The Slides provide the complete introduction to the Contract law in India as per The Indian Contract Act, 1872

1. UNIT – I
INTRODUCTION
AND FORMATION
OF CONTRACT
SHIVANI SHARMA
-ASSISTANT PROFESSOR
-SARDAR PATEL SUBHARTI INSTITUTE OF LAW

2. WHAT IS
LAW?
 Law consists of rules that
regulate the conduct of
individuals, businesses,
and other organizations
within society.
 Law means any rule of
conduct, standard or
pattern, to which actions
are required to conform.
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3. OBJECT OF LAW
 Object of law is the creation and protection of legal rights
to maintain order in the society.
 Keeping the peace.
 Shaping moral standards.
 Promoting social justice
 Maintaining the status quo
 Facilitating orderly change
 Maximizing individual freedom
This Photo by Unknown author is licensed under CC BY-SA-NC.

4. WHAT IS A CONTRACT?
 A contract is a legally binding agreement which
recognizes and governs the rights and duties of the
parties to the agreement.
 A contract is legally enforceable because it meets the
requirements and approval of the law.
 An agreement typically involves the exchange of
goods, services, money, or promises of any of those

5. Would you like to buy a 2
BHK Flat?
What price are you
offering?
Okay, deal!
At 30,00,000/- only
A PROMISE AN AGREEMENT

6. NATURE OF LAW OF CONTRACT
 It does not lay down the duties and responsibilities which
the law will enforce
BUT,
 It consists a number of limiting principles, subject to which;
the parties may create rights & duties for themselves which
the law will upload.
 It creates Jus in personam
 It is civil in nature

7. FUNCTIONS
 Securing that the expectations created by a promise
of future performance are fulfilled, or that compensation will be
paid for its breach.
 To facilitate , planning for the future transaction and to
make provisions for future contingencies.
 Establish the value of exchange- how much is paid
for the goods or services provided.
 Establish the respective responsibilities of the parties,
and the standard of performance to be expected of them
 The economic risk involved in the transactions are
allocated in advance between the parties.
 Finally provide remedies if parties are not fulfilling
their part of obligations.

8. THEORIES
OF
CONTRACT

9. WILL THEORY PROMISE EQUIVALENT
INJURIOUS-
RELIANCE
RELATIONAL ECONOMIC UNCONTIONABILITY SOCIAL
REASONABLENESS
DISTRIBUTIVE
JUSTICE

10. 1. WILL THEORY - The 'Will Theory' is regarded as the oldest
theory of contract. According to this theory, the law enforces
a contract only because will or intention of the parties to a
Contract should be respected. By giving effect to a contract the
law, therefore, respects the will of the parties to the contract.
 Savigny, Pollock and Salmond are the main supporters of this
theory. According to them the agreement of wills or meeting
of minds is the first essential of a contract.
 The second factor which is helpful in giving recognition to
will theory is the concept of liability. A contract gives rise to
liability commonly known as contractual liability. Such a
contractual liability is supposed to be created by means of
intention.

11. 2. THE PROMISE THEORY - The promisee who has
done something for the promisor may naturally think that
the promisor will also fulfil his promise.The opinion of a
common man is that when the promisor enjoys the benefit of
the promisee's act, he should be bound by his promise.
 Firstly, the promise theory makes it clear that the promisor
must keep his promise
 Secondly, the element of individual autonomy and trust is
stressed more by this this theory than the element of
purpose or object of the promise.
 Thirdly, it is well-known that freedom to contract extends to
freedom to substitute a new contract at the place of
old one or rescind or alter the original contract.'

12. 3. THE EQUIVALENT THEORY (BARGAIN THEORY) -
The 'Equivalent Theory' states that only those promises should
be enforced which contain their equivalent from the promisee's
side. Unless the promisee has done or abstained or promises to
do something which forms consideration in response to
promisor's promise, it would be unjust to hold the
promisor liable.
 The Indian law clearly recognises (with a few Exceptions) the
doctrine of consideration. The consideration is regarded as
one of the essentials of a contract.
4. INJURIOUS RELIANCE THEORY - According to this
theory the contractual liability arises only where:(i) someone
makes a promise explicitly in words or implicitly by some act; (ii)
someone else relies on it, and (iii) suffers loss due to its non-
performance.

13. 5. RELATIONAL THEORY - Prof. Ian Mac Neil is the propounder of
this theory. He recognises reality of relationship in contract. He thinks so
because the contracts are not always accurately characterised as
discrete transactions. According to him the transaction are affected by
prior and ongoing relationships of the parties. They are independent of
social or other economic relations. A discrete transaction is detached
others i.e. it affects the parties and not the society.
6. THE ECONOMIC THEORY - The 'Economic theory' emphasises that
Justice should not be costly. No one should be debarred from
seeking Justice merely on the ground of poverty. The effect of
is that a stranger to a contract is entitled to sue upon the contract to
receive benefits of the contract provided (i) the contract is valid, (ii) the
contract is such that the promisee can enforce it specifically. The doctrine
of privity of contract, according to this theory is expensive, especially
when the contract tends to confer benefit on a stranger.

14. 7. SOCIAL THEORY - The distinguished American Jurist,
Roscoe Pound, is the propounder of Socio-legal school.
According to him, law should be changed according
o varying circumstances and demands of society.If the judges
completely ignore the point of social interests of expediency
practical convenience a system of law cannot be durable. The
'social theory' of contract is based on the tenets of sociological
school of law. This theory provides no justification for doctrine
privity of contract.
8. THEORY OF UNCONCIOUNABILITY - The theory of
unconscionability is a device which controls abuse of contract
and prevents injustice to the beneficiary (i.e. third person). This
theory suggests that the promisor should not be placed in a
position where he can abuse his own promise i.e. refuse to
perform his promise.

15. 9. REASONABLENESS THEORY - According to this theory
when parties to a contract are unequal in bargaining
(i.e. one is stronger and the other is weaker in bargaining)
and the stronger party enters into a contract with the
weaker party with an unreasonable or Unfair or
unconscionable term favourable to him, the court will not
enforce it.
 Thistheory was propounded by the Supreme Court
of India in Central Inland Water Transport Corporation
Ltd, v. Bro.jo Hath Ganguly. This theory makes it clear
that gross inequality of bargaining power between
to a contract, together with terms unreasonably
favourable to the stronger party will make the bargain
unconscionable.

16. 10. THEORY OF DISTRIBUTIVE JUSTICE - According to this
theory there should be fair distribution of wealth among
the members of society. The economy should not be
controlled by a few big business houses.
 Central Inland Water Transport Corporation Ltd, v.
Bro,jo Nath Ganguly has approved of this theory. The
court has held that according to the doctrine (i.e.
distributivE theory) distributive fairness and justice in the
possession of wealth and property can be achieved not
only by taxation but also by regulatory control of private
and contractual transactions even though this might
involve some sacrifice of individual liberty.
 This theory is in accordance with the direction of Art.39
the Constitution of India.

17. PHENOMENON
OF
AGREEMENT
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18. DEFINITION
 The Indian Contract Act, 1872 defines what we mean by “Agreement”.
 In its section 2 (e), the Act defines the term agreement as:
“every promise and every set of promises, forming the consideration for each
other”.
 The Act in its section 2(b) defines the term “promise” here as:
“when the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. Proposal when accepted, becomes a promise”.
“signifies his assent thereto” – means that the person in point one accepts or agrees
with the proposal after having fully understood it.
 In other words, an agreement is an accepted promise, accepted by all the parties
involved in the agreement or affected by it.

19. DEFINITION
OF
CONTRACT

20.  Now we can define a contract and more importantly, understand what is
“Not” a contract.
 A contract is an accepted proposal (agreement) that is fully understood by
the law and is legally defined or enforceable by the law.
 So a contract is a legal document that bestows upon the parties special
rights(defined by the contract itself) and also obligations which are
introduced, defined and agreed upon by all the parties of the contract.
 The Indian Contract Act, 1872 defines the term “Contract” under section 2
(h) as:
“An agreement enforceable by law”.
 In other words, we can say that a contract is anything that is an agreement
and enforceable by the law of the land.

21. DIFFERENCE BETWEEN CONTRACT
AND AGREEMENT
CONTRACT
 A contract is an agreement that is
enforceable by law.
 A contract is only legally
enforceable.
 All contracts are also agreements.
 A contract has to create
some legal obligation
AGREEMENT
 A promise or a number of promises that are
not contradicting and are accepted by the
parties involved is an agreement.
 It may or may not be enforceable by the law.
 An agreement may or may not be a contract.
 An agreement doesn’t create any legal
obligations.

22. OBLIGATIONS

23. OBLIGATIONS
• A SITUATION IN WHICH A PERSON HAS AN HONOURABLE, INHERENT OR
LEGAL DUTY TO DO SOMETHING
• Obligation is the moral or legal duty that requires an individual to perform, as
well as the potential penalties for the failure to perform.
• An obligation is also a duty to do what is imposed by a contract, promise, or
law.
• In the most general sense, duty is a synonym of obligation
• Another legal scholar, John Salmond, stated that an obligation refers to the
morals or laws that command or require an individual to perform an action.
• According to Anson, "an obligation is a control exercisable by definite persons over definite
persons for the purpose of Definite acts or forbearance reducible to a money value"

24. KINDS OF OBLIGATIONS
Obligation
Absolute
Conditional
Contractual
Moral
Express
Penal

25. CONTRACTUAL OBLIGATION
 Contract obligations are those duties that each party is legally responsible
for in a contract agreement. In a contract, each party exchanges something
of value, whether it be a product, services, money, etc.
 An example of contract obligations is with the sale of a product such as an
automobile. One party has the obligation to transfer ownership of the car,
while the other has the obligation to pay for it. The contract will specify the
terms that regulate the obligations, such as the method and amount of
payment, and the time/place of delivery.
 If either party fails to perform their contractual obligations according to the
contract terms, it will usually result in a breach of contract. This may result in
a damages award to reimburse the non-breaching party for their economic
losses.

26.  Most legal agreements contain some of the same types of contract
obligations, such as:
1. Payment: One party (the buyer) is usually legally bound to provide
payment for the sale of goods or services. The contract terms may state
state obligations regarding payment amounts and the deadline for
payment.
2. Delivery: The seller is usually bound to provide delivery of the goods
or services. Again, the contract may state specific obligations in terms
of delivery dates, method of delivery and other terms.
3. Quality of Goods: The seller may also be bound to provide goods of a
a certain quality. This may be specifically described in the contract

27. OFFER = EXPRESSING WILLINGNESS (sec-2a)
ACCEPTANCE = ASSENT TO OFFER (sec-2b)
PROMISE = ACCEPTED OFFER (sec-2c)
AGREEMENT =
PROMISE/S + CONSIDERATION (sec-2d)
FOR EACH OTHER (sec-2e)
CONTRACT = AGREEMENT + ENFORCEABILITY BY LAW
(sec-2h)

28. OFFER
OR
PROPOSAL
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29. WHAT IS AN OFFER?
 A proposal and its acceptance is the universally acknowledged process.
 Section 2(a) defines proposal as:
“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.”
Offeree/
Proposee
Offeror/
Proposer
Offer

30. ELEMENTS OF OFFER
1. Intention to create a legal relationship – Family
and Social Agreements- Balfour v Balfour, Appleson
v Littlewood, Merrit v Merrit
2. Offer must be communicated
3. The terms of the contract must be definite or
capable of being definite – must be certain –
Taylor v Portingto
4. Must be distinguished from ‘Invitation to Offer’

31. KINDS OF OFFER
OFFER
EXPRESS IMPLIED SPECIFIC GENERAL CROSS COUNTER
STANDING/
CONTINUING
Section-9
Expressed
clearly
either by
words or
writing
Section-9
By implied
actions
Addressed
specifically
to a party
General in
nature
Made to
general
public
Carlill v
Carbolic Smoke
Ball Co., Lalman
Shukla v Gauri
Dutt
Both
parties
make
similar
offer to
each other
with similar
terms
Tinn vs
Hoffman
Where
offeree
agrees to
accept
offer
subject to
conditions
Intended
to remain
open for
certain
time
period
UOI v
Maddala
Thathiah

32. COMMUNICATION OF OFFER
1. Communication of Offer - Lalman Shukla v Gauri Dutt, William v Carwardine
2. Communication of Revocation:
 Meaning of Revocation- the official cancellation of a decree, decision, or promise
 Revocation of offer – Setion-5- “A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards”
 Modes of Revocation – 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 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.”

33. INVITATION TO OFFER
 Sometimes a person may not make an offer but make some
statement or give some information with a view to invite
offers on that basis
 Examples – Government Tenders, catalogues, Prospectuses,
Price Tags etc.
 Harris v Nickerson – Auction case
 Harvey v Facey – Bumper Hall Pen Case
 Pharmaceutical Society of Great Britain v Boots Cash
Chemists ltd. – Price tags case
 Mac Pherson v Appanna – (not more than 10,000 for
property)

34. ACCEPTANCE

35. WHAT IS ACCEPTANCE?
 According to Section 2(b) of the Indian Contract act, 1872:
“When a person to whom the proposal is made, signifies his assent thereto, the
proposal is said to be accepted. A proposal, when a accepted, becomes a promise”
 Effect- Anson- “Acceptance is to offer what lighted match is to train of gun
powder. It produces something which can’t be undone”
Made
proposal
Accepta-
nce Assent

36. ELEMENTS OF ACCEPTANCE
1. Acceptance must be absolute and unqualified – Section-7-
Hyde v Wrench
2. Communication must be expressed in usual manner –
Section-7 or;
3. in the manner prescribed by the offeror – Elliasion v
Henshaw (acceptance by wagon)
4. It must be by the party named
5. Mere silence is no acceptance
6. It must be communicated – Felthouse v Bindley; buying
horse, Dunlop v Higgins; letter lost in frosty weather

37. COMMUNICATION
1. Communication must be by the Promisor or his
authorized agent- Powell v Lee; post of
headmaster
2. Communication to wrong person is no
acceptance – Kartar Singh v The Collector
Chattarpur
3. Acceptance is not needed in Acceptance by
conduct
4. In case of acceptance by phone- Bhagwan Das v
Girdhari Lal

38. REVOCATION
Communication of Revocation:
 Meaning of Revocation- the official cancellation of a decree,
decision, or promise
 Revocation of offer – Setion-5- “An acceptance may be revoked at
any time before the communication of the acceptance is complete
as against the acceptor, but no afterwards.”
 Difference between English and Indian Law:
Revocation of acceptance is not permitted in English Law

39. Cont..
 Communication when completes – Section – 4:
“The communication of a proposal is complete when it becomes to the
knowledge of the person to whom it is made.
The communication of an acceptance is complete -as against the proposer,
when it is put in a course of transmission to him so at to be out of the power of
the acceptor; as against the acceptor, when it comes to the knowledge of the
proposer.
The communication of a revocation is complete -as against the person who
makes it, when it is put into a course of transmission to the person to whom it is
made, so as to be out of the power of the person who makes it; as against the
person to whom it is made, when it comes to his knowledge.”

40. PROVISIONAL ACCEPTANCE
 Provisional Acceptance is a conditional acceptance which
means that the client has accepted the project but
performance needs to be verified or confirmed under
operational conditions within an agreed period.
 The client issues a Provisional Acceptance Certificate to
evidence this step.
 Provisional acceptance does not bind either party until final
approval is given
 Meanwhile the offeror is at the liberty to cancel the offer
 Bengal Coal Company v Homi Wada- Tender can be
withdrawn before final acceptance

41. CONSIDERATION

42. DEFINITION
 Section 2 (d) of the Indian Contract act, 1872:
“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”
 Consideration is something that moves from the promisee to the
promisor, at the implied or express request of the latter, in return
for his promise.
 The item that moves can be a right, interest, profit, loss,
responsibility given or suffered, forbearance or a benefit which is
of some value in the eyes of law.

43. ESSENTIALS OF CONSIDERATION
1. Consideration must move at the desire of the Promisor – Durga Prasad v
Baldeo, P. Mudaliar v S. Mudaliar
2. It can be an Act, Abstinence or Promise:
• Consideration must be of value/Consideration must be real – White v
Bluett
• Consideration need not be adequate – De La Bere v Pearson, R.B.
Banerjee v Commissioner of IT but can be considered for evidence for
determining free consent.
3. Performance of an existing legal duty is no consideration – Collin v
Godfry- Promise to pay a police officer for investigation

44. 4. Consideration may move from the Promisee or any other person:
 As per section 2 (d), the words “any other person” clears that as long as there is
consideration for promise it is immaterial who has furnished it.
 Doctrine of Privity of Contract:
 This reasoning was reversed in Tweedle v Atkinson- A’s daughter married to plaintiff. Both
fathers agreed to pay money to plaintiff. A did not pay. Plaintiff sued for the amount. Held:
though the sole object was plaintiff’s benefit yet he was stranger to the contract. Therefore
the action failed.
 Dunlop Pneumatic Tyres Co. v Selfridge – sold goods at a lower price. Action not held as
company was stranger to the contract.
 Jamna Dass v Ram Avtar- P.C. introduced the doctrine in India
 Not applicable in India as per Section 2 (d) – Chinnaya v Rammaya
 Applicable in India – S.C. – M.C. Chacko v State Bank of Travancore

45. Exceptions to Doctrine of Privity of Contract:
1. Trust or Charge – Khwaja Mohd. Khan Hussaini Beghum
2. Marriage Settlement, partition or other Family Arrangements
– Dropadi v Jaspat Rai
3. Acknowledgement or Estoppel – Narayani devi v Tagore
Commercial Corporation Ltd.
4. Covenants running with the Land – Smith and Snipes Hall
Farm Ltd. V River Douglas Catchment Board

46. 5. Consideration may be past, present or future –
Consideration
Past Present Executed Future Executory
• Exchange of
past
Consideration
for Promise
• Act done
before the
promise was
made.
• Exchange of Promise for promise
• To perform tasks at a later time.
• Eg- Future delivery of a car
• Exchange of Consideration for the Promise
• UOI v Chaman Lal Loona- act forms
consideration. No contract unless it is performed.
• one party to a contract makes a promise for an
act by another party, it is an executed
consideration when the act is done
• Unilateral contracts
• one of the parties has performed his part of the
promise

47. Past
Consideration
Voluntary
service
Service at
Request
Section 25

48. PAST CONSIDERATION
ENGLISH LAW
 Promise for past consideration is not
enforceable
 Mc. Ardle Re – Improvements made
on the property and subsequent
promise to pay is not enforceable
 Exception:
1. Past consideration at request
2. Promise to pay a time barred debt
3. N.I. issued for a past consideration
INDIAN LAW
 Promise for past voluntary service
can be enforced under section 25
 Past service at request is also
enforceable under section 25

49. 6. Promise to pay less is no consideration just like promise to pay more:
Exception:
 Part payment by a third party may be a good consideration for discharge of
the whole debt
 Compromise between creditor and debtor
 Payment before time
 Promissory Estoppel:
• Promissory estoppel is the legal principle that a promise is enforceable by
law, even if made without formal consideration, when a promisor has made
a promise to a promisee who then relies on that promise to his subsequent
detriment.
• Promissory estoppel is intended to stop the promisor from arguing that an
underlying promise should not be legally upheld or enforced.
• Hughes v Metropolitan Railway Co., Combe v Combe, Shadwell v Shadwell

50. AGREEMENT WITHOUT
CONSIDRATION The general rule is that "No consideration, no contract". So, a contract made without consideration in
it is void. – Quid pro quo
 However, law excludes considerations in few exceptions because it invokes the concept of Promissory
Estoppel.
1. Natural love and affection:
 For example, a father, out of love and affection towards his son, makes a formal written registered
document as per law, transfers a piece of land he owns. In this contact, the consideration is not
essential because it arises out of natural love and affection. Rajlukhy Dabee v Bhootnath Mookerjee
2. Compensation for past voluntary service:
 When a promise is made to compensate, wholly on in part, a person who has already voluntarily
done something for the promisor or something which the promisor was legally compellable to do is
enforceable although made without consideration. Karan Chand v Basant Kaur
 Examples:
 A finds B's purse and gives it to him. B promises to give A Rupees 50. This is a valid contract.
 If A supports B's infant son. B promises to compensate A's expenses in so doing. That is a contract.

51. Necessary conditions:
 The act must have been done voluntarily and not at request.
 The act must have been done for the promisor. (Durga Prasad v Baldeo)
 The act must have been done for a promisor who was in existence at the time when the act was
done. The work done by a promoter of a company before its formation cannot be said to have
been done for the company.
 The act done must have been done for a promisor who is competent to contract at the time
when the act was done. Hence a promise by a person on attaining majority to repay money lent
and advanced to him during his minority does not come within the exception, the promisor not
being competent to contract when the loan was made to him.
 The intention of the promisor should be to compensate the promisee. If the intention is not to
compensate, the promise will not come within this clause. Abdulla Khan v Purshottam
 The service rendered must be legal. In Alice Verses William, it was held that a promise to pay for
past cohabitation with a woman whose husband is alive is adulterous. But divergent views are
held by High Courts in India on the question whether the same principle could be applied to a
promise to pay a woman for past cohabitation which is not an infringement of the penal law.

52. 3. Agreement to pay time barred debt:
 A promise made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authroised in that behalf to
pay wholly or in part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits.
Necessary conditions:
 The debt must be such of which the creditor might have enforced payment
but for the law of limitation of suits.
 A mere acknowledgement of the debt is not sufficient. There must be
promise to pay the debt.
 The promise must be in writing and signed by the debtor or his authorised
agent.
 The promise must be given by the person to be charged therewith and not
by any third party.

53. 4. Completed gift: Absence of consideration shall not affect
the validity, as between the donor and donee, of any gifts
actually made.
5. Contract of agency: No consideration is necessary to create
an agency.
6. Remission by the promisee after the performance of the
promise
7. Contribution to the charity
8. Promissory Estoppel