and uses that position to obtain an unfair advantage over the
other.
‡ !$%  Means and includes the following acts done with the
intention to deceive or to induce a person to enter into a contract. (a)
the suggestion that a fact is true when it is not true and the person
making the suggestion does not believe it to be true (b) active
concealment of a fact by a person who has knowledge or belief of
the fact, (c) promise made without the intention of performing it.

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‡ 
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  When a person positively

asserts that a fact is true when his information does not
warrant it to be so, though he believes it to be true, it is
misrepresentation. A breach of duty which brings an
advantage to the person committing it by misleading the
other to his prejudice is also a misrepresentation.
‡ 
$2 Where both parties to an agreement are
under a mistake as to a matter of fact essential to the
agreement, the agreement is void. An erroneous opinion
as the value of the thing, which forms the subject matter
of the agreement, is not deemed as mistake as to a
matter of fact Unilateral mistake, i.e. the mistake in the
mind of only one party does not affect the validity of the
contract

22
 LAWFUL OBJECT |
 



Object or consideration is unlawful if

(1) It is forbidden by law,
(2) Is of such a nature if permitted it would
defeat the provisions of any law,
() It is fraudulent,
(-) The court regards it immoral,
(Î) The court regards it opposed to public policy.
Every agreement of which the consideration or
object is unlawful is void.

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 o 22
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o 22
2 - An agreement not enforceable by law is said to be
void. [section 2(g)]. - - Note that it is  'void contract¶, as an
agreement which is not enforceable by law does not become
'contract¶ at all.
Following are void agreements ±
‡ Both parties under mistake of fact (section 20)
‡ Unlawful object or consideration (section 2-)
‡ Agreement without consideration (section 2Î)
‡ Agreement in restraint of marriage (section 2A)
‡ Agreement in restraint of trade (section 27)
‡ Agreement in restraint of legal proceedings (section 28)
‡ Uncertain agreement (section 29)
‡ Wagering agreement (section 0)
‡ Agreement to do an impossible Act (section ÎA).

2-
 Performance of contract
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The parties to a contract must either perform, or offer to perform, their
respective promises, unless such performance is dispensed with or
ex-cused under the provisions of this Act, or of any other law.
Promises bind the representatives of the promisors in case of the death of
such promisors before performance, unless a contrary intention appears
from the contract.

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Where a promisor has made an offer of performance to the promisee, and
the offer has not been accepted, the promisor is not responsible for non-
performance, nor does he thereby lose his rights under the contract.


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When a party to a contract has refused to perform, or disabled himself from
performing his promise in its entirety, the promisee may put an end to the
contract, unless he has signified, by words or conduct, his acquiescence in
its continuance, he cannot repudiate it.

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If it appears from the nature of the case that it was the intention of the parties to any
contract that any promise contain in it should be performed by the promisor himself,
such promise must be performed by the promisor.
In other cases, the promisor or his representative may employ a competent person to
perform it.

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When a promisee accepts performance of the promise from a third person, he cannot
afterwards enforce it against the promisor.

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When two or more person have made a joint promise, then, unless a contrary
intention appears by the contract, all such persons, during their joint lives, and, after
the death of any of them, his representative jointly with the survivor or survivors, and,
after the death of the last survivor the representatives of all jointly, must fulfill the
promise.

2A
 Discharge of contract
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‡ BY PERFORMANCE
‡ BY MUTUAL CONSENT
‡ LAPSE OF TIME
‡ OPERATION OF LAW
‡ IMPOSSIBILITY OF PERFORMANCE
‡ BREACH OF CONTRACT

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Promises bind the representatives of the promisor in the
case of death of such promisor before performance,
unless a contrary intention appears from a contract.

‡ In a contract the agreement being enforceable by law,

each party to the contract is legally bound to perform his
part of the obligation. Non-performance of the duty
undertaken by a party in a contract amounts to breach of
contract, for which he can be made liable.
28
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 TEST |
 



1. 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 : ³ This agreement is not entered
into as a formal or legal agreement and not be subject to legal
jurisdiction in the law courts.´
Is there a valid contract between R and C? Give reasons.

2. A forced B to enter into a contract at the point of pistol. What remedy

is available to B, if he does not want to be bound by the contract?

. A offered to sell his car to B for Rs. A0,000. B said, ³ I accept your
offer. Here is Rs. Î0,000 in cash and a promissory note for the
balance.´ Did a contract result? Explain.

-. A teaches his parrot to recite an offer and then sends the parrot to
B. The bird repeats the recitation. Is this a valid offer? Justify.

2
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Î. A minor is supplied with necessaries of life by a grocer. Minor makes out a

promissory note in favour of the grocer. Is the grocer entitled to claim
payment under the promissory note:
a. From minor personally.
b. Against the estate.

A. Are the following offers valid? Justify

a. An auctioneer displays the refrigerator before the gathering in an auction
sale.
b. P says to Q,´ I will sell you a camera.´ P owns three different types of
cameras of various prices.

7. A¶s uncle in a sudden display of generocity promises him a watch as agift

on his next birthday. If the uncle fails to give the watch, can A do anything
about it legally?

8. Explain any one:

a. Balfour V. Balfour.
b. Felthouse V. Bindley.