INDIAN CONTRACT ACT

1872
Learning Outcome
Basic idea
about contracts
&
Essentials
 Introduction to contract
• Law:
• Mercantile law/ Business law:
• Ignorance of law is no excuse
 Sources of Indian mercantile
law:
• English mercantile law
• The statute law
• Judicial decisions
• Customs and usage
 Indian contract Act 1872
Indian Contract Act came into force
on 1st Sept, 1872.

Indian Contract Act is not exhaustive

Applicability : whole of India except the

state of Jammu & Kashmir
 CONTRACT – Section 2(h)
“Agreement enforceable by law is
Contract”

“A contract is an agreement between

two or persons which can be enforced
in a court of law.”
 MAJOR COMPONENTS

1. AGREEMENT

2. LEGAL OBLIGATION

3. CONSENSUS AD IDEM
AGREEMENT – Section 2(e)
“Every promise and every set of promise
forming the consideration for each
other is agreement”

In General Terms:
 Contract = Agreement + Enforceability by law
 Agreement = Offer + Acceptance + Consideration
 Types of agreements

Intention to create legal relations

Social and Business or

commercial
domestic agreements
agreements (Presumption – parties
do intend
(Presumption – to create legal relations
parties do not intend
legal relations
 Comment……
“ All the contracts are
agreements
but
all the agreements are not
necessarily contracts.”
 Promise (Section 2(b)
“ A proposal when accepted becomes
a promise.”
 Domestic agreements
 Courts will presume that agreements
between friends and/or family members
are not intended to be legally enforceable.
 ESSENTIAL elements : VALID CONTRACT
SECTION 10

1. Offer & acceptance

2. Intention to create legal relationship
e.g Balfour v. Balfour
3.Free & Genuine consent
4.Capacity of Parties
(competency)
5.Lawful consideration
(benefit moving from one to another)
6.Lawful Object
(a) illegal
(b) immoral
(c) public policy (restraint of
trade/marriage/personal )
7. Agreement Not declared void
(restraint of trade/marriage/personal
freedom)
8. Certainty of meaning
9. Possibility of performance
10. Legal formalities
11. Mutual consent (consensus ad idem)
 Balfour v Balfour (1919) 2 KB
571
 Facts:
 Mr B promised to pay his wife £30 per month.
 Mr B had to return to Ceylon. Mrs B was to
remain in England for medical reasons.
 The couple later separated.
 Mrs B claimed £30 per month pursuant to Mr
B’s promise.
 Balfour v Balfour
 Issue:
 Did this promise by a husband to his wife
amount to a contract?
 Balfour v Balfour
 Decision:
 An agreement to pay £30 per month existed.
 The parties had not intended it to be legally
binding.
 There is a presumption that domestic
arrangements are not intended to finish up in
court.
 Todd v Nicol [1957] SASR 72
 Facts:
 Mrs N resided in South Australia.

 She wrote to her sister-in-law and niece (the Todds),

in Scotland, inviting them to come and live with her.

 She promised them free accommodation and that
she would alter her will so that after she died, the
house would become theirs.
 Mrs T quit her job and she and her daughter moved
to Australia.
 Later an argument developed and Mrs N told the

Todds to leave the house.

 Todd v Nicol
 Issue:
 Did the Todds have a contractual right to
stay? Did this family arrangement amount to a
contract?
 Todd v Nicol
 Decision:
 It was a contract.
Simpkins v Pays [1909] 1 WLR
975
 Facts:
 Three people lived together in a house and
jointly took part in a competition organised by
a newspaper.
 The entries were made in one name only.
 One entry won a prize and the defendant, in
whose name the entry was submitted, refused
to share it with the other two contributors
claiming there was not intention to create legal
relations.
 Simpkins v Pays
 Issue:
 Was there an understanding between the
parties that their agreement amounted to a
contract?
 Simpkins v Pays
 Decision:
 It was a joint enterprise to which each
contributed in the expectation of sharing any
prize that was won.
 There was a contract.
 Voluntary agreements

• In cases of voluntary agreements, e.g. where a

person volunteers their services, the parties do
not normally intend to create legal relations.
 Commercial agreements

 Courts will presume that agreements

arrived at in a commercial context are
intended to be legally enforceable.

 The presumption can be rebutted.

 What is a contract? Examples
• I promise to bring chocolates to the whole class.
Is there a contract?

• I promise to give you Rs1000 if secure first

position in the class. Is there a contract?

• I promise to give you a new mobile if you agree

not to eat Chinese food for one year. Is there a
contract?

26
 ???
A agrees to sell his iphone 6 to B for
Rs.50,000.
• Does the agreement gives rise to an
obligation?
• Is this a contract?
 ???
My grandmother invited my brother to come
and stay with her for a week. My brother
accepts the invitation but when he reaches at
grandmother’s house, she could not
accommodate him because of no room
availability.

Can my brother claim compensation from

her? Give reasons.
 Case
• Mr A has 2 cars. One is BMW and the
other is Tata Nano. A entered into
agreement with B to sell his car keeping
Nano car in mind. B was thinking about
BMW. Can this agreement be a valid
contract? Give reason.
 Case
• A threatened to kill B ‘s son unless B signs
the contract. Due to fear, B signed the
contract. Can the contract be valid? Is
there any legal remedy available?
 Case
• A ,by misrepresentation, made B to
believe that 5 tonnes of sugar is
manufactured in his factory. Actually the
factory had a capacity of 2 tonne sugar
only. B entered into contract. Can this be a
valid contract? Is there any remedy
available for B?
 Case
• X, a minor borrowed Rs 5000 from you.
He didn’t returned the money after a
reasonable time. Can you recover the
money from him? Give reason
 Case
• A promised to obtain a government job to
B. B promised Rs 100000 in return for this.
Can this be a valid contract? Reason
• If B had refused to pay, after obtaining the
job, Can A recover the money from B?
reason
 Case
A agreed to pay Rs 500000 to B, if he does
not marry in his life. B promised not to
marry. Can such an agreement be valid?
 Case
• A agreed to sell 100Litre of oil to B for Rs
1lakhs. Can it be a valid contract? Give
reason
 Case
• A agreed with B to discover treasure by
magic. In consideration B agreed to pay
Rs 500. Can this be a valid contract? Give
reason
 ???
Ankit and Binny enters into a contract
according to which Binny has to close
down his business for which he would be
paid amount by Ankit. Binny closes his
business but, Ankit fails to pay Binny the
agreed amount.
Binny sues Ankit for recovery.
Is this a valid contract? Give reasons.
 ???
An agreement gets formed between A
and B according to which A should marry
B only and B should marry A only. If any
one of them breaches the agreement a
compensation of $2000 is to be paid.
Is this a valid contract?
 ???
A contract of loan gets formed between A
and B and their Contract specifies that B
has to join as slave at A’s house till
Settlement of debt.
• Is this a valid contract?
 Parts of Indian Contract Act
1872
• General principles of Law of contract
(Sec1-75)
Applicable to all types of
contract

• Special kind of contracts (Sec 124-238)

Indemnity, Guarantee,
Bailment, Pledge and Agency.
 Jus in personam
• Its right against or in respect of a specific
person.

• Law of contract creates jus in personam,

ie the right is available only against
particular person.
 Example: Jus in personam
• A owes Rs 50000 to B. Here only B has
the right to recover this amount from B.
This right of B against A is called “jus in
personam”
 Jus in rem
• It’s a right against or in respect of a thing.

• Example: A is the owner of the house. He

had the right to have the possession of
house against the whole world.
 Classification of contract
• According to enforceability (legal validity)

• According to formation (Creation)

• According to performance
 According to enforceability (legal validity)
• Valid contact: Satisfies all conditions of Sec10

• Void contract: Not enforceable by law

• Unenforceable contract: Due to technical defects.

• Voidable contract: If consent of the party is not

free./When other person prevents you from
performing/Other person fails to perform in time
 Cases
• A promised to marry B . Later on B died.
Can the contract be valid? Give eason
 Case
• On 15th June A agreed to sell his car to B
for Rs 30000. It was agreed that car was
to be delivered on 20th June after making
full payment. But the car was destroyed in
18thJune. What is the status of contract?
Give reason
 According to formation
(Creation)
• Express contract: Contract made in
writing/ words of mouth.

• Implied contract: Due to act or conduct of

parties

• Quasi contract: Law implied contracts

 Case
• A went to the college canteen, took up a
cup of tea. Can this be a contract? Reason
 Case
• A fire was broken out in B’s Farm, he
believed that he was entitled to have free
service from fire engine company. He
therefore called to put out fire and it put
down the fire. Can the fire engine
company claim money from B? give
reason?
 Case
• A supplied certain goods to B, on the
order of C. B accepted the goods and
made part payment. Is there any contract
between A & B? give reason.
 Case
• A left some goods with B by mistake. B
used the goods like his own. Can B bound
to pay to A? give reason
 Classification of contracts
according to performance
• Unilateral contract: 1 party to perform

• Bilateral contract: Both the parties to perform

• Executed contract: Both the parties performed

• Executory contract: Either one or Both the

parties need to perform
 CHECK
YOUR
MEMORY
 True/False
1. All contracts are agreements but all agreements are not
contracts.
2. There can be a contract even without consensus ad idem.
3. An agreement which is enforceable at the option of either
party i a voidable contract.
4. A void contract is one which is void ab initio.
5. A void agreement does not create any legal obligations.
6. An illegal agreement is not only void as between the
immediate parties but even the collateral transactions to it
become tainted with illegality.
7. All void agreements are illegal.
8. In some cases, even though a contract may appear to be
completed at once, its effects may continue.
9. In an executed contract both the parties have yet to fulfill
their obligations.
 Problem 1
A engages B for a certain work and
promises to pay such remuneration as
shall be fixed by C. B does the work. Can
there be a contract?
 Solution
There is a contract between A and B and A is bound to
pay the remuneration as shall be fixed by C. If C does
not fix, or refuses to fix the remuneration, A is bound
to pay the reasonable remuneration.
 Problem 2

Over a cup of coffee in a restaurant, A

invites B to a dinner at his house on a
Sunday. B hires a taxi and reaches A’s
house at the appointed time, but A fails to
perform his promise.
Can B recover any damages from A?
 Solution
No, B cannot recover the
damages from A as both the
parties share a social relationship
and there is no intention to create
a legal relationship.
So, it was just an agreement
which is not enforceable at law.
 Problem 3
• A takes a seat in a vehicle. Is there any
contract?
 Answer
Yes as occupying the seat is an implied
gesture to take the services of a vehicle.
This is an implied contract.
 Problem 4
A invites B to a party. B accepts the
invitation.
Can there be a contract?
 Answer
No, there cant be a contract as the friends
share a social relation. So, it is just an
agreement.
 Problem 5
A forced B to enter into a contract
at the point of pistol. What
remedy is available to B if he
does not want to bound by the
contract ?
 Answer
B can set the contract to be voidable and
rescind it as his consent was not free. The
essential of a valid contract is violated
here.
 Problem 6
• Amar had two visitors in his office one evening,
Bharat and Ram. Bharat ran an event mgmt
service. Amar had hosted a party the previous
evening to celebrate his son’s birthday. Bharat
had done the mgmt for the party. Bharat had
come to Amar’s office that evening, to collect
Rs20000 for having done the work.
 Contd...
• Ram was the son of an ex- colleague of Amar.
Ram’s family had fallen into bad times. They had
accumulated a lot of debts. Ram was studying in
the final year of college. He was going around
meeting people his father had known and
soliciting money as donation, so as to be able to
finish his education. Amar was a kind person. He
told Ram that he would give him Rs5000. Ram
pleaded and said that if Amar could give him
Rs10000, he would not have to go any further to
collect money. Amar agreed to give him Rs10000
 Contd...
• While Amar was in the process of obtaining
the money to give to Bharat and Ram, the
phone rang. It was Amar’s stock broker. He
informed Amar that on a particular
purchase and sale order Amar had a loss of
huge amount of money. He had to pay to
the broker Rs9 lakh, within a week. Amar
was very upset. In result he refused to pay
the money agreed to Ram and Bharat.
 Questions :
• Was there an agreement between Amar
and Bharat?
• Was there an agreement between Amar
and Ram?
• Should agreements be fulfilled?
 Problem 7
M mowes L’s lawn without being asked by
L to do so.. L watches M do the work but
does not attempt to stop him. Is L bound to
pay any charges to M?
 Solution
Yes, L is bound to pay the remuneration as
he didn’t stop him from mowing the ground
so his implied silence is equivalent to
speech here.
 Problem 8
• A promises to pay Rs.500 if he (B) beats
C. B beats C but A refuses to pay.
Can B recover the amount?
 Solution
No, as the agreement is illegal
 Problem 9
• D lived as a PG with a family. He agreed
with the members of the family to share
prize money of a newspaper competition.
The entry sent by D won a prize of
$750.He refused to share the amount
won. Can the members of the family
recover their share?
 Solution
Yes, as it was mutually decided and the
parties intended to bound by.
 Problem 10
• C orally offered to pay A, an auto
mechanic, Rs.50 for testing a used car
which C was about to purchase from D.A
agreed and tested the car. C paid A Rs.50
in cash for his services. Is the agreement
between C and A
(a) express or implied,
(b) executory or executed,
(c) valid, void, voidable or unenforceable ?
 Solution
The agreement is
(a)Express
(b)Executed
(c)Valid
 Problem 11
• Arun enters into a contract to sell a
smuggled item to X. The import of such
type of goods is illegal under the laws of
the country. Arun refuses to deliver the
item as promised.
• What are the rights of X?
 Solution
There are no rights available to either of
the parties as the contract is void ab initio
and illegal.
 Problem 12
• A agrees to buy from a jeweller a ring to
be delivered to A after two months. In the
meantime, the Government enacts a law
on gold control and prohibit its dealings in
gold. When the time for delivery of the
jewellery comes, the jeweller refuses to
deliver the same.
• What can A do?
 Solution
A can exercise no option and holds no
rights as the prohibition laid by the
government has made the contract void
and the contract is against the law to
perform.
 Case
• Rose and frank company entered into
agreement with Crompton company. One
clause of agreement was that “this
agreement is not entered into as a formal
or legal agreement and shall not be
subject to legal jurisdiction in courts”. Can
this be a contract? Give examples
 Case
• A contracts with B that A shall white wash
B’s house for Rs 100. A is ready and
willing to execute the work accordingly, but
B prevents him from doing. Now what is
the status of contract? Discuss
 Case
• X agrees to sell and deliver 10 bags of
wheat to Y for Rs 2500 within one week.
But X does not supply the wheat within
specified time. Now what is the status of
contract? Discuss
 Case
• M agrees to pay N Rs 1000 and in
consideration N agrees to write for him
100 pages in 4 minutes. Can it be a vald
contract? Give reason
 Case
• A doctor by exercising undue influence,
over his patient B, makes him agree to sell
his car worth Rs 100000 for Rs 30000.
Now what is the status of contract?
Discuss
 Case
• Father promised his son a gift worth Rs
100000, if he passed his degree with first
class. The son Passed with first class and
the father failed to give the gift. Can the
son recover the money from his father?
Give reason
• W , the wife of H, who is lunatic purchased
a diamond ring on credit. Can the jeweller
owner can recover the money from H?
Discuss
 THANK YOU

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