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IntroductionThe law relating to contracts iscontained in the Indian Contract Act,1872. For PGDM students contract law istremendously significant because it isrelated to all major areas of lawaffecting business. The general

principles of the law of contracts arecovered in 75 sections.



Indian Contract Act, 1872

According to Sec 2 (h) of the Contract Act,

1872 ³an agreement enforceable by law iscontract.´

(i) Agreement

(ii)Legal Obligation

An offer when accepted gives rise to anagreement.



AgreementAccording to Sec 2(e) of the IndianContract Act, 1872 ³Every promiseand every set of promises, formingconsideration for each other, is anagreement.´

Thus there are following characteristics

of an agreement:(i) Plurality of persons

(ii) Consensus-ad-idem



Balfaur vs

Balfaur (1919)

The plaintiff wife and defendant husbandwere married in 1900. The husband was aCivil servant in England. He was posted in

Ceylon. His wife could not accompany himon account of ill health. The husbandpromised her to pay 30 BP per month asmaintenance but failed to keep his promise.



Held promise was of domestic nature with nointention of giving rise to legal obligations.



Promise According to the Sec 2 (b) of the Act,

³A proposal when accepted,

becomes promise´.

Therefore,

Agreement = Offer + Acceptance



The party making the offer is known as offerer

or proposer and the party to whom the offeris made is known as offeree. When the offereegives his assent to the offer he is known as µacceptor¶



Conditions of EnforceabilityAccording to Sec 10, ³All agreementsare contracts if they are made by the

free consent of the partiescompetent to contract, for alawful consideration and with alawful object and are not hereby

expressly declared to be void´.



Essentials of Contract

(i) Offer & Acceptance(ii) An Intention to Create Legal Relations

(iii) Lawful Consideration

(iv) Capacity of Parties

(v) Free Consent

(vi) Lawful Object

(vii)Writing and Registration

(viii)Certainty

(ix) Possibility of Performance

(x) Not Expressly Declared void



Proposal or OfferThe term proposal has been defined in Sec2(a) as: ³when one person signifies toanother his w illingness to do or abstain

from doing anything , with a view toobtaining the assent of that other tosuch act or abstinence, he is said tomake a proposal.´

The term proposal used in the ContractAct is synonymous with the term offerused in English Act.



Offer & Invitation to Treat or invitation to

receive offer distinguished

Sec 64 (2) Sale of Goods Act, 1930

Auction sale.---

In the case of a sale by auction---(1) where goods are put up for sale in lots, each lotis prima facie deemed to be the subject of aseparate contract of sale;

(2) the sale is complete when the auctioneerannounces its completion by the fail of thehammer or in other customary manner; and,until such announcement is made, any biddermay retract his bid;



Harris vs Nickerson

The Defendant placed an advertisement inLondon papers that certain items, includingbrewing equipment and office furniture,would be placed up for auction over threedays in Bury St.Edmunds. The Plaintiff obtained a commission to buy the officefurniture and expended time and expense totravel to Bury St. Edmunds to bid for theoffice furniture. On the third day, the lotsfor the office furniture were withdrawn. The

Plaintiff sued for loss of time and expense.



It was held that he was not entitled for the

same as there was yet no contract betweentwo parties, which could make the defendantliable.



Communication of offer necessaryThe offer has to be communicated to theofferee in in order that the offeree canaccept it.

According to Sec 4, ³the communication of a proposal is complete when it comes tothe knowledge of the person to whom it ismade.´

Cross offer: Tinn vs Hoffmann (1873) 800tons of iron at 69 shillings per ton.



Specific & General Offer

Carlill vs Carbolic Smoke Ball Co. (1873)

-carbolic smoke ball ± a preventive remedy 3

times a day for two weeks, againstinfluenza.

100 award to anyone contracting influenza,cold or any disease caused by taking cold.



Doctrine of EstoppelThis precludes a person from assertingsomething contrary to what is implied by aprevious action or statement of that person

or by a previous pertinent judicialdetermination.

Case: Pournami Oil Mills vs State of Kerala AIR 1987 SC 590

on 11.04.79 Sale Tax and Purchase TaxWaiver were announced. However, on21.10.80 the waiver on PT was withdrawn.Held by SC as illegal.



(A) U nliquidated Damages

(B)Privity of Contract Exceptions: (i)Beneficiary (under Trust etc)(ii) Marriage Settlement, Partition or otherfamily arrangements (iii) Acknowledgementof payment (iv) Agreement relating to land

(v) Contracts through an agent (vi) Holder indue course of a Negotiable Instrument

(C) Right in rem and right in personam



ConsiderationThe term consideration may be definedas the price of the promise or quid proquid (something in return).



Validity of Agreement without Consideration An agreement without consideration is valid

if it is made out of (i) natural love andaffection, (ii)made in writing &

registered and (iii) The agreementmust be between the parties who arein near relation.

e.g. promise to pay for past voluntaryservices, promise to pay a time-barred debt(3 years), completed gifts, agency.



Capacity of Parties to Contract(i) Minor (who is under 18 years of age)

A minor however can be beneficiary

(ii)Persons of unsound mind ±According to Sec 12, ³A person is said tobe of sound mind if at the time when hemakes contract, he is capable of

understanding it and of forming arational judgment as to whether what heis about to do is to his interest or not.´



(iii) Disqualified Persons ± According to Sec11 persons disqualified from contracting by anylaw to which they are subject are incompetent tocontract-eg

(a) Alien enemies(b) Foreign Sovereign & Ambassadors(c) Convict ± is a person guilty & convicted(d) Married women- can not enter into

contract wrt husband¶s property.(e) Insolvent



Consent & Free Consent Sec 13 defines consent as ³Two or more

persons are said to consent when they agreeupon the same thing in the same sense.

Sec 14 lays down that consent is said to befree when it is not caused by ±

(i) Coercion Sec 15, or

(ii) Undue Influence Sec 16,or

(iii) Misrepresentation Sec 17, or(iv) Fraud Sec 17, or

(v) Mistake of Fact & Mistake of Law



V

oid Agreements(i) Agreements in restraint of marriage Sec 26

(ii) Agreements in restraint of trade Sec 27

(iii) Agreements in restraint of legal proceedings

Sec 28

(iv)Agreements the meaning of which is uncertainSec 29

(v) Agreements by way of wager Sec 30

(vi)Agreements Contingent on impossible eventsSec 36

(vii) Agreements to do impossible acts Sec 56



FormThe Indian Contract Act does not insist upon a

written contract. However, in following casesagreement should be in writing and if requiredby law registration must be observed.

(i) An agreement to pay a time barred loan(ii) Transfer of share certificate(iii) Hire Purchase Agreements(iv) An assignment of Copy Right

(v) Contracts for sale of immovable property(vi) Negotiable Instrument are required by lawto be in writing & duly signed



K

inds of Contracts(i) V alid Contracts : A valid contract is an

agreement enforceable by law. Anagreement becomes enforceable by law

when all the essential elements of a validcontracts are available.

(ii) V oidable Contracts: According to Sec 2

(i) ³an agreement which is enforceable bylaw at the option of one or more of theparties thereto, but not at the option of theother or others, is a voidable contract.



(iii) V oid Contracts: Void means µnot binding inlaw. Sec 2 (j) lays down ³A contract which ceases

to be enforceable by law becomes void, when itceases to be enforceable.´ such as contingentcontracts becomes void on prior or subsequentimpossibility.

Case: Mohiri Bibi vs Dharmodas Ghosh

(iv)U nenforceable Contracts: Unenforceablecontract is one which is valid in itself, but is notcapable of being enforced in a court of lawbecause of some technical defect such asabsence of writing, registration etc.