INDIAN CONTRACT ACT, 1872

“A Contract is an agreement enforceable at law.”

AGREEMENT + ENFORCEABILITY AT LAW

By: Hetal Jani

 Certain Principles
• The directions of the State, expressed as law,
have to be followed. Beyond these directions,
however, individuals are free to do what they
like.
• Agreements must b performed by the
consenting parties.
• The benefit that each party to a contract
receives during the mutual exchange is called
consideration. Only agreements which have
consideration for both the parties are to be
enforced. Such agreements are called contracts.
 Contd….
• Contracts tainted with illegality or similar vice
are not to be enforced.
• In the cases where a contract is not
performed, a money equivalent can be
worked out for the losses incurred by the
injured party. The infringing party should be
made to pay this amount to the injured party.
• The constituents of the working of
contracts can be identified as:
– Formation of agreements

– Consideration

– Setting aside of bad contracts

– Damages and Compensation

“ALL AGREEMENTS ARE
CONTRACTS BUT ALL
CONTRACTS ARE NOT
AGREEMENTS”
 Agreement & Contract Distinguished

1. Offer + Acceptance 1. Agreement + Enforceability

=Agreement. =Contract.
2. Agreement may not 2. Contract necessarily
create any legal obligation. creates a legal obligation.
All agreements are not All contracts are
contracts agreements.
 Essentials of Valid Contract
• PROPOSAL & ACCETANCE (AGREEMENT =OFFER +
ACCEPTANCE)
• LAWFUL CONSIDERATION
• CAPACITY OF PARTIES
• FREE CONSENT
• AN AGREEMENT NOT DECLARED VOID
• LEGAL FORMALITIES
• INTENTION TO CREATE LEGAL RELATIONSHIP
• CERTAINTY
• POSSIBILITY OF PERFORMANCE
• ENFORCEABLITY BY LAW- LAWFUL OBJECT
 Agreements
• Every promise and every set of promises, forming the
consideration for each other is an agreement.
• Types:
– Valid Agreement: Enforceable by Law.
– Void Agreement: Not enforceable by Law.
– Enforceable Agreement: An agreement enforceable by Law is a
contract.
– Voidable Agreement: A voidable agreement is one which is enforceable
by Law at the option of one or more of the parties thereto but not at the
option of the other or others.
– Unenforceable Agreement: Valid in Law but is incapable of proof
because of some technical defect.
– Illegal Agreement: Something against the Law itself.
 Types of Contract
• Voidable Contract
Types on the base of
• Void Contract validity
• Unenforceable Contract
• Executed Contract Types on the base of performance
• Executory Contract
• Express Contract
• Implied Contract
• Quasi Contract
Types on the base of formation
• Contingent Contract
• Speciality Contract
• Simple Contract
• Statutory Contract
• Contracts of Records
 Contd…
• Executed Contract: Where both the parties have
performed their obligations.
• Executory Contract: Where both the parties have yet to
perform their obligations.
• Express Contract: When the terms of a contract are
reduced in writing or are agreed upon by spoken words
at the time of its formation.
• Implied Contract: When the proposal/acceptance of any
promise is made otherwise than in words, it is said to be
implied which leads to an implied contract.
 Contd…
• Quasi Contract: Certain relations resemble those
created by a contract. Certain obligations which
are not contracts in fact but are so in the
contemplation of law.
• Contingent Contract: is a contract to do or not to do
something, if some event, collateral to such contract,
does or does not happen.
• Speciality Contract: It is a contract which is in
writing, signed, sealed and delivered by the
parties – called contract under seal.
 Contd…
• Simple Contract: it is the contract which is not
under seal.
• Statutory Contract: When all or some of the
terms and conditions of a contract are
statutory, it is called statutory contract.
• Contracts of Records: A contract of record is
one which is taken on the records of a Court,
like judgment of a court.
 Proposal / Offer

“WHEN A PERSON SIGNIFIES TO ANOTHER HIS

WILLINGNESS TO DO OR TO ABSTAIN FROM
DOING ANYTHING, WITH A VIEW TO
OBTAINING THE ASSENT OF THAT ANOTHER
TO SUCH ACT OR ABSTINENCE HE IS SAID TO
MAKE A ‘PROPOSAL’.”
 Parties To Contract

• A person making a proposal or offer is called –

‘promisor’ or ‘proposer’ or ‘offerer’
• A person to whom the proposal is made is
called the ‘offeree’
• A person who accepts the proposal or offer his
assent to it is called the ‘promisee’
Essentials or Rules of a Valid Offer
1. Offer is the expression of willingness, but
there must be something in the nature of a
request
2. An offer must be intended to create and be
capable of creating legal relations.
3. A mere statement of intention does not
constitute a binding promise even though a
person to whom it is made acts upon it.
(Harvey Vs. Facey)
 Harvey Vs. Facey

• “Will you sell us your Bumper Hall Pen?

Telegraph lowest cash price- answer paid.” (H
to F)
• “Lowest price for Bumper Hall Pen $900.” (F
to H)
• “We agree to buy Bumper Hall Pen for the
sum $900 asked by you.” (H to F)
 RULES Contd…

4. The offer must be made to a definite person.

5. The terms of offer must be certain and unambiguous
6. An offer can be express or implied from the circumstances.
7. An offer must be communicated to an offeree-(Lalman Vs.
Gauri Dutt).
8. An offer may be conditional and offer lapses when the
condition precedent is not accepted.
9. An offer should be distinguished from invitation to offer
(Window Display & Advertisements)
 Various Offers

• GENERAL OFFER – SPECIFIC OFFER (Mrs.

Carlill vs. Carbolic Smoke Ball Co.)
• COUNTER OFFER
• AUCTION SALES AND TENDER
• STANDING OR OPEN OFFER
 Acceptance

“When the person to whom a proposal is made

signifies his assent thereto, the proposal is
said to be accepted. A proposal when
accepted becomes a promise.”
 Essentials
1. It must be absolute and unqualified.
2. It must be expressed in some usual and reasonable
manner or in manner prescribed.
3. Mental acceptance is not sufficient in law i.e.,
Acceptance must be communicated to the offerer.
4. Acceptance of the proposal –Special Terms.
5. Acceptance of the proposal need not always be
expressed in words- but silence cannot be assumed
to be acceptance.
 Essentials Contd…
6. Acceptance must be by a certain person.
7. If the act is done in ignorance of the
proposal, it is no acceptance of the proposal.
8. Acceptance must be given within a
reasonable time.
9. Acceptance must be given before the offer
lapses or is revoked or is withdrawn.
10. It cannot precede offer.
 Communication of Offer

Communication of offer is complete when it

comes to the knowledge of the person to
whom it is made.
 Communication of Acceptance

• As against the PROPOSER- When it is put into

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.
Time of Communication of Revocation
of Offer

• Time of 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.
• 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.
 Consideration

“When at the desire of the promisor, the

promisee or any other person (i) has done, or
abstained from doing or (ii) does or abstains
from doing, or (iii) promises to do or to
abstain from doing something such act or
abstinence or promise is called a
consideration for the promise.”
 Essentials of a Valid Consideration
• Consideration must move at the desire of the promisor.
• Consideration may move from the promisee or any other person –
Stranger to a contract.
• Consideration may be past, present and future.
• Consideration may be an act of doing or abstaining from doing
something or it may be an act or forbearance or abstinence.
• Consideration need not be adequate.
• Consideration must be real and not illusory.
• Consideration must not be unlawful, illegal, immoral or opposed to
public policy.
• Performance of existing obligation is no consideration.
• Forbearance to sue is a good consideration.
 Doctrine of Privity
‘STRANGER TO A CONTRACT CANNOT SUE’
(Dunlop Pneumatic Tyre Co. Ltd. Vs.Selfridge & Co. Ltd.)
Exceptions:
1. Trust or charge
2. Marriage settlement
3. Assignment of Contract
4. Agents
5. Covenants Running through land
No Consideration, No Contract- When an
agreement without consideration is valid?
(Exceptions)

• Agreement made on account of natural love

and affection
• Promise to compensate for past voluntary
service
• Promise to pay time-barred debt
• Others – Agents, Gifts, deed under seal,
Gratuitous Promise
 Unlawful Object

UNLAWFUL
OBJECT

AGREEMENTS AGREEMENTS
AGREEMENTS
THAT THAT
THAT
ARE AGAINST ARE ILLEGAL
ARE UNLAWFUL
PUBLIC POLICY IN NATURE
 Unlawful Object / Consideration

• It is forbidden by law; or
• It is of such nature that, if permitted, it would
defeat the provisions of any law; or
• Is fraudulent; or
• Involves or implies injury to the person or
property of another; or
• The Court regards it as immoral or opposed to
public policy.
 Agreements against Public Policy
1. Trading with an enemy
2. Champerty and maintenance contracts
3. Stifling prosecutions
4. Marriage brokerage agreements
5. Agreements interfering with administration of justice
6. Agreements tending to create interest against duty
7. Agreements as regards sale of public offices
8. Agreements tending to create monopoly
9. Agreements in restraint of marriage
 Agreements against Public Policy
Contd…
11. Agreements in restraint of trade-
Exceptions-
– Sale of Goodwill
– Partners’ agreements
– Trade Combinations
– Service Contracts
12. Agreements in restraint of legal proceeding
13. Agreements to defraud creditors or revenue authorities
14. Agreements not to bid
15. Foreign awards
16. Non-compliance of Court’s order
 Illegal Agreements
“ALL ILLEGAL AGREEMENTS ARE VOID BUT
ALL VOID AGREEMENTS ARE NOT ILLEGAL”

Effects of Illegality:
1. Illegal agreements are void- no action can be taken for
recovery of money paid or for breach
2. Collateral transactions to illegal agreement to are
tainted with illegality
3. In cases of equal guilt in an illegal agreement, the
position of defendant is better than that of the plaintiff.
CAPACITY TO CONTRACT
 Who are Competent to Contract ?
Every person is competent to contract
(i) Who is of the age of majority according to
the law to which he is subject;
(ii) Who is of sound mind; and
(iii) Who is not disqualified from contracting by
any law to which he is subject.
 PARTIES
NOT
COMPETENT
TO CONTRACT

UNSOUND DISQUALIFIED
MINORS
MINDS BY LAW
 Position of a Minor in Contract
1. Minor’s contract is absolutely void
2. No specific performance of a minor’s contract
3. Ratification of a minor’s contract
4. Liability of a third person- Surety for minor
5. Insolvency
6. Minor’s Marriage
7. Relinquishment by a minor
8. Service contracts
 Minors’ contracts are void- Exceptions

• Promisee or Transferee
• Agency
• Partnership
• Necessaries
 CONTRACTS BY PERSONS OF UNSOUND
MIND
• Contracts by lunatics
• Contracts by idiots
• Contracts by drunkards
 Parties Disqualified By Law

• Contracts by Corporations.
• Contracts by convicts.
• Contracts by insolvents.
• Contracts by foreign Sovereigns, their diplomatic staff
and accredited representatives of foreign States.
• Aliens.
• Contracts by Married Women & Pardanashin Women.
FREE CONSENT
 Free Consent

“Consent is said to be free when it is not

caused by
(I) Coercion,
(II) Undue Influence,
(III) Fraud,
(IV) Misrepresentation,
(V) Mistake.”
 AD-IDEM

CONSENSUS AD-IDEM IS “ TWO OR MORE

PERSONS ARE SAID TO CONSENT WHEN THEY
AGREE UPON THE SAME THING IN THE SAME
SENSE.”
 Coercion

Coercion is committing, or threatening to

commit, any act forbidden by the Indian Penal
Code, or the unlawful detain, or threatening
to detain any property, to the prejudice of any
person whatever, with the intention of
causing any person to enter into an
agreement.
 Essentials of Coercion
• For an act to be forbidden by the Indian Penal Code, there must not be
merely a threat, but the act should be such as to be punishable under
the IPC.
• May proceed from anybody, even a person who is not party to the
contract & be directed against even a member of his household, not
necessarily the other contracting party.
• Coercion includes physical compulsion, fear and even menace to
goods. Consent must be caused by unlawfully detaining or
threatening to detain any property.
• The act must have been done or threatened with the intention of
causing any person to enter into an agreement.
• It does not matter whether the Indian Penal Code is or is not in force
in the place where the coercion is employed.
 Effect of Coercion

• It is a voidable contract.
• Money paid or anything delivered must be
returned.
• Aggrieved party may rescind within a
reasonable time.
 Undue Influence

“A CONTRACT IS SAID TO BE INDUCED BY

‘UNDUE INFLUENCE’ WHERE THE RELATIONS
SUBSISTING BETWEEN THE PARTIES ARE SUCH
THAT ONE OF THE PARTIES IS IN A POSITION
TO DOMINATE THE WILL OF THE OTHER AND
USES THAT POSITION TO OBTAIN AN UNFAIR
ADVANTAGE OVER THE OTHER.”
 Essentials of Undue Influence
• One of the parties is in a position to dominate
the will of the other;
• The dominating party uses that position to
obtain unfair advantage over the other,
• The act of undue influence must range under
one or the other heads of ‘coercion’ or ‘fraud’.
• Burden of Proof: shall lie on the person in a
position to dominate the will of the other.
Presumptions as to Undue Influence

• Where he holds a real or apparent authority

over the other; or
• Where he stands in a fiduciary relation to the
other; or
• Where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected.
Difference Between Coercion & Undue
Influence
• COERCION • UNDUE INFLUENCE
1. Consent is obtained by 1. Consent is obtained by
threat of an offence. the dominating will of
Person is forced to give the other
his assent. 2. Consent is given in good
2. It is mainly of physical belief, but under moral
character influence
3. It is of violent character 3. It is of moral character
4. It is most subtle in
character
 Fraud
“Fraud means and includes any of the following acts committed
by (a) a party to a contract: (b) with his connivance; or (c )
by his agent, with intent to deceive another party or his
agent, or to induce him to enter into the contract-
(i) The suggestion, as to a fact, of that which is not true by one
who does not believe it to be true;
(ii) The active concealment of a fact by one having knowledge
or belief of the fact;
(iii) a promise made without any intention of performing it;
(iv) Any other act fitted to deceive;
(v) Any such act or omission as the law specially declares to be
fraudulent”
 Effects of Fraud

• The contract is voidable

• He may insist that the contract shall be
performed
• He may rescind the contract within a
reasonable time
• He has a right to sue for damages
 FLAW IN CONSENT
FLAW IN CONSENT

COERCION UNDUE INFLUENCE MISREPRESENTATION MISTAKE

FRAUDULENT OR INNOCENT OR
MISTAKE OF LAW MISTAKE OF FACT
WILFUL UNINTENTIONAL

MISTAKE OF
BILATERAL UNILATERAL
THE COUNTRY

MISTAKE OF AS TO AS TO POSSIBILITY OF AS TO NATURE OF

AS TO PERSON
FOREIGN COUNTRY SUBJECT MATTER PERFORMANCE CONTRACT

EXISTENCE PHYSICAL

IDENTITY LEGAL

QUALITY

QUANTITY

TITLE

PRICE
 DISCHARGE OF CONTRACT

DISCHARGE

BY
BY IMPOSSIBILITY PROMISEE
BY REFUSING BY
BY BREACH OF FAILING BY BY BY
BY TENDER OF AGREEMENT
BY DEATH OF PERFORMANCE TO OFFER OPERACION MATERIAL LAPSE OF
PERFORMANCE PERFORMANCE OR BY
CONTRACT (SUPERVENING FACILITIES OF LAW ALTERATION TIME
CONSENT
IMPOSSIBILITY) FOR
PERFORMANCE

•DESTRUCTION
•CHANGE
OF LAW
•DEATH OR
PERSONAL BY NOVATION
INCAPACITY BY REMITTANCE
ACTUAL •BY INSOLVENCY
ANTICIPATORY •OUT-BREAK BY WAIVER
BREACH •BYMERGER
OF WAR BY RESCION
•NON-EXISTENCE
OF
PARTICULAR
STATE OF
THINGS
 How is the contract discharged?
• By performance
• By death
• By refusing tender of performance
• By breach of contract
• By impossibility of performance
• By agreement or by consent
• By promisee failing to offer facilities for
performance
• By operation of law
• By unauthorized material alteration of a contract
• By lapse of time.
• By performance:
If both the parties to the contract have performed
what they have agreed to do, the contract is
discharged.
• By death:
Where a contract is personal in character, or where
personal skill or ability is involved, death of promisor
discharges the contract.
• By refusing tender of performance
If a party offers to perform his promise and the offer
has not been accepted by the other party, the
promisor is not responsible for non-performance.
• By breach of contract:
If a party to a contract has refused to perform his part of the
promise, it is breach of contract.
It can be Actual breach or Anticipatory breach
• By impossibility of performance:
When the performance of a contract becomes subsequently, it
becomes void & discharged.
Cases of impossibility:
Destruction of the object necessary for performance of the
contract.
Change of law.
Death or personal incapacity.
Out-break of war.
Non-existence of particular state of things which forms the
basis of the contract.
• By agreement or by consent:
Contract can be terminated by mutual express or implied
agreement between the parties.
Novation: If the parties to a contract agree to substitute a new
contract for it, or to rescind or alter it.
Accord & satisfaction: Where a lesser sum is actually paid than
what is due under an existing contract, the new contract is
called ‘accord’ and the actual payment is called ‘satisfaction’.
Remission and waiver: When a party to the contract abandons
or waives his rights, contract is discharged
Rescission: When a person at whose option a contract is
voidable rescinds it, the other party thereto need not perform
his promise.
• By promisee failing to offer facilities for
performance: If the promisee refuses to afford
the promisor reasonable facilities for the
performance of his promise, the contract is
dischared.
• By operation of law:
By insolvency: On a person being adjudicated
insolvent, he is realised from all his debts and
liabilities.
By Merger: Merger of superior right into an inferior
right.
• By unauthorized material alteration of a
contract: In case of material alteration by one
party to the contract without the consent of
the other party, the contract is discharged.
• By lapse of time.
BREACH OF CONTRACT

By: Hetal Jani

 Remedies of Breach of Contract

• Suit for specific performance

• Suit for injunction

• Suit for damages, for the loss sustained

• Quantum Meruit
 Contd…
• Suit for specific performance:

The court directs the party committing the breach of

contract to perform the promise according to the terms of
the contract.

• Suit for injunction:

It is an order of the Court directing a person to do or refrain

from doing some act, which is the subject-matter of the
contract and which a party undertakes to do or not to do.
 Contd…
• Suit for damages, for the loss sustained:
Injured party can claim damages for the loss caused by
breach of contract.
Damages are given by way of restitution and as a
monetary compensation to the injured party.
The aggrieved party can recover the actual loss caused
to him and not the exemplary or unusual damages.
 Contd…
TYPES OF DAMAGES
• Compensatory Damages:
Damages which are calculated to actually compensate
or make up the loss suffered by the party.

• Nominal Damages:
Damages which naturally arise in the usual course of
things from the breach are called nominal damages.
 Contd…
• Exemplary Damages:
Damages which are due to remote or indirect
consequences.
They are granted only in case for injured feelings, mental
pain, suffering etc.
• Special Damages:
Damages arise on account of unusual circumstances.
These are recoverable only when they are brought to the
knowledge of the defendant.
 Rules for ascertaining damages
• When a contract has been broken, the party who suffers by
such breach is entitled to receive from the party who has
broken the contract, compensation for any loss or damage
caused to him thereby, which naturally arose in the usual
course of things from such breach or which the parties knew,
when they made the contract to be likely to result from the
breach of it.
• Such compensation is not to be given for any remote and
indirect losses or damages sustained by reason of the breach.
 Contd…

• In estimating the loss or damage arising from

a breach of contract, the means which existed
of remedying the inconvenience caused by the
non-performance of the contract must be
taken into account.
 Quantum Meruit
• Means “as much as earned or deserved” or “as
much as is merited”.
• A person can under certain circumstances claim
payment for the work done or goods supplied
without any contract or under a contract which is
discharged by the breach of the other party.
• Earnest Money: It is treated as part payment of the price when the
contract is completed.

It represents a guarantee that the contract will be fulfilled or “earnest” is

given to bind the contract.

It is forfeited when the transaction falls through by reason of the default or

failure of the purchaser.
• Security Deposit: It made by a party to a contract with the other party, as
security for guaranteeing due performance of the contract.

It can be forfeited in the case the party neglected to perform his part of
contract.
• Advance Money: It is made merely as per payment of the purchase price
agreed upon between the parties.