The document outlines the fundamentals of contract law, detailing its definition, key components, and specific provisions under the Indian Contract Act, 1872. It discusses the nature of contracts, classification, essential elements, and distinctions between agreements and contracts, as well as void and voidable contracts. Additionally, it covers topics such as offer and acceptance, consideration, capacity to contract, and the concept of free consent.

1. Introduction to Law of Contract,
Contract-Meaning and Nature
Asst. Prof. Parasmani Jangid
SDJ International College

2. Law?
• According to Salmond “Law is the body of
Principles recognised and applied by the state
in the administration of justice.”
• In general sense , law is the set of rules.

3. Mercantile Law
• All the legal rules which are linked with trade,
industry and commerce.
• It is a branch of General Law.
• Thus it can be described as group of laws
consider commerce. E.g law relating to
contracts, sale of goods, Partnership,
companies, Negotiable instrument, Insurance,
Co-operative societies, etc.

4. Main sources of Mercantile Law
• English law : Most important source of the Indian
Mercantile law. Includes a) Common Law b)
equity c) Statute law d) Law merchants e) Roman
Law f) Case Law
• Statute Law : The Law making power in India is
vested in Parliament and the state
legislatures.
• Judicial Decisions : Application of Judicial
decision of previous cases to similar cases.
• Customs and usages : something which is
ancient, reasonable and constant ancient.

5. • Indian Contract Act was passed in 25th April,
1872 and came in to force with effect from 1st
September, 1872.

6. Characteristics of Law of
Contracts
• Law of contract is not comprehensive (this
Law is not including everything related
mercantile transactions)
• Act is not exhaustive (if no provision available,
the court resort to principles of English Law)
• Law sanctions any prevailing usages and
customs

7. Indian Contract Act 1872
• Contract sec. 2(h)
• Agreement sec 2(e)
• Consideration sec 2(d)
• Who is promisor & promisee sec2(c)
• Promise sec 2(b)
• Proposal sec 2(a)

8. Difference between Agreement and
Contract
Sr.
No.
Point of
Difference
Agreement Contract
1 Definition Every promise and every set
of promise forming the
consideration for each
other.
An agreement enforceable
by law is a contract.
2 Sec. Sec.2 (e) Sec. 2(h)
3 Meaning One offer to another to do
or not to do certain act,
other party accept this.
An agreement which
creates legal obligations is
a contract.
4 Creation Offer and its acceptance Agreement & its
enforceability
5 Object May not to create legal
obligation
Necessarily creates legal
obligation
6 Breach In case of breach no
damages are awarded
Damages are awarded

9. 7 Binding nature Not a binding contract It is a binding contract
8 Comparison Every Agreement may not
be a contract
All contracts are
agreement
9 Formula Proposal + Acceptance =
Agreement
Agreement + Enforceability
= Contract
Sr.
No.
Point of
Difference
Agreement Contract

10. Classification of Contracts
On the basis
of Creation
(formation)
Express
Contract
Implied
Contract
Quasi
Contract
On the basis of
Performance
Executed
Executory
Unilateral
Bilateral
On the basis of Validity
(Enforceability)
Valid
Void
Voidable
Illegal
Unenforcea
ble

11. Difference between Void Agreement
and Voidable Contract
Sr.
No.
Point of
Difference
Void Agreement Voidable Contract
1 Validity Valid from beginning Valid till it is
cancelled by
aggrieved party
2 Consent Void because essential
elements(except free
consent) are missing
Voidable because
consent was not
free.
3 Enforceability Cannot be enforced Can be if aggrieved
is not cancelling it.
4 Binding Nature No legal binding effect Continues to be
legal unless avoided
by the aggrieved
party

12. 5 Duration Lapse of time will not
affect it, it was & it is
void
Must be avoided by
aggrieved party
within reasonable
time.
6 Damages Nothing like damages Aggrieved party can
claim damages
7 Effects No rights to third party Party in faith & for
consideration
acquires good title
before contract is
cancelled.
Sr.
No.
Point of
Difference
Void Agreement Voidable Contract

13. Difference between Void Contract
and Illegal Contract
Sr.
No.
Point of
Difference
Void Contract Illegal Contract
1 Effects-
collateral
transaction
Collateral transactions
are not affected
All collateral
transactions are also
illegal
2 Proof Has to proof. It is clear, it is illegal
so court refuse to
enforce it
3 Restoration Benefits can be restored No restoration
4 Comparison All void are not illegal But all illegal are void

14. Essentials of Valid Contract
• Offer and Acceptance (at least 2 parties)
• Intension to create legal relationship(Balfour
v/s Balfour. 1919)
• Free consent (sec 14)
• Capacity of parties (sec 11)
• Lawful consideration
• Lawful object (sec 23)
• Agreement not declared void (sec 24 to 30)
• Certainty of meaning (sec 29)
• Possibility of performance (sec 56)
• Legal formalities

15. Balfour v/s Balfour (1919)
• Presumption to enter into legal relationship
(intension to file a suit)
• Against consideration
• All commercial agreement is contract
• But all social & domestic agreement are not
compulsorily contract.

16. Offer and Acceptance
Asst. Prof. Parasmani Jangid
SDJ International College

17. Offer/Proposal
According to section 2(a) of Indian Contract
Act, “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.”

18. Example
• Sale of car: A says to B that “Will you purchase
my car for Rs. 1 lakh?” If B agrees to buy the
car for Rs. 1 lakh, then here in this case
• A = Offerer, Proposer, Promisor
• B = Offeree, Proposee, Promisee or Acceptor.

19. Types of Offer/Proposal
• On the basis of “How is an Offer made?”
– Express (sec. 9)…. Use words either written or oral
or combination of both
– Implied (sec. 9)….other than words like by action
or conduct
• On the basis of “To whom an Offer is made?”
– Specific offer….to definite person.
– General offer….to the public at large.

20. Carlill v/s Carbolic Smoke Ball
Company, 1893
• General offer
• Use ball for 3 time daily for 2 weeks
• Then also If you caught influenza
• will be rewarded by Pound 100

21. Essentials/Legal rules for Valid Offer
1. Offer must be capable of creating legal
relations
2. Terms of offer must be certain and definite
3. The offer must be made with a view to
obtaining assent
4. Proposal may be made by expressed words
spoken or in writing, or by conduct
5. The offer must be distinguished from a mere
declaration of intension

22. Cont..
6. The offer must be distinguished from an
invitation to offer
7. The offer must be communicated
8. The offer must not thrust the burden of
acceptance
9. Special terms and conditions of the offer must
be communicated
10.An offer may be general or specific
11.An offer may be positive or negative

23. Case-laws
• Kalai Haldar v/s Sheikh
• Harris v/s Nickerson (1873)
• Lalman Shukla v/s Gauri Dutt (1913)
• Henderson v/s Stevenson

24. Standing Offers/Continuing Offers
• Where goods or services are required over a
definite period of time, a trader may invite
tenders as a standing offer.
• Thus, an offer for the continuous supply of a
particular thing at a definite price over a certain
period is called standing offer.
• It is an offer from a potential supplier to provide
goods or services at pre-determined prices, under
set terms and conditions, when and if required.

25. Lapse of an offer (sec 6)
1. By communication of notice
2. By lapse of time
1. Prescribed time
2. Reasonable time
3. By failure to fulfill condition precedent to
acceptance
4. By death or insanity
5. By rejection of offer
6. By counter offer
7. Acceptance as per prescribed mode

26. Ramsgate Victoria Hotel Co. v/s
Montefiore (1866)
• Case is about Reasonable time limit to accept
the offer
• Defandant (M.) offered to plantiff (R co.) that
he wants to buy its shares.

27. Acceptance
• Sec 2(b)
• “when 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.”

28. Sec 2(c) includes……
Person who makes proposal is promisor
And the one who accepts the proposal is known
as promisee.

29. Who can accept?
• To whom an offer has been made, can only
accept the offer/proposal.
• Case: Boulton v/s Jones
• Brockle Hurst

30. Types of Acceptance
OR
How is an Acceptance made?
1. Express (using Words in written or can oral)
2. Implied (by act or conduct)

31. Essentials and Legal Rules for a Valid
Acceptance
1. Acceptance must be absolute and
unqualified
2. Acceptance must be in the prescribed
manner
3. Mental acceptance is not sufficient
4. Acceptance must be communicated by the
acceptor
5. Acceptance must be given within a
reasonable time

32. Cont.
6. Acceptance must be given before the offer
lapses or is revoked or is withdrawn
7. Act done in ignorance of offer, it is not the
acceptance of the proposal
8. Acceptance may be oral, written or implied
from conduct
9. Acceptance must be made by a certain
person

33. Case-laws
• Neele v/s Meritt (1930)-acceptence of land offer with
installments
• Jorden v/s Norton (1838)-possession of horse with
harness
• Routledge v/s Grant (1828)-possession date change
• Brogden v/s Metropolitan Railway Co.’s (1877)
• Powell v/s Lee (1908)
• Ramsgate Victoria Hotel Co. v/s Montefiore (1886)
• Fitch v/s Snedakar
• Harbhahan Lal v/s Harcharan Lal (1925)

34. Communication
Asst. Prof. Parasmani Jangid
SDJ International College

35. Communication
• Sec 3
• “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
proposals, acceptance or revocation, or which
has the effect of communicating it.”

36. Rules as to communication of offer,
acceptance and revocation
• Rule 1- The Communication of offer is complete
when it comes to the knowledge of the person to
whom it is made. Sec. 4
• Rule 2- Communication of acceptance is
complete as against the proposer when it is put
in a course of transmission to him so as to be out
of the power of the acceptor
and
The communication of an acceptance is complete
as against the acceptor when it comes to the
knowledge of the proposer. Sec. 4

37. Cont…..
Revocation means “taking back” or “cancellation”.
• Rule 3- 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.
and
The communication of revocation is complete
as against the person to whom it is made,
when it comes to his knowledge. Sec. 4

38. Cont…..
• Rule 4- A proposal may be revoked at any time
before the communication of its acceptance is
complete as against the proposer, but not
afterwards. Sec. 5
• Rule 5- An acceptance may be revoked at any
time before the communication of the
acceptance is complete as against the
acceptor, but not afterwards. Sec. 5

39. Consideration
Asst. Prof. Parasmani Jangid
SDJ International College

40. Definition of Consideration
• Sec 2(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 abstain from doing
something
• such an act or abstinence or promise is called
a consideration for the promise.”

41. Essentials and Legal Rules for Valid
Consideration
1. Consideration must move at the desire of the
promisor
2. Consideration may move from the promisee
or any other person
3. Consideration may be past, present or future
4. Consideration must be of some value
5. Consideration must be real and not illusory
6. Performance of existing obligation is no
consideration
7. Consideration must be lawful

42. Case-laws
• Durga Prasad v/s Baldeo, 1880
Collector of district (3rd Party)
• Chinnayya v/s Ramayya, 1881

43. Doctrine of Privity of Contract
or
Stranger to contract
• 3rd party cannot sue to the parties in contract
to claim advantages.
• E.g Tyre co.
• Case
• Dunlop Pneumatic Tyre Co. Ltd. v/s Selfridge
& Co. Ltd. (1915)

44. Exceptions to Doctrine of Privity of Contract
1. Trust or charge is created in respect of
specific immovable property
2. Family Settlement
3. Assignment of contract
4. Agency
5. Official receiver
6. Acknowledgment of debt

45. Case-laws
• Khwaja Muhammad v/s Hussaini Begam
• Shuppu Ammal v/s Subramaniyan (1910)

46. No consideration, No Contract
• Without consideration the contract will be
considered as void contract.
• Case
• Abdul Aziz v/s Masum Ali, 1914
renovation of Mosque

47. No consideration, No Contract
Exceptions (sec.25)
1. Natural Love and Affection (sec. 25(1))
2. Promise to compensate for past voluntary
services (sec. 25(2))
3. Promise to pay a time barred debt (sec. 25(3))
4. Completed gift
5. Agency (sec. 185)
6. Charity

48. Case-laws
• Venkatswamy v/s Rangaswamy (1903)
• Rajlukhy Debee v/s Bhootnath Mukhrjee
(1900)
• Kedarnath v/s Gorie Mohammad (1886)

49. Capacity of Parties
Asst. Prof. Parasmani Jangid
SDJ International College

50. Sec. 11
• “Every person is competent to contract
• who is of age of majority according to the 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.”

51. Minor’s Agreement
• Who is a Minor?
• Indian Majority Act, 1875(Sec.3)
• A minor is a person who has not completed 18
years of age.
• While on completion of 21 years of age is
major for Guardians and Wards Act, 1890.
• And where the superintendence of minor’s
property is assumed by a Court of Wards.

52. The Law regarding Minor’s Agreement
1. An agreement with a minor is absolutely void
2. A minor can be a promisee or beneficiary
3. No Ratification
4. Liability for necessaries
5. No estoppel
6. Compensation

53. Cont….
7. No Specific performance of a minor’s
contract
8. No partnership
9. A minor cannot be declared Insolvent
10.Minor as an agent
11.Contract by minor’s parent/guardian
12.Minor is liable for tort

54. Case-laws
• Mohiri bibi v/s Dharamodas Ghosh (1903)
• Abdul Ghaffar v/s Prem piare lal (A.I.R.)
• Smith v/s King (1895)
• Nash v/s Inman (1908)
• Leslie Ltd v/s Sheill (1914)
• Jennings v/s Rundall (1799)
• Bumaid v/s Haggies : supra

55. Persons of unsound mind
Sec. 12 of Indian Contract Act………..
Two facts for soundness of mind
1. Capacity of person to understand the terms of
the contract
2. Ability to form a rational judgement
Unsound mind includes…
• Idiots
• Lunatics
• Drunken or Intoxicated person

56. Contract in lucid Interval……
e.g A Patient in a lunatic asylum, who is at
intervals of sound mind, may contract during
those intervals.

57. Burden of Proof
1. Usually of unsound mind- he himself
2. Usually of sound mind- other who challenges
3. Drunkenness or other- one who want to
prove disability

58. Persons disqualified by law/by status
1. Alien enemy
2. Foreign sovereigns and ambassadors
3. Convicts
4. Companies and corporation
5. Insolvents
6. Married women
7. Professional persons

59. Free Consent
Asst. Prof. Parasmani Jangid
SDJ International College

60. Consent
Sec. 13
“Two or more persons are said to consent when
they agree upon the same thing in the same
sense”.

61. Free Consent
Sec 14
“Consent is said to be free when it is not caused by:
1. Coercion, as defined in sec. 15, or
2. Undue influence, as defined in sec. 16, or
3. Fraud, as defined in sec. 17, or
4. Misrepresentation, as defined in sec. 18, or
5. Mistake subject to provisions of sec. 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.”

62. Coercion
Sec. 15
“Coercion is
1. the committing or threatening to commit,
2. any act forbidden by the Indian Penal Code or
3. unlawfully detaining or
4. threatening to detain any property,
5. to the prejudice of any person whatever
6. with intension of causing any person to enter
into an agreement

63. Ingredients/elements
1. Committing any act forbidden by the Indian penal
Code
2. Threatening to commit any act forbidden by the
IPC
3. Unlawful detaining of any property
4. Threatening to detain any property unlawfully
5. Intention of causing any person to enter into a
contract
6. Threat to commit suicide

64. Case-laws
• Ranganayakamma v/s Alwar Chetty (1889)
• Muthiah v/s Karuppan, (1927)
• Bansraj v/s The secretary of State
• Ammairaju v/s Seshamma

65. Consequences of Coercion
Sec.19
Such contract are voidable at the option of
aggrieved party. And must restore the benefits
received so far in the particular contract.
Sec.72
“A person, to whom money has been paid or
anything delivered under coercion, must repay
or return it.”

66. Undue Influence
Sec.16(1)
“A contract is said to be induced by undue
influence where,
1. The relations subsisting between the parties
are such that one of the parties is in a
position to dominate the will of the other,
and
2. Uses that position to obtain an unfair
advantage over the other.”

67. Ingredient/elements
1. One in position will dominate other
2. Dominant party obtains unfair advantages
over other
3. Uses his position to obtain an unfair
advantage

68. Presumption(when a person is in dominant
position)
Sec.16(2)
1. Real authority over other
2. Fiduciary relation to the other
3. Contract with permanent or temporary
mental capacity (sher singh v/s prithi singh,
1975)

69. Effects of Undue Influence
Sec. 19 A
If Consent obtained by undue influence, then
such contract is voidable at the option of
aggrieved party.

70. Burden of Proof
Sec.16(3)
The party so does, is in burden to prove absence
of undue influence in consent.
While aggrieved party has to prove…..
1. The other party was in a position to dominate
his will
2. The other party actually used his influence to
obtain an unfair advantage

71. Contract with Pardanashin Woman
A woman who observes complete privacy i.e., who
does not come in contract with people other than
her family members.
A contract with her is presumed to have been
induced by undue influence.
Burden of proving on other party includes
1. Terms are fully explained and she understood
the Implications
2. Free independent advice was available to her,
consent was free.

72. Difference between Coercion and
Undue Influence
Sr.
No.
Point of
Difference
Coercion Undue Influence
1 Definition
2 Sec.
3 Relationship
4 Parties
5 Consent
6 Rights
7 Responsibility
8 Act

73. Fraud
Sec 17
“Fraud means and includes any of the following acts
committed by a party to a contract or by anyone with his
connivance or by his agent, with intent to deceive another
party thereto or his agent, or to induce him to enter into 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 intension of performing it;
4. Any other act fitted to deceive;
5. Any such act or omission as the law specially declares to
be fraudulent.”

74. Essentials of Fraud
1. Fraud must be committed by a party to the
contract by or anyone with his connivance, or by
his agent
2. It must be committed with an intension to
deceive the other party
3. There must be a representation which is false
4. Active concealment of a fact
5. The fraud must have actually deceived the other
party (horsefall v/s Thomos)
6. The other party must have suffered loss

75. Fraudulent Silence
Sec. 17
“Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is
not fraud.”
Two exceptions
1. Duty to speak
2. Silence is equivalent to speech

76. Effects of fraud
Sec. 19
At the option of aggrieved party such contract
become voidable and aggrieved party has the
following remedies:
1. can cancel the contract within a reasonable time.
2. can insist to perform the contract and put in the
position in which he would have been if the
representation made had been true.
3. Can sue for damages.

77. Exceptions
• fraudulent silence
• Party was not deceived
• After getting aware of this……..,take advantages
• And where, Innocent third party, before the contract is
cancelled, acquires for consideration, some interest in
the property passing under the contract.

78. Misrepresentation
Sec. 18
There is Misrepresentation, if contract is based
on,
1. Positive Assertion/Unwarranted Assertion
(Sec. 18(1))….
2. Breach of Duty (Sec. 18(2))….
3. Innocent Mistake (Sec. 18(3)) ….(The oceanic
Steam Navigation Co., v/s Sunderdas
Dhurumsey, 1890)

79. Essentials of Misrepresentation
1. Must be untrue, but person makes it believes it
true.
2. Must be made without the intension of
deceiving
3. Must be representation of material fact
4. Intention must be of making other party to get
enter and thereby act
5. One cannot complain, if he had the means of
discovering truth
6. False statement to 3rd person, will also
considered as misrepresentation

80. Effects of Misrepresentation
Sec. 19
At the option of aggrieved party such contract
become voidable and aggrieved party has the
following remedies:
1. Avoid or rescind the contract
2. Insisting the performance

81. • When one cannot file the case……/Exception
• If party so caused by misrepresentation had
the means of discovering the truth with
ordinary diligence.
• A misrepresentation which did not cause the
consent to a contract of the party to whom
such misrepresentation was made.

82. Difference between Fraud and
Misrepresentation
Sr.
No.
Point of
Difference
Fraud Misrepresentation
1 Meaning
2 Sec.
3 Belief
4 Intension
5 Statement
6 Remedy
7 Defence
8 Act

83. Mistake (sec. 20, 21, 22)
Mistake is all bout erroneous belief or incorrect
belief.
Classification of Mistake
Mistake of Law (sec. 21)
Indian
Law
Foreign
Law
Mistake of Fact (sec. 20)
Bilateral
Mistake
Unilater
al
Mistake
(sec.22)

84. Mistake of Law
1. Mistake of Indian Law……….not voidable
2. Mistake of Foreign Law……..void
Mistake of Fact
1. Bilateral Mistake………………void; two types are as
under
1. Mistake as to subject matter
1. Existence
2. Identity
3. Quality
4. Price
5. Quantity
2. Mistake as to possibility of performance/incapability
of party to contract
1. Physical impossibility
2. Legal Impossibility

85. 2. Unilateral Mistake……………not voidable,
subject to exception
1. Mistake as to the identity of Party……void
2. Mistake as to the nature of the contract……void

86. Legality of Object
Asst. Prof. Parasmani Jangid
SDJ International College

87. Meaning of Object
• A person or thing to which a specified action
or feeling is directed.
• In some contract consideration is only the
object.
• But many Agreement shows difference in
object and consideration

88. Legality of Object
Sec. 23 depicts that the object is unlawful;
1. If it is forbidden by law
2. If it defeats the provision of any law
3. If it is fraudulent
4. If it involves or implies injury to the person or
property of another
5. If the court regards it as immoral or opposed
to public policy

89. Partial Illegality
Sec. 24 provides
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.

90. Alice v/s Clark (1905)
• Alice serve as housekeeper to Clark.
• And also with him in adultery work.

91. Agreements opposed to Public Policy
Sec. 23 of Indian Contract Act leaves it open to court to hold any
contract as unlawful on the ground of being opposed to public
policy.
Agreement which are opposed to public policy,
so they are void;
1. Trading with an enemy
2. Maintenance and champerty contract
3. Agreement for stifling prosecution
4. Agreement interfering with administration of justice
5. Agreements for sale of public office and titles

92. 6. Agreements in restraint of parental right
7. Agreements to create monopolies
8. Agreement restricting personal liberty
9. Agreements in restraint of marriage (sec. 26)
10. Marriage brokerage agreements
11. Agreements in restraint of legal proceedings (sec. 28)
12. Agreements in restraint of trade (sec. 27)
13. Agreement tending to create interest against duty
14. Agreement not to bid
15. Non-compliance of Court’s order

93. Case-laws
• Giddu Narayanish v/s Mrs. Annie Besant
• District Board of Jhelum v/s Harichand
• Gurumukh singh v/s Amarsingh, 1991
• Renusagar Power Co. Ltd. v/s General Electric
Co., 1994

94. Agreement which are declared to be
void
1. Agreements by persons who are not
competent to contract-sec. 11
2. Agreements made under mutual mistake of
fact-sec.20
3. Agreements with unlawful object or
consideration-sec.23
4. Agreements, the consideration or object of
which is partly unlawful-sec. 24
5. Agreement without consideration-sec.25

95. Cont….
6. Agreements in restraint of marriage-sec.26
7. Agreement in restraint of trade-sec.27
8. Agreement in restraint of legal proceedings-
sec.28
9. Uncertain agreements-sec.29
10.Wagering agreements-sec.30
11.Impossible agreements-sec.56

96. Thank You