The Indian Contract Act, 1872

Principles for formation of contractual relations and to provide the remedial measures of recovery of damages in the event of one party’s failure to keep his contractual commitments.

The Specific Relief Act, 1963 (original 1877)

Provides remedial measures for forcing parties to perform their contractual commitments and not to get rid of them by just paying compensation for their acts.

Some of the key words to remember

Proposal (Offer)

Acceptance

Promise

Consideration ( quid pro quo )

Agreement & Contract

Enforceability

Void ( void-ab-initio)

Voidable

Valid

Invalid

Private Law & Public Law

Jus in personam / Jus in rem

Balfour v. Balfour

Balfour v. Balfour is a significant English contract law case from 1919, involving a husband and wife living in Ceylon. When the wife had to return to England for medical treatment, they agreed that she would stay there while the husband continued working in Ceylon, promising to send her £30 per month. However, the husband failed to send the money, and the wife sued him, alleging a breach of their agreement. The court ruled in favor of the husband, establishing the principle of the presumption against the intention to create legal relations in domestic or social agreements, meaning that such agreements are usually not legally binding unless evidence suggests otherwise.

How Agreement becomes Contract ?

Agreement + Essential Elements = Contract ( A + E^E = C)

Enforceability means legal remedy is available and legal remedy will be vailable only when there are essential elements of a valid contract.

1.  Number of parties atleast two or more
2. Offer and Acceptance
3. Intention to create legal relationship
4. Free Consent
5. Possibility of performance
6. Capacity to enter into contract ( Competent )
7. Lawful object and lawful consideration.
8. Consensus ad idem (Meeting of the minds)
9. Agreement should not be expressely declared void by law.
10. Legal Formality.

Contract = Agreement + Enforceability

Agreement = Promise + Consideration

Promise = Offer + Acceptance.

Preamble—WHEREAS it is expedient to define and amend certain parts of the law relating to contracts; It is hereby enacted as follows:—

Prelimnary

1. Short title.—This Act may be called the Indian Contract Act, 1872.

Extent, Commencement.—It extends to the whole of India except the State of Jammu and Kashmir]; and it shall come into force on the first day of September, 1872.

Saving— Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act.

2. Interpretation-clause.—In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:—

(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.

A proposal, when accepted, becomes a promise.

(c) The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”. 

(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

(e) Every promise and every set of promises, forming the consideration for each other, is an agreement.

(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises.

(g) An agreement not enforceable by law is said to be void.

(h) An agreement enforceable by law is a contract.

(i) An agreement 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, is a voidable contract.

(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Proposal or Offer

Mere intention is not enough

Communication of offer

Express offer

Implied offer

Counter offer

Specific offer

General offer

Cross offer

Standing/Open/Continuing offer

Essential elements of valid offer ( Rules as to offer )

1. Intention to obtain acceptance
2. Intention to create legal relationship
3. It must be communicated
4. Offer must be certain

What is offer and invitation to offer  ? ( Harris v. Nickersons…auction )

Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. (price tag)

Section 2(b) : When the person to whom the proposal is made signifies his assent thereto (to that), the proposal is said to be accepted.

A proposal, when accepted, becomes a promise.

Acceptance must be absolute (Sec 7)

In order to convert a proposal into a promise, the acceptance must—

(1) be absolute(complete/perfect) and unqualified; (unconditional).

Section 7(1) means….

** If there is any variation in acceptance then it is not acceptance but a counter proposal and there is no contract.

**Acceptance with condition is no acceptance.

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted.

If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise;

but if he fails to do so, he accepts the acceptance.

The rules regarding valid acceptance.

1. Acceptance must be absolute and unqualified. (As above section 7)
2. Acceptance must be in prescribed manner (As above section 7)
3. Acceptance must be communicated to the offeror.
4. Communication from Acceptor. (Powell v. Lee)
5. Mental acceptance is not valid.
6. Acceptance of an offer amounts to an acceptance of all its terms.
7. Mode of acceptance may be by the way of express words(spoken or written) or conduct/implied (eg fall of hammer) or post or telegram etc
8. Acceptance must be made by an ascertained (determined) person.(Except general offer which is made to public at large)
9. An offer once rejected, cannot be accepted until it is renewed.
10. An action without the knowledge of the proposal is no acceptance (Lalman Shukla v. Gauri Dutt)
11. Acceptance must be made before the lapse or withdrawal of an offer.
12. Acceptance under protest.
13. Provisional acceptance (till final approval-Offeror at liberty to cancel)
14. Partial Acceptance
15. Inquiry into Terms of Proposal.

2(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises.

Acceptance by performing conditions, or receiving consideration (Sec 8)

Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

Means : Proposal may be accepted in any way, it need not always be expressed in words. Sometimes offer made to public at large (not to definite person), any person willing to accept accepts either by words or may be by conduct-a contract is made ( eg : Carlill v. Carbolic Smoke Ball Co.)

2(c) The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”. 

Consideration

Pollock : The word consideration is the price for which the promise of the other is bought and thus a promise given for value is consideration.

2(d) : When, at the desire of the promisor, (प्रस्तावकर्त्याच्या इच्छेनुसार)

the promisee or any other person (प्रस्ताव करणाऱ्या व्यक्तीने किंवा अन्य कोणत्याही व्यक्तीने)

has done or abstained from doing, or (एखादी गोष्ट केली असेल किंवा ती करण्यापासून दूर राहिली असेल)

does or abstains from doing, or (एखादी गोष्ट करीत असेल किंवा करण्यावाचून दूर राहत असेल)

promises to do or to abstain from doing, (एखादी गोष्ट करण्याचे किंवा करण्यावाचून दूर राहण्याचे अभिवचन देत असेल)

something, (वर उल्लेख केल्या प्रमाणे ‘एखादी गोष्ट’)

such act or abstinence or promise is called a consideration for the promise. (तेंव्हा, अशी कृती किंवा परावृत्ती किंवा अभिवचन यास अभिवचनाचा मोबदला असे म्हणतात)

Eg : A Promises to sell car @ Rs. 1 Lakh to B

i) B’s promise to pay Rs. 1 lakh is consideration for A’s promise to sell

ii) A’s promise to sell car is consideration for B’s promise to pay 1 lac.

i.Consideration must move at the desire of the promisor.

ii.Consideration may move from promisee or any other person (3^rd person)

If it is done at the instance (request/desire) of third party, without the desire of promisor, then it is not a consideration.

…Can a stranger to the consideration can sue on a contract ? … In India, yes.

This means that, when consideration is furnished(provided) by a person other than the promisee, such a promisee, though a stranger to the consideration, can sue upon a contract.

Different types of Consideration

1. Executed (or present) : A consideration is said to be executed when the promise has already done something.

Eg. ‘A’ promises ‘B’ to pay money if ‘B’ paints his picture. ‘B’ paints the picture….. here, B’s act is consideration for A’s promise & since the act is already done, it is executed consideration.

2. Executory (or future) : It is promise to do in future. Promise to do work in return of promise of payment.

Eg. ‘A’ promises to pay sum of money to ‘B’ in consideration of B’s promise to paint a picture of ‘A’…. As B’s promise has not yet been performed, it is executory (eg. rail ticket)

3. Past : It is something wholly done before making of an agreement.

—Already done something for another & then comes a promise from the other. Eg. ‘A’ saves life of ‘B’ &  ‘B’ promises to pay ‘A’ Rs. 10,000/- out of gratitude (appreciation/ कृतज्ञता). Here consideration is past because ‘A’ did nothing on account of B’s promise. Whatever he did he did before B’s promise was made. 

4. Unreal : When it subsists merely in words and not in fact. It should not be illusionary o imaginary… Consideration which has no legal value is no consideration.

Consideration need not be adequate : Consideration must be of some value because it is the function of parties to negotiate. Courts function is to enforce the bargain.

2(e) Every promise and every set of promises, forming the consideration for each other, is an agreement.

2(h) An agreement enforceable by law is a contract.

Contract may be express or implied.

(Tacit Contract : A contract, the terms of which are not expressed in words, written or oral is called as ‘Implied contract’ or ‘Tacit Contract’.

Eg. A purchaser takes a paper from book-stall, he tacitly agrees to pay the price.)

2(g) An agreement not enforceable by law is said to be void.

2(i) An agreement 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, is a voidable contract.

2(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Doctrine of Privity of Contract (Third Party Involvement)

—- A stranger to a contract cannot sue.

—- But a stranger to consideration is allowed.

Dunlop Pneumatic Tyre Co v. Selfridge & Co.

Exceptions to the doctrine of privity of contract –

Grand Father

1. Trust :

2. Family settlement :    HUF (Partition)

3. Assignment of Contract :

Company       liable to pay to       X     Assigns property to   Y (assignee)

Though Y is a stranger to contract between company and X, can sue.

4. Contract with an Agent :

Agent acts on behalf of Principal. Though Principal is stranger, he can sue.

5. Official Receiver : In case of insolvency, Court appoints official receiver….he can come and attach the property.

Official receiver can make contracts for recovery.

6. Acknowledgement of Debt :

         In a contract suppose to pay Rs. 10 Lakhs to

 Communication, acceptance and revocation of proposals :—   (Sec 3)

The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.

What : i) The communication of proposal & acceptance of proposal

           ii) Revocation of proposals and acceptance respectively are deemed to be made

How :  By act or omission of the party

Which Party :  (party) proposing, accepting, or revoking

Why :   By which he intends to communicate,

What :   Such proposal or acceptance or revocation or which has the effect of communicating it.

Communication when complete (Sec 4)

The communication of a proposal is complete when it becomes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete–

….as against the proposer, when it is put in a course of transmission to him so at to be out of the power of the acceptor;

…..as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete–

……as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;

……as against the person to whom it is made, when it comes to his knowledge.

The communication of a proposal is complete when it becomes to the knowledge of the person to whom it is made. ( In above case communication of offer is complete on 5^th Dec 3.00pm )

Communication of acceptance : It will be different for both the parties

For ‘A’ communication of acceptance is complete when ‘B’ posts the letter of acceptance in above case it is on 6^th Dec 2.00pm when it becomes out of power of ‘B’.

For ‘B’ communication of acceptance is complete when ‘A’ receives letter of acceptance, in above case it is on 10^th Dec 2.00pm, when it comes to the knowledge of ‘A’.

Communication of Revocation ( cancel or taking back )

‘A’ revokes his proposal by telegram …. The revocation is complete as against ‘A’ when the telegram is despatched. It is complete as against ‘B’ when he receives it.

‘B’ revokes his acceptance by telegram. B’s revocation is complete as against ‘B’ when the telegram is despatched, and as against ‘A’ when it reaches him.

Revocation of proposals and acceptances (Sec 5)

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

Revocation how made (Lapse of Offer) (Sec 6)

Acceptance should be made before the offer lapses. An offer lapse in the circumstances provided for in section 6

A proposal is revoked-

(1) by the communication of notice of revocation by the proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;

(3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or

(4) by the death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance.

Promises, express and implied (Sec 9)

In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

The above notes are Indian Contract Act summary.