Indian Contract ACT 1872

INDIAN CONTRACT
ACT 1872
SECTION 2(H) – INDIAN CONTRACT ACT 1872
DEFINES CONTRACT AS
“AN AGREEMENT ENFORCEABLE BY LAW IS A
CONTRACT.”
Adv. Padmaja Sukhatme
sukhatmepadmaja@gmail.com
ELEMENTS OF A CONTRACT
An Agreement-
 which is a sum total of OFFER and
ACCEPTANCE
Legal Obligation. A duty enforceable by law.
Agreements of social or domestic nature do not contemplate legal

relations and as such do not give rise to a contract.
Intention
to create legal relations is presumed in commercial
agreements.
WHAT IS AN AGREEMENT ?
 Characteristics of an agreement –
 Two or more persons or,
 Plurality of persons ; and
 Consensus – ad – idem- means agreement upon the same thing,

in the same sense and at the same time.
ESSENTIAL ELEMENTS OF A
VALID CONTRACT
 Offer and Acceptance

 Intention to create legal relations
 Lawful Consideration
 Capacity of parties
 Free and genuine consent
 Lawful object
 Agreements not declared void- Sections 24-30 of Act.
 Certainty and possibility of performance
 Legal formalities- Writing & Registration
PROPOSAL OR OFFER
 Offer may be express or implied and general or specific

 Offer must be capable of creating legal relations
 Terms of the offer must be clear and specific
 An invitation to offer is not an offer
 An offer may be specific or general
 Offer must be communicated to the offeree
 Offer should not contain a term the non-compliance of which would
amount to an acceptance
 An offer may be made subject to any terms and conditions
 Two identical cross-offers do not make a contract
IDENTICAL CROSS OFFERS
 EXAMPLE OF TWO IDENTICAL CROSS OFFERS
 When 2 parties make identical offers to each other, in

ignorance of each other’s offer, the offers are ‘cross offers’.
Cross Offers do not constitute acceptance of one’s offer by the
other and as such there is no completed agreement.
OFFERS SOME EXAMPLES
 Express offers made by words- Spoken or Written
 X says to Y that he will sell his bike to him for Rupees

25,000/- or
P writes to Q that he offers to sell his bike to him for
Rupees 25,000/-
OFFERS SOME EXAMPLES
 Implied Offers are inferred from the conduct of a person, or the

circumstances of the case.
 The DTC or BEST run buses on different routes to carry

passengers at the scheduled fares.
 A shoe shine boy starts shining some one’s shoes without being
asked to do so, in such circumstances that any reasonable man
could guess that he expects to be paid for this, he makes an
implied offer.
SPECIFIC AND GENERAL OFFER
 Specific offer made to a definite person or persons

 X makes an offer to Y for example to sell his bike for 30000 Rupees. This
is a specific offer and only Y can accept it.

 A general offer is one which is made to the world at large, and may be
accepted by any person who fulfills the requisite conditions.
 CARLILL vs CARBOLIC SMOKE BALL Co

 A 1892 Case
CARLILL vs CARBOLIC SMOKE
BALLS Co
 Background- 1889- 1890 up to 1895
 Referred to as Flu or Asiatic Flu or Russian Flu Pandemic
 Influenza A Virus sub type H2N2. Genomic virological study

in 2005 suggests maybe it was H Coronavirus OC 43
 Estimated to have killed 1 million people worldwide
CARLILL vs CARBOLIC SMOKE
BALLS Co
 An English contract law decision which held that-
 An advertisement containing certain terms to get a reward

constituted a binding unilateral offer that could be accepted by
anyone who performed its terms.
 In unilateral contracts communication of acceptance is not
expected nor necessary. Performance of the specified condition
in the offer will constitute an acceptance of the offer and
consideration for the promise.
THE ACCEPTANCE
 Acceptance must be given only by the person to whom the

offer is made
 Acceptance must be expressed in some usual and reasonable
manner, unless the proposal prescribes the manner in which it
is to be accepted
 Acceptance must be communicated by the acceptor
 Acceptance must be given within a reasonable time and before
the offer lapses and/or is revoked
 Acceptance must succeed the offer
 Rejected offers can be accepted only if renewed
CAPACITY OF PARTIES
 Parties to an agreement must be competent to contract
 Parties must be of the age of majority, 18 years and above
 Of sound mind
 Must not be disqualified from contracting by any law to which

they are subject
CONSIDERATION
 Consideration an important element in a contract.

 It serves to distinguish those promises by which the promisor intends to be
legally bound from those which are not seriously meant.
 A consideration of some sort or the other is necessary to the forming of a
contract.
 Agreements without consideration are described as nudum pactum, a gratuitous
promise.
 If I promise another person rupees 2000/ for nothing, he neither doing nor
promising anything in return or to compensate me for my money, my promise
has no force in law, and therefore cannot be redressed by legal remedies.
 Only when promise is made in return of something from promisee that such
promise is enforceable against the promisor. That something in return is
Consideration.
CONSIDERATION
 Consideration must move at the desire of the promisor
 Consideration may move from the promisee or any other

person
 Consideration may be past present or future
 Consideration must be something of value
ESSENTIALS OF
CONSIDERATION
 Consideration must move at the desire of the promisor.
 Illustration- X happens to see Y’s house on fire and rushes

there to help in putting out the flames. Now X cannot demand
payment for the service he rendered because Y never asked
him for any help.
ESSENTIALS OF
CONSIDERATION
 Consideration may move from the promisee or any other

person. Consideration may proceed even from a third person.
As long as there is a consideration for a promise, it is
immaterial who has furnished it.
 This means that even a stranger to the consideration may sue

for its breach provided he is not a stranger to the contract. This
is called as The Doctrine of Constructive Consideration.
Leading Case –Chinayya vs Ramayya.
CHINAYYA vs RAMAYYA
 A an old lady by a deed of gift, made over certain property to her

daughter R, with a direction that the daughter should pay an
annuity of Rupees 1000/- to A’s brother C, as has been done by A.
Accordingly on the same day R the daughter, executed in writing
another document in favour of her maternal uncle C in which she
agreed to pay the annuity. Afterwards she declined to fulfill her
promise saying that no consideration had moved from her
maternal uncle i.e, the promisee. It was held that the words
“promisee or any other person” in section 2 (d) show that a
stranger to a consideration may maintain a suit. Hence the
maternal uncle, though a stranger to the consideration (as the
consideration indirectly moved from his sister) was entitled to
maintain the suit.
ESSENTIALS OF
CONSIDERATION
 Consideration may be past present or future.
 Consideration may consist either of something done, or not

done in the past,or done or not done in the present, or promised
to be done or not done in the future.
 Consideration may consist of a past, present or a future act or

abstinence
ESSENTIALS OF
CONSIDERATION
 Consideration must be something of value.
 Something to which the law attaches a value.
 It cannot be something physically impossible , illegal or

uncertain or illusory.
NO CONSIDERATION
NECESSARY
 1) Agreement made on account of natural love and affection

between parties standing in near relation to each other and
expressed in writing.
 X out of love and affection for his son Y promises to give him
Rupees 2 lakhs and he puts his promise down in writing and
registers it. This is a contract.
 Mere existence of a near relation between parties does not

necessarily import natural love and affection. Rajlakhi Devi vs
Bhootnath case.
NO CONSIDERATION
NECESSARY
 2) Agreement to compensate for past voluntary service.
 A supports B’s infant son voluntarily. B promises to pay all the

expenses incurred by A in doing so. Note- that B was legally
bound to support his infant son.
NO CONSIDERATION
NECESSARY
 3) Agreement to pay a time barred debt.

 A time barred debt is one in which the debt remains but the
legal remedy to recover it is lost or rather barred by the
Limitation Act.
 A owes B Rupees 20,000/- but this debt is barred by the

Limitation Act. A signs a written promise to pay Rupees
12,000/- on account of the debt. This is a contract.
NO CONSIDERATION
NECESSARY
 4) A completed gift, which is not an agreement does not

require consideration to be valid.
 The gift must be complete, a voluntary transfer of property
from one person to another without full valuable consideration.
 The gift shall be existing
 The gift shall be voluntary
 Should be accepted by the person to whom it is to be gifted.
 The execution of a registered gift deed , acceptance of gift and
delivery of property together make the gift complete.
NO CONSIDERATION
NECESSARY
 5) Contributions to charity, though gratuitous would be

enforceable, if on the faith of the promised subscription , the
promisee takes definite steps in furtherance of the object and
undertakes a liability , to the extent of liability incurred , not
exceeding the promised amount of subscription.
 Case - Kedarnath vs G. Mohammad.
FREE CONSENT
 Consent is said to be free when it is not caused by-
 Coercion ,( physical force ) or
 Undue influence, ( mental or moral pressure )or
 Misrepresentation, (is innocent ) or
 Fraud, (deliberate misrepresentation with an intention to deceive)
 Mistake. Unilateral or Bilateral.
VOIDABLE CONTRACT
 Enforceable by law at the option of one of the parties .
 If the aggrieved party neither rescinds nor avoids it as per the

law, it is a valid contract.
 In the event the aggrieved party decides to reject the contract,

he has to do so within reasonable time, and before the rights of
third parties intervene,
EFFECTS OF RESCISSION OF
VOIDABLECONTRACTS - S. 64
 When a party rescinds a contract, the other party need not

perform .
 If the party rescinding has received any benefit from the other
party he must return this benefit, to the one from whom he
received it.
 This section aims at placing both parties to a voidable contract
after its rescission, on the same footing as if there had been no
contract at all.
 Example- When a contract for the sale of a house is avoided
because of undue influence, any money received on account of
the price must be refunded.
COERCION
 Coercion is the committing or threatening to commit any act

forbidden by the Indian Penal Code or the unlawful detaining
or threatening to detain any property to the prejudice of any
person whatever with the intention of causing any person to
enter into an agreement.
 Example- P threatens to shoot Q if he does not let out his
house to him. The consent of Q has been induced by coercion.
 X beats up Y and compels him to sell his car for Rupees
50,000/. Here Y’s consent has been obtained by coercion
because the act of beating someone is an offence under IPC.
COERCION continued-
 The act constituting coercion, may be directed at any person,

and not necessarily at the other party to the agreement.
Likewise it may proceed even from a stranger to the contract.
 A threatens to shoot B, a friend of C if C does not let out his
house to him. C agrees to do so . The agreement has been
brought about by coercion.
 X threatens to shoot Y if he does not let out his house to Z. Y
agrees to let his house out to Z. Here Y’s consent has been
caused by coercion.
EFFECT OF COERCION
 The contract is voidable at the option of the party whose

consent was so caused.
 Aggrieved party may either exercise the option to affirm the
transaction and hold the other party bound by it, or repudiate
the transaction by exercising a right rescission. If he does this
he must restore any benefit received by him under the contract
to the other party from whom he received it.
UNDUE INFLUENCE
 A contract is said to be induced by undue influence where, the

relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other, and he
uses the position to obtain an unfair advantage over the other.
 For proving the use of undue influence the following must be
established- 1) that the other party was in a position to
dominate his will, and 2) the transaction was an unfair one .
DOMINATE THE WILL OF THE
OTHER
 A person is said to dominate the will of the other when he is in

a position to do so .
 Where he holds a real or apparent authority over the other –
Master and servant, police officer and accused .
 When he stands in a fiduciary relation to the other, as in the
case of father and son, doctor and patient, Guru and disciple to
name a few.
 In the case of old illiterate persons.
NO PRESUMPTION OF UNDUE
INFLUENCE
 In the following cases- Husband and wife, mother and

daughter, landlord and tenant, creditor and debtor, grandson
and grandfather.
 In these cases , undue influence shall have to be proved by the

party alleging that undue influence existed.
EFFECT OF UNDUE
INFLUENCE
 Voidable at the option of the party whose consent was so

caused.
 Contract may be set aside either absolutely or, if the party who
was entitled to avoid it has received any benefit thereunder,
upon such terms and conditions as the court may seem just.
 A, a money lender advances Rupees 10,000/ to B an
agriculturist and by undue influence, induces B to execute a
bond for Rupees 20,000/ with interest at 6% per month. The
court may set the bond aside, ordering B to repay Rupees
10,000 with such interest as may seem just.
MISREPRESENTATION
 A representation when wrongly made, either innocently or

intentionally, is termed as a misrepresentation.
 Misrepresentation is innocent, Fraud is deliberate

misrepresentation with an intention to deceive.
MISREPRESENTATION-
ELEMENTS
 Representation must be made by a party to the contract

 Person making it must honestly believe it to be true
 Representation must relate to a fact
 Representation must be made to induce the other party into the
contract but without intention of deceiving
 The other party must have acted on the faith of the representation
 Subsequently it turns out to be false hence misrepresentation.
 Aggrieved party has 2 options either rescind the contract or affirm the
contract and insist that he shall be put in a position in which he would
have been, had the representation been true. No damages can be
claimed.
MISREPRESENTATION -
EXAMPLES
- A says to B who intends to purchase his land, “ My land produces 10 quintals

of wheat per acre.” A believes the statement to be true, although he did not have
sufficient grounds to believe this. Later on it transpires that the land produces
only about 7 quintals of wheat per acre. This is a misrepresentation.
 X before signing a contract with Y for the sale of his business, correctly
states that the monthly sales are Rupees 80,000/. Negotiations lasted for 5
months when the contract was signed. During this period the sales dwindled
to Rupees 20,000/- a month. X unintentionally keeps quiet. It was held that
there was misrepresentation and that Y was entitled to rescind the contract.
- In a contract of sale of 500 bags of wheat, the seller made a representation
that that no chemicals were used in the cultivation of wheat. Chemicals had
been used in 6 out of 200 acres of land. The buyer would not have purchased
the wheat but for the representation. There is a misrepresentation.
FRAUD
 Fraud means and includes any of the following acts committed

by a party to a contract, or with his connivance, or by his agent,
with intent to deceive or to induce another party thereto or his
agent to enter into the contract.
 Section 17 Indian Contract Act 1872
ACTS CONSTITUTING FRAUD
 1. False statement intentionally made is fraud. Made by one

who does not himself believe it to be true. The suggestion that
a fact is true when it is not true by one who does not believe it
to be true.
 Supressio Veri means to hide or suppress the truth or facts,

Suggestio Falsi means to suggest a falsehood or a lie.
 2. Active concealment is also fraud.
 Concealment of a material fact.

 Example- P a furniture dealer, conceals cracks in furniture being
sold by him using concealing material , and polishing the furniture
in such a manner that no person upon a reasonable examination,
can notice the defects. This would tantamount to fraud through
active concealment.
 Mere non-disclosure is not fraud, where there is no duty to

disclose. Caveat Emptor or Buyer Beware
 3. A promise made without any intention of performing it. Example- An

insolvent person enters in to a contract knowing fully well that he did not
enjoy contractual capacity.
 4.Any other act fitted to deceive. Man’s imagination is such that he devises
new schemes of fraud. Therefore acts in which there is cheating, trickery, etc is
considered fraud.
 5. Any such act or omission as the law specially declares to be fraudulent.

Section 55 Transfer of Property Act the seller of immovable property is bound
to disclose to the buyer all material defects in the property, or in the sellers title
. An omission to make such a disclosure amounts to fraud.
CAN SILENCE BE FRAUDULENT
?
 1) Silence is not fraud where there is no duty to disclose. No

duty cast by law. X and Y being traders enter into a contract. X
has some inside/ private information of a change in prices
which would affect Y’s willingness to proceed with the
contract. X is not bound to inform Y .
 2) Silence is fraudulent when it is the duty of the person

keeping silent to speak. Especially in contracts of utmost good
faith. Fiduciary relationships, like between principal and agent,
solicitor and client, etc. Insurance contracts, share allotment
contracts, family settlement contracts.
CAN SILENCE BE
FRAUDULENT?
 3) Silence is fraudulent where the circumstances are such that

“ silence is in itself , equivalent to speech” Where for
example , B says to A – “ If you do not deny it , I shall assume
that the horse is sound.” A says nothing . Hence A’s silence is
equivalent to speech . If the horse is unsound A’s silence is
fraudulent.
EFFECT OF FRAUD
 A party who has been induced to enter into a contract by fraud,

has the following remedies open to him:
 1) He can rescind or cancel the contract, the contract being
voidable at his option; or
 2) He can ask for restitution and insist that the contract shall be
performed, and that he shall be put in the position in which he
would have been , if the representation made had been true.
 3) The aggrieved party can also sue for damages, if any .
MISTAKE
 Mistake- of Law and of fact
 Mistake of law no excuse however mistake of foreign law on

same footing as mistake of fact.
 Mistake of fact of 2 types- Unilateral and Bilateral
 Bilateral in which both parties misunderstood. No real

correspondence of offer and acceptance so no agreement hence
no contract. Void-ab-initio.
MISTAKE - UNILATERAL
 When one of the parties is mistaken as to a matter of fact, it is

a unilateral mistake.
 Contract remains valid unless the mistake is caused by
misrepresentation, or fraud in which case it is voidable at the
option of the aggrieved party.
 Mistake as to the identity of the person contracted with where
such identity is important. Void.
 Mistake as to the nature and character of a written document.
Void.
DISCHARGE OF CONTRACT
 A Contract is said to be terminated or discharged when the

rights and obligations arising out of the contract are
extinguished.
 Discharge of a contract means that the parties are no more

liable under the contract.
Adv. Padmaja Sukhatme sukhatmepadmaja@gmail.com

MODES OF DISCHARGE OF CONTRACT
 By Performance
 By Agreement
 By Impossibility of performance
 By Lapse of Time
 By Operation of Law
 By Breach of Contract

MODES OF DISCHARGE continued
 By Performance which maybe Actual or Attempted

 Discharge by Mutual consent or Agreement- by Novation,
Alteration, Rescission, Remission and Waiver.
 By Supervening Impossibility or Illegality like Destruction of
subject matter, Failure of Ultimate Purpose, Death or personal
incapacity of promissor.
 Discharge by Lapse of Time.
 By Operation of Law as in Death, Insolvency, Merger,
Unauthorised material alteration.
 By Breach of Contract. Anticipatory or Actual.

MODES OF DISCHARGE
 1) By performance which may be Actual or Attempted.

 Actual when both parties fulfill their obligations under the
contract, within the time specified and in the manner
prescribed , it amounts to actual performance of the contract
and the contract comes to an end or stands discharged.
 Attempted as when the promisor offers to perform his
obligation under the contract, but is unable to do so because
the promisee does not accept the performance it is called
attempted.
REMEDIES FOR BREACH OF CONTRACT
 Rescission of the contract.

 Suit for Damages which can be Ordinary, Special, Vindictive
and Nominal.
 Suit for Specific Performance
 Suit for Injunction
 Suit upon Quantum Meruit

LIQUIDATED DAMAGES AND PENALTY
 Section 74 – Courts are required to allow reasonable compensation so

as to cover the actual loss sustained, not exceeding the amount so
named in the contract. This is the maximum limit of liability in case of
breach of contract.
 Liquidated damages means a sum, fixed up in advance, which is a fair

and genuine pre-estimate of the probable loss that is likely to result
from the breach.
 Penalty means a sum fixed up in advance , which is extravagant and

unconscionable in amount in comparison with the greatest loss that
could conceivably be proved to have followed from the breach.

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INDIAN CONTRACT

Adv. Padmaja Sukhatme

Legal Obligation. A duty enforceable by law.

Agreements of social or domestic nature do not contemplate legal

 Two or more persons or,

 Plurality of persons ; and

 Consensus – ad – idem- means agreement upon the same thing,

 Offer and Acceptance

 Offer may be express or implied and general or specific

 EXAMPLE OF TWO IDENTICAL CROSS OFFERS

 When 2 parties make identical offers to each other, in

 Express offers made by words- Spoken or Written

 X says to Y that he will sell his bike to him for Rupees

 Implied Offers are inferred from the conduct of a person, or the

 The DTC or BEST run buses on different routes to carry

 Specific offer made to a definite person or persons

 CARLILL vs CARBOLIC SMOKE BALL Co

 Background- 1889- 1890 up to 1895

 Referred to as Flu or Asiatic Flu or Russian Flu Pandemic

 Influenza A Virus sub type H2N2. Genomic virological study

 Estimated to have killed 1 million people worldwide

 An English contract law decision which held that-

 An advertisement containing certain terms to get a reward

 Acceptance must be given only by the person to whom the

 Parties to an agreement must be competent to contract

 Parties must be of the age of majority, 18 years and above

 Must not be disqualified from contracting by any law to which

 Consideration an important element in a contract.

 Consideration must move at the desire of the promisor

 Consideration may move from the promisee or any other

 Consideration may be past present or future

 Consideration must be something of value

 Consideration must move at the desire of the promisor.

 Illustration- X happens to see Y’s house on fire and rushes

 Consideration may move from the promisee or any other

 This means that even a stranger to the consideration may sue

 A an old lady by a deed of gift, made over certain property to her

 Consideration may be past present or future.

 Consideration may consist either of something done, or not

 Consideration may consist of a past, present or a future act or

 Consideration must be something of value.

 Something to which the law attaches a value.

 It cannot be something physically impossible , illegal or

 1) Agreement made on account of natural love and affection

 Mere existence of a near relation between parties does not

 2) Agreement to compensate for past voluntary service.

 A supports B’s infant son voluntarily. B promises to pay all the

 3) Agreement to pay a time barred debt.

 A owes B Rupees 20,000/- but this debt is barred by the

 4) A completed gift, which is not an agreement does not

 5) Contributions to charity, though gratuitous would be

 Case - Kedarnath vs G. Mohammad.

 Consent is said to be free when it is not caused by-

 Coercion ,( physical force ) or

 Undue influence, ( mental or moral pressure )or

 Misrepresentation, (is innocent ) or

 Fraud, (deliberate misrepresentation with an intention to deceive)