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Indian Contract Act, 1872

I. Introduction

The Indian Contract Act was enacted in 1872, and it came into force on September 1, 1872. It
extends to the whole of India except the state of Jammu and Kashmir. S.1. This Act is based mainly on
English Common law consisting of Judicial Precedents. The Act is not exhaustive;

2. The Act is Divisible into two parts

 The first part (sections 1-75) deals with general principles of the law of contract and it is
applicable to all contracts.
3. Types of Contracts
On the Basis of Enforcement
i) Valid Contract
S.2(h) An agreement enforceable by law is a contract. S.10 lays down conditions of
enforceability. Thus an agreement which fulfills all the essentials of a contract as enumerated
in s.10 is a valid contract.
ii) Voidable Contract
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, is a voidable contract. S.2(i). Thus a voidable
contract is a contract in which one of the parties may rescind or affirm its option. A voidable
contract is not a nullity from the beginning. Until it is rescinded, it is valid and binding; after it
is repudiated, it becomes a valid contract.

iii) Void Contract

A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable. S.2(j). In this case, the contract is valid when made but subsequently becomes
void due to certain circumstances. For example, under s.56, a contract to do an act becomes
impossible or by reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful.
According to S,2(g), an agreement not enforceable by law is said to be void. Such an
agreement is void from the very beginning, i.e. void ab initio.

iv) Illegal/Unlawful Contract

Section 23 describes some conditions when an agreement may be unlawful or illegal. These
may be unlawful or illegal. These may be agreements, whose object or consideration is
forbidden by law, or be fraudulent, etc. An illegal agreements or contracts are void, but all
void agreements are not illegal.
Example: A gives money to B to enable him to pay his wagering debt. The wager is the main
transaction which is void, but loan given by A is subsidiary to it, which is not void and A can
recover his money from B.

Offer S.2(a),(c)
Following are the legal rules for a valid offer:
 The term signifies in section 2(a) means that the proposal must be communicated to
other party(section 3). A valid proposal may be made by words (written or spoken) or
by conduct (section 9), i.e. it may be express proposal/ offer or implied offer. For
example, A writes to B to purchase 100 tons of a good, at a certain price. B accepts
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A’s offer by writing a letter. This offer will be an express offer. But when a person
boards a DTC bus an implied contract is formed between him and DTC. Here there is
implied promise to pay for the benefits enjoyed. Similarly a bid at an auction is an
implied offer to buy.
 Communication of Offer-Section 4 The communication of a proposal is complete
when it comes to knowledge of person to whom it is made. An act in ignorance of an
offer does not amount to the acceptance of that offer.
 In Lalmam Shukla v. Gauri Dutt (1913)11All LJ 489, the defendant’s nephew
absconded. The defendant sent his servant to different places to trace boy.
Subsequently, the defendant advertised for a reward of Rs. 501 to anyone who might
trace the boy but he did not know about reward. Later when he came to know about
reward, he filed a suit against defendant for claiming reward. Held that since plaintiff
was ignorant of the offer of reward, his act of bringing the lost boy did not amount to
acceptance of offer, and therefore he was not entitled to claim the reward.
 In Rv. Clarke (1927) 40 CLR227
It was held that if acceptor had once known of the offer but had completely forgotten
about it at time of acceptance, he would be like a person who had not heard of the
offer at all.
In case of public offer or advertisements offering a reward, performance of the act
raises the inferences of acceptance, he would be like a person who had not heard of
offer at all.
In case of public offer or advertisements offering a reward, performance of act raises
the inferences of acceptance(Section 8)
 Offer may be general or Specific-
Specific offer is made to a specific person. While general offer is made to public or
public at large. A specific offer can be accepted only by the person to whom it is
made, while in case of general offers, the general offer can be accepted by any person
who comes forward and performs the conditions of the proposal. For example, when
A makes an offer to B to sell certain goods at a certain price, it is a specific offer made
to B and only B can accept the offer of A.
 In Carlill v. Carbolic Smoke Ball Co. (1893)1QB 256, the defendant company offered
$100 to anyone who contracted influenza after using their smoke ball( a medical
preparation) according to printed directions. It was also stated that $1000 has been
deposited with a certain bank to show their sincerity in the matter. Mrs. Carlile, the
plaintiff, who used the smoke ball, caught influenza. She sued the company to recover
the promised reward. Court held that a general offer, advantageous to company, this is
enough to constitute consideration for the promise. It was held that defendants were
liable to pay reward.

 Acceptance
 S.2(b)
 Acceptance may be express or implied: Like offer it may be express or implied.
According to section3 and 9, if acceptance is made in words written or spoken, it is
express acceptance, and if acceptance is made otherwise than in words, it is implied,
eg. Fall of hammer in an auction sale amounts to acceptance. When a person boards a
local bus it is a case of implied acceptance.
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 Communication must be communicated to offeror himself. A communication to any

other person is no communication in the eyes of law.
 In Felthouse v. Bindley,(1862) where Plaintiff discussed with his nephew, the
purchase of a horse belonging to nephew. Plaintiff offered by means of a letter to
purchase the horse. The Letter said, “If I hear no more about the horse, I consider the
horse mine at $30.15s”. No reply was sent, but nephew directed his employee, an
auctioneer, to reserve the horse, as it had already been sold to his uncle. Auctioneer by
mistake sold it. Plaintiff sued the auctioneer for conversion. Court held that a mere
mental assent is not sufficient acceptance of an offer. To constitute an acceptance,
such assent must be communicated to offeror.
 Communication must be communicated by the acceptor himself, or from a person
who has authority to accept.
 In Powell v. Lee(1908), Plaintiff’s appointment as a headmaster. His appointment was
communicated to him unofficially. Later defendant managers cancelled their
resolution and plaintiff sued them for breach of contract. It was held that there was no
contract as there had been no authorised communication of intention of contract by
defendants. Court held that information received from an unauthorised person is as
insufficient as overhearing from behind the door.

Revocation
Third part of section 4 of Act talks about when communication of revocation completes. It
states as under:
The communication of 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 power of person who makes it.
As against the person to whom it is made: when it comes to his knowledge.

Revocation of Proposal/offer
Section 6 lays down circumstances when an offer lapses. According to this, a proposal is
revoked:
 By the communication of notice of revocation by proposer to other party: Section 5 lays
down that a proposal may be revoked at any time before the communication of its
acceptance is complete as against proposer, but not afterwards. 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 power of acceptor. (Section 4). Thus proposer may revoke his offer
before letter of acceptance is posted to him. It must reach the offeree before he posts his
letter of acceptance.
 Illustration: A proposes, by a letter sent by post, to sell his house to B. B accepts 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 not afterwards.
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Section4
Example – A proposes, by letter, to sell a house to B at a certain price. B accepts A’s proposal
by a letter sent by post. The communication of acceptance is complete-as against A, when
the letter is posted; as against B, when the letter is received by A.
Thus when a letter of acceptance is posted the proposer becomes bound, but the acceptor
will be bound only when the letter is received by the proposer. Complete contract arises on
the date when the letter of acceptance is posted, and the contract is deemed to have been
made at the place where the letter of acceptance is posted.

In Bhagwandas G. Kedia v. Girdharilal & Co. AIR 1966 Sc 543

SC made clear the confusion about completion of contract by telephone or telex,i.e.
direct/instantaneous communication. Majority of Judges of court endorsed decision in
Entores Ltd v. Miles Far East Corp. (1995) 2 All ER 493, which is an exception to section 4. It
was held that where a contract is made by instantaneous communication, e.g. By telephone,
contract is complete only when acceptance is received by offeror. The contract is made at a
place where acceptance is received, eg; at the place of offeror.

Acceptance must be absolute and unqualified.

S.7 of Act provides that “In order to convert a proposal into a promise, acceptance must be
absolute and unqualified.”
An acceptance with variation is no acceptance, but simply a counter-proposal. A counter
offer puts an end to the original offer and cannot be revived by subsequent acceptance
unless renewed. Any acceptance made subject to final approval is a provisional acceptance,
and it does not bind either party until final approval is given. In case of continuing offer
(tender), a contract arises only when an order is placed on the basis of tender. (Tender is not
an offer but invitation to offer).