THE INDIAN CONTRACT ACT (ICA), 1872

What is a contract?

Section 2(h)“An agreement enforceable by law is a contract”.Thus,Contract = Agreement + Enforceability at Law

Agreement? Section 2(e)

Promise/(s) Promise/(s) = Agreement

(in exchange for)

Promise?

Section 2(b)Promise = Proposal/Offer + Acceptance

Proposal?Section 2(a)Expression of willingnessWith a view to seek the assent of the otherThus, mere expression of willingness doesn’t constitute offer/proposal.

Acceptance

Section 2(b)Giving of assent to the proposal.Enforceability by LawAgreements which are not enforceableIllegal/unlawful agreements, e.g., to smuggle/to killSocial Agreements (Balfour vs. Balfour)

Agreements Declared Void under ICA

e.g.Agreement with or by a minorAgreement in restraint of tradeMarriage brokerage contractWagering/Betting Agreements

Kinds of Contracts

From the point of view of Enforceability Void

Voidable Valid

Void Agreement vs. Void Contract

Void Agreementi.e., void-ab-initio i.e. unenforceable from the very beginningBecomes void (Void Contract)

Voidable i.e., void + able

i.e., capable of being declared void(unenforceable) at the option of one of the parties to the contract but not at the option of the other.

Valid Contract

Section 10To be a valid contract, it must satisfy the following:

1. Offer and Acceptance2. Consensus-ad-idem (Meeting of minds)

i.e., persons must agree to the same thing in the same sense and at the same time.

3. Intention to create legal relationship as against social relationship or illegal/unlawful relationship.

4. Free and Genuine Consent, i.e., free from coercion undue influence fraud misrepresentation mistake

5. Parties competent to contract6. Lawful consideration and object, i.e.,

something in return and that must be lawful.

Valid Contract

(‘Object’ and ‘Consideration’ usually overlap. However, there may be difference at times e.g., object may be to kill competition and for that purpose in view, a senior manager of the competitor may be paid a certain amount to give unrealistically high quotation.)Here: Object is to kill competition. Consideration is :

(i) payment of money (ii) giving high quotations

Valid Contract

7. Agreement not declared void.8. Certainty of Meaning: e.g. sale and

purchase of 100 tonnes of oil. But which oil? Thus, agreement being uncertain – not valid.But, if the seller deals only in one kind of oil and one variety, then it shall be valid since it is capable of being made certain.

Valid Contract

9. Possibility of performance: Impossibility whether known to the parties or not, renders a contract invalid.

10.Necessary legal formalities: e.g. sale-deed of immovable property.

Void vs. Illegal Agreements

Void Agreement Illegal Agreement1. Unenforceable2. Not Punishable3. Collateral

transactions unaffected.

1. Unenforceable2. Punishable (fine or

imprisonment or both)

3. Collateral transactions are also void.

Specific and General Offer

Specific Offer: made to a specified person or a group of

persons. can be accepted only by the person to

whom made.Thus, if offer is addressed to ‘A’, ‘B’ cannot accept it.

Case Law: Boulton vs. Jones

Specific and General Offer

General Offer: which is not a specific offer. made to the world at large. can be accepted by anyone by

complying with the terms of the offer. Case Law: Carlill vs. Carbolic Smoke

Ball Co.

Offer vs. Invitation to offer

Illustrations of Invitation to Offer: Prospectus issued by a college. Prospectus issued by a company. Invitation of bids in an auction. Price-catalogues, price lists, quotations Display of goods with a price-tag in a

shop window.

Special Terms in a Contract

Examples: Dry cleaner’s receipt, courier’s receipt, shipment receipt, insurance policy, etc.

Binding if communicated or attention drawn to the fact that there are certain special terms and conditions.

Not binding if attention is not drawn and the other party not aware of.

Cross Offers & Counter Offers Cross Offers

Identical offers cross each other and none of the parties is aware of the same. Doesn’t result in a contract unless one of them is accepted.

Counter OfferInstead of accepting an offer, the offeree makes a counter offer, i.e., accepts the same subject to certain conditions or qualification.

Contracts through Post

Communication of Offeris complete when the offeree has the knowledge of the same.

Communication of Acceptance It has two aspects, viz.,

As against the proposer As against the acceptor

As against the proposer

Communication is complete as soon as a duly addressed letter of acceptance is put into the course of transmission.

Whether the same reaches the proposer or not.

As against the acceptor Communication is complete only when the

proposer has received the letter and learnt the contents thereof.

Communication of Revocation

Communication of revocation (of offer or acceptance) is complete: As against the person who makes it

when it is put into the course of transmission.

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

Comparing ‘offer’ to a ‘train of gunpowder’ and ‘acceptance’ to a ‘lighted match stick’ – How far correct?

William Anson’s observation though valid in the English context doesn’t hold good in India since in India acceptance is revocable.

Claim for Damages

Damages U/S Section 73

Damages U/S Section 74

Only damages naturally flowing

From breach (Ordinary

Damages)

Special Damages(No claim for

consequential loss unless in the

Contemplation of the parties

(Hedley v. Baxendale

ExemplaryDamages

Nominal Damages

Pre-fixed Damages

Penalty

Liquidated Damages(What can be recovered is

actual loss or amount prefixed, whichever is less)