Detailed Notes on Contract Law
1. Definition and Introduction
Definition of Contract:
According to Section 2(h) of the Indian Contract Act, 1872, "a contract is an agreement enforceable
by law."
An Agreement is defined under Section 2(e) as "every promise or every set of promises forming
consideration for each other."
A Promise is defined under Section 2(b) as "when a person to whom the proposal is made signifies
his assent thereto."
Illustration:
If A offers to sell his car to B for ₹2 lakh and B accepts the offer, this is an agreement. When this
agreement fulfills the legal criteria, it becomes a contract.
Key Features of a Contract:
Mutual consent.
Legal enforceability.
Presence of obligations.
2. Essential Elements of a Valid Contract
Under Section 10 of the Indian Contract Act, the following are mandatory for a valid contract:
a) Offer and Acceptance
Offer (Proposal):
As per Section 2(a), an offer is a declaration by one party of their intention to do or abstain from
doing something, seeking the consent of the other party.
An offer can be specific (to a specific person) or general (open to the public).
Illustration:
A offers to sell his car to B. This is a specific offer.
A company offers a reward to anyone who finds and returns their lost dog. This is a general offer.
Rules of a Valid Offer:
Must be communicated.
Terms must be clear and definite.
Offer must not impose an obligation on the offeree to reject.
Case Law:
Carlill v. Carbolic Smoke Ball Co. (1893): A company advertised that users of its product would
receive £100 if they contracted influenza. The court held that this was a valid general offer.
Acceptance:
Defined under Section 2(b) as the assent to an offer.
Rules of Valid Acceptance:
Acceptance must be absolute and unconditional.
Must be communicated to the offeror.
Must be within the stipulated time.
Illustration:
A offers to sell his car to B for ₹2 lakh. If B accepts unconditionally, it is a valid acceptance.
Case Law:
Felthouse v. Bindley (1862): Silence does not constitute acceptance.
b) Intention to Create Legal Relations
For a contract to be enforceable, the parties must intend to create legal obligations.
Social or domestic agreements are presumed not to create legal relations.
Case Law:
Balfour v. Balfour (1919): A husband promised his wife a monthly allowance during their separation.
The court held that this was a domestic arrangement, not a contract.
Illustration:
A promises to take B to dinner but fails. This is not enforceable because it is a social agreement.
c) Lawful Consideration
Definition (Section 2(d)): Consideration refers to something of value given by one party to another in
exchange for a promise.
Consideration must be:
Real and not illusory.
Lawful (Section 23).
Can be past, present, or future.
Illustration:
A promises to pay B ₹1,000 for delivering goods. Here, B's delivery is the consideration for A's
promise to pay.
Case Law:
Chinnaya v. Ramayya (1882): A promise made for the benefit of a third party was held valid
consideration.
d) Capacity to Contract
Under Section 11, the following persons cannot contract:
Minors:
A person below the age of 18 (or 21 if guardianship applies).
Contracts by minors are void.
Case Law: Mohori Bibee v. Dharmodas Ghose (1903): A minor's agreement was held void.
Persons of Unsound Mind:
Contracts by insane persons are void unless made during lucid intervals.
Persons Disqualified by Law:
Insolvents, alien enemies, or convicts are disqualified.
Illustration:
A minor purchases a car. The contract is void, and the seller cannot enforce it.
e) Free Consent
Consent is defined under Section 13 as "when two or more persons agree upon the same thing in
the same sense (consensus ad idem)."
Consent is considered not free if influenced by:
Coercion (Section 15):
Threat or use of force to obtain consent.
Illustration: A threatens to harm B unless B sells his land. This is coercion.
Undue Influence (Section 16):
Exploitation of a dominant position.
Illustration: A doctor forces a patient to transfer property under threat of denying treatment.
Fraud (Section 17):
Intentional deception to induce consent.
Illustration: A sells fake jewelry to B claiming it is gold.
Misrepresentation (Section 18):
Innocent but incorrect statements leading to consent.
Mistake (Sections 20-22):
Mistake of fact may render a contract void.
Illustration: A and B contract to sell a specific ship, but it has already sunk. The contract is void.
f) Lawful Object
The object or purpose of the contract must not:
Be illegal.
Be immoral.
Oppose public policy.
Section 23 declares agreements with unlawful objects void.
Illustration:
A contracts with B to smuggle goods. This is void.
g) Certainty and Possibility of Performance
Contracts must have clear terms and be practically enforceable.
Agreements for impossible acts are void under Section 56.
Illustration:
A agrees to supply B with "some goods." This is too vague and hence void.
Case Law:
Taylor v. Caldwell (1863): A contract became impossible to perform as the subject matter was
destroyed.
3. Types of Contracts
Express Contracts:
Clearly stated terms.
Example: Written agreements.
Implied Contracts:
Arise through actions or conduct.
Example: Taking a cab.
Quasi-Contracts:
Imposed by law to prevent unjust enrichment.
Example: A mistakenly pays B's debt. B must repay A.
4. Remedies for Breach
When a contract is breached, the aggrieved party can seek:
Damages (Section 73):
Compensation for losses.
Specific Performance:
Court order to perform the contract.
Injunctions:
Prohibition from doing certain acts.
Quantum Meruit:
Payment for partial performance.
Case Law:
Hadley v. Baxendale (1854): Compensation limited to foreseeable damages.
