E-Notes Unit 1 - Law of Contract - LLB 103 - BALLB I Sem

Chanderprabhu Jain College of Higher Studies
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E -NOTES
Class : B.A. LL.B. I Semester

Paper Code : LLB 103
Subject : Law of Contract
Faculty Name : Mr. Raman Bhardwaj
Unit-I
A. Meaning, Nature and Scope of Contract

Section 1
Name - Indian Contract Act, 1872;
Extent - It extends to the whole of India except state of J&K.
Enforce- It shall came into force on 1stsep1872.
(A) ICA was compiled on 25april1872.

(B) It is act no.9 of 1872.
(C) The ICA is not a complete and exhaustive law on all types of contract .It lays down only
general principles of contract law. Other principles relating to contract are being given in IPA,
SGA, TPA, Company Act, Railway act etc.
(D) The Purpose and Preamble of ICA is to define and amend certain parts of the laws relating to
contract.
(E) It is a civil law because it enacted only about damages not about punishment.
(F) Before 1855 in India there was no fixed law on contract. Parties of agreement were either
regulated by English law, Hindu law, Muslim law or by equity etc To stop that uncertainty IInd
law commission Prepares the draft of ICA, which was later on Presented by IIIrd law
commission. But because of augmented situation b/w government and commission he draft was
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not fully accepted .Then James Stephen made some amendments and it was finally enforced on
1stsep1872.Thats why credit of its making goes to James Stephen.
(G) Its effect is not Retrospective means it will not applicable on the contracts dated before 1st Sep,
1872.
Introduction
In our regular day to day life we make several comments and statements. We say several things to
people whom we talk to. Most of these are not with any intention to create any legal obligation. For
example, if we say to someone that we will go to lunch with him, it is not a legal obligation. But
some, which are related to business or civil matters, are understood to be in a serious mood and have
a potential to be legally enforceable. For example, when we hire an Auto rickshaw for going from
point A to point B, we are legally bound to pay and the driver is legally bound to take us from A to B.
Indian Contract Act 1872 defines these activities in terms of contract.
Definition of Contract
According to Anson, “A contract is an Agreement enforceable by law made between two or more
persons by whom rights are acquired by one or more to acts or forbearances on the part of the other or
others”.
According to Salmond “Contract is an Agreement, creating and defining obligations between the
parties quality, style or price, Y decides not to continue. At this stage, there is no legally binding
contract between X and Y because there is no definite offer for Y to accept until the essential terms of
the bargain have been decided. An offer need not be made to a specific person. It may be made to a
person, a class of people, or to the whole world.
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Case: Carlill V/S Carbolic Smoke Ball Co [1893] 1 QB 256
The Carbolic Smoke Ball Co produced the 'Carbolic Smoke Ball' designed to prevent users
contracting influenza or similar illnesses. The company's advertised (in part) that:“100 pounds
reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the
increasing epidemic influenza, colds, or any disease caused by taking cold, after having used
the ball three times daily for two weeks according to the printed directions supplied with each
ball. 1,000 pounds is deposited with the Alliance Bank, Regent Street, showing our sincerity
in the matter”.
After seeing this advertisement Mrs. Carlill bought one of the balls and used it as directed.
She subsequently caught the flu and claimed the reward. The company refused to pay. Mrs.
Carlill sued for the reward.
Held:- Mrs Carlill was entitled to the reward. There was a unilateral contract comprising the
offer (by advertisement) of the Carbolic Smoke Ball company) and the acceptance (by
performance of conditions stated in the offer) by Mrs Carlill.
1. Intention to create legal relations - There must be an intention among the parties to
create a legal relationship. In case of social or domestic agreements the usual presumption
is that the parties do not intend to create legal relationship but in commercial or business
agreements the usual presumption is that the parties intend to create legal relationship
unless otherwise agreed upon.
Example - A invites B to a dinner and B accepts it. If A fails to serve the dinner, B cannot
go to court. The invitation for dinner is a social agreement
2. Agreement must be made by the free Consent of parties - Another requirement for a
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valid contract is that the Agreement must have been made with the free consent of the
parties, if consent is not free; the contract becomes voidable In Mikol Bottlers Ltd. VS.
M/S Dillon Kool Drinks AIR 1995, the Delhi High Court held that an Agreement to be
valid should be made by free consent of the parties apart from other requirement.
3. Capacity of Parties - The Parties to an agreement must be competent to contract. In other

words they must be capable of entering into a contract. According to section 11 of Indian
contract act 1872 “every person is competent to contract who is of the age of majority
according to the law to which he is subject and who is of sound mind and is not
disqualified from contracting by any law to which he is subject”.
4. The Agreement must be made for lawful consideration - To constitute a valid contract,
it is essential that agreement is made for a lawful consideration. According to Sec-23 of
the Act, if the Agreement is not for a lawful consideration the agreement is void.
5. The agreement must be made for lawful object - The object of the Agreement must be
lawful otherwise the Agreement becomes void and anY,
Implied Contract
An implied contract is one which is made otherwise than by works spoken or written. It is inferred
from the conduct of a person or the circumstance of the particular case. Example X, a coolie in
uniform picks up the bag of Y to carry it from railway platform to thewithout being used by Y to do
so and Y allow it. In this case there is an implied offer by the coolie and an implied acceptance by the
passenger. Now, there is an implied contract between the coolie and the passenger is bound to pay for
the services of the coolie.
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Quasi or Constructive contract
It is a contract in which there is no intention either side to make a contract, but the law imposes
contract. In such a contract eights and obligations arise not by any agreement between the practice but
by operation of law, e.g where certain books are delivered to a wrong address the addresses is under
an obligation to either pay for them or return them.
Executory Contract
It is a contract where both the parties to the contract have still to perform their respective obligations.
Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X offer. It the car has not yet been
delivered by X and the price has not yet been paid by Y, it is an Executory contract.
Contracts on the basis of enforceability

1. Valid contract
2. Void contract
3. Voidable contract
4. Unenforceable contract
1. Valid Contract - A contract which satisfies all the conditions prescribed by law is a valid
contract. E.g. X offers to marry y. y accepts X offer. This is a valid contract.
2. Void Contract - The term void contract is described as under section 2(j) of I.CA, 1872, A
contract which cases to be enforceable by law becomes void when it ceases to be enforceable.
In other words, a void contract is a contract which is valid when entered into but which
subsequently became void due to impossibility of performance, change of law or some other
reason. E.g. X offers to marry Y, Y accepts X offer. Later on Y dies this contract was valid at
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the time of its formation but became void at the death of Y.
3. Void Agreement - According to Section 2(g), an agreement not enforceable by law is said to be
void. Such agreements are void- ab- initio which means that they are unenforceable right from
the time they are made. E.g. in agreement with a minor or a person of unsound mind is void –
ab-initio because a minor or a person of unsound mind is incompetent to contract.
4. Voidable Contract - According to section 2(i) of the Indian contract act, 1872, arrangement
which is enforceable by law at the option of one or more of the parties thereon but not at the
option of the other or other, is a voidable contract. In other words, A voidable contract is one
which can be set aside or avoided at the option of the aggrieved party. Until the contract is set
aside by the aggrieved party, it remains a valid contract.
For e.g. a contract is treated as voidable at the option of the party whose consent has been
obtained under influence or fraud misinterpretation. E.g. X threatens to kill Y, if the does not
sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. Here, Y consent
has been obtained by coercion and hence this contract is void able at the option of Y the
aggrieved party. If Y decides to avoid the contract he will have to return Rs. 1 lakh which he
had received from X. If Y does not exercise his option to repudiate the contract within a
reasonable time and in the meantime Z purchases that house from X for 1 lakh in good faith. Y
can not repudiate the contract.
5. Illegal Agreement - An illegal agreement is one the object of which is unlawful. Such an
agreement cannot be enforced by law. Thus, illegal agreements are always void – ab- initio (i.e.
void from the very beginning) e.g. X agrees to y Rs. 1 lakh Y kills Z. Y kill and claims Rs. 1
lakh. Y cannot recover from X because the agreement between X and Y is illegal and also its
object is unlawful.
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6. Unenforceable Contract - It is contract which is actually valid but cannot be enforced because
of some technical defect (such as not in writing, under stamped). Such contracts can be
enforced if the technical defect involved is removed.
Communication of offer is Necessary – (Sec.4)
1. The Communication of a proposal is complete when it comes to the knowledge of the person to
whom it is made, It is to be remembered that there is no offer till it is communicated to the
offeree as otherwise he cannot accept it, being completely unaware of it, it is, therefore –
Necessary that a person must have knowledge of the offer at the time of its acceptance, doing
anything in ignorance of the offer can never be treated as its acceptance.
In Lalman Shukal vs. Gauri Dutt (1913)” A.L.J. 489 – In this case the plaintiff Lalman
Shukla, was serving as a munim in the firm of defendant Gauri Dutt. The Nephew of Gauri Dutt
ran away from his house and no trace of him was found for some time. On 21st Jan.1912
defendant sent the plaintiff to Hardwar for tracing the boy and paid him his travelling expenses.
After sending found the bay at Rishikesh and brought him back on 25th of Jan.1912.The
plaintiff filed a suit for the recovery of the reward advertised, it was held that since the plaintiff
was ignorant of the offer of reward his act of bringing the last boy did not amount to the
acceptance of the offer and therefore, he was not entitled to claim the reward.
2. Intention to create legal relationship - It is necessary that the offer should be made with an
intention to create legal relationship, Promise in the case of social engagements is generally
without an intention to create legal relationship, such an agreement cannot be considered to be a
contract, so an agreement to go for a walk, to go to a movie, to play same game or entertain
other person with a dinner cannot be enforced in a court of law.
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In Balfour v. Balfour: - An intention not to create legal relationship was implied. It was held
that in this case, there being no intention to create legal relationship, the husband was not liable.
3. Offer must be certain - An offer must be certain and definite .Its terms should not be so vague
so as to prevent a contract being formed.
Example – A. Agree to sell to B. a Hundred tons of oil. There is nothing whatever to show as to
what kind of oil was intended, hence the agreement is void for uncertainly. A. agrees to sell B.
“My white horse for five hundred rupees or one thousand. The agreement will be void because
there is nothing to show which at the two Prices were to be given”.
Acceptance
According to Sec-2 (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, become a promise. A person, when
accepted results in an agreement, after the acceptance of the proposal a contract between two parties
can arise.
1. “Effect of Acceptance” - A contract is created only after an offer is accepted. Anson explained
the effect of acceptance as may be oral, by post, by telegram, by a massage on phone, through a
messenger or in any other reasonable manner; sometimes the conduct of a person might indicate
his assent, E.g. a passenger travels in bus.
Felt house V. Bindley – it was held that since the nephew had not communicated the
acceptance to Felt House, no contract had arisen in this case and therefore felt house had not
become the owner of the horse, [this is absence of acceptance,]
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2. Acceptance may be express or implied - An acceptance of an offer may be express or implied,

where an offer is accepted by words, written or oral, the acceptance is called express. When an
offer is accepted by conduct, the acceptance is called implied.
3. Acceptance must be absolute and unqualified - The first and foremost essential of a valid
acceptance is that it must be absolute and unconditional. In this regard Sec-7 says that in order
to convert a proposal into a promise the acceptance must be absolute and unqualified.
In Hyde vs. Wrench (1840) 3 Beav.334 - The defendant offered to sell his farm to the plaintiff
for £ 1000 only. But the plaintiff said he would buy it for £ 950 only. Later on he agreed to buy
the farm for £ 1000. But then the defendant refused to sell the farm. The plaintiff sued the
defendant for specific performance of contract. The court dismissed his suit By holding that no
contract is made because the plaintiff’s offer for £ 950 was in fact a counter offer which
destroyed the original offer.
4. Communication of acceptance must be made by the acceptor or his authorized agent A

communication of acceptance to be made valid must be either by the offeree himself or his
authorized agent. A communication of acceptance by any other person will not be valid.
5. The acceptance must be expressed in some usual and reasonable manner.
Sec-7 - The acceptance must be expressed in some usual and reasonable manner. Unless the
proposal prescribes the manner in which it is to be accepted, If the proposal prescribes a manner
in which it is to be accepted and the acceptance is not made in such manner – the proposer may,
within a reasonable time after the acceptance is communicated to him, insist that his proposal
shall be accepted in the prescribed manner, and not otherwise If he fails to do so, he accepts the
acceptance.
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For example: - A offers to B to sell his watch for Rs. 100/- ‘B’ may accept this offer orally or
by writing a letter or by sending a telegram. But if A says in his offer that acceptance is to be
communicated only by a telegram then ‘B’ should accept it by sending a telegram, if ‘B’
sends a post card for acceptance. A can object to it and insist that his offer shall be accepted
only by a telegram, but if A does not insist upon it, he accepts the acceptance as actually
communicated. post on the same day i.e. on 11th Oct. ‘B’ also writes to ‘A’ making an offer to
purchase ‘A’s house for Rs.50,000/- either. ‘A’ or ‘B’ does not know about the other’s offer. No
contract arises between A and B. The contract can be completed only when A accepts ‘B’s offer
or ‘B’ accepts ‘A’s offer,
Counter offer or Counter Proposal
An offer or Proposal is made by the Promisor. The person accepting the proposal is called the
‘Promisee. A proposal when accepted becomes a promise. In Order to convert a proposal into a
promise, the acceptance must be absolute and unqualified for a valid contract. The Promisee must
accept the terms and conditions of the proposal of the promisor if any term is refused or varied or
added or deleted by the offeree (Promisee), his acceptance merely operates as a counter offer. When a
Counter-offer is made by the promisee. There could not be a contract between the offers. When a
Counter- offer is made by the promisee, there could not be a contract between the parties.
Hyde vs. Wrench (1840. 3 Beav. 334) - This case-law is a good example for the counter offer. In this
case the defendant offered to sell his estate or £1000 on June 6th on June 8, the Plaintiff made a reply
offering to purchase it for £950, it was refused by defendant on June 27. On June 29, the plaintiff
wrote that he prepared to pay £1000. The defendant refused. The court of Appeal held that the
plaintiff’s letter expressing his willingness to purchase for £950. It was not an acceptance; it was a
counter-offer which terminated the original offer.
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Specific Offer
Specific offer is also known as ‘offer to an individual’ when the offer is made to a specific or an
ascertained person, it is known as a ‘Specific offer’ or ‘offer to an individual. Example of ‘Specific
Offer’:- ‘A’ offers to sell his car to ‘B’ for Rs. One Lakh. This is specific offer offered to an
ascertained person, i.e. ‘B’.
General Offer
We come to know that when the offer is made to a specific or an ascertained person, it is known as a
‘Specific Offer’. When the offer is not made to any particular person, but it is made to the public at
large, it is known as ‘General Offer’.
Carlill vs. Carbolic Smoke Ball Co. (1893 (1) Q.B 256)
Brief Facts – The defendant company which manufactured smoke balls advertised that they would
pay £100 to anyone who would be caught influenza after using their smoke ball thrice daily for two
weeks. They stated that a sum of 1000 pounds was also deposited in a bank to show their sincerity.
Mrs. Carlill, relying on the advertisement, used the smoke ball for the period prescribed by the
company. She was affected by influenza, she sued for the rewarded. The company contended that
their offer was specific offer and they did not offer to a particular person, that is Mrs. Carlill, and that
she did not signify her acceptance to them, hence no contract was arisen between them and her.
Judgment – The house of Lords gave the judgement in favour Mrs. Carlill and opined that the
company was held liable, it held that the declaration was a true offer, it was not a mere advertisement,
it was a general offer. The deposit in the bank itself was the evidence of the sincerity of the company.
The offer was open to anybody who would perform the conditions mentioned in the advertisement.
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No special acceptance from the individual was necessary. In such cases performance of the conditions
was sufficient to show the acceptance from that individual.
Invitation to Offer
Where a party without expressing his final willingness, proposes certain terms on which he is willing
to negotiate. He does not make an offer but he only invites the other party to make an offer an terms,
it is called ‘Invitation to offer’.
Examples –
a. An advertisement in the newspaper ‘House to let’ or ‘House for sale’ etc.
b. A Shopkeeper’s catalogue of prices, Hotel menu cards etc.
c. A Tender
Standing Offer
An offer of a continuous nature is known as standing offer. A standing offer is in the nature of tender.
Express or Implied Offer
An express offer is one which is made by words spoken or written and an implied offer is one which
is made otherwise than in word such as from the conduct of the person.
Sd/-
Mr. Raman Bhardwaj

Assistant Professor, SoL
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E-Notes Unit 1 - Law of Contract - LLB 103 - BALLB I Sem

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E-Notes Unit 1 - Law of Contract - LLB 103 - BALLB I Sem

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Chanderprabhu Jain College of Higher Studies

Class : B.A. LL.B. I Semester

A. Meaning, Nature and Scope of Contract

(A) ICA was compiled on 25april1872.

Case: Carlill V/S Carbolic Smoke Ball Co [1893] 1 QB 256

3. Capacity of Parties - The Parties to an agreement must be competent to contract. In other

Quasi or Constructive contract

Contracts on the basis of enforceability

the time of its formation but became void at the death of Y.

Communication of offer is Necessary – (Sec.4)

2. Acceptance may be express or implied - An acceptance of an offer may be express or implied,

4. Communication of acceptance must be made by the acceptor or his authorized agent A

5. The acceptance must be expressed in some usual and reasonable manner.

Counter offer or Counter Proposal

Express or Implied Offer

Mr. Raman Bhardwaj

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