Indian Contract Act, 1872 - Notes

INDIAN CONTRACT ACT, 1872 CAFC
Chapter
Indian Contract Act, 1872
1
Unit 1 Nature of Contract

Meaning & Essentials of Valid Contract
Types of Contract
Meaning & Essentials of Valid Offer
Types of Offer
Meaning & Essentials of Valid Acceptance
Rules Regarding Communication of Offer & Acceptance
Unit 2 Consideration
Meanings & definition
Essentials of Valid Consideration
Rule of ‘No Consideration, No Contract’
Validity of Agreements without Consideration
Doctrine of Privity of Contract & Its Exceptions
Unit 3 Other Essential Elements of Valid Contract
Capacity to Contract
Free Consent
Lawful Consideration & Object
Should not be Expressly Declared as void
Agreements Opposed to Public Policy
Unit 4 Performance of Contract
Actual & Tendered Performance
Who can Perform the Contract?
Time & Place of Performance
Rules regarding Performance of Reciprocal Promises
Appropriation of Payments
Discharge of Contract
Unit 5 Breach of Contract & Its Remedies
Actual & Anticipatory Breach
Remedies for Breach of Contract
Penalty vs. Liquidated Damages
Unit 6 Contingent & Quasi Contract
Contingent Contract
Rules Relating to Enforcement of Contingent Contract
Quasi Contract
Cases deemed as Quasi-Contracts
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The Law of contract: Introduction
The law relating to contract is governed by the Indian Contract Act, 1872. The Act came
into force on the first day of September, 1872. The preamble says that it is an Act “to define
and amend certain parts of the law relating to contract”. It extends to the whole of India.
The Indian Contract Act mostly deals with the general principles and rules governing
contracts. The Act is divisible into two parts. The first part (Section 1-75) deals with the
general principles of the law of contract, and therefore applies to all contracts irrespective of
their nature. The second part (Sections 124-238) deals with certain special kinds of contracts,
namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.
Watch the Explanatory Video here: https://youtu.be/xmkSJfw8gaA
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Unit 1 : Nature of Contract
Meaning & Elements of Contract

o Agreement
o Enforceability at Law
Essentials of a valid Contract
Types of Contracts
Offer
o Essential of a valid offer
o Offer vs. Invitation to Offer
o Types of Offer
Acceptance
o Essential of a valid Acceptance
o Rules Regarding Communication of Offer &
Acceptance
o Revocation of Offer & Acceptance
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1. What is a Contract?
The Indian Contract Act has defined contract in Section 2(h) as

“an agreement enforceable by law”. These definitions indicate that a
contract essentially consists of two distinct parts.
(i) an agreement, and
(ii) its enforceability by law.
(i) Agreement - The term ‘agreement’ given in Section 2(e) of the Act is
defined as- “every promise and every set of promises, forming the
consideration for each other”. To have an insight into the definition of agreement, we need to
understand promise.
Section 2 (b) defines promise as- “when the person to whom the proposal is made
signifies his assent there to, the proposal is said to be accepted. Proposal when accepted,
becomes a promise”.
Agreement = Offer/Proposal + Acceptance
(ii) Enforceability by law – An agreement to become a contract must give rise to a legal
obligation which means a duly enforceable by law.
Contract = Agreement + Enforceability at Law
On elaborating the above two concepts, it is obvious that contract comprises of an agreement
which is a promise or a set of reciprocal promises, that a promise is the acceptance of a
proposal giving rise to a binding contract. Further, section 2(h) requires an agreement to be
worthy of being enforceable by law before it is called ‘contract’. Where parties have made a
binding contract, they created rights and obligations between themselves.
Example: A agrees with B to sell car for Rs. 2 lacs to B. Here A is under an obligation to give
car to B and B has the right to receive the car on payment of Rs. 2 lacs and also B is under an
obligation to pay Rs. 2 lacs to A and A has a right to receive Rs. 2 lacs.
So Law of Contract deals with only such legal obligation which has resulted from agreements.
Such obligation must be contractual in nature. However some obligations are outside the purview
of the law of contract.
Example: An obligation to maintain wife and children, an order of the court of law etc. These
are status obligations and so out of the scope of the Contract Act.
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Contract How Made?
Proposal/offer
Acceptance
Accepted proposal/ Agreement
Legally enforceability
Contract
Difference between Agreement & Contract
Basis of
Agreement Contract
Differences
Every promise and every set of
Agreement enforceable by law.
Meaning promises, forming the consideration
Agreement + Legal enforceability
for each other. Offer + Acceptance
It is used in a narrow sense with the
It’s a wider term including both legal
Scope specification that contract is only
and social agreement.
legally enforceable agreement.
It may not create legal obligation. Necessarily creates a legal

Legal obligation An agreement does not always obligation. A contract always grants
grant rights to the parties certain rights to every party.
Nature All agreements are not contracts. All contracts are agreements.
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2. Essentials of A Valid Contract:
As given by Section 10 of Indian Contract Not given by Section 10 but are also
Act, 1872 considered essential
1 Agreement 1 Two parties
2 Free consent 2 Intention to create legal relationship
3 Competency of the parties 3 Fulfillment of legal formalities
4 Lawful consideration 4 Certainty of meaning
5 Legal object 5 Possibility of performance
6 Not expressly declared to be void
According to Section 10 of the Indian Contract Act, 1872, the following are the essential
elements of a Valid Contract:
1. Offer and Acceptance or an agreement: An agreement is the first essential element of a

valid contract. According to Section 2(e) of the Indian Contract Act, 1872, “Every promise and
every set of promises, forming consideration for each other, is an agreement” and according to
Section 2(b) “A proposal when accepted, becomes a promise”. So we can say that an agreement
is an outcome of offer and acceptance.
Example: Mr. A asked Mr. B “Do you want to Purchase my car for Rs. 2,00,000 ?” Mr. B Replied
“Yes”. Here Mr. A has made an Offer which is accepted by B and hence making a valid
Acceptance as an Agreement between both the parties.
2. Free Consent: Two or more persons are said to consent when they agree upon the same
thing in the same sense. This can also be understood as identity of minds in understanding the
terms viz. ‘consensus ad idem’. Further such consent must be free. Consent would be considered
as free consent if it is not caused by coercion, undue influence, fraud or, misrepresentation or
mistake. When consent to an agreement is caused by coercion, undue influence, fraud or
misrepresentation, the agreement is a contract voidable at the option of the party whose
consent was so caused.
Example: A threatened to shoot B if he (B) does not lend him Rs. 2000 and B agreed to it. Here
the agreement is entered into under coercion and hence voidable at the option of B.
3. Capacity of the parties: Capacity to contract means the legal ability of a person to enter
into a valid contract. Section 11 of the Indian Contract Act specifies that every person is
competent to contract who (a) is of the age of majority according to the law to which he is
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subject and (b) is of sound mind and (c) is not otherwise disqualified from contracting by any
law to which he is subject. A person competent to contract must fulfill all the above three
qualifications.
Example: A, a minor borrowed Rs. 20,000 from B. It was held that a loan by a minor was void
and B was not entitled to repayment of money.
4. Consideration: It is referred to as ‘quid pro quo’ i.e. ‘something in return’. A valuable

consideration in the sense of law may consist either in some right, interest, profit, or benefit
accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by the other.
Example: A agrees to sell his books to B for Rs. 100, B’s promise to pay Rs. 100 is the
consideration for A’s promise, and A’s promise to sell the books is the consideration for B’s
promise.
5. Lawful Consideration and Object: The consideration and object of the agreement must be
lawful. Section 23 states that consideration or object is not lawful if it is prohibited by law, or
it is such as would defeat the provisions of law, if it is fraudulent or involves injury to the
person or property of another or court regards it as immoral or opposed to public policy.
Example: ‘A’ promises to drop prosecution instituted against ‘B’ for robbery and ‘B’ promises to
restore the value of the things taken. The agreement is void, as its object is unlawful.
6. Not expressly declared to be void: The agreement entered into must not be which the law
declares to be either illegal or void. An illegal agreement is an agreement expressly or impliedly
prohibited by law. A void agreement is one without any legal effects.
Example: Threat to commit murder or making/publishing defamatory statements or entering

into agreements which are opposed to public policy are illegal in nature. Similarly any agreement
in restraint of trade, marriage, legal proceedings, etc. is classic examples of void agreements.
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Since section 10 is not complete and exhaustive, so there are certain others sections
which also contain requirements for an agreement to be enforceable. Thus, in order to
create a valid contract, the following elements should be present:
1. Two Parties: One cannot contract with himself. A contract involves at least two parties- one
party making the offer and the other party accepting it. A contract may be made by natural
persons and by other persons having legal existence e.g. companies, universities etc. It is
necessary to remember that identity of the parties be ascertainable.
2. Parties must intend to create legal obligations: There must be an intention on the part of
the parties to create legal relationship between them. Social or domestic types of agreements
are not enforceable in court of law and hence they do not result into contracts.
Example: A husband agreed to pay to his wife certain amount as maintenance every month while
he was abroad. Husband failed to pay the promised amount. Wife sued him for the recovery of
the amount. Here in this case wife could not recover as it was a social agreement and the
parties did not intend to create any legal relations.
3. Other Formalities to be complied with in certain cases: In case of certain contracts, the
contracts must be in writing, e.g. Contract of Insurance is not valid except as a written
contract. Further, in case of certain contracts, registration of contract under the laws which is
in force at the time, is essential for it to be valid, e.g. in the case of immovable property.
4. Certainty of meaning: The agreement must be certain and not vague or indefinite.
Example: A agrees to sell to B a hundred tons of oil. There is nothing certain in order to show
what kind of oil was intended for.
5. Possibility of performance of an agreement: The terms of agreement should be capable of

performance. An agreement to do an act impossible in itself cannot be enforced.
Example: A agrees with B to discover treasure by magic. The agreement cannot be enforced as
it is not possible to be performed.
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3. Types of Valid Contract:
Types of Contract on the basis of
Enforceability Formation Performance
Valid contracts Express contract Executed Executory

Contract Contract
Void contracts Implied contract
Unilateral
Void Agreements Tacit Contract

Bilateral
Voidable contracts Quasi-contract
Illegal agreements E-commerce

Contracts
Unenforceable
Contracts
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I. On the basis of the Enforceability:
1. Valid Contract: An agreement which is binding and enforceable is a valid contract. It

contains all the essential elements of a valid contract.
2. Void Contract: A void contract is one which cannot be enforced by a court of law.
Example: Mr. X agrees to write a book with a publisher. After few days, X dies in an accident.
Here the contract becomes void due to the impossibility of performance of the contract.
3. Void agreement: Void agreements are those agreements which are not enforced by court of
law. Thus the parties to the contract do not get any legal redress in the case of void
agreements. Void agreements arise due to the non-fulfillment of one or more conditions laid
down by Section 10 of the Indian contract Act.
Example: A, a minor borrowed Rs. 10,000 from B. It was held that a loan by a minor was void
and B was not entitled to repayment of money. It is Void-ab-initio i.e. void from the beginning.
4. Voidable Contract: an agreement which is enforceable by law at the option of one or more
parties thereto, but not at the option of the other or others is a voidable contract. Such a right
might arise from the fact that the contract may have been brought about by one of the parties
by coercion, undue influence, fraud or misrepresentation and hence the other party has a right
to treat it as a voidable contract.
Example: A threatens B to sell his (B’s) car worth Rs. 5 Lakhs for Rs. 2 Lakhs, If not then A will
kill B’s son.
5. Illegal Contract: It is a contract which the law forbids to be made. The court will not
enforce such a contract but also the connected contracts. All illegal agreements are void but all
void agreements are not necessarily illegal.
Example: Contract to sell Smuggled cocaine is Illegal.
6. Unenforceable Contract: Where a contract is good in substance but because of some

technical defect i.e. absence in writing, barred by limitation etc. one or both the parties cannot
sue upon it, it is described as an unenforceable contract.
Example: Mr. A made a Promissory Note and delivered to Mr. B but didn’t sign it, and hence is it
not enforceable in the court of Law.
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II. On the basis of the formation of contract
1. Express Contracts: A contract would be an express contract if the terms are expressed by
words or in writing. Section 9 of the Act provides that if a proposal or acceptance of any
promise is made in words the promise is said to be express.
Example: A tells B on telephone that he offers to sell his house for Rs. 2 lakhs and B in reply
informs A that he accepts the offer, this is an express contract.
2. Implied Contracts: Implied contracts in contrast come into existence by implication. Most
often the implication is by law and/or by action. Section 9 of the Act contemplates such implied
contracts when it lays down that in so far as such proposal or acceptance is made otherwise
than in words, the promise is said to be implied.
Example: Where a coolie in uniform picks up the luggage of A to be carried out of the railway
station without being asked by A and A allows him to do so, it is an implied contract and A must
pay for the services of the coolie detailed by him.
3. Tacit Contracts: The word Tacit means silent. Tacit contracts are those that are inferred
through the conduct of parties without any words spoken or written. It is not a separate form
of contract but falls within the scope of implied contracts.
Example: When cash is withdrawn by a customer of a bank from the automatic teller machine
[ATM].
4. Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is

created by law under certain circumstances. The law creates and enforces legal rights and
obligations when no real contract exists. Such obligations are known as quasi-contracts. In
other words, it is a contract in which there is no intention on part of either party to make a
contract but law imposes a contract upon the parties.
Example: Obligation of finder of lost goods to return them to the true owner or liability of
person to whom money is paid under mistake to repay it back cannot be said to arise out of a
contract even in its remotest sense, as there is neither offer and acceptance nor consent.
These are said to be quasi-contracts.
5. E-Contracts: When a contract is entered into by two or more parties using electronics
means, such as e-mails is known as e-commerce contracts. In electronic commerce, different
parties/persons create networks which are linked to other networks through ED1 - Electronic
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Data Inter change. This helps in doing business transactions using electronic mode. These are
known as EDI contracts or Cyber contracts or mouse click contracts.
Example: Purchasing Goods from online websites like Amazone, Flipkart, Etc. Also booking
Movie tickets online.
III. On the basis of the performance of the contract
1. Executed Contract: The consideration in a given contract could be an act or forbearance.

When the act is done or executed or the forbearance is brought on record, then the contract is
an executed contract.
Example: When a grocer sells a sugar on cash payment it is an executed contract because both
the parties have done what they were to do under the contract.
2. Executory Contract: In an executory contract the consideration is reciprocal promise or

obligation. Such consideration is to be performed in future only and therefore these contracts
are described as executory contracts.
Example: Where G agrees to take the tuition of H, a pre-engineering student, from the next
month and H in consideration promises to pay G Rs. 1,000 per month, the contract is executory
because it is yet to be carried out. Unilateral or Bilateral are kinds of Executory Contracts and
are not separate kinds.
(a) Unilateral Contract: Unilateral contract is a one sided contract in which one party has
performed his duty or obligation and the other party’s obligation is outstanding.
Example: Student have paid whole of the fees but teacher is still pending to complete the
syllabus.
(b) Bilateral Contract: A Bilateral contract is one where the obligation or promise is
outstanding on the part of both the parties.
Example: Student have not paid whole of the fees, and teacher is also pending to complete the
syllabus.
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4. Proposal / Offer:
Definition:
According to Section 2(a) of the Indian Contract Act,

1872, “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”.
Meaning:
Proposal is also termed as an offer. The word ‘proposal’ is synonymous with the English
word “offer”. An offer is a proposal by one person, whereby he expresses his willingness to
enter into a contractual obligation in return for a promise, act or forbearance.
The person making the proposal or offer is called the proposer or offeror and the person to
whom the proposal is made is called the offeree.
5. Essential of a valid offer:
1. It must be capable of creating legal relations: Offer must be such as in law is capable of
being accepted and giving rise to legal relationship. If the offer does not intend to give rise to
legal consequences and creating legal relations, it is not a valid offer in the eye of law. A social
invitation, even if it is accepted, does not create legal relations because it is not so intended.
Example: Mr. A offered to all his friend to come on Ice-cream treat in the evening, his friend
accepted the offer. But such offer is social offer and hence not enforceable in the court of law
Example: Mr. A offered to Ice-cream vendor to supply 200 Kg of Ice-cream on next day for a
Function, Vendor accepted the same. Such offer is a Commercial offer and hence valid and
enforceable in the court of law
2. It must be certain, definite and not vague: If the terms of an offer are vague or
indefinite, its acceptance cannot create any contractual relationship.
Example: A offers to sell B 100 quintals of oil, there is nothing whatever to show what kind of
oil was intended. The offer is not capable of being accepted for want of certainty.
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3. It must be communicated to the offeree: An offer, must be communicated to the person
to whom it is made, otherwise there can be no acceptance of it. Unless an offer is
communicated, there can be no acceptance by it. An acceptance of an offer, in ignorance of the
offer, is not acceptance and does not confer any right on the acceptor.
This can be illustrated by the landmark case of Lalman Shukla v. Gauridutt Facts:
G (Gauridutt) sent his servant L (Lalman) to trace his missing nephew. He then announced that
anybody who traced his nephew would be entitled to a certain reward. L traced the boy in
ignorance of this announcement. Subsequently when he came to know of the reward, he claimed
it. Held, he was not entitled to the reward, as he did not know the offer.
4. It must be made with a view to obtaining the assent of the other party: Offer must be
made with a view to obtaining the assent of the other party addressed and not merely with a
view to disclosing the intention of making an offer.
Example: Where ‘A’ tells ‘B’ that he desires to marry by the end of 2017, it does not constitute
an offer of marriage by ‘A’ to ‘B’. Therefore, to constitute a valid offer expression of
willingness must be made to obtain the assent (acceptance) of the other. Thus, if in the above
example, ‘A’ further adds, ‘Will you marry me’, it will constitute an offer.
5. It may be conditional: An offer can be made subject to any terms and conditions by the
offeror.
Example: Mr. A offers Mr. B to sell his car for Rs. 2 Laks with a condition that payment shall
be made through Cash only. Here, B has to make payment through Cash only to accept the offer;
Payment through any other mode like Cheque, NEFT, RTGS will not make the acceptance valid.
6. Offer should not contain a term the non compliance of which would amount to
acceptance: Thus, one cannot say that if acceptance is not communicated by a certain time the
offer would be considered as accepted.
Example: A proposes B to purchase his android mobile for Rs. 5000 and if no reply by him in a
week, it would be assumed that B had accepted the proposal. This would not result into contract
7. The offer may be either specific or general: Any offer can be made to either public at
large or to the any specific person. Any offer made to specific person is a Specific offer, and
any offer made to the public at large is General offer.
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8. The offer may be express or implied: An offer may be made either by words oral or
written or by conduct.
Example: Mr. A gave an offer ot B on Telephone, it is an express offer.
Example: A Bus stopped on a Bus-stop, it is an implied offer.
9. Offer is Different from a mere statement of intention, an invitation to offer, a mere

communication of information, A prospectus and Advertisement.
Difference between offer and invitation to make an offer:
In terms of Section 2(a) of the Act, an offer is the final expression of willingness by the
offeror to be bound by the offer should the other party chooses to accept it. On the other
hand, offers made with the intention to negotiate or offers to receive offers are known as
invitation to offer. Thus where a party without expressing his final willingness proposes certain
terms on which he is willing to negotiate he does not make an offer, but only invites the other
party to make an offer on those terms. Hence the only thing that is required is the willingness
of the offeree to abide by the terms of offer. In order to ascertain whether a particular
statement amounts to an offer or an invitation to offer, the test would be intention with which
such statement is made. The mere statement of the lowest price which the vendor would sell
contains no implied contract to sell at that price to the person making the inquiry. If a person
who makes the statement has the intention to be bound by it as soon as the other accepts, he is
making an offer. Thus the intention to be bound is important factor to be considered in deciding
whether a statement is an ‘offer’ or ‘invitation to offer.’ Following are instances of invitation to
offer to buy or sell:
(i) An invitation by a company to the public to subscribe for its shares.
(ii) Display of goods for sale in shop windows.
(iii) Advertising auction sales and
(iv) Quotation of prices sent in reply to a query regarding price.
Watch the Explanatory Video here: https://youtu.be/FexvDfE1QdE
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6. Types of Offer:
1. General offer: It is an offer made to public at large and hence anyone can accept and do
the desired act (Carlill v. Carbolic Smoke Ball Co.). In terms of Section 8 of the Act, anyone
performing the conditions of the offer can be considered to have accepted the offer.
Case Law: Carlill Vs. Carbolic Smoke Ball Co. (1893)
Facts: In this famous case Carbolic smoke Ball Co. advertised in newspapers that a reward of
£100 would be given to any person who contracted influenza after using the smoke balls
produced by the Carbolic Smoke Company according to printed directions. One lady, Mrs. Carlill,
used the smoke balls as per the directions of company and even then suffered from influenza.
Held, she could recover the amount as by using the smoke balls she had accepted the offer.
2. Special/specific offer: When the offer is made to a specific or an ascertained person, it is

known as a specific offer. Specific offer can be accepted only by that specified person to whom
the offer has been made.
Example: ‘A’ offers to sell his car to ‘B’ at a certain cost. This is a specific offer and no one
else can accept the same.
3. Cross offer : When two parties exchange identical offer s in ignorance at the time of each
other’s offer, the offer s are called cross offer s. There is no binding contract in such a case
because offer made by a person cannot be construed as acceptance of the another’s offer.
Example: If A makes a proposal to B to sell his car for Rs. 2 lacs and B, without knowing the
proposal of A, makes an offer to purchase the same car at Rs. 2 lacs from A, it is not an
acceptance, as B was not aware of proposal made by A. It is only cross proposal (cross offer).
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And when two persons make offer to each other, it can not be treated as mutual acceptance.
There is no binding contract in such a case.
4. Counter offer: When the offeree offers to qualified acceptance of the offer subject to
modifications and variations in the terms of original offer, he is said to have made a counter
offer. Counter-offer amounts to rejection of the original offer. It is also called as Conditional
Acceptance.
Example: ‘A’ offers to sell his plot to ‘B’ for Rs.10 lakhs. ’B’ agrees to buy it for Rs. 8 lakhs. It
amounts to counter offer. It may result in the termination of the offer of ’A’. Any if later on ‘B’
agrees to buy the plot for Rs. 10 lakhs, ’A’ may refuse.
5. Standing or continuing or open offer: An offer which is allowed to remain open for
acceptance over a period of time is known as standing or continuing or open offer.
Example: Tenders that are invited for supply of goods is a kind of standing offer.
Watch the Explanatory Video here: https://youtu.be/vPZVfdz9nTo
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7. Acceptance
Definition:
As per Section 2(b) of the Act, ‘the term acceptance’ is

defined as follows: “When the person to whom the proposal is made
signifies his assent thereto, proposal is said to be accepted. The
proposal, when accepted, becomes a promise”.
Meaning:
In simple words when the person to whom offer is made gives

his assent (consent) there, he is said to accept the offer so made.
8. Essential of a valid Acceptance:
1. Acceptance can be given only by the person to whom offer is made: In case of a specific
offer, it can be accepted only by the person to whom it is made.
Example: If Mr. A has given offer to Mr. B then only Mr. B can accept it, none of the other
person can accept it.
2. Acceptance must be absolute and unqualified: Acceptance is valid only when it is absolute
and unqualified and is also expressed in some usual and reasonable manner unless the proposal
prescribes the manner in which it must be accepted. If the proposal prescribes the manner in
which it must be accepted, then it must be accepted accordingly.
Example: ‘A’ enquires from ‘B’, “Will you purchase my car for Rs. 2 lakhs?” If ‘B’ replies “I shall
purchase your car for Rs. 2 lakhs, if you buy my motorcycle for Rs. 50000/-, here ‘B’ cannot be
considered to have accepted the proposal.
3. The acceptance must be communicated: A contract between the parties, the acceptance
must be communicated to the offeree, i.e. to the person who made the offer.
Example: A proposed B to marry him. B informed A’s sister that she is ready to marry him. But
his sister didn’t inform A about the acceptance of proposal. There is no contract as acceptance
was not communicated to A.
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4. Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed
in the proposal, it must be accepted in that manner. But if the proposer does not insist on the
proposal being accepted in the manner prescribed after it has been accepted otherwise, i.e., not
in the prescribed manner, acceptance shall be in reasonable mode.
Example: If the offeror prescribes acceptance through messenger and offeree sends
acceptance by email, there is no acceptance of the offer if the offeror informs the offeree
that the acceptance is not according to the mode prescribed. But if the offeror fails to do so,
it will be presumed that he has accepted the acceptance and a valid contract will arise.
5. Time: Acceptance must be given within the specified time limit, if any, and if no time is
stipulated, acceptance must be given within the reasonable time and before the offer lapses.
What is reasonable time is nowhere defined in the law and thus would depend on facts and
circumstances of the particular case.
Example: Mr. A offered to Mr. B his car for Rs. 2 Lakhs to be accepted in 3 days. Now B can
accept the offer only in 3 days, if he accepts after 5 days, such acceptance is not valid.
6. Mere silence is not acceptance: The acceptance of an offer cannot be implied from the
silence of the offeree or his failure to answer, unless the offeree has in any previous conduct
indicated that his silence is the evidence of acceptance.
Case Law: Felthouse vs. Bindley (1862)
Facts: F (Uncle) offered to buy his nephew’s horse for £30 saying “If I hear no more about it I
shall consider the horse mine at £30.” The nephew did not reply to F. He told his auctioneer, B
to keep the particular horse out of sale of his farm stock as he intended to reserve it for his
uncle. By mistake the auctioneer sold the horse. F sued him for conversion of his property.
Held, F could not succeed as his nephew had not communicated the acceptance to him.
7. Acceptance by conduct/Implied Acceptance: the performance of the conditions of a

proposal, or the acceptance of any consideration for a reciprocal promise which may be offered
with a proposal, constitutes an acceptance of the proposal. Therefore, when a person performs
the act intended by the proposer as the consideration for the promise offered by him, the
performance of the act constitutes acceptance.
Watch the Explanatory Video here: https://youtu.be/vPZVfdz9nTo
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Example, when a tradesman receives an order from a customer and executes the order by
sending the goods, the customer’s order for goods constitutes the offer, which has been
accepted by the trades man subsequently by sending the goods. It is a case of acceptance by
conduct.
Example: When a cobbler sits with a brush and polish, a person giving his shoes for polishing
constitutes as acceptance by conduct.
8. A counter offer or conditional acceptance operates as a rejection of the offer and

causes it to lapse:
Example: where a horse is offered for Rs. 1,000 and the offeree counter-offers Rs. 990, the
offer lapses by rejection.
9. Communication of Offer And Acceptance
When the contracting parties are face-to-face, there is no problem of communication

because there is instantaneous communication of offer and acceptance. In such a case the
question of revocation does not arise since the offer and its acceptance are made instantly.
The difficulty arises when the contracting parties are at a distance from one another and they
utilise the services of the post office or telephone or email (internet). In such cases, it is very
much relevant for us to know the exact time when the offer or acceptance is made or complete.
Communication of offer: In terms of Section 4 of the Act, “the communication of offer is

complete when it comes to the knowledge of the person to whom it is made”
Example: Where ‘A’ makes a proposal to ‘B’ by post to sell his house for Rs. 5 lakhs and if the
letter containing the offer is posted on 10th March and if that letter reaches ‘B’ on 12th March
the offer is said to have been communicated on 12th March when B received the letter.
Thus, it can be summed up that when a proposal is made by post, its communication will be
complete when the letter containing the proposal reaches the person to whom it is made.
Mere receiving of the letter is not sufficient, he must receive or read the message contained in
the letter.
He receives the letter on 12th March, but he reads it on 15th of March. In this case offer is
communicated on 15th of March, and not 12th of March.
CS Harsh Vira 20
Communication of acceptance: There are two issues for discussion and understanding. They
are: The modes of acceptance and when is acceptance complete?
Let us, first consider the modes of acceptance. Section 3 of the Act prescribes in general
terms two modes of communication namely, (a) by any act and (b) by omission, intending thereby,
to communicate to the other or which has the effect of communicating it to the other.
Communication by act: This would include any expression of words whether written or oral.
Written words will include letters, telegrams, faxes, emails and even advertisements. Oral
words will include telephone messages. Again communication would include any conduct intended
to communicate like positive acts or signs so that the other person understands what the
person ‘acting ‘or ‘making signs’ means to say or convey.
Communication of acceptance by ‘omission’ to do something: Such omission is conveyed by a

conduct or by forbearance on the part of one person to convey his willingness or assent.
However, silence would not be treated as communication by ‘omission’.
Example: A offers Rs. 50000 to B if he does not arrive before the court of law as an evidence
to the case. B does not arrive on the date of hearing to the court. Here omission of doing an act
amounts to acceptance.
Communication of acceptance by conduct: For instance, delivery of goods at a price by a seller

to a willing buyer will be understood as a communication by conduct to convey acceptance.
Similarly, one need not explain why one boards a public bus or drop a coin in a weighing machine.
The first act is a conduct of acceptance against its communication to the offer by the public
transport authority to carry any passenger. The second act is again a conduct conveying
acceptance to use the weighing machine kept by the vending company as an offer to render that
service for a consideration.
The other issue in communication of acceptance is about the effect of act or omission or
conduct. These indirect efforts must result in effectively communicating its acceptance or non
acceptance. If it has no such effect, there is no communication regardless of which the
acceptor thinks about the offer within himself. Thus, a mere mental unilateral assent in one’s
own mind would not amount to communication.
CS Harsh Vira 21
Let us now come to the issue of when communication of acceptance is complete. In terms of
Section 4 of the Act, it is complete,
i) As against the proposer, when it is put in the course of transmission to him so as to be

out of the power of the acceptor to withdraw the same;
ii) As against the acceptor, when it comes to the knowledge of the proposer.
Where a proposal is accepted by a letter sent by the post, the communication of acceptance will
be complete as against the proposer when the letter of acceptance is posted and as against the
acceptor when the letter reaches the proposer.
For instance in the above example, if ‘B’ accepts, A’s proposal and sends his acceptance by post
on 14th, the communication of acceptance as against ‘A’ is complete on 14th, i.e. when the letter
is posted. As against ‘B’ acceptance will be complete, when the letter reaches ‘A’.
Here ‘A’ the proposer will be bound by B’s acceptance, even if the letter of acceptance is
delayed in post or lost in transit. The golden rule is proposer becomes bound by the contract,
the moment acceptor has posted the letter of acceptance. But it is necessary that the letter is
correctly addressed, adequately stamped and duly posted. In such an event the loss of letter in
transit, wrong delivery, non delivery etc., will not affect the validity of the contract.
However, from the view point of acceptor, he will be bound by his acceptance only when the
letter of acceptance has reached the proposer. So it is crucial in this case that the letter
reaches the proposer. If there is no delivery of the letter, the acceptance could be treated as
having been completed from the viewpoint of proposer but not from the viewpoint of acceptor.
Of course this will give rise to an awkward situation of only one party to the contract, being
treated as bound by the contract though no one would be sure as to where the letter of
acceptance had gone.
Acceptance over telephone or telex or fax: When an offer is made of instantaneous

communication like telex, telephone, fax or through e-mail, the contract is only complete when
the acceptance is received by the offeree, and the contract is made at the place where the
acceptance is received. However, in case of a call drops and disturbances in the line, there may
not be a valid contract.
Communication of special conditions: Sometimes there are situations where there are
contracts with special conditions. These special conditions are conveyed tacitly and the
acceptance of these conditions are also conveyed by the offeree again tacitly or without him
even realizing it.
CS Harsh Vira 22
Example: Where a passenger undertakes a travel, the conditions of travel are printed at the
back of the tickets, sometimes these special conditions are brought to the notice of the
passenger, sometimes not. In any event, the passenger is treated as having accepted the special
condition the moment he bought his ticket.
When someone travels from one place to another by air, it could be seen that special conditions
are printed at the back of the air ticket in small letters [in a non-computerized train ticket
even these are not printed] Sometimes these conditions are found to have been displayed at the
notice board of the Airlines office, which passengers may not have cared to read. The question
here is whether these conditions can be considered to have been communicated to the
passengers of the Airlines and can the passengers be treated as having accepted the conditions.
The answer to the question is in the affirmative and was so held in Mukul Datta vs. Indian
Airlines [1962] AIR cal. 314 where the plaintiff had travelled from Delhi to Kolkata by air and
the ticket bore conditions in fine print. But such terms and condition should be reasonable.
Example: Where a launderer gives his customer a receipt for clothes received for washing. The
receipt carries special conditions and are to be treated as having been duly communicated to
the customer and therein a tacit acceptance of these conditions is implied by the customer’s
acceptance of the receipt.
CASE LAW: Lilly White vs. Mannuswamy (1970)
Facts: P delivered some clothes to drycleaner for which she received a laundry receipt
containing a condition that in case of loss, customer would be entitled to claim 15% of the
market price of value of the article, P lost her new saree. Held, the terms were unreasonable
and P was entitled to recover full value of the saree from the drycleaner.
In the cases referred above, the respective documents have been accepted without a protest
and hence amounted to tacit acceptance.
Watch the Explanatory Video here: https://youtu.be/dwQMmNVyDr0
CS Harsh Vira 23
10. Revocation of Offer & Acceptance
If there are specific requirements governing the making of an offer and the acceptance of that
offer, we also have specific law governing their revocation.
In term of Section 4, communication of revocation (of the proposal or its acceptance) is

complete.
i) 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
ii) as against the person to whom it is made, when it comes to his knowledge.
The above law can be illustrated as follows: If you revoke your proposal made to me by a
telegram, the revocation will be complete, as far as you are concerned when you have dispatched
the telegram. But as far as I am concerned, it will be complete only when I receive the
telegram.
As regards revocation of acceptance, if you go by the above example, I can revoke my

acceptance (of your offer) by a telegram. This revocation of acceptance by me will be complete
when I dispatch the telegram and against you, it will be complete when it reaches you.
But the important question for consideration is when a proposal can be revoked? And when can
an acceptance be revoked? These questions are more important than the question when the
revocation (of proposal and acceptance) is complete.
Ordinarily, the offeror can revoke his offer before it is accepted. If he does so, the offeree
cannot create a contract by accepting the revoked offer.
Example: The bidder at an auction sale may withdraw (revoke) his bid (offer) before it is
accepted by the auctioneer by fall of hammer.
An offer may be revoked by the offeror before its acceptance, even though he had originally
agreed to hold it open for a definite period of time. So long as it is a mere offer, it can be
withdrawn whenever the offeror desires.
Example: X offered to sell 50 bales of cotton at a certain price and promised to keep it open
for acceptance by Y till 6 pm of that day. Before that time X sold them to Z and informed Y
about Revocation of his offer. Y accepted before 6 pm, but after the revocation by X. In this
case it was held that the offer was already revoked.
CS Harsh Vira 24
In terms of Section 5 of the Act a proposal can be revoked at any time before the
communication of its acceptance is complete as against the proposer. An acceptance may be
revoked at any time before the communication of acceptance is complete as against the
acceptor.
Example: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by
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.
Whereas B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.
An acceptance to an offer must be made before that offer lapses or is revoked.
The law relating to the revocation of offer is the same in India as in England, but the law
relating to the revocation of acceptance is different.
In English law, the moment a person expresses his acceptance of an offer, that moment the
contract is concluded, and such an acceptance becomes irrevocable, whether it is made orally or
through the post. In Indian law, the position is different as regards contract through post.
Contract through post: As acceptance, in English law, cannot be revoked, so that once the
letter of acceptance is properly posted the contract is concluded. In Indian law, the acceptor
or can revoke his acceptance any time before the letter of acceptance reaches the offeror, if
the revocation telegram arrives before or at the same time with the letter of acceptance, the
revocation is absolute.
Contract over Telephone: A contract can be made over telephone. The rules regarding offer
and acceptance as well as their communication by telephone or telex are the same as for the
contract made by the mutual meeting of the parties. The contract is formed as soon as the
offer is accepted but the offeree must make it sure that his acceptance is received by the
offeror, otherwise there will be no contract, as communication of acceptance is not complete.
If telephone unexpectedly goes dead during conversation, the acceptor must confirm again that
the words of acceptance were duly heard by the offeror.
Revocation of proposal otherwise than by communication: When a proposal is made, the

proposer may not wait indefinitely for its acceptance. The offer can be revoked otherwise than
by communication or sometimes by lapse.
CS Harsh Vira 25
11. Modes of Revocation of Offer
1. By notice of revocation:
• An offer ripens into a contract after it is accepted. Before it has been accepted it
creates no legal obligation and, therefore, it may be revoked at any time before it is
accepted. To be effective the notice of revocation has to be communicated by the
proposer and not by anybody else.
2. By lapse of time:
• The time for acceptance can lapse if the acceptance is not given within the specified
time and where no time is specified, then within a reasonable time. This is for the
reason that proposer should not be made to wait indefinitely.
3. By non fulfillment of condition precedent:
• Where the acceptor fails to fulfill a condition precedent to acceptance the proposal
gets revoked. The offeror for instance may impose certain conditions such as
executing a certain document or depositing certain amount as earnest money. Failure
to satisfy any condition will result in lapse of the proposal.
4. By death or insanity:
• eath or insanity of the proposer would result in automatic revocation of the proposal
but only if the fact of death or insanity comes to the knowledge of the acceptor.
5. By counter offer:
• When the offeree offers to qualified acceptance of the offer subject to modifications
and variations in the terms of original offer, he is said to have made a counter offer.
Counter-offer amounts to rejection of the original offer.
6. By the non acceptance of the offer according to the

prescribed or usual mode:
• When offeree fails to accept the offer in prescribed manner, but accepts in any other
manner the offer is said to be revoked.
7. By subsequent illegality:
• If the contract which is intended to be made by the offeree becomes illegal due to
happening of any uncertain event after communication of offer but before acceptance,
such offer is treated as revoked and can not be accepted.
Watch the Explanatory Video here: https://youtu.be/dwQMmNVyDr0

CS Harsh Vira 26
CS Harsh Vira 27

Indian Contract Act, 1872 - Notes

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INDIAN CONTRACT ACT, 1872 CAFC

Unit 1 Nature of Contract

Watch the Explanatory Video here: https://youtu.be/xmkSJfw8gaA

Unit 1 : Nature of Contract

Meaning & Elements of Contract

The Indian Contract Act has defined contract in Section 2(h) as

Accepted proposal/ Agreement

Difference between Agreement & Contract

It may not create legal obligation. Necessarily creates a legal

Watch the Explanatory Video here: https://youtu.be/xmkSJfw8gaA

1. Offer and Acceptance or an agreement: An agreement is the first essential element of a

4. Consideration: It is referred to as ‘quid pro quo’ i.e. ‘something in return’. A valuable

Example: Threat to commit murder or making/publishing defamatory statements or entering

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5. Possibility of performance of an agreement: The terms of agreement should be capable of

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Types of Contract on the basis of

Enforceability Formation Performance

Valid contracts Express contract Executed Executory

Void Agreements Tacit Contract

Voidable contracts Quasi-contract

Illegal agreements E-commerce

Watch the Explanatory Video here: https://youtu.be/xmkSJfw8gaA

1. Valid Contract: An agreement which is binding and enforceable is a valid contract. It

Example: Contract to sell Smuggled cocaine is Illegal.

6. Unenforceable Contract: Where a contract is good in substance but because of some

4. Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is

III. On the basis of the performance of the contract

1. Executed Contract: The consideration in a given contract could be an act or forbearance.

2. Executory Contract: In an executory contract the consideration is reciprocal promise or

Watch the Explanatory Video here: https://youtu.be/xmkSJfw8gaA

According to Section 2(a) of the Indian Contract Act,

5. Essential of a valid offer:

Example: Mr. A gave an offer ot B on Telephone, it is an express offer.

Example: A Bus stopped on a Bus-stop, it is an implied offer.

9. Offer is Different from a mere statement of intention, an invitation to offer, a mere

Difference between offer and invitation to make an offer:

(i) An invitation by a company to the public to subscribe for its shares.

(ii) Display of goods for sale in shop windows.

(iii) Advertising auction sales and

(iv) Quotation of prices sent in reply to a query regarding price.

Watch the Explanatory Video here: https://youtu.be/FexvDfE1QdE

Case Law: Carlill Vs. Carbolic Smoke Ball Co. (1893)

2. Special/specific offer: When the offer is made to a specific or an ascertained person, it is

Watch the Explanatory Video here: https://youtu.be/vPZVfdz9nTo

As per Section 2(b) of the Act, ‘the term acceptance’ is

In simple words when the person to whom offer is made gives

8. Essential of a valid Acceptance:

Case Law: Felthouse vs. Bindley (1862)

7. Acceptance by conduct/Implied Acceptance: the performance of the conditions of a

Watch the Explanatory Video here: https://youtu.be/vPZVfdz9nTo

8. A counter offer or conditional acceptance operates as a rejection of the offer and

9. Communication of Offer And Acceptance

When the contracting parties are face-to-face, there is no problem of communication

Communication of offer: In terms of Section 4 of the Act, “the communication of offer is

Communication of acceptance by ‘omission’ to do something: Such omission is conveyed by a

Communication of acceptance by conduct: For instance, delivery of goods at a price by a seller

i) As against the proposer, when it is put in the course of transmission to him so as to be

Acceptance over telephone or telex or fax: When an offer is made of instantaneous

CASE LAW: Lilly White vs. Mannuswamy (1970)