Business Law

INDIAN CONTRACT ACT,1872

 Introduction
• This act contains description of contract.
• This act was passed by British India.
• This act came into force on september,1,1872.
• This act applicable in all state of India except
Jammu & Kashmir.
• Not applicable in J&K because central government
have on authority to take legal decision of
J&K.(Only authority of external affairs, defence,
finance and communication.)
 Agreement

• Every promise or set of promise forming

consideration for each other.

Offer + Acceptance = Agreement

{2(a)} {2(b)} {2(e)}
 Question
• In this case, the petitioner, Mr. Paul Felthouse wanted to purchase a
horse from his nephew, but the price he offered to pay for the
horse was less than that his nephew was willing to sell it for. The
horse, therefore, was still in his possession. The Uncle
communicated his offer through a letter, saying, “If I hear no more
about him, I consider the horse mine at £30.15s” The nephew could
not respond to the letter because he was busy with an auction on
his farm. Though he asked the auctioneer, Mr. Bindley, not to
auction the horses, he accidentally did. Mr. Felthouse then sued the
defendant for conversion of his property. The defendant argued
that the horse was not actually Mr. Felthouse’s property, as there
existed no contract between him and his nephew at the time of the
auction because Mr. Felthouse’s offer was not accepted by his
nephew and the nephew’s silence cannot be considered to be an
acceptance of the offer
 Contract
• An agreement which is enforceable by law.

Agreement + Enforceability by Law = Contract

{2(e)} {10} {2(h)}
 Difference Between Agreement & Contract

S.
Basis Agreement Contract
no.
When a proposal is accepted by
When an agreement is
person to whom it is made , with
enforceable by law, it becomes
1. Meaning requisite consideration , it is an
contract
agreement

2. Section Sec.2(e) Sec.2(h)

3. Elements Offer + Acceptance Agreement + Enforceable by law

4. Registered Not necessary Normally written or registered

5. Legal Obligations Not created Created

 ESSENTIAL ELEMENTS OF VALID CONTRACT

• There must be atleast two parties.

• There must be legal relationship between parties.
• Offer and Acceptance
• Both parties are freely concern. Not available in events of coercion,
Undue Influence, Fraud and Misrepresentation
• Possibilities of Performance
• Both parties must be competent.(Non Competent- Unsound Mind,
Minor, disqualified by lawlike person in Jail, bankruptcy, ailing enemy)
• Consensus-ad-idem Same thing in mind of both parties)
• There must be consideration.
• Consideration must be lawful.
• Objective of contract must be lawful.
• Contract must be in written and registered form.
 Lalman V/S Gauri Dutt
• Gauri Dutt sent his servent Lalman in search of
his missing nephew. Gauri Dutt announced a
reward for information concerning the boy.
Lalman traced the boy in ignorance of any
such announcement. Subsequently Lalman
came to know of this reward. He claimed it.

• Is the Claim Valid?

 Solution
• Offer refers to the signification by one person to another of his
willingness to enter in to a contract with him on certain terms. It
may be expressed or implied from the conduct of the parties.
• Held : Lalman was not entitled to the reward Judgement : As
mentioned above Gauri Dutt advertise the reward after servant
went in search therefore in this case there is lack of
communication.
• A person cannot accept an offer as long as he is unaware of its
existence. Unless an offer is properly communicated there can be
no acceptance of it. There can be no offer by a person to himself.
An acceptance of an offer in ignorance of the offer is no acceptance
at all and does not create any legal rights or obligations. Therefore
here in this case Gauri Dutt need not pay the reward amount to
servant
 General Offer: Carlill v. Carbolic
Smoke Balls Company
• In this case, a company carried out advertisements about their
product, carbolic smoke balls, that claimed that any person who
took the smoke balls in the prescribed manner (i.e., three times
daily for two weeks) will not catch influenza. In case someone does,
the company promised to pay 100£ to them immediately. To show
their sincerity regarding this offer, the company deposited a sum of
1000£ in a public bank. Now, the plaintiff, Carlill bought the smoke
balls and used them as prescribed in the advertisement, but still
ended up catching the flu. She filed a suit for the recovery of 100£
as promised in the advertisement. The company denied the
payment saying there existed no contract between them and the
plaintiff.

• Is the Company’s claim valid?

 Balfour v Balfour
• Brief Facts: Mr. Balfour- a civil engineer by profession- is the
appellant in the present case. He used to live with his wife in
Ceylon, Sri Lanka. During his vacations in the year 1915, they came
to England. But on his return, Mrs. Balfour had developed a disease
rheumatic arthritis. She was advised by her doctor to stay in
England as a jungle climate would be detrimental to her health. As
Mr. Balfour’s boat was about to set sail, he promised her £30 a
month until she came back to Ceylon.
Mr. Balfour continued to send the money to her wife in England for
some time but subsequently, he stopped. In March 1918, Mrs.
Balfour sued him to keep up with the monthly £30 payments.

• Your views about the claim of Mrs Balfour?

 Collins v Godefroy (1831)
Performance of an existing duty is no consideration.

• Godefroy, the defendant, brought an action against an

attorney for negligence and caused Collins, the
plaintiff, to be subpoenaed to attend and give
evidence. Godefroy was keen to ensure that Collins
attended as this would help his case, so he promised to
pay him one guinea per day he was at court as
compensation for the loss of his time. Collins attended
court for six days but was not called to give evidence.
At the end of this Collins demanded payment of six
guineas as per the agreement. When this was not paid,
he brought an action against the defendant for the sum
owing.
• What do think about demand of Collins?
 Consideration

• Consideration must be something which the

promisor not already bound to do
• It should be under pre-existing legal or
contractual legal obligation
• Any performance of public duty by public
servant is not a valid consideration
 Consideration – Privity of Contract

• Doctrine of Privity of Contract

• The Indian Contract Act. 1872, allows the
‘Consideration‘ for an agreement to proceed from
a third-party. However, a stranger (third-party) to
consideration is different from a stranger to a
contract. The law does not allow a stranger to file
a suit on the contract. This right is available only
to a person who is a party to the contract and is
called Doctrine of Privity of Contract.
 Exceptions to the Doctrine of Privity of
Contract
A stranger or a person who is not a party to a contract
can sue on a contract in the following cases:
• Trust
• Family Settlement
• Assignment of a Contract
• Acknowledgement or Estoppel
• A covenant running with the land
• Contract through an agent
Reference https://www.toppr.com/guides/business-
laws/indian-contract-act-1872-part-i/doctrine-of-
privity-of-contract/
 CASE LAW

Express your Views about the C’s Claim

 N. Devaraje Urs vs M. Ramakrishniah
• The plaintiff is a building contractor. He constructed a
house in Mysore City for one Annapurnamma and a
sum of Rs. 17807- was found due to him in that
connection. She conveyed the house to the defendant
by a sale deed dated 15-4-1941 and it was provided in
that sale deed that the defendant should pay this sum
to the plaintiff as a part of the purchase money due to
Annapurnamma. The plaintiff's case is that the
defendant agreed to do so and has also paid Rs. 1470/-
in pursuance of that promise leaving a balance of Rs.
310/- for which sum and interest thereon by way of
damages the suit had to be filed as the defendant later
on denied his liability.
 CASE LAW

Express your views about claim of C against the Daughter

 Types of Contract
There are many types of contract.
A. On the basis of Nature Enforceability –
i. Void Agreement Sec.2(g) – Not enforceable by law
ii. Valid Contract Sec.2(h) - An agreement enforceable by law
iii. Void Contract Sec.2(j) - A void contract is a contract which was
enforceable by law in the beginning but due to some
circumstances it becomes void”. Void contract cannot be
performed under the law.
1. Contracts involving an illegal subject matter such as gambling, prostitution, or
committing a crime.
2. Contracts entered into by someone not mentally competent (mental illness or
minors).
3. Contracts that require performing something impossible or depends on an
impossible event happening.
4. Contracts that are against public policy because they are too unfair.
5. Contracts that restrain certain activities (right to choose who to marry, restraining
legal proceedings, the right to work for a living, etc.).
 Types of Contract
iv. Voidable Contract Sec.2(i) - A contract which is valid unless until avoided by
either the party”. Voidable contract can still be performed, although the
unbound party to the contract can choose to void it before the other party
performs.
i. Contracts entered into when one party was a minor. (The law often treats
minors as though they do not have the capacity to enter a contract. As a result,
a minor can walk away from a contract at any time.)
ii. Contracts where one party was forced or tricked into entering it.
iii. Contracts entered when one party was incapacitated (drunk, insane,
delusional)

v. Unenforceable Contract - A contract which is good in substance but due to

technical defects it become unenforceable”.

vi. Illegal Agreement - An agreement which is forbidden and punishable by

law”.
 Types of Contract
B. On the basis of Formation & Creation :-
i. Express Contract : “When contract is either written or oral form
at the time of formation”.
ii. Implied Contract : “ When contract is neither in written nor
oral form but created by law”. For E.g. –Buying a cup of tea in
restaurant.
iii. Quasi Contract : “ This contract is neither written/oral nor
conduct of parties, but created by law”. For e.g.- A, a trader
leaves goods at B’s place. B treat the goods as his own and uses
the goods . But B is liable to pay for the goods of A because B
used the goods for his benefit.
iv. E-Contract : “An E-Contract is the one , which is entered between
parties via internet”.
 Taylor v. Caldwell

• Facts. Plaintiff and Defendant entered into a

contract, in which, Defendant agreed to let the
Plaintiff use The Surrey Gardens and Music Hall
on four certain days. After the signing of the
contract, but before the first contract, the concert
hall was destroyed by fire. The destruction was
without fault of either party and was so extensive
that the concerts could not be given.
• Issue. Whether the loss suffered by Plaintiffs, is
recoverable from the Defendant?
Common Law of Impossibility – Performance of
Contract
• Held. No.

• The contract here is subject to an implied condition that the parties

shall be excused if performance becomes impossible from the
perishing of the thing without fault of the contractor.
• The parties regarded the continuing existence of the hall as the
foundation of the contract, and the contract contained an implied
condition that both parties would be excused if the hall did not
exist.
• Therefore, the destruction of the hall without fault of either party
excuses both parties, the Plaintiff from taking the gardens and
paying the money and the Defendant from performing their
promise to give the use of the hall.
Common Law of Impossibility – Performance of
Contract
• Held. No.

• The contract here is subject to an implied condition that the parties

shall be excused if performance becomes impossible from the
perishing of the thing without fault of the contractor.
• The parties regarded the continuing existence of the hall as the
foundation of the contract, and the contract contained an implied
condition that both parties would be excused if the hall did not
exist.
• Therefore, the destruction of the hall without fault of either party
excuses both parties, the Plaintiff from taking the gardens and
paying the money and the Defendant from performing their
promise to give the use of the hall.
 Question - Consideration

• A and B are friends. B treats A during A’s

illness but does not accepts payment from A
for the treatment and A promises B’s son X to
pay him Rs. 1000. A being poor is unable to
pay. X sues A for the money.

• Can X recover ?
 Answer

• The agreement between X and A are not in the

contract in the absence of consideration.
• The agreement can be call it as contract if there is a
consideration present in contract between 2 people.
• In this case B treats A during his illness but it’s not a
valid consideration since it is a voluntary action
performed by Mr. B
• Judgement : The agreement between X and A is not
the contract in the absence of a consideration. In this
case X father B voluntarily treat A during his illness
apparently it is not a a valid consideration. Therefore X
cant not recover the money from A.
 Question

• Harish says in conversation to Suresh that he

will give Rs.10,000 to a person who so ever
marry his daughter. Alok marries Harish
daughter and files the suit to recover
Rs.10,000.

• Will Alok succeed?

 Answer

• The promise was executed at the desire or under the direction of the promisor
• In this set case Harish shows his wish to give away a good amount to the person
who will marry his daughter.
• Case : Durgaprasad V/S Baldeo In this case Mr. Durgaprasad constructed the
market under the direction of municipal corporater. Market allotted to various
person, Mr. Baldeo was one of them. He made an agreement that he will pay
commission to Mr. Durgaprasad for the land allotment in the market. But after this
agreement Mr. Baldeo failed to pay money to Mr. Durgaprasad hence Durgaprasad
filed a case against baldeo.
• Judgement : As mentioned above Mr. Hairsh clear his wish to pay the amount who
so ever marries his daughter. Here Mr. Harish just expressed his wish and it was a
voluntarily action taken by Alok. The Indian law says as per the Section 2 (D)
anything is done voluntarily, there is no lawful consideration. To have a legal
consideration, consideration must move at the desire of the promisor here there
Harish just expressed his wish therefore it cannot be a consideration hence there is
no contract made in this case Therefore Mr.Harish need not have to pay certain
amount to Mr.Alok.