INDIAN CONTRACT ACT -1872

The law related to contracts in India is contained in the

Indian contract act 1872
The act came in to force with effect from Sep 1 1872
THE ACT HAS 266 SECTIONS DIVIDED IN TO
FOLLOWING GROUPS
✓ General principles of law of contract - 1to75.
✓ Contracts related to sale of goods -76 to 124.
✓ Special kind of contracts (indemnity, guarantee,
bailment etc ) -125 to 238.
✓ Contracts relating to partnership -239 to 266.
 RIGHTS AVAILABLE TO PARTIES

Jus in Personam: A Right against a Person

Jus in Rem: A Right against the entire world

Ex: ‘A’ owes `5000 to ‘B’. The ‘B’ has a right to get
back `5000 only from ‘A’.
This right of ‘B’ is called as Jus in Personam
Business Laws-Prof.Benny Pappachen
 Jus in Rem: The right against the whole world
Ex: ‘X’ owns a house.
‘X’ has a right of its possession and enjoy his
living in the society.
Every member in the society/state are under
the obligations to not to disturb ‘X’.
This right of ‘X’ is called as Jus in Rem
The Law of Contract creates jus in personam
and not jus in rem
Business Laws-Prof.Benny Pappachen
All of us enter into contracts everyday
knowingly or unknowingly.

For example
a. Purchasing goods from a shop
b. Going to watch a Cinema
c. Boarding a train
d. Boarding a bus
e. Buying milk or newspaper in the morning. Etc.
Definition of Contract (Section 2(h))

A contract is a lawful agreement. In other words, an

agreement enforceable by law is a contract.

Contract = Agreement + Legal enforceability

Or
Contract = Legally enforceable Agreement
Section 2(h) of the Indian Contract Act, 1872 states that “an
agreement enforceable by law is contract”.

This definition gives us two ingredients are as under:

• An agreement
• Enforceable by law.

It means: Contract=an agreement + enforceable by law.

• An agreement which is enforceable by a court or law is
called a Contract.
• An agreement which is not enforceable by a court of
law cannot be called contract. For example: An
agreement between A & B to stab C and share the
belongings of C acquired through such crime.
• An agreement becomes a Contract when:-
1. Agreement is not declared void by law.
2. Agreement is made for a lawful object.
3. It is made by free consent of parties.
4. Parties are competent to contract.
5. Agreement is made for lawful consideration.
“ All Contracts are agreements but all agreements are
not Contracts”

Agreements of moral, religious or social nature are not

contracts

• They are not likely to create a duty enforceable by law

• Parties never intended to create a legal obligation
 An agreement (Section 2(e))

An Agreement is a promise between two entities creating mutual

obligations by law. Section 2(e) of the Indian Contract Act, 1872
defines an agreement as ‘Every promise and every set of
promises, forming the consideration for each other, is an
agreement’.

To form an agreement, the following ingredients are required:

Contd…..

• Parties: There need to be two or more parties to form an

agreement.
• Offer/ Proposal: When a person signifies to another his
willingness of doing or omitting to do something with a view
to obtain other’s assent. [Section 2(a)]
• Acceptance: When the person to whom the proposal is
made signifies his assent for the same thing in the same
sense as proposed by the offeror. [Section 2(b)]
• Promise: When a proposal is accepted, it becomes a
promise. [Section 2(b)]
• Consideration: It is the price for the promise. It is the return
one gets for his act or omission. [Section 2(d)]
Contd…

An agreement is, therefore, a promise or set of promises

forming consideration for all the parties. [Section 2(e)]

Agreement = Promise or set of promises (offer +

acceptance) + Consideration (for all the parties)

If a 7-year-old boy is buying an ice-cream from an ice-cream

vendor and giving Rs. 10 in return, it becomes an agreement.
This is because the boy offers to buy ice-cream and the
vendor accepts the offer which makes it a promise. The
consideration for both was ice-cream and money respectively.
Kinds of Agreements:
1. Valid Agreement and Enforceable
Agreement
2. Void Agreement
3. Voidable Agreement
4. Unenforceable Agreement
5. Illegal Agreement
Identify the modalities of offer and acceptance in the
following situations
Situation 1:
Gyan says to the shopkeeper “will u sell me this soap for
Rs 10?” The shopkeeper nods.

Situation 2:
In a hostel canteen ,diff food items are kept in bowls. Students
Can pick up and eat what they like .An attendant writes the food
items picked by a student against his name in a register .The amt
for the item picked up is deducted from the “ADVANCE MESS CHARGE”
paid by the student at the beginning of the term.

Situation 3
Ajay puts Rs 5 to get a cup of coffee from a coffee vending machine.
Business Laws-Prof.Benny Pappachen
 What are the key differences between
agreements and contracts?
Basis for Comparison Agreement Contract

An agreement is made
when a proposal by one A contract is made when an
Meaning party is accepted by agreement becomes
another lawful enforceable by law.
consideration.
Agreement and
Elements Offer and Acceptance
Enforceability under law
Defined in Section 2(e) Section 2(h)
Usually written and
In writing Not necessarily
registered
Once the agreement
There is no legal
becomes a contract, there is
Legal obligation obligation as long as it
a legal obligation by parties
is a mere agreement.
involved.
Scope Wide Narrow
ESSENTIAL ELEMENTS OF VALID
CONTRACTS (SEC 10)

An agreement, to be enforceable by law, must possess the

essential elements of a valid contract as contained in
section 10 of the Indian Contract Act.

According to Section 10, “All agreements are contract if

they are made by the free consent of the parties,
competent to contract, for a lawful consideration and with a
lawful object and are not expressly declared to be void.”
ESSENTIAL ELEMENTS OF VALID
CONTRACTS
1. Offer and Acceptance.
In order to create a valid contract, there must be a ‘lawful
offer’ by one party and ‘lawful acceptance’ of the same
by the other party.

2. Intention to Create Legal Relationship.

In case, there is no such intention on the part of parties,
there is no contract. Agreements of social or domestic
nature do not contemplate legal relations
 EXAMPLES
• P invites Q to have a dinner and Q accepts it. If P fails
to serve the dinner, Q cannot sue ‘P’ for non-
performance. The invitation for dinner is a social
agreement.
• An agreement to have a cup of tea at a friend’s house
is a social agreement. A friendly agreement cannot be
called Contract.
• ‘A’ gives a promise to his son to give him a pocket
allowance of Rupees one hundred every month. In
case A fails or refuses to give his son the promised
amount, his son has no remedy against A
 Case Law
Balfour Vs Balfour-1919
A husband promised to pay his wife a £30 per month
allowance. The wife sued her husband to enforce the
promise.
Agreements between husband and wife to provide monies
are generally not contracts because the “parties do not intend
that they should be bound by legal obligations.”
The agreement was purely social and domestic in nature
and characteristic and therefore it was presumed that the
parties did not intend to be legally bound.
 ESSENTIAL ELEMENTS OF VALID CONTRACTS –
contd…..
3. Lawful Consideration:
In other words of Pollock, “Consideration is the price for which
the promise of the another is brought. “consideration is known as
quid pro- quo or something in return. Consideration must be
real and lawful. An agreement to do something for others without
getting anything in return is not enforceable. Without
consideration, a contract is regarded as a nudum pactum.
Example: P promises to pay Rs.1,00,000/- on a certain date to Q
without any promise in exchange. This is not a valid contract.
Example: A agrees to sell his pen to B for Rs.300/- . Here for A,
the consideration for the watch is the money he gets from B and
for B, the consideration for the money he gives, is the watch.
Consideration may be …
• In cash or kind
• A promise to do or not to do something
• Past, Present, Future.
ESSENTIAL ELEMENTS OF VALID CONTRACTS
–contd…..

4. Capacity of parties:
The parties to an agreement must be competent to
contract. If either of the
parties does not have the capacity to contract, the
contract is not valid.
According the following persons are incompetent to
contract.
(a) Minors
(b) Persons of unsound mind, and
(c) Persons disqualified by law to which they are subject
 ESSENTIAL ELEMENTS OF VALID
CONTRACTS –contd…..
5. Free Consent:
‘Consent’ means the parties must have agreed upon the
same thing in the same sense. A contract is made when one
person makes an offer and another person accepts the
offer. This acceptance of the offer should be made without
any force or threat or coercion.
According to Section 14, Consent is said to be free when it
is not caused by-
(a) Coercion (b) Undue influence (c) Fraud (d) Mis-
representation, (e) Mistake.
An agreement should be made by the free consent of the
parties.
 ESSENTIAL ELEMENTS OF VALID CONTRACTS
–contd…..
6. Lawful Object:
The object of an agreement must be valid. Object has nothing
to do with consideration. It means the purpose or design of the
contract. Thus, when one hires a house for use as a gambling
house, the object of the contract is to run a gambling house.
The Object is said to be unlawful if-
(a) It is forbidden by law;
(b) It is of such nature that if permitted it would defeat the
provision of any law;
(c) It is fraudulent;
(d) It involves an injury to the person or property of any other;
(e) The court regards it as immoral or opposed to public policy.
 ESSENTIAL ELEMENTS OF VALID CONTRACTS
–contd…..
7. Certainty of Meaning:
According to Section 29,”Agreement the meaning of which
is not certain or capable of being made certain are void.” An
agreement contains terms as decided by the parties. The
terms of agreement must be certain and unambiguous. If
the terms of an agreement are uncertain, it is not a valid
contract.
For Example: A agreed to pay Rs.3 lakh to B for an ultra-
modern decoration of his drawn room. The agreement is
void because the meaning of the term ‘ultra- modern’ is not
certain.
8 . Possibility of Performance:
If the act is impossible in itself, physically or legally, if
cannot be enforced at law.
For Example: Mr. A agrees with B to discover treasure by
magic. Such Agreements are not enforceable.
 ESSENTIAL ELEMENTS OF VALID CONTRACTS
–contd…..

9 . Not Declared to be void or Illegal:

The agreement though satisfying all the conditions for a
valid contract must not have been expressly declared void
by any law in force in the country. Agreements mentioned
in Section 24 to 30 of the Act have been expressly
declared to be void for example agreements in restraint of
trade, marriage, legal proceedings etc.
10 . Legal Formalities:
An oral Contract is a perfectly valid contract, expect in
those cases where writing, registration etc. is required by
some statute. In India writing is required in cases of sale,
mortgage, lease and gift of immovable property, negotiable
instruments; memorandum and articles of association of a
company, etc. Registration is required in cases of
documents coming within the scope of section 17 of the
Registration Act
ESSENTIAL ELEMENTS OF VALID
CONTRACTS
1. Offer and Acceptance.
2. Intention to Create Legal Relationship.
3. Lawful Consideration,
4. Capacity of parties,
5. Free Consent,
6. Lawful Object,
7. Certainty of Meaning,
8. Possibility of Performance,
9. Not Declared to be void or Illegal,
10. Legal Formalities,
What is a standard form contract?

• The standard form contracts are standardized contracts

that include an extensive range of phrases and situations
in exceptional print, limiting and often excluding legal
responsibility beneath the contract.
• In addition, it gives the large employer a unique
opportunity to make the most of the individual’s
weakness via enforcing upon him terms that regularly
seem like a sort of private law.
• It may match the volume of exempting the business
enterprise from all legal responsibilities beneath the
settlement. The battle against the abuse of this contract
has, thus, fallen to the courts.
Issues Concerning Standard Form of
Contracts
• Mistakenly missing out to read clauses
Courts have held several times that contracts, even if entered
into within the general shape, are supposed to be executed and
cannot be set aside until proven to be entered into using fraud,
misrepresentation, mistake, or coercion.
• Unequal bargaining powers
Courts have ruled against those contracts that exploit the
employees’ function through employers. In the case of
employment agreements between the agency and employee,
there’s a tendency to insert phrases and conditions favourable
to the employers, leaving no other alternative for the
employees aside from accepting it.
• Irrational terms or unconscionable nature
Courts have refused to interfere in cases that judged the
parties’ bargaining power equal but otherwise.
 Why people accept Standard Form of
Contract?
1.First reason why people accept SFC, they don’t read the contract
clauses thoroughly as even after reading they don’t find it worthy
of giving so much time in writing down the clauses.
2.In certain contracts, there are clauses like if you accept the given
terms and condition then they will tell the full terms and
condition of the contract.
3.SFC kind of contract the party generally focus on the price
mentioned in the contract; he doesn’t really care about other
different clauses which might be exploitative in nature.
4.Manufactured pressure on the party is created by another party
to sign SFC, earlier all the negotiation and the terms had been
discussed orally and explained to them. So it becomes a kind of
bounding on the party to sign the contract.
5.The major point SFC’s are that they are take it or leave basis, so
they don’t have any choice but to accept the contract.
Ways to limit exploitation from Standard
form contract:

• The party must give reasonable notice about the

terms and conditions of the contract before or
while signing the contract.
• There must be a contractual document between
the parties to enforce it in court.
• It should protect the interest of the weaker party.
CLASSIFICATION OF CONTRACTS
Broadly, contract are divided into 3 types:

• On the Basis of the Mode of Formation

• On the Basis of Performance
• On the Basis of validity or Enforceability
 On the Basis of the Mode of
Formation
• Express Contracts

A contract made by word spoken or written.

Section 9 of the Indian Contract Act 1872 provides that if
a proposal or acceptance of any promise is made in
words the promise is said to be express.

Example: A says to B ‘will you purchase my bike for

Rs.20,000?” B says to A “Yes”.
 On the Basis of the Mode of
Formation (contd..)
• Implied Contract
A contract inferred by
• The conduct of person
• The circumstances of the case.
By implies contract means implied by law (i.e.) the
law implied a contract though parties never intended.
According to sec 9 in so for as such proposed or
acceptance is made otherwise than in words, the promise is
said to be implied.
Example: A stops a taxi by waving his hand and takes his
seat. There is an implied contract that A will pay the
prescribed fare.
A takes a seat in a bus. There is an implied contract that he
will pay the prescribed fare for taking him to his destination
 On the Basis of the Mode of
Formation (contd..)
• Quasi-contract - Sec:68-72
In such a types of contract, the rights and obligations
arise not by an agreement but by operation of law. Quasi
contracts are based on ‘Unjust Enrichment’ concept,
i.e. one person is enriched on the cost of another
person, which is unjustified.
Example: If Mr. A leaves his goods at Mr. B’s shop by
mistake, then it is for Mr. B to return the goods or to
compensate for the price.
For example, if a package belonging to A is delivered to
M, then M is legally obligated to return it to A. If M uses
up the contents of the packaging for himself, then A has
the right to sue him. In that case, the court can order M
to reimburse A under Quasi-contract law.
 Kinds of Quasi Contract
(SEC 68)
1) Supply of Necessaries: If a person (M) is
incapable of falling in contract (minor/unsound
mind), gets supply of necessary items suited to his
conditions by a person (X). This person ‘X’ is entitled
to get reimbursement from the property of ‘M’.
Ex: ‘A’ is supplying the necessities to ‘B’s wife and
children, who are minors. Here ‘A’ is entitled to get
reimbursement from ‘B’s property
2. Parents died, their will of property is on the name of
their son, who is minor, taken care by, his maternal uncle
or friend of his father. The friend or uncle can
claim reimbursement from the property
Business Laws-Prof.Benny Pappachen
 Kinds of Quasi Contract
(SEC 69)
2) Payment by an Interested Person: A person,
who is interested to make the payment of
money, for which, another person is actually
bound to pay by law, and who therefore pays for
it, is entitled to reimbursed by law.
Ex: ‘A’ is a tenant in the house of ‘B’. There was a
contract b/n ‘A’ & ‘B’ that the rent of house

includes the electricity bill. ‘B’ did not pay

electricity bill for last 6 months. To avoid electricity
cut, the tenant ‘A’ paid the bill. Now ‘A’ is entitled
to collect the same from ‘B’.
Business Laws-Prof.Benny Pappachen
 Kinds of Quasi Contract
(SEC 70)
3) Obligation to pay for non-gratuitous act: If a
person (A) does something lawfully for another
person (B) person, without any expectations
(non-gratuitous), the another person (B) is bound
to give compensation to ‘A’
Ex: ‘A’ is a businessman, who leaves his goods in
the house of ‘B’ by mistake. ‘B’ sells those goods
to ‘C’ as they were about to get damaged. ‘B’ is
bound to pay money collected after sales to ‘A’.
Business Laws-Prof.Benny Pappachen
 Kinds of Quasi Contract
(SEC 71)
4) Responsibility of finder of goods: If a person (A)
finds something and if there is no owner of that
thing, he is responsible to take care of the thing
either until he finds the owner. If he doesn’t take
care, he will be considered as guilty for wrongful
handling of the thing by the actual owner.
Ex: ‘A’ finds a diamond on shop floor of ‘M’. ‘A’
hands over it to the shop owner ‘M’ to handover to
the real owner of diamond. After heavy adv. and
waiting for 6 months, when no one turned up, ‘A’
can entitle himself as the owner.
Business Laws-Prof.Benny Pappachen
 Kinds of Quasi Contract
(SEC 72)
5) Mistake or Coercion: A person to whom if
money is delivered by mistake or under coercion
by another person, in this case, the person must
pay it back to the other person or any other
person, who is involved.
Ex: ‘A’ delivers money to ‘B’ by mistake instead of
‘C’. ‘B’ must refund it back to ‘A’. ‘C’ however
can not recover the money directly from ‘B’. Such
incidence may happen in banks due to rush
hours or by a newBusiness
employee.
Laws-Prof.Benny Pappachen
 On the Basis of the Mode of
Formation (contd..)
• E-contract
An e-contract is a contract made through the digital mode. The
contracts which are not paper-based and are created
electronically in nature are known as e-contracts.

Example: a person drawing his money from an ATM is also an

example of an electronic contract.
The installation of software in your laptop while accepting its
terms and conditions is an example of an e-contract.
Buying from Amazon, Flipkart etc..
• An E-contract or electronic contract is a contract which
is drafted and signed in an electronic form. Moreover,
such contracts are executed through the internet.
• E-contracts can be used as employment contracts,
consultant contracts, distribution agreements,
Licensing agreements and also Non-disclosure
agreements.
• E-contracts are existing everywhere across the internet.
• E-contracts can be formed through e-mails, when
parties who coming in a contract communicate the
details of the contract via e-mail
Contd….

2. Click-wrap Agreement
• This type of agreement is used to get the consent of the
user regarding the terms and conditions of the contract
with the use of “Ok” and “I Accept” options.
• Such agreements appear before a person starts using a
particular software. Subsequently, when the user the
denies or does not accepts the terms and conditions,
he cannot use the particular software.
• The terms of the contract are presented to the user
before he starts using a particular software and only
with the acceptance of the terms and conditions the
user can move forward.
CLICK WRAP AGREEMENT
 Contd…..
3. Browse-wrap Agreement
• Browse-wrap agreements are the agreements which can be seen
on the internet on daily basis. These agreements are intended to
bind two parties in a contract through the use of a website.
• For the continuous use of the website the terms of the website
need to be accepted by the user. The terms include the ‘user
policies’ and the ‘terms of service’ of the website and are in the
form of a “terms of use” or “terms of service”. Binds the user by
mere clicking. Need not click on I AGREE.
• These agreements have become of a common use in businesses
these days but there is lack of judicial precedent for these
agreements. Various countries like USA has held such agreements
enforceable. Though, in India there is lack of judicial precedent but
when the essentials or the general principles of contract are
followed these agreements can be enforced
BROWSE WRAP AGREEMENT
Essentials of E-contracts

• An offer from one party needs to present to in order to

form a valid e-contract.
• But one needs to understand that an advertisement on
the internet may not constitute to be an offer as
invitation to offer and offer are two different concepts.
• To identify whether an advertisement is an offer or an
invitation to treat the test of intention is performed. A
customer when files a responds to a mail or fills an
online form of a website, he is understood to make an
offer. The manufacturer or the seller can either accept
such an offer by conduct or expressly confirming it.
 Contd……
• After an offer is communicated an unconditional
communication of acceptance is required to create a valid
e-contract.
• The most important task after acceptance is to identify at
which point the contract comes into existence.
• There is a settled rule that acceptance is completed when
it is received.
• It is important in e-contracts to identify the actual point
of receipt as to decide the jurisdiction in which the e-
contract will be concluded. If the server in the working is
trusted then the postal rule can be applied. However, if
the server cannot be trusted the postal rule should not be
applied. The “receipt at the mail box” rule is preferred in
such situations.
Contd…..
• A contract only comes into existence when promise
made in exchange of something valuable. This is called
as consideration of the contract.
• It is essential to understand that contracts work on the
principle of quid pro quo. The present principle also
applies to E-contracts.
• Various consumers feel concerned about the
transaction’s security over the internet. This has been
reduced widely due to different methods such as a
written confirmation sent to the consumers, consumers
having the right to withdraw from the transaction,
reimbursement from various fraudulent activities. Such
e-directives have made online transactions safer and
viable.
Problems with E-Contracts
Capacity to Contract It is a very essential element to ensure
that the parties who come under a contract have the
capacity to do so. If a person does not have legal
competence than the contract stands void. Problem of
capacity to contract arises because often there are
nameless individuals who enter into contracts and there is a
possibility that these individuals who agree to the terms
and conditions of an e-contract might be minors.
Free Consent Free consent is an essential element to form a
valid contract. E-contracts does not provide any party to
negotiate with the existing offer as the parties are not
aware of each other. Further, the user cannot use nay
system or software without accepting the terms and
conditions. Thus, an e-contract only provides a “take it or
leave it” offer. In such a scenario, the user will only have two
options either to accept the terms and conditions which he
is unwilling to or to forego the service which he requires.
 Contd…..
Non-repudiation of Contracts When one accepts the terms
and conditions of an online contract, he cannot change the
terms of the contract. This puts the person accepting such
terms in an unfair condition has he has no means to change or
alter any part of the contract as the parties present in such
contracts do not know each other. Moreover, these contracts
bind them legally for a long period of time and they cannot
alter the terms of the contract to benefit themselves.
Court Jurisdiction E-contracts have a very wide course of
action and takes place in wide geographical areas, which will
lead to filing of cases in different and far away places.
Defending suits at such far away places increases expenditure
and time wastage. Service providers limit the exposure to the
jurisdiction which is near them. The user has no option in such
agreements to select the jurisdiction and are exposed to
whatever jurisdiction the service provider limits themselves
to. This puts the user in an unfavourable position.
E-Contracts: Legislative Analysis
• Indian Contracts Act, 1872
All the laws related to contracts are covered by the
ICA. This legislation provides all the essentials
required to form a valid contract. Any normal
contract which fulfils the conditions given by the ICA
and is paperless or in electronic form is an e-
contract. These contracts are as valid as written
contracts. Thus, any legal query which includes e-
contracts can be solved using the ICA
Contd….

• Indian Evidence Act, 1872

It is important that the courts accept electronic mode
of contracts as an evidence.
The introduction of Sec. 65A and Sec. 65B in the Indian
Evidence Act which is related to the admissibility of
computer-generated evidence. This was to eliminate
challenges related to e-contracts and other electronic
evidence.
It was held that, “electronic records are acceptable in
court”.
Contd….
• Information & Technology Act, 2000
The IT Act gives legislative authority to e-contracts under
Sec. 10 of the act. In furtherance, any contract to become
valid requires signatures from both the parties. In e-
contracts, digital signatures come into play.
Sec. 2(p) of the IT Act defines electronic signature used in
Econtracts. These signatures are very necessary in several
contracts like in government to government (G2G) and in
government to business (G2B).
Furthermore, there are two parties involved in e-contracts
– the originator and the addressee both of which are
defined by the act.9 Thus, the IT Act safeguards that the
interests of the parties are maintained through its various
provisions.
 CONCLUSION
In all ramifications, electronic contracts have been positive
enough to human living that it is now a do-without in our
day to day living.
At the same time, its venom cannot be overlooked. Privacy
issues are my most dreaded concerns. The authenticity to
protect information are so uncertain and yet, so
unavoidable in most cases.
Laws should be appropriately reformed to suit into the
already coming ugly face of electronic contracts and e-
commerce in general.
Consumer protection should be the springboard to foster
these laws as the persons on the other hand will not have
much to lose. While determining this, global expansion of
technology should not be hampered or subdued as to
becoming inaccessible for the common man.