Part I

THE INDIAN CONTRACT ACT, 1872

(9 of 1872)

Preamble.-Whereas it is expedient to define and amend certain parts of the laws relating to contracts.

It is enacted as follows:-

Chapter I

PRELIMINARY

Section 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repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this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.

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 cease to be enforceable by law becomes void when it cease to be enforceable.

Agreement and Contract

Contract.-According to section 2(h) of the Indian Contract Act, 1872-"An agreement enforceable by law is a
contract."

According to Anson: "A Contract consists in an actionable promise or promises. Every such promise involves two
parties a promisor and promisee and an expression of a common intention and of expectation as to the act or
forbearance promised."

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 All agreements are not enforceable by law and therefore, all agreements are not contracts. Some agreement may be
enforceable by law and others are not. For example, An agreement to sell a radio set may be a contract but an
agreement to go to see a movie may be a mere agreement and not enforceable by law.

This contract is a bilateral transaction between two or more person. Every contract has to go through several
stages beginning with the stage of negotiation during which the parties discuss and negotiate proposals and counter
proposals as also the consideration resulting finally in the acceptance of the proposals.

Tarsem Singh v. Sukhminder Singh, MANU/SC/0158/1998 : AIR 1998 SC 1400 (1403): under law it is not necessary
that every contract must be in writing. There can be an equally binding contract between the parties on the basis of
oral agreement unless there in law which requires the agreement to be is writing.

Essentials of Contract

What are the basic essentials of valid contract?

Section 10 of Indian Contract Act, 1872.-All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void.

Railways invited tenders for the supply of jaggery to the railway grain shops. The respondent submitted his tender
for the supply of 14000 imperial maunds of cane jaggery during the month of February and March and the tender was
accepted by the latter. So far, the offer of a supply of a definite quantity of jaggery during a specified period at a
certain rate and the acceptance of the offer would constitute an agreement, but would fall short of amounting to a
legal contract inasmuch as the date of delivery of the jaggery was not specified.

Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any
contract is required to be made in writing or in the presence of witnesses or any law relating to the registration of
documents.

According to section 10, an agreement to be enforceable must fulfil the following conditions:-

(i) An agreement between the two parties. An agreement in the result of a proposal or an offer by one party
followed by its acceptance by the other;

(ii) Agreement should be done between the parties who are competent to contract;

(iii) There should be lawful consideration and lawful object in respect of that agreement;

(iv) There should be free consent of the parties, when they enter into the agreement;

(v) The agreement must not be one, which has been expressly declared to be void.

CHAPTER II

PROPOSAL OR OFFER

The term 'proposal' has been defined in section 2(a) of the Indian Contract Act, 1872 as follows:-

"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."

The first step in the formation of a contract is the making of a proposal. Generally speaking there must be at least two
persons to make a contract-A person to make the proposal and the other person to accept it.

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According to section 2(c).-

The person making the proposal is called the promisor and the person accepting the proposal is called the promisee.

A proposal to be valid must contain the following essential elements which are:-

(i) There must be two parties;

(ii) Every proposal must be communicated;

(iii) It must be made with a view to create legal relation;

(iv) It must be certain and definite.

What are the basic essentials of valid contract?

Essential of a Valid Proposal

A contract come into existence only when all the terms and conditions have been finalised. If the facts of a
particular case show that execution of a written contract was a condition precedent for farming into force of the
contract between the parties, then it cannot be said that any concluded contract in absence of a written contract
being executed has come into force between the parties. The essentials are as follows:-

1. The Proposal must be Communicated

Section 2(a) of the Indian Contract Act, 1872 explains that a person is said to make a proposal "when he signifies to
another person his willingness to do or to abstain from doing anything". The emphasis, here is upon the requirement
that the willingness to make a proposal should be signified. The term signify means to communicate to make known.
It means that the proposal should be communicated to the other party. The process of making a proposal is
completed by the act of communicating it to the other party.

What principle is laid down in section 3?

Section 3: Communication, acceptance and revocation of proposal.-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.

Felthouse v. Bindley, (1863) 7 LT 835: An offer is accepted when the acceptance is communicated. The communication
must be made to the offerer and a communication of acceptance made to a third person creates no contract.

Pharmaceutical Society of Great Britain v. Boot Cash Chemicals (Southern) Ltd., (1952) 2 QB 795: The exposure of goods by
a shopkeeper does not amount to an offer to sell. On picking the goods, it is an offer by the customer and sale is not
affected until the buyer's offer price is accepted by the shopkeeper.

What principle is laid down in the case of Lalman Shukla?

Lalman Shukla v. Gouri Dutt, 1913 All LJ 489: To create a contract it is necessary that a proposal should have been
communicated to the propose. An uncommunicated proposal cannot be accepted. The plaintiff did not have the
knowledge of the proposal. The case was dismissed.

Section 9: Promises, express or implied.-"Insofar as the proposal or acceptance of any promise is made in words, the
promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the promise is said
to be implied."

State of Maharashtra v. Saifuddin Mujjaffarli Saifi, MANU/MH/0008/1994 : AIR 1994 Bom 48: A contract can be implied and it
is very clear from section 9 of the Contract Act, but it is a fundamental principle of law that the court should not make a
contract for the parties. A contract implied in fact requires meeting of minds. The court should refuse to read an implied

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term into a contract which is silent on the point or did not clearly indicate the nature of the term. However, when the
stipulations are clear and in contemplation of the parties or which necessarily arise out of the contract between the parties,
they will be implied.

Upton Rural District Council v. Powell, (1924) 1 All ER 220: A fire broke out in the defendant's farm. He believed that he was
entitled to the free services of Upton Fire Brigade and, therefore, summoned it. The Brigade put out the fire. It then turned
out that the defendant's farm was not within free service zone of the Upton, which, therefore, claimed compensation for
the services.

The court said-The, truth of the matter is that the defendant wanted the services of Upton, he asked for the services of
Upton and Upton, in response to that request provided the services. Hence, the services were rendered on an implied
promise to pay for them.

Explain with example when the communication is complete.

Section 4: When communication is complete.-The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.

Illustration.-A proposes, by letter, to sell a house to B at a certain price.

The communication of the proposal is complete when B receives the letter.

2. Proposal must be certain

Section 29: Agreements, the meaning of which is not certain, or capable of being made certain are void.

Illustration:

(a) A agrees to sell 'B' "a hundred tons of oil". There is nothing whatever to show what kind of oil was
intended. The agreement is void for uncertainty.

(b) A, who is a dealer in Coconut oil only, agrees to sell to B "one hundred tons of oil". The nature of A's
trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one
hundred tons of Coconut oil.

3. Intention to Create Legal Relationship

Whether it is necessary to create legal relationship for a valid contract?

The intention of the parties is naturally to be ascertained from the terms of the agreement and the surrounding
circumstances. According to Lord Atkin- "There are agreement between parties who do not result in contracts within
the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or
where there is an offer and acceptance of hospitability". They are not contracts because parties did not intend that
they shall be attended by legal consequences.

Explain the facts of Balfour v. Balfour case.

Balfour v. Balfour, (1919) 2 KB 571: The defendant was employed in Ceylon. He along with his wife went to England
to enjoy the leave. At the expiry of leave when he was about to return Ceylon, his wife was advised to remain in
England on account of her health. Before returning to Ceylon, he promised to pay Å“ 30 every month to his wife for
her maintenance. He sent the amount for sometime but subsequently he stopped it as certain differences between
them led to their separation. Since by the time of separation, the said allowance had fallen into arrears, the wife
brought to an action to recover the arrears. Her claim was dismissed by court.

These arrangements do not result in contracts at all, even though there may be what would constitute consideration
for the agreements. They are not contracts because parties did not intend that they shall be attended by legal
consequences.

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 Lord Atkin observed that - "To create a contract, there must be a common intention of the parties to enter into
legal relationship, mutually communicated expressly or impliedly."

Banwarilal v. Sukhdarshan Dayal, MANU/SC/0013/1972 : (1973) 1 SCC 294: In an auction sale of plots of land, a
loudspeaker was spelling out the terms etc., of the sale. One of the statements being that a plot of certain
dimensions would be reserved for a Dharamshala (Public Inn). Subsequently, that plot was also sold for private
purposes. The purchasers sought to restrain this.

The Supreme Court observed that Micro Phones... have not yet acquired notoriety as carriers of binding
representation. Promises held out over loudspeakers are often claptraps of politics. In the instant case, the
announcement was, if at all, a puffing up of property put up for sale.

4. Offer may be General or Specific

An offer need not always be made to an ascertained person but it is neccessary that the ascertained person should
accept it. For example, if a person offers a reward to anyone who finds his lost diamond ring, the finder can
successfully claim the reward. The position be different if the finder has no knowledge of the reward.

Weeks v. Tybald, (1605) 75 ER 982: It was suggested in this case that the offer must be made to a definite person.
That case arose out of the defendant's affirmation to the public that he would give Å“ 100 to him that should marry
his daughter with his consent. The plaintiff alleged that he did so and sued the defendant. The court rejected this
action and said that it is not averred nor declared to whom the words were spoken.

Discuss the facts of Lalman Shukla v. Gauri Dutt case.

Lalman Shukla v. Gauri Dutt, (1913) 11 All LJ 489: "The defendant's nephew having absconded from home, he sent
this servant to find him out. Later on, he offered a reward of Rs. 501 to any one who discovered the boy. This offer
came to the knowledge of the servant only after he had already discovered the boy. In a suit filed by the servant to
claim the reward, it was held that he could successfully claim the reward only on the basis of contract and in this
case there was no communication of proposal to him. He came to know of it after he had already discovered the boy
which he was already under obligation to do by the nature of his calling.

It was held that since the plaintiff was ignorant of the offer of reward, his act of bringing the lost boy did not
amount to the acceptance of the offer, and, therefore, he was not entitled to claim the reward.

Laid down the principle in Carlill v. Carbolic case.

Carlill v. Carbolic Smoke Ball Co., (1893) 1 QB 256: The defendants advertised their product, "Carbolic Smoke Ball", a
preventive remedy against influenza. In the advertisement they offered to pay a sum of Å“ 100 as reward to anyone
who contracted influenza, cold or any disease caused by taking cold after having used the, Smoke Ball three times a
day for two weeks, in accordance with the printed directions. They also announced that a sum of Å“ 100 had been
deposited with the Alliance Bank to show their sincerity in the matter. The plaintiff relying on the advertisement
purchased a Smoke Ball from a chemist, used the same in accordance with the directions of the defendants, but still
caught influenza. She sued the defendant to claim the reward.

It was held that this being a general offer addressed to all the world had ripened into a contract with the plaintiff by
her act of performance of the required conditions and thus accepting the offer.

Section 8 Acceptance by performing conditions, or receiving consideration.-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.

Bhagwati Prasad Pawan Kumar v. Union of India, MANU/SC/2931/2006 : AIR 2006 SC 2331: Supreme Court clarified the legal
position and expressed that the section 8 provides for acceptance by performing conditions of a proposal in this case. The
Railway made an offer to the appellant laying down the condition that if the offer was not acceptable, the cheque should be
returned with feeling which it would be deemed that the appellant accepted the offer in full and final satisfaction of its

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claim.

Harbhajan Lal v. Harcharan Lal, AIR 1925 Alld 539: Where a general offer is of continuing nature it will be open for
acceptance of any number of persons.

State of Tripura v. Bhowmik & Co., AIR 2004 Gau 21: If there being no agreement, there was no breach of contract
committed by the respondent and also that since there was no breach of contract, the petitioner cannot retain or forfeit
the earnest money deposited by the respondent by way of penalty.

Offer and Invitation to Offer

What is invitation to offer and how it differs from offer? Discuss the relevant case laws.

An offer must be distinguished from an 'invitation to receive offer' or as it is sometimes expressed in judicial language
an 'invitation to treat'. In the case of an 'invitation to receive offer' the person sending out the invitation does not
make an offer but only invites the other party to make an offer. His object is merely to circulate information that he
is willing to deal with anybody who, on such information, is willing to open negotiation with him. Such invitation for
offers are therefore not offers in the eye of law and do not become agreements by their acceptance.

Cheshire and Fifoot: "An offer capable of being converted into an agreement by acceptance, must consist of a
definite promise to be bound, provided that certain specific terms are accepted. The offerer must have completed
his share in the formation of a contract by finally declaring his readiness to undertake an obligation upon certain
conditions, leaving to the offeree the option of acceptance or refusal."

Explain the facts of Harvey v. Facie and the principle laid down.

Harvey v. Facie, (1893) AC 552: The plaintiff offered to purchase a plot of land Bumper Hall belonging to the
defendant. He made the said offer through the telegraph and asked the defendant to telegraph the lowest price. The
defendant sent the reply through the telegraph quoting the lowest price as Å“ 900, The plaintiff was ready to
purchase the land at the quoted price and sent his acceptance through telegram. But the defendant refused to sell
the land for

Å“ 900. The plaintiff therefore sued the defendant for the breach of contract.

The judicial committee of the Privy Council dismissed the action and observed-"the mere statement of the lowest
price at which the vendor would sell contains no implied contract to sell at that price to the persons making the
enquiry."

It was observed that the first telegram had asked two questions one regarding willingness to sell and the other
regarding the lowest price. In reply only lowest price was quoted and this quoting of the price was not an offer. The
third telegram from the plaintiffs saying. We agree to buy was only an offer and not the acceptance of an offer.
Since this offer had not been accepted, there was no binding contract between the parties.

McPherson v. Appana, MANU/SC/0004/1951 : AIR 1951 SC 184: The plaintiff offered to purchase a lodge owned by
the defendants for Rs 6000. He wrote the defendant's agent asking whether his offer had been accepted and saying
that he was prepared to accept any higher price if found reasonable. The agent replied "wont accept less than
rupees ten thousand". The plaintiff accepted this and brought a suit for specific performance. It was held that the
defendant did not make any offer or counter-offer in his cable but was merely inviting offers. There was no assent to
the plaintiff's offer to buy at Rs. 10,000 and, therefore, no concluded contract.

It was held that in this case the letter from the defendant's agent was not a counter offer but was a mere quotation
amounting to invitation to offer. The plaintiff's willingness to pay Rs. 10,000 was an offer and since the same had not
yet been accepted, there was no binding contract between the parties.

Pharmaceuetical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., (1952) 2 QB 795: The exposure of
goods by a shopkeeper does not amount to an offer to sell. On picking the goods, it is an offer by the customer to
buy, and sale is not effected until the buyer's offer price is accepted by the shopkeeper.

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 State Bank of Patiala v. Ramesh Chandra Kanoji, MANU/SC/0157/2004 : AIR 2004 SC 2016: In pursuant to Voluntary
Retirement Scheme (VRS) framed by the appellant bank, the respondent employee made an offer by making an
application seeking voluntary retirement. In the scheme of 15 days time was given to the employee to opt for the
scheme. It was also provided that application once made could not be withdrawn. Hence withdrawal, after date of
closure of scheme was not permissible.

The Supreme Court observed that as scheme was an invitation to offer and not an offer and such schemes being
funded schemes employee if permitted to withdraw at any time after closure, then in such event, all calculation of
management would fail.

Revocation of Proposal

How and when proposal is revoked? Explain with examples.

A proposer may according to the law revoke a proposal.

According to section 5: "A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards."

Illustration.-A proposer, by a letter sent by post to sell his house to B. B accept the proposal by a letter sent
by post. A may revoke his proposal at any time before or at the moment when B posts his letter of
acceptance, but no afterwards.

Revocation, how it is made: 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 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 proposes, if the fact of his death or insanity comes to the knowledge of
the acceptor before acceptance.

Rajendra Kumar Verma v. State of Madhya Pradesh, MANU/MP/0038/1972 : AIR 1972 MP 131: It has been held that a
person who makes an offer is entitled to withdraw his offer or tender before its acceptance is intimated to him. The
Government by merely providing a clause to the contrary in the tender notice could not take away the legal rights of
a person.

© Universal law Publishing Co.

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