INDIAN CONTRACT ACT 1872

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 Introduction
Law of contract – Foundation upon which the
superstructure of modern business is built

Business – promise made between parties –

performance follows later

Breaking of a promise – without incurring liability –

endless complications

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 Contd -
Law of contract lays down legal rules
relating to promises, their formation,
performance and enforcement
Applicable not only to business
community but others

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Definitions
Anson – Legally binding agreement
between two or more person by which
rights are acquired by one or more to Act
or forbearance on the part of the other.
Salmond – an agreement creating and
defining obligation between parties
Pollock – Every agreement and promise
enforceable at law is a contract

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 CONTRACT
🞂 Sec 2(h) – “ An agreement enforceable by
law is a
contract”.
🞂 Two elements -
🞂 An Agreement
🞂 Legal obligation ie, a duty enforceable by
law.

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 Agreement
Section 2(e) – “Every promise and every set of
promises forming the consideration for each
other, is an agreement.”
Promise – What is a promise?

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,
becomes a promise

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 Example
⦿ Ram offers to sell his car for Rs 1,00,000 to
Shyam. Shyam accepts this offer. This offer
after acceptance becomes promise and this
promise is treated as an agreement between
⦿ Ram and Shyam
Therefore, an agreement consists of an offer
⦿ by one party and its acceptance by the other.
Agreement = Offer + Acceptance of offer

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 Enforceability of Agreement
An agreement is said to be enforceable
by law if it
creates a legal obligation.
If an agreement is incapable of creating a
duty enforceable by law, it is not a contract.
Thus, an agreement is a wider term than
contract.

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9
 Contract Act
“All contracts are agreement but all agreements
are not
contracts”.
Agreements of moral, religious or social nature
🞂are notare
they contracts
not likely to create a duty enforceable
🞂 by law parties never intend to create a legal
obligation.

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0
 Contd -
Ex;
🞂 X invites his friend Y to a dinner and Y accepts the
invitation. If Y fails to turn up for the dinner. Can he
take his friend to Court????
X cannot go to the court to claim his loss.

🞂 A father promises to pay his son Rs 1000 as pocket

allowance. Later he refuses to pay. Can the son
recover the Amount???
The son cannot recover as its is a domestic
agreement and there is no intention on the
part of the parties to create legal relations

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1
 Case
Balfour vs Balfour [(1919) 2 K.B. 571]

A promise by the husband to pay his wife 30

pounds every month . Later Husband refuses to
pay. Wife goes to court.
Held: unenforceable as parties never
intended it to be bound by legal
obligations.

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 contd
⦿ In commercial or business agreements an
intention to create legal relations is
presumed. Thus, an agreement to buy and sell
goods intends to create legal relationship,
hence is a contract, provided other requisites
of a valid contract are present. But if the
parties have expressly declared their resolve is
not to create a legal obligation, even a
business agreementdoes not amount to a
contract.

1 santhi narayanan 11/21/11

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 Case
Rose&Frank Co. vs Corruption Bros [1925 AC
445]
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: ”This agreement is not entered
into….as a formal or legal agreement and shall not
be subject to legal jurisdiction in the law courts.”
HELD - There was no binding contract as there was no
intention to create legal relationship

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 Distinction between an agreement and a contract

Agreement 🞂 Contract
◦ Offer and its
acceptance constitute
◦ an agreement An
agreement may or may
not create a legal
◦ obligation
Every agreement need
◦ not necessarily be a
contract Agreement is
not concluded or
binding contract
◦ Agreement and its
enforceability
constitute a contract
◦ contract necessarily
A
create a legal
◦ obligation All
contracts are
necessarily
◦ agreements.
Contract is concluded
and binding on the
concerned parties

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 Classification of
Contract
Enforceabilty Method of Extent of Obligation to
performance perform
Formation
Valid
Formal Executed Unilateral
Voidable Executory
Simple Bilateral
Void

unenforceab
le
Express Implied Quasi Standard Contingent
Illegal Form

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6
 Valid Contract

Essentials

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 Essential elements of a valid contract

Proper offer and its proper

acceptance
Intention to create legal
relationship
Free Consent
Capacity to contract
Lawful consideration
Lawful object
Agreement not expressly declared
void
Certainty of meaning
Possibility of performance
18Legal formalities
 Offer and acceptance
OFFER
An offer is the starting point in the making of
an agreement.
An offer is also called ‘proposal’
Sec 2(a) – “ A person is said to have made the
proposal when he signifies to another his
willingness to do or to abstain from doing
anything with a view to obtaining the assent
of that offer to such act or abstinence.”

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 OFFER
An offer involves the following essential
elements;
It must be made by one person to another person
It must be an expression of readiness or willingness to
do (i.e., a positive act) or to abstain from doing
something (i.e., a negative act)
It must be made with a view to obtain the consent of
that other person to proposed Act or abstinence

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 Contd
Offeror – The person making the proposal is called
the ‘offeror’ or ‘proposer’.
Offeree – The person to whom the proposal is
made is called the ‘offeree’ or the ‘proposee’.

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 Types of offer
General offer – When the offer is made to the world
at large
Specific offer – When the offer is made to a definite
person
Implied offer – An offer may be implied from the
conduct of the parties or the circumstances of the
case.

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 Cases
General
offer
🞂 Carlil vs Carbolic Smoke ball Co (1893) 1
🞂 QB 258 Harbhajan lal vs Harcharan lal
(AIR All 539)

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 Contd-
Intention to create legal
🞂relationship
An offer must be such that when it is accepted it will
create a legal relationship

Certain and unambiguous

🞂terms
If the terms of the offer are vague or indefinite, its
acceptance cannot create any contractual
relationship.

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 Legal rules as to offer

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 Contd -
Different from a mere declaration of intention
Mere declaration of intention indicates that
an offer will be made or invited in the
future

A declaration of intention by a person does

not give right of action to another.

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Case
🞂 Harrison vs Nickerson
🞂 An auctioneer advertised in a newspaper that a sale of
office furniture would be held. A broker came from a
distant place to attend that auction, but all the
furniture was withdrawn.
The broker thereupon sued the auctioneer for his loss of
🞂 time and expenses.
Held - A declaration of intention to do a thing did
not create a binding contract with those who acted
upon it, so that the broker could not recover.

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 Contd -
Different from an invitation to
🞂offer
In an invitation to offer the person making an invitation
invites others to make an offer to him
It is prelude to an offer inviting negotiations or
preliminary discussions
Case –
🞂 Pharmaceutical Society of Great Britian vs Boots
cash chemists Ltd (1953) 1 QB 401
🞂 Harvey vs facey

28 santhi narayanan 11/21/11

Contd-
Offer must be communicated
An offer must be communicated to the person to
whom it is made.
An offer is complete only when it is communicated
to the offeree
Acceptance is not possible unless offer is brought to
the knowledge of the offeree. ie, One can accept
the offer only when he knows about it.
Acceptance in ignorance of offer confers no right.
ie, An offer accepted without its knowledge
does not confer any legal rights on the
acceptor.
Case: Lalman Shukla vs Gauri Dutt
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 Contd -
No term of non-compliance of which amounts
to acceptance
The offer must not contain a term, the non-
compliance of which amount to acceptance
Ex: A offers by post to sell his horse to B for Rs
2000. He writes, “ If you do not reply, I shall assume
you have accepted the offer.” There would be
no contract even if B does not reply

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 Contd
While making the offer, the offeror cannot say that if
the offer is not accepted before a certain date, it
will be presumed to have been accepted
Communication of special terms or standard
terms of contract
Special terms of the offer must also be communicated
along with the offer.
If the special terms of the offer are not
communicated, the offeree will not be bound by
those terms.

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 Acceptance
Acceptance means giving consent to the offer.
It is an expression by the offeree of his
willingness to be bound by the terms of the
🞂 offer.
Sec 2(b) – “ A proposal is said to be accepted
when the person to whom the proposal is
made signifies his assent thereto. A proposal
when accepted becomes a promise.”
Acceptance is the consent given to offer.

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 Contd-
Who can accept
In case of a specific offer –
To be accepted by that definite person or
that particular group of persons to whom it
has been made and non else.
In case of general offer –
🞂 An offer made to the world at large or
public in general can be accepted by any
person having the knowledge of the offer
by fulfilling the terms of the offer.

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 Contd -
How to make
🞂acceptance –
Express acceptance –
An express acceptance is one in which is made by
words spoken or written
🞂 Implied acceptance –
🞂 An implied acceptance is one which is made
otherwise than in words.
It is inferred from the conduct of the parties or
the circumstances of a particular case

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 Legal rules of valid acceptance
Absolute and unqualified
Manner
Communication
By whom
To whom
Before the lapse of the
offer

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 Communication of offer and
acceptance
Must be complete so as to bind the concerned
parties because as soon as the communication is
complete the parties loose the right of
🞂withdrawal or revocation.
(a) Communication of offer – It is complete when it
comes of the knowledge of the person to whom it is
made.

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 Contd -
Communication of acceptance –
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.

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 Revocation of offer and acceptance
Taking back, withdrawal (sec 5)
Time for revocation of proposal – A proposal may
be revoked at any time before the
communication of its acceptance is complete as
against the proposer, but not afterwards.

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 Contd -
Time for revocation of acceptance – An acceptance
may be revoked at any time before the
communication of the acceptance is complete as
against the acceptor, but not afterwards.

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