V.

Shobha Rani
B.A., LL.M, SET, NET(UGC), (Ph.D)
Asst. Professor
Pendekanti Law College
Hyderabad
➢The Act came into force on 1st
September, 1872 ( Section -1)

➢The Act Applicable to whole of

India except the state of Jammu &
Kashmir ( Section -1)
 General Principles of Contract
( Sections 1 to 75)
 Specific Contracts
( Sections 124 to 238)
 Sections 76 to 123 have been repealed and
are now embodied in “Sale of Goods
Act,1930”
 Sections 239 to 266 have been repealed
and are now embodied in the “ Indian
Partnership Act, 1932”
Contract:
An Agreement enforceable by Law - Section 2(h)

Agreement:
Every Promise and every set of promises, forming
the consideration for each other- Section 2(e)

Promise:
A proposal when accepted becomes a promise –
Section 2(b)

Offer + Acceptance = Agreement

Agreement + its legal enforceability = Contract

-
1. A valid Offer and Acceptance – Sec 2(a)&(b)
2. Consensus.ad.idem - Sec 13
3. Intention to create legal relationship
✓ Balfour Vs Balfour 1919 (2) KB 571
✓ Merritt Vs Merritt 1970 EWCA 6
✓ Jones Vs Padavatton (1969) 1 WLR 328
✓ Rose & Frank Co Vs Crompton & Bros Ltd 1923(2)
KB 261
4. Lawful consideration – Sec 2(d), 23 & 25

5. Capacity of Parties - Sec 11 & 12

6. Free Consent – Sections 13 & 14

7. Lawful object - Section 23

8. Agreement not declared void – Sections 24

to 30 and 56
9. Certainty – Section 29

10. Possibility of performance – Section 56

11. Legal formalities – Section 10 Para 2

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
 Expression of willingness

To do something Not to do something

with a view to obtain consent of other

party
The person making the proposal is called the
“Promisor”

The person accepting the proposal is called the

“Promisee”

Offeror: The person who made an offer

Offeree: To whom the offer is made

 Offer

Express Offer Implied Offer

Written Oral Conduct

1. Offer must intended to create a legal
relationship
❑ Balfour Vs Balfour

2. The terms of the offer must be certain or at

least capable of being made certain
❑ Taylor Vs Partington 1855 (44)ER 1130

3. Offer must be communicated

❑ Lalman Shukla Vs Gouri Datta (1913)11
All L.J489
❑ Fitch Vs Snedaker (1868)38 NY248
4. Must be made with a view to obtaining the
assent

5. Offer should not contain a term the non

compliance of which may be assumed to
amount to acceptance

6. A statement of price is not an offer

❑ Harvey Vs Facey 1893 AC552

7. An offer is something different from an
Invitation to offer:
❑ Quotations, Catalogue etc.,

❑ Auction cases

❑ Tender cases

❑ Railway cases

❑ Self service shops

➢ Express offer
➢ Implied offer
➢ Specific offer
➢ General offer
Carlill Vs Carbolic Smoke Ball Co
(1893) 1 QB 256
➢ Cross offer
Tinn Vs Hoff Mann (1873) 291LT
➢ Counter offer
Hyde Vs Wrench (1840) 3 Beav 334
➢ Standing offer
 When a 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.

➢ Acceptancemay be express or implied

Rao.V Vs A. Rao (1916)30Mad 509
1. It must be absolute and unqualified –
Sec.7(1)
❑ Hyde Vs Wrench (1840)3 Beav 334
❑ Neale Vs Merret (1930)WN189

2. It must be communicated to the

offeror
❑ Brogdon Vs Metropolitan Railway Co.
(1877)LR2 AC666
3. It must be according to the
mode prescribed or usual and
reasonable mode –Sec.7(2)
❑Surendranath Roy Vs Kedarnath Bose
AIR 1936 Cal 87
4. It must be given by the party or
by an authorised person to
whom the offer is made
❑Boulton Vs Jones (1857)2
❑Powell Vs Lee (1908)24
5. It must be given within a
reasonable time
❑Ramsgate Victoria Hotel Co. Vs
Montefiore (1886) LR1
6. It must be given before the
offer lapses or before the
offer is withdrawn
7. It cannot be derived from
silence
 When communication of
proposal/offer is complete?
❖ The communication of a proposal is complete
when it comes to the knowledge of the
person to whom it is made – Section- 4
(para-1)
❖ Taylor Vs Laird 1856(25) LJ Ex.329
When Communication of acceptance
is complete? (Section-4)
1. As against the offeror/Proposer
When it is put in a course of
transmission to him, so as to be out
of the power of the acceptor.
2. As against the Acceptor
When it comes to the knowledge of
the proposer.
Offer may be revoked anytime before the
communication of its acceptance is complete
as against the proposer, but not afterwards.

Example:’ A’ accepts the offer and posts the

letter on 26th September. ‘B’ received the
letter on 30th September. But for ‘B’ (the
offeror) the acceptance has been
communicated on 26th September itself. So
the revocation of offer can only happen
before the 26th September.
 An acceptance may be revoked at any time before
the communication of the acceptance is complete
as against the acceptor, but not afterwards.

Example:’ A’ accepts the offer and posts the

letter on 26th September. ‘B’ received the letter
on 30th September. The communication of
acceptance is complete against ‘A’ ( Acceptor) is
on 30th September . So till that date i.e., 30th
September the acceptor can revoke his
acceptance, but not after such date.
❑ By Notice of Revocation

❑ By lapse of time

❑ By failure to fulfil a condition precedent

❑ By death or Insanity of the Proposer

❑ By Notice of Revocation

❑ By lapse of time

❑ By failure to fulfil a condition precedent

❑ By death or Insanity of the Proposer

➢ Price of the promise

➢ “Quid pro quo” Something in return

Ex: ‘X’ agrees to sell his phone to ‘Y’ for

Rs.5000.
The phone is the consideration of ‘Y’
and
Rs.5000 is the consideration of ‘X’
 A) has done or abstains
from doing
When, at the
desire of the
B) does or abstains from
promisor,
doing something
the promisee
or any other
C) promises to do or
person
abstains from doing

Such ACT,ABSTINENCE or PROMISE is called a

consideration for the promise.
✓ AN ACT :doing of something

✓ AN ABSTINENCE:promising not to do
something

✓A PROMISE :the promise of each party is

the consideration for each
other
A valuable consideration in the sense
of the law, may consists either in
some right, interest, profit or benefit
accruing to the one party or some
forbearance, detriment, loss or
responsibility given, suffered or under
taken by the other.
1. It must move at the desire of the
promisor
Durga Prasad Vs Baldeo (1880)
3 All 221
2. It may move from the promisee or
any other person
Chinnayya Vs Ramayya (1882)4
Mad 137
3. It may be an act, abstinence or
forbearance or a return promise
Debi Radha Rani Vs Ram Dass AIR1941 Pat 282
M.Ramaiah Pillai Vs P.A.Shankarnarayana Iyar
AIR1958 Ker 246

4. It may be past, present or future

(Under English law past consideration is no
consideration)

5. It need not be adequate-Explanation 2

of Section 25
Bolton Vs Madden (1873)LR9 QB57
6. It must be real and not illusory

7. It must be something which the

promisor is not already bound to
do
Collins Vs Godefroy (1831)9 LJKB158
England Vs Davidson (1840)9 LJ 287

8. It must not be illegal, immoral or

opposed to public policy –Section-23
“Ex nudeo pacto non oritur action”

No right of action arises from a

contract entered into without
consideration.
An agreement without
consideration void- Unless it is in
writing and registered or is a
promise to compensate for
something done, or is a promise
to pay a debt barred by limitation
law.
1. A agreement made an account of
natural love and affection –
Section 25
a) Should be in favour of near
relation
b) Should be out of natural love and
affection
c) Should be in writing and
d) Should be registered
1. A agreement made an account
of natural love and affection –
Section 25
 Venkata Swamy Vs Ranga swamy
(1903)13 MLJ28
 Raja lukhy Dabee Vs Boothnath
Mukherjee (1900)4 Cal WL 488
2. A promise to compensate past
voluntary services- Section 25

Sindhu Vs Abraham (1895)20

Bom 755
3. A promise to pay a time barred
debts- Section 25
a) Should be in writing
b) Should also be signed by the
promisor or
His agent or
Specially authorised in that behalf.
3. A promise to pay a time barred
debts- Section 25
a) Should be in writing
b) Should also be signed by the
promisor or
His agent or
Specially authorised in that behalf.
3. A promise to pay a time barred
debt- Section 25
 Debi Prasad Vs Bhagwati Prasad
AIR1943 All 63
 Medishetti Shekar Vs Puliyala
Komurelli AIR2008, AP 13
3. A promise to pay a time barred
debt- Section 25
 Debi Prasad Vs Bhagwati Prasad
AIR1943 All 63
 Medishetti Shekar Vs Puliyala
Komurelli AIR2008, AP 13
4 Completed gift-Explanation I of
Section-25
5. Contract of Agency- Section-
185
6. Gratuitous Bailment
7. Charitable subscriptions .
It is a general rule of law that only
parties to a contract may sue and sued
on that contract. This rule is known as
Doctrine of Privity of contract – means
“A stranger to a contract cannot sue”.
 Dutton Vs Poole (1677)2 KB ER 523

 Tweddle Vs Atikinson 123 ER 726

 Dunlop Pneumatic Tyre Co Vs Selfridge & Co

Ltd.1915 AC 847

 Jamuna Das Vs Pandit Ram Autar Pande ILR

(1911-12)34 All 63
1) Beneficiaries under trust or charge or
other arrangements
Nawab Khwaja Muhammad Khan Vs Nawab
Hussaini Begum (1909-10)37 IA152

2) Marriage settlements, partition or other

family arrangements
Veeramma Vs Appayya, AIR1957 AP965
3) Acknowledgment or estoppel
◦ N.Devaraja Vs RamaKrishnaiah AIR1952
Mys 109

4) Covenants running with land

 Section-10 of the Act requires that the
parties must be competent to contract.

 Section-11 defined competence to contract.

 Capacity of parties means that the parties

concerned must be legally competent to bind
themselves by promises.
 Everyperson is competent to
contract who is of the age of
majority according to law to which
he is subject, and who is of sound
mind, and is not disqualified from
contracting by any law to which
he is subject.
 This section declares the following persons
are incompetent to contract:

1. Minors
2. Persons of unsound mind and
3. Persons disqualified by law to which they are
subject.
 Incapacity

Minority Unsound mind Disqualified

by Law

Alien enemies,
Idiots,
Insolvents,
Lunatics,
Convicts
Drunk
Under Section-3 of The Indian
Majority Act 1875: Every person
domiciled in India shall attain the
age of majority on his completing
the age of eighteen years and not
before.
1. An agreement with or by minor is void and
inoperative ab intio Privy Council affirmed
this view most emphatically in
Mohiri Bibi Vs Dharmodas Ghose (1903)30
Cal 539

2. He can be a promisee or beneficiary

3. His agreement cannot be ratified by him on
attaining the age of majority
Nazir Ahmad Vs Jiwan Dass AIR1938
Lah159
Shanmugam Pillai Vs K.S.Pillai
(1973)2SCC312

4. He can always plead minority

Leslie Vs Sheiell (1914)3 KB607
5. If he received any benefit under a void
agreement he cannot be asked to
compensate or pay for it
Section -65 ICA: Obligation of person who
has received advantage under void agreement
or contract that become void (Restitution of
benefit)
6. Rule of estoppel not applicable in case of
minors
7. Minor can be a partner (Section 30 0f the
Indian Partnership Act 1932)

8. Minor can be an agent .Section -184 ICA,

1872

9. Liability of necessaries
Section-68: Claim for necessaries supplied to
a person incapable of contracting or on his
account.
Nash Vs Inman(1908)2 KB1
Section-12 What is a sound mind for the
purpose of contracting-A person is said to be
of sound mind for the purpose of making a
contract if, at the time when he makes it, he
is capable of understanding it and of forming
a rational judgment as to its effects upon his
interests.
A person who is usually of unsound mind but
occasionally of sound mind, may make
contract when he is of sound mind

A person who is usually of sound mind, but

occasionally of unsound mind, may make a
contract when he is of sound mind.
Chacko Vs Maha Devan (2007)7SCC363
(Alcoholic Psychosis)

Inder Singh Vs Parmeshwardhani

Singh AIR1957 Pat491
1. Alien Enemies

2. Foreign sovereigns

3. Insolvents

4. Convicts
Two or more persons are said to consent
when they agree upon the same thing in the
same sense
Consent is said to be free when it is not caused by:

1. Coercion, as defined in section 15, or

2. Undue influence, as defined in section 16, or
3. Fraud, as defined in section 17, or
4. Misrepresentation, as defined in section18, or
5. Mistake, subject to the provisions of sections
20, 21 and 22. Consent is said to be so caused
when it would not have been given but for the
existence of such coercion, undue influence,
fraud, misrepresentation or mistake.
 Flaw in free consent

Undue
Coercion Mistake
influence- Misrepresentation
-Sec15 Sec16

Mistake of Mistake of
Law-Sec21 fact-Sec20
Fraudulent or Innocent or
wilful unintentional
(fraud)Sec17 - Sec-18

Of both the Of only one party

parties (bilateral (unilateral
mistake) mistake-Sec22
“Coercion” is the committing or threatening to
commit, any act forbidden by the Indian Penal
Code, or the unlawful detaining, 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.

Explanation: It is immaterial whether the

Indian Penal Code is or is not in force in the
place where the coercion is employed.
1. Act forbidden by the IPC- IPC not required to
be in force in the place where coercion
employed.
Ex: ‘A’ on board an English ship on the high seas
causes ‘B’ to enter into an agreement by an act
amounting to criminal intimidation under the
IPC. ‘A’ afterwards sues ‘B’ for breach of contract
at Calcutta. ‘A’ has employed coercion, although
his act is not an offence by the law of England
and although Section-506 of the IPC was not in
force at the time when or the place where the act
was done.
a. Ranganayakamma V Alwar Shetty
ILR(1918)41 Mad 33 (Validity of adoption
deed)

b. Chikkam Amiraju V Chillam Sheshamma ILR

(1889) 13 Mad
Threat to commit suicide may amount to
coercion. (execution of release deed)
c. Workmen of Appin Tea Estate V Industrial
Tribunal AIR 1966 Assam 115
Threat to strike not coercion.
d. Andhra Sugar Ltd V State of AP AIR1968
SC599
Statutory Compulsion is not considered
coercion
(AP Sugar cane (Regulation of supply and the
purchase) Act 1961)
2. Detaining or threatening to detain the property
unlawfully.
3. Coercion may be directed against or may
proceed from a person who is not a party to the
contract
4. Coercion must be employed with the intention
of causing a person to enter into an agreement.
5. Consent not given but for coercion.
6. Burden to prove coercion lies on the party who
wants to avoid the contract on the ground of
coercion
Section-19 of ICA makes it clear that when
consent to an agreement caused by coercion
the agreement is a contract voidable at the
option of the party whose consent was so
caused.
 What the Indian Law calls ‘Coercion’ is called
in English Law ‘Duress or Menace’
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
other and uses that position to obtain an
unfair advantage over the other
 A person is deemed to be in a position to
dominate the will of another-
a. Where he holds a real or apparent authority
over the other
b. Where he stands in a fiduciary relationship
to the other
(every relationship of trust and confidence is a
fiduciary relationship)
 c) Where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by reason of age, illness
or mental or bodily distress.

All card V Skinner 1887(36)

Mannu Singh V Uma dat Panday (1890)12 All

523
Means and includes any of the following acts
committed by a party to a contract or with his
connivance or by his agent, with intent to
deceive another party thereto or his agent or
to induce him to enter the contract.
1. The suggestion, as to a fact , of that which
is not true, by one who does not believe it to
be true.
2. The active concealment of a fact by one
having knowledge or belief of the fact.
3. A promise made without any intention of
performing it
4. Any other act fitted to deceive
5. Any such act or omission as the law specially
declares to be fraudulent.
1. There must be a representation or
assertion and it must be false.

Peek V Gurney(1873)LR6
( non disclosure of liabilities of a company; in
the prospectus of the company amounts to
fraud)
2. The representation must be relate to a
material fact which exists now or existed in
the past.
Bisset V Wilkinson (1927)AC177

(Land would carry 2000 sheep is a opinion,

opinion which was made honestly not a
misrepresentation)
3. The representation or statement must have
been made with knowledge of its falsity or
without belief in its truth or recklessly, not
caring whether it is true or false.
Reese River Smith Mining Co V
Smith(1869)LR4 HL64
(Giving false information about the unbounded
wealth of a company in the prospectus of a
company amounts to fraud)
4. The other party must have been induced to
act upon the representation or assertion.
Smith V Chadwick (1834)9
(Untrue statement about the one of the
directors of a company)

5. The other party must have relied upon the

representation and must have been deceived.
Is a false statement which the person making
it honestly believes to be true or which he
does not know to be false.

It also includes non-disclosure of a material

fact or facts without any intent to deceive the
other party.

Derry V Peek (1889)14

INTENTION: In Misrepresentation there is a
misstatement or concealment of a material
fact or facts essential to the contract without
any intention to deceive the other party. In
fraud the intention is to deceive the other
party. MR is innocent – Fraud is deliberate or
wilful

BELIEF: In case of MR the person making the

suggestion believes it to be true while in case
of fraud he does not believe it to be true
RESCISSION & DAMAGES: In MR the aggrieved
party can rescind the contract or sue for
restitutions. There can be no suit for damages. In
fraud the remedy available to the aggrieved party
is not limited to rescission alone. He can also
claim damages.

DISCOVERY: Discovery of truth in case of MR the

aggrieved party cannot avoid the contract if it
had the means to discover the truth with ordinary
diligence. But in case of fraud where there is a
active concealment, the contract is voidable even
though the aggrieved party had the means to
discovering the truth with ordinary diligence
(Consensus ad idem is the root of every
contract)

Mistake may be defined as an erroneous

belief about something. It may be a

*Mistake of Law or

*Mistake of fact
Mistake of fact- Sections: 20 and 22

Bilateral Mistake – Section-20(Void)

Unilateral Mistake – Section-22 (not voidable)

1. When both the parties to an agreement
are mistaken

2. Their mistake is as to a matter of fact and

3. The fact about which they are mistaken is

essential to the agreement.
When in a contract only one of the parties is
mistaken regarding the subject matter or in
expressing or understanding the terms or the
legal effect of the agreement the mistake is a
unilateral mistake. (Not voidable)
A contract is not voidable because it was caused
by a mistake as to any law in force in India but a
mistake as to a law not in force in India has the
same effect as a mistake of fact.

“Ignorantia juris non excusat” means ignorance

of the law is no excuse. Therefore a contract
cannot be said to be voidable due to the mistake
of the parties in understanding any laws that are
in force in India. Hence the parties to the
contract cannot claim relief on the grounds that
they were unaware of the Indian Law.
What considerations and objects are lawful, and what not:
The consideration or object of an agreement is lawful,
unless-
It is forbidden by law, or
Is of such a 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
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of
which the object or consideration is unlawful is void
1. If it is forbidden by law
2. If it is of such a nature that, if permitted,
it would defeat the provisions of any law.
Nandlal V Thomas (Licensed under an Excise
Act to run a liquor shop)
3. If it is Fraudulent
4. If it involves or implies injury to the
person or property of another
Ram Saroop V Bansi Mandar ( 1915) 42Cal742
(Promising to work without pay)
5. If the court regards it as immoral

Sumitra Devi V Sukka Kundu AIR(1976)

Cal197( Agreement between husband and
wife for future separation)

6. Agreements opposed to public policy

“public policy was a very unruly horse and

when once you get astride it, you never know
where it will carry you” Burrough.
a) Agreements of trading with enemy
b) Agreement to commit a crime
c) Agreement to stifling prosecution
d) Agreements in restraint of legal proceedings
–Section-28
e) Trafficking in public offices and tittles
f) Agreement in restraint of parental rights.
g) Maintenance and champerty
Section-24 agreements void,if considerations
and objects unlawful in part- If any part of a
single consideration for one or more objects
or any one or any part of any one of several
considerations for a single object, is unlawful,
the agreement is void
Every agreement in restraint of the marriage
of any person, other than a minor, is void.

In English law: the agreement is void in case

of total restraint of marriage but agreement
not void when it partly restrains the marriage

In Indian law: an agreement become void

when it restrains the marriage whether
restraint is total or partial. This rule does not
apply in case of minor.
Every agreement by which anyone is restrained
from exercising a lawful profession, trade or
business of any kind, is to that extent void.

Exception: Saving of agreement not to carry on

business of which good-will is sold: One who
sells the goodwill of a business may agree with
the buyer to refrain from carrying on a similar
business, within specified local limits, so long as
the buyer, or any person deriving title to the
goodwill from him, carries on a like business,
therein.
Statutory exceptions:
1. Under Section -27 of ICA
2. Indian Partnership Act, 1932
a) Section-11, the contract between the parties may
provide that a partner shall not carry on any business
other than that of the firm while he is a partner, such
contract will be valid not withstanding anything
contained in section-27 of the ICA
b) Section-36(2) A partner may make an agreement
with his partners that on ceasing to be a partner he
will not carry on any business similar to that of the
firm within a specified period or within specified local
limits and not withstanding anything contained in
section-27 of ICA, such agreement shall be valid, if
the restrictions imposed are reasonable.
c) Section-54 Partners may, upon or in
anticipation of the dissolution of the firm,
make an agreement that some or all of them
will not carry on a business, similar to that of
the firms within a specified period or within
specified local limits.

d) Section-55 Sale of goodwill after

dissolution of firm.
1. Service Contracts: Negative covenant
preventing the employee from working
elsewhere during the period covered by
the agreement.

2. Exclusive dealing or solus agreement

1. Agreements which restrict absolutely any party
of the agreement to enforce his rights by usual
legal proceedings.
2. Agreement to reduce the time limit under Indian
limitation Act for enforcement of rights.

Agreements in restraint of legal proceedings void-

Setion-28-Exceptions
1) Reference of future disputes to Arbitration
2) Reference of existing dispute to an Arbitrator
(Section-89 of CPC)
The agreements, the meaning of which is not
certain, or capable of being made certain, are
void.

Guthing V Linn(1831)2

A horse was purchased on the condition that

if the horse would be proved as fortune then
the purchaser would pay 5 pounds more than
the price. This was declared as void on the
basis of uncertainty
Agreement by way of wager are void; and no
suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted
to any person to abide the result of any game
or other uncertain event on which any wager
is made.
The section does not render void a
subscription or contribution, or an
agreement to subscribe or contribute,
towards any plate, prize or sum of money, of
the value or amount if five hundred rupees or
upwards to the winners of any horse races.
1. Promise to pay money or money’s worth
2. Opposite views of the parties about an
uncertain event
3. Each party must stand to win or lose
4. No control over the event
5. No other interest in the event
Wagering agreement is void and therefore
cannot be enforced by the either party to the
contract. Thus, the amount or thing won
under wagering agreement cannot be
obtained