Law of Contract

FOR JUDICIARY, APO & OTHER EXAMS

Formation of Contract

Agreement + Legally Enforceable =

CONTRACT

Promise + Consideration = AGREEMENT

Offer + Acceptance = PROMISE

 BASIS FOR
AGREEMENT CONTRACT
COMPARISON

Meaning When a proposal is When an agreement is

accepted by the person enforceable by law, it
to whom it is made, with becomes a contract.
requisite consideration,
it is an agreement.
Elements Offer and Acceptance Agreement and
Enforceability

In writing Not necessarily Normally written and

registered
Legal obligation Does not create legal Creates legal obligation
obligation
One in other Every agreement need All contracts are
not be a contract. agreement
Scope Wide Narrow
 INTRODUCTION

The Indian Contract Act, 1872 is the principal legislation

governing contract law in India, defining the conditions
under which agreements become legally enforceable.
Overview
The Indian Contract Act was enacted on April 25, 1872, and came
into force on September 1, 1872. It serves as the foundation for
contract law in India, outlining the essential elements required for a
contract to be valid and enforceable. The act originally
contained 266 sections, but some sections were later repealed
and incorporated into other legislation, such as the Sale of Goods
Act, 1930, and the Indian Partnership Act, 1932.
 TYPES OF CONTRACT

1. Based on Formation
This categorization pertains to the manner of contract formation. It analyses
whether they are expressively mentioned, inferred from action, or enacted by
law. Contracts can be categorized as a result of how they are formed:

a. Express Contracts
Express contracts are clearly stated agreements. They are communicated
through written or verbal terms. Both parties explicitly agree to the contract's
terms. These contracts remove ambiguity in obligations.
•Illustration: A written contract for the sale of a car.
b. Implied Contracts
Implied contracts are formed through actions or conduct. They are
not explicitly written or spoken. The intent is inferred from the
circumstances. Implied contracts rely on mutual understanding.
•Illustration: A passenger boarding a bus presumes an acceptance
to pay the fare.

c. Quasi-Contracts
Quasi-contracts are legal obligations created by law. They prevent
one party from unjustly benefiting. These are not actual contracts
with mutual consent. They arise in situations of fairness and equity.
•Illustration: A person acquiring goods by mistake should return the
goods or make restitution of their value.
•Applicable Provisions: Sections 68 to 72 pertain to quasi-
contractual obligations.
2. Grounded on Validity/ Enforceability
This category assesses the legality of a contract, whether it is enforceable
under the law, void, voidable, illegal, or unenforceable, depending on
whether or not it follows legal principles.
Contracts can be classified based on their legality:

a. Valid Contract
Valid contracts are enforceable by law. They fulfil all essential legal
requirements. Free consent and lawful objects are necessary. It must have
lawful consideration. Competent parties are required for valid contracts.
•Example: A lease contract that follows all elements for a valid contract.
•Section 10 of the Indian Contract Act mentions criteria for a valid
contract.
b. Void Contract
Void contracts are unenforceable by law. They lack essential legal validity.
Such contracts hold no legal obligations. A contract for illegal goods becomes
void.
•Example: A contract to sell goods after a ban is imposed on those goods.
•Relevant Provision: Section 2(g) of the Indian Contract Act defines them.

c. Voidable Contract
Voidable contracts are enforceable at one party's discretion. They remain valid
until voided by the aggrieved party. Coercion or fraud often makes contracts
voidable. Voidable contracts protect parties from unfair agreements.
•Example: A contract entered into under coercion can be voided by the
aggrieved party.
•Relevant Provision: Section 2(i) of the Indian Contract Act governs them.
d. Illegal Contract
Illegal contracts are prohibited by law. They involve unlawful or
immoral objectives. Such contracts are void from inception. No
legal rights arise from illegal contracts.
•Example: A contract for the sale of illegal drugs.
•Section 23 of the Indian Contract Act governs them.

e. Unenforceable Contract
Unenforceable contracts cannot be enforced by law. They lack
essential legal formalities or evidence. Defects like improper
documentation make them unenforceable. They are valid but not
actionable in court.
•Examples include unsigned agreements or unstamped contracts.
3. Depending on the Performance/Execution
This classification refers to the performance stage of
contractual obligations. It determines if the contract has been
wholly performed, is still on, or partially performed.
Contracts can also be classified according to their performance:

a. Executed Contracts
Executed contracts are fully performed by all parties. All
obligations of the contracts are completed. These contracts
leave no pending responsibilities. A completed sale is an
executed contract. They signify the fulfilment of mutual
promises. Legal enforceability ends after execution.
•Examples include delivered goods with payment made.
b. Executory Contracts
Executory contracts have unfulfilled obligations. At least one
party has yet to perform their part. These contracts are ongoing
agreements. A promise to deliver goods next month is executory.
They often involve future commitments.
•Example: A contract for future delivery of goods.

d. Unilateral Contracts
Unilateral contracts involve a promise by one party. The other party
performs an act in response. They are one-sided agreements. A
reward for finding lost property is an example. Legal obligations
arise only after the act is performed. They do not involve mutual
promises. The promisor sets conditions for the contract.
•Example: Unilateral contracts are common in reward-based offers.
e. Bilateral Contracts
Bilateral contracts involve promises from both parties. Each
party has reciprocal obligations. They are the most common type
of contract. Both parties are legally bound to fulfill their
promises. They ensure mutual trust in agreements. Bilateral
contracts promote balanced obligations.
•Example: A sales agreement is a bilateral contract.
Essential Elements of a Valid
Contract
Section 10 outlines the necessary elements for a valid contract, which
include:
•Offer and Acceptance: There must be a clear offer by one party and
acceptance by another.
•Intention to Create Legal Relations: The parties must intend for the
agreement to have legal consequences.
•Lawful Consideration: There must be something of value exchanged
between the parties.
•Competent Parties: The parties involved must have the legal capacity
to contract.
•Free Consent
: The agreement must be made without coercion, undue influence, fraud
, misrepresentation, or mistake.
 BALFOUR vs BALFOUR

Facts
The claimant and defendant were husband and wife. The defendant
was usually resident in Ceylon, but while he was on leave in England
his wife took ill. She therefore had to stay behind while he returned to
Ceylon. The defendant promised to pay the claimant a sum of money
each month in return for her agreeing to support herself in England
without calling on him for more money. The couple subsequently
divorced, and the claimant sued the defendant to enforce the
maintenance agreement. She claimed that the agreement was a
binding contract.

Issue(s)
1.Do parties with a domestic or social relationship
intend to be legally bound by arrangements of this nature?
Decision
The Court of Appeal held in favour of the defendant.
The parties’ domestic relationship strongly indicated
that they did not intend their personal arrangements
to be legally binding. As such, there was no contract.
 BASIS FOR VOIDABLE
VOID CONTRACT 2(J)
COMPARISON CONTRACT 2(I)
Meaning The type of contract The contract in which
which cannot be one of the two parties
enforceable is known as has the option to
void contract. enforce or rescind it,
is known as voidable
contract.

Nature The contract is valid, but The contract is valid,

subsequently becomes until the party whose
invalid due to some consent is not free,
reasons. does not revokes it.
Reasons Subsequent illegality or If the consent of the
impossibility of any act parties is not
which is to be performed independent.
in the future.
Rights to party No Yes, but only to the
aggrieved party.
Suit for damages Not given by any Damages can be
party to another claimed by the
party for the non- aggrieved party.
performance, but
any benefit received
by any party must be
restored back.
Section 1 – Short Title, Extent,
Commencement & Saving

This Act may be called the Indian Contract Act, 1872.

Extent,

Commencement.—It extends to the whole of India; 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.
 Section 2 - Definitions

—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;
 Essentials of a Valid Offer /
Proposal
1. Offer must be communicated :-
Communication of offer is the most primary thing which is to be done for a
valid offer. The offeror must communicate offer to the offeree. The
communication can be either in oral or written form. The offer can directly
communicate to the person specific to whom it is offered or it can be in general
in nature.
For example : “A” wants to sell his car and he has published an advertisement
in newspaper which is a form to communicate the offer to general public.
Hence it is a valid offer.
In case of Lalman Shukla v. Gauri Dutt The High Court of Allahabad that
knowledge and acceptance of a proposal must be communicated to people are
the basic essentials in order to constitute a valid contract. The person can
claim reward if he gives his consent and perform the terms of the proposal.
2. Must create legal relationship:-
A valid offer creates a legal relationship which means there must be
an intention of the offeror to work under legal obligation or to be
legally bounded by law not under social obligation.
For example : “X” (Father of Y) says to “Y”, if he pass the exam he will
get a new video game. “Y” passed the exam asked his father to give
him video game as he had promised to Y. Here X is not legally bound
as the offer doesn’t create any legal obligation against X.
3. Definite, unambiguous and certain in nature:
Offer must be certain as specified in [Section 29], it must be unambiguous
means that the thing offered must clearly specified.
For example : Mitesh offered to sell his car to Tanmay. Mitesh is owned two
cars one is of Ford & other is of BMW and Mitesh offered his Ford car to
Tanmay but Tanmay thought Mitesh if offering him his BMW one. As in the
offer it was not definite which car Mitesh wants to sell, thus this is not a
valid offer.
4. It must distinguished from invitation to offer:-
The offer makes a person to enter into a legally binding contract
whereas invitation to offer invites the person to enter into contract.
For example : A suit was displayed with a price tag in a shop. This is
not a offer it is invitation to offer.
5. It may be general or specific in nature:-
The offer can be given to public at large in general by
advertisement in newspaper etc. or it can be given specific person
too.
6. Offer must be made with a view to obtain the assent :-
The offeror must obtain consent which should be “free” in nature as
define under Section 14 as it define it should not be taken under
coercion [section 15], undue influence [Section 16], fraud [Section
17], misrepresentation [Section 18] & Mistake [Section 20, 21 and
22].
 TYPES OF OFFER

1. GENERAL OFFER:-
When an offer made at large or in public or in general this offer
is known as General Offer. It can be accepted by any individual
or public at large whoever is interested in the offer offered.
When a person accepts the offer given then offeror and offeree
enter into contract. The reward will be given to that person who
completed the task given or fulfilled the given condition.
CASE : CARLILL v. CARBOLIC SMOKE BALLS CO. (1893)
This is the landmark judgment of general offer. In this case it
held by the Court of Appeal that whosoever fulfills the terms and
condition of the offer will be eligible for the reward of the offer.
2. SPECIFIC OFFER :-
The offer which is made to an individual or to a specific group of individual
is said to be Specific offer. It can be accepted by that individuals or that
group of individual.
Example : Sandhya offer to buy a car from Sona for Rs. 10 lakh. Thus, a
specific offer is made to a specific person , and only Sona can accept the
offer.
3. COUNTER OFFER :-
When an offeror makes an offer to offeree and offeree with some
modification in it makes converse offer which makes initial offer void and
the other comes in existence, which reverse the party from offeror and
offeree to offeree and offeror respectively this type of offer is known as
counter offer.
CASE : HYDE v.WRENCH (1840) [4]
Defendant(offeror) offered to sell his farm for £1000 but the
Plaintiff(offeree) offered him £950 and subsequently rejected the offer. So,
the offeree filed the case as the offeror was bind by the contract but it was
held that as soon as offeree put the condition the first offer becomes void
4. CROSS OFFER :-
When the offeror and offeree make the same offer to one another having same
terms out of knowledge of each other is known as cross offer. In this case there
will be no contract due to acceptance of the offer offered.
CASE : TINN v. HOFFMAN (1873) [5]
In this case Hoffman wrote a letter to Tinn with a offer to sell 800 tons of iron for
the price of 69s per ton. On the same day without any knowledge Tinn wrote a
letter to buy the iron with the price and with same condition as written by
Hoffman. It was held by the court that it was cross offer and no contract exist &
no parties are bound by the contract.
5. IMPLIED OFFER :-
When an offer is given by body posture, gesture or by action or by the conduct
of the offeror is known as implied offer. The offeree can accept the offer by
understanding the action of the offeror.
6. EXPRESSED OFFER :-
When an offer is express in written or in verbal form then this offer is known as
expressed offer. For example : “C” writes a letter to “D” to buy his earphone for
Rs.500. This is an expressed offer.
7. STANDING OFFER :-
When tender is submitted to supply certain goods or any quantity
as and when required it will amount to standing offer. In such a
case contract does not come into existence merely when tender is
accepted, but a contract takes place only after the order is placed.
Each order in such a case is acceptance and as soon as the offer is
accepted the contract comes into existence.
(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”
Revocation of Proposal

6. Revocation how made.—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 fulfil a condition
precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of
his death or insanity comes to the knowledge of the
acceptor before acceptance.
 INVITATION TO OFFER

Definition of Invitation to offer (treat)

An Invitation to Offer is an act before an offer, in which one person
induces another person to make an offer to him, it is known as
invitation to offer. When appropriately responded by the other
party, an invitation to offer results in an offer. It is made to the
general public with intent to receive offers and negotiate the
terms on which the contract is created.
Example:
•Menu card of a restaurant showing the prices of
food items.
•Railway timetable on which the train timings and
fares are shown.
•Government Tender
•A Company invites application from public to
subscribe for its shares.
•Recruitment advertisement inviting application.
 CASE LAWS

Harvey v Facey (1893)

In this case, the plaintiff (Harvey) telegraphed the defendant

(Facey) asking if he would sell certain property and, if so, at what
price. The defendant replied with a telegraph that simply stated
the lowest price that he would accept for the property. The plaintiff
then claimed that the defendant had made an offer to sell the
property at that price, which he had accepted by his subsequent
telegraphs. The court, however, held that the defendant’s
telegraph was not an offer to sell the property, but rather a mere
statement of the lowest price he would accept.
The court held that the defendant had not made any
offer, and therefore there was no contract between
the parties. The court further explained that an
invitation to treat is not an offer, but rather an
invitation to commence negotiations or discussions.
The court held that the defendant’s telegraph was an
invitation to treat, and not an offer to sell the
property.
Pharmaceutical Society of Great Britain V. Boots Cash Chemists
(Southern) Ltd.

A customer selected a drug from the shelf of a self-service shop and

bought it to the cash counter. The question arose whether the action
of the customer constituted an offer or was it an acceptance to the
offer. The courts ruled that it was an offer to buy and no sale would
take place until the buyers offer is accepted at the price offered by
seller.
 BASIS FOR INVITATION TO
OFFER
COMPARISON OFFER
Meaning When one person When a person expresses
expresses his will to something to another
another person to do or person, to invite him to
not to do something, to make an offer, it is known
take his approval, is known as invitation to offer.
as an offer.
Defined in Section 2 (a) of the Indian Not Defined
Contract Act, 1872.
Objective To enter into contract. To receive offers from
people and negotiate the
terms on which the
contract will be created.
Essential to make an Yes No
agreement
Consequence The Offer becomes an An Invitation to offer,
agreement when becomes an offer when
accepted. responded by the party to
whom it is made