ICA 1872

History and structure of Indian Contract Act 1872

Structure
The Indian Contract Act as applied today was drafted originally by the third Indian Law
Commission in the year 1861 in England. The Indian Contract Bill tried to define laws
relating to Contracts, Sale of movable properties, Indemnity, Guarantee, Agency, Partnership
and bailment.

1. The original act had 266 sections.

2. Section 76-123 concerning the sale of goods were separated to form the Sale of Goods
Act 1930
3. And sections 239 to 266 relating to partnership were separated to form Indian
Partnership Act 1932.

Types of Contract
1. Basis of creation - express contract {spoken by words } and implied contract {by the
conduct of the person }
2. Basis of execution - executed contract where both the parties have fulfilled their
respective obligations under the contract unexecuted contract where one of the
parties have not fulfilled their legal obligations
3. Basis of enforceability - Valid Contract {it is a contract where the essentials of a
contract are satisfied Void Agreement: it is an agreement where any of the essential
elements of a valid contract are missing . Voidable Contract :It is an agreement
where in free and voluntary consent of one of the parties is missing and hence the
party whose consent Is Not free and avoid the contract

2. Interpretation-clause.—In this Act the following words and expressions are used in the
following senses, unless a contrary intention appears from the context:—
(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;
(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;
(c) The person making the proposal is called the “promisor”, and the person accepting the
proposal is called the “promisee”;
(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;
(e) Every promise and every set of promises, forming the consideration for each other, is an
agreement;
(f) Promises which form the consideration or part of the consideration for each other are
called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;
(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;
(j) A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable.

An agreement is a promise or a set of reciprocal promises that are formed by the acceptance
of a proposal and that there must be a promisor making a proposal and the promisee who
accepts it.

A proposal or offer must also be distinguished from an invitation to offer before parties enter
into a contract, usually preliminary negotiations take place between them. A person may ask
for some information or supply some information and invite The Other to make an offer or
make a definite offer.
Therefore an invitation to offer could be understood as the supply of information between two
parties before the commencement of the promises that both parties make to form an
agreement .
There must be the presence of promisor or offerer and an acceptor for a contract to be
complete

Privity of contract
The general rule in common law is that no one but the party to a contract can be entitled
under it or bound by. It also seems to be the import of sections 2 a b c and e which
contemplate only the two parties to an agreement . This principle that only the parties to a
contract or entitled to sue or be sued upon it is known as the privity of contract.

Tweedle vs Atkinson
The son and daughter of the parties involved in this dispute were getting married. As such,
the father of the groom and father of the bride entered into an agreement that they would both
pay sums of money to the couple. Unfortunately, the father of the bride died before he paid
the money to the couple and the father of the son died before he could sue on the agreement
between the parties. As a result of this, the groom brought a claim against the executor of the
will for the payment that was previously agreed between the fathers.The groom’s claim was
rejected by the court. It was held that the groom was not a part of the agreement between the
fathers and he did not provide any consideration for the promise made by the father of the
bride. Also, as a stranger to the contract, the son could not enforce it. On this basis, the court
found in favour for the executor of the will.
In Indian Contract Act , consideration can be moved by anyone
Rules related to offer
1. Intention to create legal obligation
2. Mere intention does not amount to offer
3. Mere exchange of information is not offer
4. Offer must be communicated to the acceptor
5. The terms of the offer must be certain and must not be ambiguous or vague

In Balfour vs Mrs Balfour

Husband agrees to send his wife 30 pounds every month while he was away after a year he
failed to pay the amount his wife brought an action against him for not keeping his promise it
was a question before the court to decide whether the agreement for social agreement or
agreement under the contract law the Court verdict in favour of Mr Balfor and held that he is
not liable for the promise he made as it is not a contract there was no intention of creating a
legal obligation

Harvey vs Facey
The plaintiff sent aTelegram to the defendant asking will you send bumper hall pen quote the
lowest price the defendant replied through a telegram lowest price for bumper hall pen is 900
pounds the plaintiff replies stating I agree to buy bumper hall pen for 900 pounds in a suit
brought by the plaintiff against the defendant the court held that quoting of price by the
defendant is nearly a supply of Information and not an offer.

Carbolic smoke ball company vs Carill {General Offer}

carbolic smoke ball company pharmaceutical company was interested in testing a new drug in
the market the advertised in the paper promising the reward of 100 pounds to anyone who use
the drug and contracted the disorder called influenza once Mrs carrill brought it and used it as
per the instructions printed on the label upon contracting influenza she contact the company
to claim the reward the company refuse to pay her the promise some the core tell that
company was label to pay misses carill as there arose a contract between the lady and the
company.

Lalman Shukla vs Gauri Dutt

a master sent a servant in search of his missing nephew.In the meantime the master advertised
in the newspaper promising reward of 500 rupees to anyone who traced the boy
the servant brought back the boy after a couple of days the servant came to know about the
reward and claimed
it held the servant was not entitled to the reward for doing something but in ignorance of an
offer cannot be constructed as acceptance
Rules pertaining to acceptance
1. Acceptance must be absolute and unqualified which means that no further conditions
should be applied and the procedure must be followed even the slightest deviance
would make the acceptance invalid
2. Acceptance must be given only by the person to whom the offer is made

CL Bolton versus Jones.

An owner sold his business to his manager B without disclosing the fact to his customers. C a
customer who had a running account with a sent an order for the supply of goods to the owner
by name. B received the order and executed the same C refused to pay the price it was held at
as there was no contract between B and C and because C never made an offer to B and such C
was not liable to pay the price to B.
3.Silence does not amount to acceptance

CL Felthouse vs Bindley
Felthouse offered by a letter to by his nephews horse for $30 stating if I hear no more from
you I shall consider the horse mine the nephew send no reply as suggested by felthouse but
told be his auctioneer not to sell that particular horse as he intended to sell that horse to
felthouse B sold the horse by mistake it was held f could not succeed because his nephew
never sent a letter of acceptance
4. acceptance must be given within a reasonable time and before the offer lapses

CL Communication and revocation of offer and acceptance

Sec 3)Communication acceptance and revocation of proposal the communication of
proposals the acceptance of proportions and revocations of proposals and acceptance
respectively are Deemed to be made by any act or a mission of the party proposing
accepting or revoking by which he intense to communicate such proposal acceptance or
revocation or which has the effect of communicating it

For a communication to happen, a mode is prescribed like orally,through email, telegraph, or

phone etc
A positive act constitutes an action for the furtherance of the contract while a negative act
constitution an act of forbearance or act not to do something

Since the sections 2a and 2 b of the act contain that the offeror or the acceptor signifies their
assent or consent to enter into a contract. It means that there is some kind of communication
that is required to obtain the same

Communication when complete.—The communication of a proposal is complete when it

comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete,— 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.

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.

Household fire and carriage accident insurance company vs Grant

the defendant applied for allotment of shares in a company this was the offer the company
allotted shares to the defendant and letter of allotment that is acceptance of the offer it was
posted the letter did not reach the different it later on the defendant was called upon to pay for
the share it was held at the defendant had to pay for the shares though the letter of allotment
of shares did not reach him.

Dhanraj mills Ltd vs narsingh prasad

Court held that if the telegram revoking the acceptance reach is the proposal before the letter
of acceptance no contract is completed.

Time and place of contract

A proposal (regardless of the mode of communication) is made not at the place where it
originates but where it is received .
this is because a proposal is not complete unless and until it comes to the knowledge of the
person to whom it is made
A similar rule is also applicable to determine the time and place of contract in the event an
instantaneous method of communication is used for contract is then set to take place at the
time when and the place where the acceptance is received.

CL Bhagwandas vs Giridharilal
It was held in the supreme court that the communication of acceptance when received by the
offer by phone is the place where the contract had been signed.

Firm kanhaiyalal vs Dineshchandra

The Court held that the Contracts over the telephone are treated similar in principle to those
contracted by the parties in the physical presence of one other. An oral offer is made and an
oral acceptance is to be completed in both cases. It is essential for the acceptance to be
audible, heard and understood by the offeror. There is no contract if during the conversation
the telephone lines are dead and the offeror does not hear the offeree’s word of acceptance.
The contract is complete if the whole conversation is repeated and the offeror hears and
understands the words of acceptance. The Court dismissed the petition as it was held that the
Ratlam Court had the jurisdiction.
SALE BY AUCTION OR TENDER
The liberty of revoking in offer before acceptance is well shown in the case of a sale by
auction.In a bidding the bitter may withdraw his bid at any moment before The Fall of the
hammer
The English rule that a bid may be withdrawn at any time before The Fall of the hammer is
followed in India
Bidding n through a tender process also invites the applications of a similar rule that is the
tender may be withdrawn at any time before it is accepted in such acceptance is
communicated to the tenderer.
Payne v Cave (1789) is an old English contract law case, which stands for the proposition that
an auctioneer's request for bids is not an offer but an invitation to treat. The bidders make the
offers which can be accepted by the auctioneer
Mr Cave had made the highest bid for a good in an auction. But then, Mr Cave changed his
mind and he withdrew his bid before the auctioneer brought down his hammer.
It was held that Mr. Cave, the defendant, was not bound to purchase the goods. His bid
amounted to an offer which he was entitled to withdraw at any time before the auctioneer
signified acceptance by knocking down the hammer.
The court held that Mr Cave was entitled to withdraw his offer at any time before the
auctioneer accepted it. The auctioneer's request for bids was an invitation to treat, and each
bid constituted an offer which could be withdrawn at any time until it's accepted, and finally,
the fall of the auctioneer's hammer constitutes acceptance of the highest bid.

If a bid or tender is conditionally accepted i.e. it is subject to the approval of another person
or authority the Bidder or tender will be bound only after such approval is given and this is
communicated to him it follows that the bid or tender can be removed at any time before that
as there is no concluded contract.

Similar cases: rajanagaram coop society vs veerasami ---The property was not down to
Veera Swamy the highest bidder at An auction subject to the approval of the CD Bank the
bank passed the resolution accepting the bid but rescinded before it was communicated to
veerasamy .the court nevertheless gave specific performance in favour of veeraSwami on the
ground that communication of acceptance twice was not needed once when the conditional
acceptance was given and again when the condition was fulfilled
CONSIDERATION

Consideration can be understood as the price paid for the promise of the other.
Those promises which are supported by consideration are legally binding, others are not.

(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;

The act or a Commission to do or promise to do constituting the consideration must have

been done at the Desire or request of the promisor and act done at the Desire of a third party
is not consideration .

CL In Durga Prasad vs Baldeo. The plaintiff durga prasad who was the contractor
constructed a market place at the desire of the promisor i.e. the civil servant. Baldeo who was
the vendor who occupied the shops promised to pay him a commission on the sale of goods
which was never given to durga prasad who sued Bal deo. The court held that such
consideration was not at the desire of the promisor and thus it was not valid

CL-- In Kedarnath vs Gorie Mohammad , the plaintiff wanted to construct a town hall in
Howrah and raised a certain amount for the construction , the defendant promised to pay a
sum of 100 rupees for the construction which he refused to pay after the construction was
completed. It was held that though it had no direct benefit to the defendant ie gorie
mohammad, he had entered into a contract for the construction of the hall and so was liable to
pay the subscription of 100 rupees
[SIMILAR CASE: Doraswamy Iyer vs Arunachala Iyer ]