CHAPTER 1: THE INDIAN CONTRACT ACT, 1872

UNIT 1:- NATURE OF CONTRACT

I. Section 2(h): an agreement enforceable by court of law is termed as contract.

II. Section 2(c): agreement- every promise and set of promises forming consideration for each
other.
III. Enforceability : an agreement to become contract must give rise to legel obligation which mean
duty enforceable by law.

 Essential of valid contract:- not given in section 10:-

1. Two parties:- a contract involves atleast two parties
a) MAKING OFFER
b) AND OTHER ACCEPTING IT.
c) It can be madeby natural person or any other person having legal existance.
d) Identity of parties must be identifiable. Case law (STATE OF GUJRAT Vs RAMANLAL S & Co.)

2. Parties must intend to create legal obligatgion.

a) There must be intention to create legal obligation.
b) Social or domestic agreement are nor enforceable. Case law (Balfour vs Balfour)

3. Other formalities in certain cases.

a) A contract maybe oral or written but in certain contract it may specify to comply with
certain formality to make agreement enforceable.
b) For eg:- contract of insurance is not valid unless its written contract.

4. Certainty of meaning.
a) Agreement must be certain, definite, and not vauge.

5. Possibility of performance.
a) Agreement should be capable of being perform. An agreement to do an act impossible in
itself is void – cannot be enforced.

 Essentials as per section 10:-

1. Offer and acceptance or an agreement.

a) Section 2(e): agreement- every promise and set of promises forming consideration for each
other.

2. Free consent.
a) When 2 or more person agree upon on a same thing on a same sense they are said to be in
consent.
b) Consent must be free
c) Consent is not free if it is caused by coercion, undue influence, fraud, misrepresentation.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

3. Capacity of the parties.

a) It means legal ability of a person to enter into a contract
b) Sec 11 specefies a person who shall be competent to contract
 Age of majority.
 Is of sound mind.
 Not disqualified from contracting
c) Person must fulfil all above 3 qualification.

4. Consideration.
a) It is referred as “quid pro quo” i.e., something in return.
b) A valuable consideration in sense of law may consist right interest profit benefit to one party
and forbearance, detriment, loss or responsibility of other party.

5. Lawful consideration and object.

a) The consideration and object must be lawful.

6. Not expressly declared as void.

a) An agreement entered into must not be the one which law declared as void or illegal.

TYPES OF CONTRACT

 On the basis of the validity:-

1. VALID CONTRACT.
a) An agreement which contains all essential elements are binding and enforceable.

2. VOID CONTRACT Section 2 (J).

a) A contract which ceases to be enforceable by law becomes void when it ceases to be
unenforceable.

3. VOIDABLE CONTRACT Section 2 (i).

a) An agreement enforceable by law at option of one or more parties but not at option of
others is voidable contract.

4. ILLEAGLE CONTRACT.
a) It is a contract which law forbids to be make.
b) court will not enforce for such contract but also connected contract.
c) All illegal agreement are void but all void agreement are not illegal.

5. UNENFORCEABLE CONTRACT.
a) A contract is good in substance but due to some technical defect it is unenforceable.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

 On the basis of the formation of the contract:-

1. Express contracts.
a) Contract would be an express if terms are expressed by words or in writing.

2. Implied contract.
a) When offer and its acceptance is made otherwise than in words – promise is said to be implied.
b) Implication is by action or conduct of parties.
 Tacit contract.
i. Tacit means silent
ii. Contract which are inferred through conduct of parties without any words spoken
or written
iii. For eg – withdrawal of cash from ATM.
 Quasi contract.
i. It is not a actual contract but resembles a contract
ii. It is created by law under certain circumstances.
iii. Law enforces right and obligations when no real contract exist.
 E-contract.
i. When contract is entered by two or more persons using electronic means such as
email is known as e-commerce contract also known as EDI contract or Cyber
contract or Mouse click contract.

 On the basis of the performance of the contract.

1. Executed contract.
a) Contract in which obligation of both parties come to an end by performing respective
act/forbearance – it is executed contract.

2. Executory contract
a) When obligation in a contract are pending then it is executory contract.
b) Unilateral contract.
 Where one party has performed its duty or obligation and other party’s obligation is outstanding
c) Bilateral contract.
 Bilateral contract is one where obligation or promise is outstanding on part of both the parties.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

PROPOSAL/OFFER SECTION 2(a)

Section 2(a):- when one person signifies to another his willingness to do or not to do anything
with a view to obtain the asset of that other to such act or obstinence, he is said to make
proposal.

 KINDS OF OFFER.

1. GENERAL OFFER.
a) Offer made to public at large and hence anyone can accept it and to the desired act.
b) Case law (Carlil vs Carbolic smoke ball co.)
c) Until unless general offer retracted or withdrawn it can be accepted by anyone and at
anytime.

2. SPECIAL/SPECIFIC OFFER.
a) When offer is made to a specific or as certain person it is known as specific offer.
b) It can be accepted only by a person to whom offer is made. Case law (boulton vs jones)

3. CROSS OFFER.
a) When two person/ parties exchange identical offers in ignorance at time of each other offer,
the offer is known as cross offer
b) There is no binding contract because offer made by a person cannot be construed as
acceptance of anothers offer.

4. COUNTER OFFER.
a) When offeree offers to qualified acceptance of offer subject to modification and variation in
terms of original offer – he is said to be counter offer.

5. STANDING OT CONTINUING OPEN OFFER.

a) An offer which is allowed to remain open for acceptance over a period of time known as
standing or continuing or open offer.
b) For eg:- tender.

 Essential of valid offer.

1. IT MUST BE CAPABLE OF CREATING LEGAL RELATION.

a) Offer must be such that it is capable of creating legal relationship.
b) If offer does not intend to give rise to legal relation then it is not a valid offer.
c) A social invitation even if accepted does not create legal relation because no such intension
exist.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

2. OFFER MUST BE CERTAIN DEFINITE AND NOT VAUGE.

3. OFFER MUST BE COMMUNICATED TO OFFEREE.

a) An offer to be complete must be communicated to a person to whom it is made otherwise
there can be no acceptance.
b) An ignorance of offer is not acceptance. Case law (lalman Shukla vs gauri dutt)

4. IT MUST BE MADE WITH A VEIW TO OBTAINING THE ASSENT OF THE OTHER PARTY AND NOT
MERELY DISCLOSING THE FACT.

5. IT MY BE CONDITIONAL.
a) An offer can be made subject to terms an d conditions of offerer.

6. OFFER SHOULD NOT CONTAIN A TERM THE NON-COMPLIANCE OF WHICH WOULD AMOUNT TO
ACCEPTANCE.

7. OFFER CAN BE GENERAL OR SPECIFIC

8. THE OFFER MAY BE EXPRESS OR IMPLIED.

9. OFFER IS DIFFERENT FROM

a) A statement of intention and announcement.
b) Must be distinguish from answer to question. Case law (Harvey vs facie)
c) A statement of price is not an offer.
 Quoting of price of product does not constitute as an offer.
d) An invitation to make an offer or to do business
 Person making invitation does not make an offer rather invites other person to make an
offer.
 His objective is to send out invitation that he is willing to deal with other person, subject
to final terms and conditions.
 For eg:-auctionaire does not contract with anyone who attends the sale as auction is
only an invitation to business.
10. A STATEMENT OF PRICE IS NOT AN OFFER.

 INVITATION TO OFFER.

1. Where a party without expressing final willingness proposes certain terms on which he is willing to
negotiate, he does not make offer rather invites other person to make an offer.
2. If a person has intention of negotiating terms it is invitation to offer.
3. Invitation to offer is always act precedent to offer
4. If a person accepts invitation to offer then he has not entered into a contract rather made offer to other
person.
5. Instances of invitation of offer.
 Display of goods in shop’s window
 Advertising auction sales
 An invitation by a company to the public to subscribe for its share.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

ACCEPTANCE

Section 2(b):- when a person to whom a proposal is made signifies his accent thereto, proposal is said to
be accepted. Proposal when accepted becomes promise.

 LEGAL RULES REGARDING A VALID ACCEPTANCE.

1. Acceptance can be given only by person to whom offer is made.

I. In case of specific offer – it can be accepted by person to whom offer is made. Case law (Boulton
vs Jones)
II. General offer – can be accepted by any person who has knowledge of offer. Case law (Carlil vs
Carbolic smoke balls Co.)

2. Acceptance must be absolute and unqualified.

a) Acceptance is valid only when it is absolute and unqualified and also it is expressed in prescribed
manner.
b) If proposal prescribes manner then it must be accepted in that manner / accordingly.

3. Acceptance must be communicated.

a) Acceptance must be communicated in some perceptible (acceptable) form.
b) Conditional acceptance is no acceptance rather it amounts to counter proposal.
c) Futher, offeree should knowledge about offer being made to him.
d) Case law (Brogden vs metropolitian railway co.)

4. Acceptance must be in prescribed mode.

a) Where mode of acceptance is prescribed in proposal it must be accepted in that manner.
b) If acceptance is made in some other manner and proposal do not insist on prescribed manner then it
is presumed to have consented acceptance.

5. Time.
a) Acceptance must be given within specified time, if no time is stipulated the it must be accepted
within reasonable time before offer lapses.
b) Reasonable time depends upon facts and circumstances of the case.

6. Mere silence is not acceptance.

a) Acceptance of offer cannot be implied from silence of offeree unless by previous conduct, it is
indicated that silence is evidence of acceptance. Case law (felthouse vs bindley)

7. Acceptance by conduct /implied acceptance.

a) Acceptance can be made other than verbal or written communication
b) When person performs act intended by proposal as the considerationfor promise offered by him,
performance constitute acceptance.

 COMMUNICATION OF OFFER AND ACCEPTANCE.

 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

1. Communication of offer.
a) It is complete when it comes to the knowledge of person to whom it is made.

2. Communication of acceptance.
a) Modes of acceptance.
 Communication by act
ii. It would include any expression of word wethere written or oral.
iii. Written words includes letters, telegram, faxes, emails, and ads.
iv. Oral words includes telephone messege.
v. Communication would include any conduct intended to communicate like positgive
acts or signs, so that other person understand what person action or making signs
means.
 Communication acceptance by ‘omission’ to do something.
i. Such omission is conveyed by a conduct or by forbearance on part of one person
to convey his willingness or consent.

 Communication acceptance by conduct.

i. How a person behaves coveys his acceptance
ii. For eg:- boarding a publig bus or drop a coin in weighing machine.
iii. As per section 4, communication of acceptance is complete
 as against proposar
A. when it is put in course of transmission to him so that it is out of
power of acceptor to withdraw the same.
 As against acceptor
B. When it comes to knowledge of proposer.

3. Acceptance over telephone, telex or fax.

a) When offer is made of instantaneous communication like telex, telephone , fax or email con
tract is complete only when acceptance is received by offeree and contract is made at the
place where acceptance is received
b) However, in case of call drop or disturbances of line there may not be valid contract.

4. Communication of special condition.

a) There special situation or condition which are conveyed tacitly and the acceptance of these condition
are also conveyed tacitly or without him realising it.
b) If conditions are reasonable then they are enforceable other wise not. Case law (Mukul dutt vs indian
airlines)

5. Standard form of contract.

a) It is well established that standard form of contract maybe enforced on another who is subjectively
unaware of the content of document.
b) Contents of document are fixed and it is on other party to either take it or leave it.
c) Also conditions should be reasonable.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

Exercise answers
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

Ans 1.

1. Section 2(h) of Indian contract act 1872

Section 2(e) of Indian contract act 1872

Provision:
2. An agreement comes into existence where one part
makes offer and other party accepts it.

3. Agreement enforceable by law is contract.

4. Contract must give rise to legal obligation – duty
enforceable by law.

5. There can be aggrements which are not enforceable

like social or domestic agreement.

6. Agreement is a wider term than contract which

means all agreement are not contract but all
contract are agreement.
 CHAPTER 1: THE INDIAN CONTRACT ACT, 1872
UNIT 1:- NATURE OF CONTRACT

Ans 2.