Indian Contracts Act, 1872

8/8/2019 Indian Contracts Act, 1872

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Law of ContractsLaw of Contracts

(The Indian Contract Act,1872)(The Indian Contract Act,1872)


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D efinition of ContractsD efinition of Contracts

A Contract is an agreement made between A Contract is an agreement made betweentwo or more parties which the law willtwo or more parties which the law willenforce.enforce.Sec. 2(h) defines a Contract as anSec. 2(h) defines a Contract as anagreement enforceable by law.agreement enforceable by law.


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Agreement Agreement

An agreement is defined as every promise An agreement is defined as every promiseand every set of promises, formingand every set of promises, formingconsideration for each other [Sec. 2(e)]consideration for each other [Sec. 2(e)]

A promise is defined as when the person to A promise is defined as when the person towhom the proposal is made signifies hiswhom the proposal is made signifies hisassent thereto, the proposal is said to beassent thereto, the proposal is said to beaccepted.accepted.

A proposal when accepted, becomes a A proposal when accepted, becomes apromise [Sec. 2(b)]promise [Sec. 2(b)]Thus, Agreement = Offer + Acceptance.Thus, Agreement = Offer + Acceptance.


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Consensus ad idemConsensus ad idem

As per Sec.2 (e), an agreement is defined As per Sec.2 (e), an agreement is definedas essentially and exclusively consensualas essentially and exclusively consensualin nature i.e., before there can be anin nature i.e., before there can be anagreement between two parties, thereagreement between two parties, theremust bemust be consensus ad idemconsensus ad idem ..This means that the parties to theThis means that the parties to theagreement must have agreed about theagreement must have agreed about thesubject subject--matter of the agreement in thematter of the agreement in thesame sense and at the same time.same sense and at the same time.


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Unless there is consensus ad idem, thereUnless there is consensus ad idem, therecan be no contract.can be no contract.ExampleExample A, who owns two horses A, who owns two horsesnamed Rajhans and Hansraj, is sellingnamed Rajhans and Hansraj, is sellinghorse Rajhans to B. B thinks he ishorse Rajhans to B. B thinks he ispurchasing horse Hansraj. There is nopurchasing horse Hansraj. There is noConsensus ad idem and consequently noConsensus ad idem and consequently nocontract.contract.


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Agreement and Obligation Agreement and Obligation

An agreement to become a contract, must An agreement to become a contract, must give rise to a legal obligation or duty.give rise to a legal obligation or duty.ExampleExample A agrees to sell his car to B for A agrees to sell his car to B forRs. 10,000. The agreement gives rise to anRs. 10,000. The agreement gives rise to anobligation on the part of A to deliver the carobligation on the part of A to deliver the carto B and on the part of B to pay Rs. 10,000to B and on the part of B to pay Rs. 10,000to A. This agreement is a Contract.to A. This agreement is a Contract.All contracts are agreements but a ll All contracts are agreements but a ll agreements are not necessari ly agreements are not necessari ly Contracts.Contracts.


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Agreement is a very wide term Agreement is a very wide term

An agreement may be a social agreement or An agreement may be a social agreement ora legal agreement.a legal agreement.It is only those agreements which areIt is only those agreements which areenforceable in a Court of law are contracts.enforceable in a Court of law are contracts.ExampleExample-- A invites his friend B to come and A invites his friend B to come andstay with him for a week. B accepts thestay with him for a week. B accepts theinvitation but when he comes to A, A cannot invitation but when he comes to A, A cannot accommodate him as his wife had died theaccommodate him as his wife had died theday before. B cannot claim anyday before. B cannot claim anycompensation from A as the agreement is acompensation from A as the agreement is a

social one.social one.


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Essential Elements of a ValidEssential Elements of a ValidContract Contract

According to Sec.10, all agreements are According to Sec.10, all agreements arecontracts if they are made by the freecontracts if they are made by the freeconsent of parties competent to contract,consent of parties competent to contract,

for a lawful consideration and with a lawfulfor a lawful consideration and with a lawfulobject and are not expressly declared to beobject and are not expressly declared to bevoid.void.

E ssential elements of a valid contract E ssential elements of a valid contract

1.1. Offer and acceptance.Offer and acceptance.


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2.2. Intention to create legal relationship.Intention to create legal relationship.3.3. Lawful consideration.Lawful consideration.4.4. Capacity of the partiesCapacity of the parties competency.competency.

Every person is competent to contract if Every person is competent to contract if he (a) is of the age of majority,he (a) is of the age of majority,

(b) is of sound mind, and(b) is of sound mind, and(c) is not disqualified from contracting(c) is not disqualified from contracting

by any law to which he is subject by any law to which he is subject (Sec.11 and 12).(Sec.11 and 12).


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5 .5 . Free and genuine consent.Free and genuine consent.- - There isThere isabsence of free consent if the agreement absence of free consent if the agreement is induced by coercion, undue influence,is induced by coercion, undue influence,fraud, misrepresentation, mistake.fraud, misrepresentation, mistake.

6.6. Lawful Object Lawful Object The object must not beThe object must not be(a) illegal,(a) illegal,(b) immoral,(b) immoral,(c) opposed to public policy.(c) opposed to public policy.


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7.7. Agreement not declared void Agreement not declared void TheTheagreement must not have been expresslyagreement must not have been expresslydeclared void by any law in force in thedeclared void by any law in force in thecountry.country.

8.8. Certainty and possibility of performanceCertainty and possibility of performance- -If the agreement is vague and it is not If the agreement is vague and it is not possible to ascertain its meaning, it possible to ascertain its meaning, it cannot be enforced.cannot be enforced.


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9 .9 . Legal formalitiesLegal formalities- - A contract may be made A contract may be madeby words spoken or writtenby words spoken or written . As. Asregards the legal effects, there is noregards the legal effects, there is nodifference between a contract in writingdifference between a contract in writing

and a contract made by word of mouth. It and a contract made by word of mouth. It is however, in the interest of the partiesis however, in the interest of the partiesthat the contract that the contract should be in writing.should be in writing.There are someThere are some other legal formalitiesother legal formalitiesalsoalso . In some cases,. In some cases, the document the document needs to be stamped.needs to be stamped.


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Classification of ContractsClassification of Contracts

C lassifica t ion acco rd in g t o validi t y C lassifica t ion acco r din g t o validi t y Valid C on tr ac t Valid C on tr ac t-- An agreement becomes An agreement becomesa contract when all the essential elementsa contract when all the essential elementsreffered to above are present.reffered to above are present.If one or more of these elements is/ areIf one or more of these elements is/ aremissing, the contract is either voidable,missing, the contract is either voidable,void or illegal or unenforceable.void or illegal or unenforceable.


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Voidable Contract Voidable Contract An agreement An agreement which is enforceable by law at the optionwhich is enforceable by law at the optionof one or more of the parties thereto, but of one or more of the parties thereto, but not at the option of the other or others, isnot at the option of the other or others, isa voidable contract[Sec.2(i)] This happensa voidable contract[Sec.2(i)] This happens

when the essential element of freewhen the essential element of freeconsent in a contract is missing.consent in a contract is missing.


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Void Contract Void Contract --A contract which ceases A contract which ceasesto be enforceable by law becomes voidto be enforceable by law becomes voidwhen it ceases to bewhen it ceases to beenforceable[Sec.2(i)]. Sometimes, bothenforceable[Sec.2(i)]. Sometimes, bothparties of a contract agreement are underparties of a contract agreement are under

a mistake of fact or when their object isa mistake of fact or when their object isunlawful or when the contract is without unlawful or when the contract is without any consideration, etc. they become voidany consideration, etc. they become voidcontracts.contracts.


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U nenforceable Contract U nenforceable Contract -- An Anunenforceable contract is one whichunenforceable contract is one whichcannot be enforced in a court of lawcannot be enforced in a court of lawbecause of some technical defect such asbecause of some technical defect such asabsence of writing or where the remedyabsence of writing or where the remedy

has been barred by lapse of time.has been barred by lapse of time.


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C lassifica t ion acco r din g t o fo rm a t ion C lassifica t ion acco r din g t o fo rm a t ion Ex pre ss C on tr ac t Ex pre ss C on tr ac t -- If the terms of aIf the terms of acontract are expressly agreed uponcontract are expressly agreed upon(whether by words spoken or written) at (whether by words spoken or written) at the time of the formation of the contract,the time of the formation of the contract,

the contract is said to be an Expressthe contract is said to be an ExpressContract.Contract.


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Implied Contract Implied Contract- - An implied contract is An implied contract isone which is inferred from the acts orone which is inferred from the acts orconduct of the parties or course of conduct of the parties or course of dealings between them.dealings between them.ExampleExample--There is an implied contract There is an implied contract when Awhen A--Gets into a public bus, orGets into a public bus, orLifts B s luggage to be carried out of theLifts B s luggage to be carried out of therailway station.railway station.


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Q uasiQ uasi- -Contract Contract -- A Quasi A Quasi--Contract is not aContract is not acontract at all. A Contract is intentionallycontract at all. A Contract is intentionallyentered into by the parties. A Quasientered into by the parties. A Quasi- -

Contract, on the other hand, is created byContract, on the other hand, is created bylaw. It resembles a contract in that a legallaw. It resembles a contract in that a legalobligation is imposed on a party who isobligation is imposed on a party who isrequired to perform it.required to perform it.Ex ampleEx ample -- T, a tradesman, leaves goods at T, a tradesman, leaves goods at C s house by mistake. C treats the goods asC s house by mistake. C treats the goods ashis own and used them. C is bound to payhis own and used them. C is bound to pay

for the goods.for the goods.


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Void agreement and void contract Void agreement and void contract

Void agreement Void agreement -- An agreement not An agreement not enforceable by law is said to beenforceable by law is said to bevoid[Sec.2(g)]. A void agreement does not void[Sec.2(g)]. A void agreement does not create any legal rights or obligations.It iscreate any legal rights or obligations.It isvoid ab initio i.e void from the beginning.void ab initio i.e void from the beginning.

Ex ampleEx ample -- An agreement with a minor or An agreement with a minor oran agreement without consideration.an agreement without consideration.


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Void Contract Void Contract -- A contract which ceases to A contract which ceases tobe enforceable by law becomes void whenbe enforceable by law becomes void whenit ceases to be enforceable [Sec.2(j)].Ait ceases to be enforceable [Sec.2(j)].A

contract, when originally entered into, maycontract, when originally entered into, maybe valid and binding on the parties.be valid and binding on the parties.Ex ampleEx ample --A contract to import goods from A contract to import goods from

a foreign country but eventually a wara foreign country but eventually a warbroke out between those two countries,broke out between those two countries,then the contract becomes void.then the contract becomes void.


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I llegal agreement I llegal agreement -- An illegal agreement An illegal agreement is one which trangresses some rule of is one which trangresses some rule of basic public policy or which is criminal inbasic public policy or which is criminal innature or which is immoral.nature or which is immoral.

S o, All ill eg al a greeme n t s a re v oid but S o, All ill eg al a greeme n t s a re v oid but

all void a greeme n t s o r con tr ac t s a reall void a greeme n t s o r con tr ac t s a reno t n e c e ssa r ily ill eg al .no t n e c e ssa r ily ill eg al .


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C lassifica t ion acco r din g t o C lassifica t ion acco r din g t o per fo rm anc eper fo rm anc e

Ex e c ute d C on tr ac t Ex e c ute d C on tr ac t -- An Executed contract An Executed contract is one which both the parties haveis one which both the parties haveperformed their respective obligations.performed their respective obligations.Ex

ampleEx

ample --A agrees to paint a picture for B A agrees to paint a picture for Bfor Rs.100. when A paints the picture and Bfor Rs.100. when A paints the picture and Bpays the price, i.e., when both the partiespays the price, i.e., when both the partieshave performed their obligations, thehave performed their obligations, thecontract is said to be executed.contract is said to be executed.


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Ex ecutory Contract Ex ecutory Contract --An Executory An ExecutoryContract is one in which both the partiesContract is one in which both the partieshave yet to perform their obligations.have yet to perform their obligations.Ex ampleEx ample -- If A agrees to engage B as hisIf A agrees to engage B as hisservant from the next month, the contract servant from the next month, the contract

is executory.is executory. A con tra c t ma y so met i me s be partl y A con tra c t ma y so met i me s be partl y

e x e cu te d a nd partl y e x e cu t o r y e x e cu te d a nd partl y e x e cu t o r y


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U nilateral or oneU nilateral or one- -sided contract sided contract A Aunilateral or oneunilateral or one- -sided contract sided contract is one inis one inwhich only one party has to fulfil hiswhich only one party has to fulfil hisobligation at the time of the formation of obligation at the time of the formation of the contract, the other party havingthe contract, the other party having

fulfilled his obligation at the time of thefulfilled his obligation at the time of thecontract or before the contract comes intocontract or before the contract comes intoexistence. Such contracts are also knownexistence. Such contracts are also knownas contracts withas contracts with executed considerationexecuted consideration. .


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B ilateral Contract B ilateral Contract A Bilateral contract A Bilateral contract is one in which the obligations on the part is one in which the obligations on the part of both the parties to the contract areof both the parties to the contract areoutstanding at the time of the formationoutstanding at the time of the formationof the contract. In this sense,of the contract. In this sense, b ila ter al b ila ter al

con tr ac t s a re simila r t o e x e cu t o r y con tr ac t s a re simila r t o e x e cu t o r y con tr ac t s and a re also known as con tr ac t s and a re also known as con tr ac t s wi th e x e cu t o r y con tr ac t s wi th e x e cu t o r y consid er a t ion .consid er a t ion .


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Offer and AcceptanceOffer and Acceptance

O ffer O ffer -- At the inception of every At the inception of everyagreement, there must be aagreement, there must be a d ef ini ted ef ini teo ffer o ffer by one person to another and itsby one person to another and itsunquali fi e d acc ept anc eunquali fi e d acc ept anc e by the personby the personto whom the offer is made.to whom the offer is made.

An off er is a pr oposal b y on e pa rt y t o An off er is a p r oposal b y on e pa rt y t o ano ther t o e n ter in t o a l eg ally ano ther t o e n ter in t o a l eg ally b indin g a gree m e n t wi th h im .b indin g a gree m e n t wi th h im .


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A person is said to have made a proposal, A person is said to have made a proposal,when he signifies to another his willingnesswhen he signifies to another his willingnessto do or to abstain from doing anything, withto do or to abstain from doing anything, witha view to obtaining the assent of that othera view to obtaining the assent of that otherto such act or abstinence. [Sec.2(a)]to such act or abstinence. [Sec.2(a)]ExampleExample-- A says to B, will you buy my car A says to B, will you buy my carfor Rs. 5 0,000?for Rs. 5 0,000?

A is the offeror, proposer or promisor and B A is the offeror, proposer or promisor and Bis the Offeree or proposee. When the offereeis the Offeree or proposee. When the offereeaccepts the offer, he is called the Acceptor oraccepts the offer, he is called the Acceptor or

promisee [Sec.2(c)]promisee [Sec.2(c)]


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How an offer is made?How an offer is made? An offer may be made by express words, An offer may be made by express words,spoken or written. This is known as anspoken or written. This is known as anexpress offer.express offer.

An offer may be implied from the conduct An offer may be implied from the conduct

of the parties or the circumstances of theof the parties or the circumstances of thecase. This is known as an Implied offer.case. This is known as an Implied offer.ExampleExample-- when a transport company runs awhen a transport company runs abus on a particular route, there is anbus on a particular route, there is animplied offer by the company to carryimplied offer by the company to carrypassengers for a certain fare. Thepassengers for a certain fare. Theacceptance is complete as soon as aacceptance is complete as soon as apassenger boards the bus.passenger boards the bus.


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Legal Rules as to OfferLegal Rules as to Offer

1.1. Offer must be such as in law is capableOffer must be such as in law is capableof being accepted and giving rise to legalof being accepted and giving rise to legalrelationship.relationship.

2.2. Terms of offer must be definite,Terms of offer must be definite,unambiguous and certain.unambiguous and certain.

Ex ampleEx ample -- A says to B, I will sell you a A says to B, I will sell you acar. A owns three different cars. Thecar. A owns three different cars. Theoffer is not definite.offer is not definite.


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3.3. An offer may be distinguished from: An offer may be distinguished from:i .i . A d e cla r a t ion of in te n t ion and an A d e cla r a t ion of in te n t ion and an

announc e m e n t announc e m e n t A declaration by a A declaration by a

person that he intends to do somethingperson that he intends to do somethinggives no right of action to another. Suchgives no right of action to another. Sucha declaration only means that an offera declaration only means that an offerwill be made or invited in future and not will be made or invited in future and not that an offer is made now.that an offer is made now.

E x ampl eE x ampl e-- An advertisement for a concert or An advertisement for a concert oran auction sale does not amount to anan auction sale does not amount to an

offer to hold such concert or auction sale.offer to hold such concert or auction sale.


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ii .ii . An invi t a t ion t o mak e an off er o r do An invi t a t ion t o mak e an off er o r do b usin e ss b usin e ss --D isplay of goods by aD isplay of goods by ashopkeeper in his window, with pricesshopkeeper in his window, with pricesmarked on them, is not an offer but marked on them, is not an offer but merely an invitation to the public to makemerely an invitation to the public to makean offer to buy the goods at the markedan offer to buy the goods at the markedprices. Likewise quotations, catalogues,prices. Likewise quotations, catalogues,advertisements, in the newspaper for saleadvertisements, in the newspaper for saleof an article, or circulars sent to potentialof an article, or circulars sent to potentialcustomers do not constitute an offer. Theycustomers do not constitute an offer. Theyare instead an invitation to the public toare instead an invitation to the public to

make an offer.make an offer.


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Ex ampleEx ample -- Goods are sold in a shop underGoods are sold in a shop underthe self the self--service system. Customers select service system. Customers select goods in the shop and take them to thegoods in the shop and take them to thecashier for payment of the price. Thecashier for payment of the price. Thecontract is made, not when a customercontract is made, not when a customer

selects the goods, but when the cashierselects the goods, but when the cashieraccepts the offer to buy and receives theaccepts the offer to buy and receives theprice.price.


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CAS ECAS E --Harvey Vs Facie Bumper Harvey Vs Facie Bumper

Hall PenHall PenHarvey telegraphed to Facie stating willHarvey telegraphed to Facie stating willyou sell us Bumper Hall Pen? Telegraphyou sell us Bumper Hall Pen? Telegraphlowest cash price. Facie replied also by alowest cash price. Facie replied also by atelegram lowest price for Bumper Hall Pentelegram lowest price for Bumper Hall PenRs.9 000/Rs.9 000/-- Harvey immediately sent thisHarvey immediately sent this

last telegram stating We agree to buy thelast telegram stating We agree to buy thepen for Rs. 9 000/pen for Rs. 9 000/-- asked by you. Facieasked by you. Facierefused to sell the Pen at the price.refused to sell the Pen at the price.


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Harvey went to court contended that byHarvey went to court contended that byquoting their minimum price in responsequoting their minimum price in response

to the inquiry the defendant had made anto the inquiry the defendant had made anoffer to sell at that price. Court pointedoffer to sell at that price. Court pointedout that in their first telegram Harveyout that in their first telegram Harveyasked two questions, first as to theasked two questions, first as to thewillingness to sell and second as to thewillingness to sell and second as to theprice. Facie answered only the secondprice. Facie answered only the secondquestion and quoted price. He reservedquestion and quoted price. He reservedthe answer as to the willingness to sell.the answer as to the willingness to sell.


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Thus, he has not made an offer.Thus, he has not made an offer. M ereM eres t a te m e n t of the p r ic e a t which t h es t a te m e n t of t h e p r ic e a t which t h ev e ndo r would s e ll con t ain e d no v e ndo r would s e ll con t ain e d no impli e d con tr ac t t o s e ll a t t ha t p r ic eimpli e d con tr ac t t o s e ll a t t ha t p r ic et o t h e p er son makin g t h e e nqui r y .t o t h e p er son makin g t h e e nqui r y .


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4.4. Offer must be communicated.Offer must be communicated.5 .5 . Offer must be made with a view toOffer must be made with a view to

obtain the assent.obtain the assent.6.6. Offer should not contain a term the nonOffer should not contain a term the non- -

compliance of which may be assumed tocompliance of which may be assumed toamount to acceptance.amount to acceptance.

7.7. A statement of price is not an offer A statement of price is not an offer[Harvey Vs Facie (Case)][Harvey Vs Facie (Case)]


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Types of an OfferTypes of an Offer

1 .1 . Specific O ffer Specific O ffer When an offer is madeWhen an offer is madeto a definite person, it is called ato a definite person, it is called aspecific offer specific offer . It can be accepted only. It can be accepted onlyby a person to whom it is made.by a person to whom it is made.

2.2. General O ffer General O ffer When an offer is madeWhen an offer is madeto the world at large, it is called ato the world at large, it is called ageneral offer general offer ..


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3 .3 . Cr oss O ffe rCr oss O ffe r When two parties makeWhen two parties makeidentical offers to each other, in ignoranceidentical offers to each other, in ignoranceof each other s offer, the offers are crossof each other s offer, the offers are cross

offers.offers.

4.4. Standing O ffe rStanding O ffe r When an offer isWhen an offer is

allowed to remain open for acceptanceallowed to remain open for acceptanceover a period of time, it is called Standingover a period of time, it is called Standingoffer. Tender for supply of goods is a kindoffer. Tender for supply of goods is a kindof standing offer.of standing offer.


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5 .5 . Counte r O ffe rCounte r O ffe r When theWhen theofferee agrees to qualified acceptance of offeree agrees to qualified acceptance of the offer subject to modifications andthe offer subject to modifications andvariations in the terms of origional offer,variations in the terms of origional offer,he is said to have made a counter offer.he is said to have made a counter offer.

Counter offer amounts to rejection of theCounter offer amounts to rejection of theoriginal offer.original offer.


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Acceptance Acceptance

A contract emerges from the acceptance A contract emerges from the acceptanceof an offer.of an offer.

Acceptance is the act of assenting by the Acceptance is the act of assenting by theofferee to an offer.offeree to an offer.

Acceptance may be Acceptance may be Ex p r ess o r impliedEx p r ess o r implied ..


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Who can accept?Who can accept?

Acceptance of pa rt icula r offe r Accep t ance of pa rt icula r offe r WhenWhenan offer is made to a particular person, it an offer is made to a particular person, it can be accepted by him alone. If it iscan be accepted by him alone. If it isaccepted by any other person, there is noaccepted by any other person, there is novalid acceptance.valid acceptance.

Accep t ance of gene r al offe r Accep t ance of gene r al offe r When anWhen anoffer is made to world at large, any personoffer is made to world at large, any personto whom the offer is made can accept it.to whom the offer is made can accept it.


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Legal Rules as to AcceptanceLegal Rules as to Acceptance1.1. Acceptance must be absolute and Acceptance must be absolute and

unqualified i.e., it must conform with theunqualified i.e., it must conform with theoffer.offer.

2.2. It must be communicated to the offeror.It must be communicated to the offeror.

3.3. It must be according to the modeIt must be according to the modeprescribed or usual and reasonable mode.prescribed or usual and reasonable mode.ExampleExample-- A makes an offer to B and says If A makes an offer to B and says If

you accept the offer, reply by phone. Byou accept the offer, reply by phone. Bsends the reply by post. It will be validsends the reply by post. It will be validacceptance unless A informs B that theacceptance unless A informs B that theacceptance is not according to the modeacceptance is not according to the modeprescribed.prescribed.


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4.4. It must be given within a reasonableIt must be given within a reasonabletime.time.

5 .5 . It cannot precede an offer.It cannot precede an offer.6.6. It must show an intention on the part of It must show an intention on the part of

the acceptor to fulfil terms of thethe acceptor to fulfil terms of thepromise.promise.

7.7. It must be given by the party to whomIt must be given by the party to whomthe offer is made.the offer is made.


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8.8. It must be given before the offer lapsesIt must be given before the offer lapsesor before the offer is withdrawn.or before the offer is withdrawn.

9 .9 . It cannot be implied from silence.It cannot be implied from silence.Ex ampleEx ample A wrote to B, I offer you my A wrote to B, I offer you my

car for Rs.10,000. If I don t hear fromcar for Rs.10,000. If I don t hear fromyou in seven days, I shall assume that you in seven days, I shall assume that you accept. B did not reply at all. Thereyou accept. B did not reply at all. Thereis no contract.is no contract.

Indian Contracts Act, 1872

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