indian contract act 1872 case study with solution

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Contract Act, 1872 - Some important Case Studies (CPT/IPC)

CASE STUDIES

Balfour vs Balfour

Where parties to contract do not intend to create binding agreement, the agreement cannot be enforced.

The case of balfour vs balfour is a well known illustration of a domestic agreement. In this case a husband (Mr. Balfour) was working in ceylone. During the holidays, he and his wife (Mrs. Balfour) went to England to enjoy the leave. When Mr. Balfour was to return to ceylone, his wife was advised to remain in England, due to ill health. Mr. Balfour agreed to send a sum of $930 per month for probable expense of maintenance. For some time he sent the amount but afterwards differences arose between them which resulted in their separation and the allowance fell into arrears. Mrs. Balfour suit for recovery was dismissed by Lord Atkin on the ground that parties did not intend that it will be attended by legal consequences.

Carlill vs. Carbolic Smoke Ball Co

A General offer may be accepted by any person from among the public who has the knowledge of it. The performance of conditions of offer will amount to acceptance.

The case of Carllil vs. Carbolic Smoke Ball Co. is an illustration of a contract arising out of a general offer. As per the facts of the case, the company issued an advertisement in a newspaper about its product, “the smoke ball” a preventive medicine against influenza. In the advertisement, the company offered to pay a sum of $ 1,000 as compensation to anyone who contacted influenza or a cold after having used the smoke ball according to the printed directions. The advertisement also contained that a sum of $ 1,000 had been deposited with the Alliance bank to show the sincerity of the company. A lady, Mrs. Carllil relying on the advertisement purchased and used the smoke balls as per directions but still contacted influenza. She sued the company to claim the compensation of $ 1,000. Held, it was a general offer and Mrs. Carllil had accepted it by her act, by performing the conditions for acceptance. She was therefore entitled to get the claim.

Lalman Shukla vs. Gauri dutt

Offer must be communicated- in this case, Gauri Dutt sent his servant, Lalman to search his missing nephew. After L had left in search of the boy, G issued hand bills announcing a reward of Rs. 5000 to anyone who might find out the boy. L who was ignorant of such reward, he claimed the reward. Held, L was not entitled for reaward since he was ignorant of it i.e proposal.

Mohori Bibee vs. Dharmodas Ghose

In this case, a minor (dharmodas) mortgaged his house for Rs. 20,000 and received Rs. 10,500 from the mortgage. Subsequently, the mortgagor sued for setting aside the mortgage on the ground of his minority at the time of execution of mortgage deed. The privy council held that according to Section 11, a minor is incompetent to contract and therefore, minor’s agreement was absolutely void, not merely voidable. Hence, mortgage was cancelled. Moreover, the morgagee’s request for refund of Rs. 10,500 was also turned down on the ground that minor’s agreement was void from the beginning and therefore, mortgagee has not right of restitution.

Nash vs Inman

A, a minor, purchased 11 fancy waist coats and other clothes while he was already having sufficient clothes to wear. Held, the 11 waist coats and other clothes purchased were not necessaries and the price was irrecoverable.

Chinnaya vs. Ramaya

A, an old lady, by a deed of gift, granted certain property to her daughter ®. The terms of the deed stipulated that R will pay an annuity of Rs. 653 to A’s sister ©. On the same day, R entered into an agreement with C to pay her the sum directed by A. the stipulated sum was however not paid and C sued to recover it. R contended that no consideration was moved by C to him. Madras high court held, the consideration furnished by C’s sister was enough to enforce the agreement between C and R.

Rose and Frank Co vs. J R Compton

It is a glaring example of a business deal in which the parties did not intend to create legal relations. As per the facts of the case, an agreement was drawn between the American and English firms. The agreement mentioned that “this agreement is not entered into as a formal legal agreement and shall not be subject to legal jurisdiction of law courts.” The agreement was terminated by one of the parties and other party brought an action for breach of contract. Held, the agreement was not a binding contract as there was no intention to create legal relations.

Kedar Nath vs. Gorie Mohamed

In order to construct a town hall at howrah, the commissioner of Howrah Municipality started to obtain necessary fund by public subscription. A also promised to subscribed Rs. 1000 to fund by signing his name in the subscription book for the purpose. On the faith of the promised subscriptions, the secretary of the town hall construction committee engaged a contractor for construction of town hall and thus, incurred liability. A refused to pay his subscription. Held, engaging a contractor and starting the construction work on the faith of the promise to subscribe was sufficient consideration. Hence, A was liable to pay the amount to the extent of the liability incurred by the promise.

Damodar Murlidhar vs. Secretary of State of India

The government repaired a certain tank, which had irrigated lands belonging to the government itself and zamindars. The government did not undertake the repairs gratuitously for the zamindars. Zamindars enjoyed the benefit of the repaired tank. Held, zamindars were liable to contribute to the cost of repairs.

Dunlop Pneumatic Tyre Co Ltd vs. Selfridge & Co

The doctrine of privity of contract can be best illustrated by an English case Dunlop Pneumatic Tyre Co Ltd vs Selfridge & Co. As per the facts of the case, Dunlop & Co sold some tyre to one dew & co with an agreement that these tyres will not be sold below the list price. Dew & Co in turn sold some of the tyres to selfridge & co with an agreement that they will observe conditions as to the Price and They also promised that they will pay to the Dunlop & Co a sum of Rs. 500 for every tyre sold below the list price. Selfridge sold some tyres below the list price and the Dunlop & Co brought an action to recover the damages for the same. Held that Dunlop & Co cannot bring an action against Selfridge because there was not contract between the two.

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Indian Contract Act 1872 Case Study

• Post author: myspeakhr
• Post category: Case Study
• Reading time: 7 mins read

Here we have discussed Indian Contract Act 1872 Case Study with solutions. This short and simple business law case studies on contract Act is given with solutions. Indian contract Act is a part of Commercial Law which is other wise known as mercantile Law. These case studies on Business law will be helpful for students of graduate and post graduate like MBA, BBA, B.Com and Law. All the case studies are given with answers in a simple and short way for the benefit of the students. These solved case studies is given in a simple language to make the students understand the concept. All the example cases are written by the author on the basis of own understanding only.

Below discussed is the Indian Contract Act 1872 Case Study with answers.

1. Case Study on Genuine Consent

a. A has two laptops Sony and Acer with different configurations. B agrees to purchase a laptop from A. While entering in to the contract A was Intend to sell Sony but B enters thinking that the agreement is for acer laptop. What is the consequence of this agreement?

This agreement cannot be executed as it is entered without genuine consent.

2. Case study on Consideration of Contract

Mr. John wants to sell his car to Mr. Sam. They both have entered into the contract and they mutually agreed for a consideration of Rs.1000 only. John sold the car later Max John’s son files a case against Sam stating that the consideration was very less hence the contract needs to be cancelled. Give your comments.

The contract need not be cancelled as it is a valid contract. In case of consideration it need not be adequate. When the parties agreed for a lesser amount still it is a valid contract and the consideration is also valid .

3. Case study on free Concern

b. X a owner of the business appoint an employee for monthly salary. He wants to enter into the contract with the employee by which he enforces that the employee must have his daily mess at the hotel which is run by the friend of the owner. Can the agreement be executed. Can it be legally enforceable?

The agreement can not be executed. It cannot be termed as a valid contract as the agreement is not out of free consent. It is out of undue influence. The owner uses his authority as a owner and forces his employee for doing something.

 4. Case study on Agreement

Mr. A enters in to an agreement with B it agreement was ” A will pay Rs.1,00,000 to B for not getting married with C” B did so but later A denied to make payment to B. B files a case against A. Will B succeed.

No B will not get succeed, as the agreement between A & B is not valid. It is a void agreement. The agreements entered for restraint of marriage is a void agreement.

5. Case Study on offer and acceptance

The teacher made an announcement in the class ” dear students the college is going to sell its old carom board for Rs.1000. The one who is interested from this class can purchase it from me.” Is it a general offer (made to public) or special offer.

It is a specific offer as the offer is made with in the class. the offer-or is the institute and the offeree must be the student of the class itself.

6. Case Study on Tender (attempted Performance)

A enters into a contract with B where in A is supposed to supply 100 tons of oil to B along with the container to store the oil on 31st of May 2017. On 31st of May A sent an email to B in his official ID that A will be supplying the oil on agreed date. But due to certain issue the container will e supplied two days later. A had sent the oil also to B’s place.

B had rejected to accept the goods. A claims that it is an attempted performance. B has to compensate him for the loss occurred to him. Suggest whether A will succeed in the case-law.

It is not an attempted performance. The party has to fulfill the complete obligation as agreed in the contract then only it is called as tender or attempted performance. In this case A should have supplied oil and container together. As he have not done so it cannot be termed as tender performance.

7. Case Study on Breach of Contract

X has entered into a contract with Y by which X has to sell his bike to Y on 15th of March 2017. they have agreed that the consideration will be 20000 which will be paid on the date of sale and registration itself. Meanwhile Y had noticed that on 10th of March X’s bike was in hands of Mr.V when inquired V said that he approached X for purchasing the bike of X for 22000. Hence he is taking a test drive of the bike. Is this a Breach of contract. If so which type is this.

Yes this is a breach of contract. It comes under anticipatory breach. As per the contract X has to sell the bike to Y in this circumstance X should not have given a test drive to V. Hence it is a breach. It happened before the date of performance so it is an anticipatory breach.

8. Case Study on Discharge of Contract

A and B enters into a contract. They met at a C’s place who is B’s friend. They signed the contract by which A has to sell his horse to B 5 days thereafter for a consideration of Rs.1,00,000. At the same time the horse of A has died at his place. A was not aware of the same. Once A reaches his place A comes know about the fact and he informed the same to B and asked him to cancel the contract.

B claims that it is a breach of contract and A has to compensate B for the same. Is it a breach of contract.

No it is a not a breach of contract. The destruction of subject matter without the knowledge of parties cannot be considered as a breach of contract. Hence A need not compensate B.

9. Case Study on Contract of Agency

A and B is above to enter into a contract. A who is staying far from B’s place has appointed C as an agent to A. Hence C had entered into a contract with B on behalf of A. Later B comes to know that C is a drunken person. Hence he cancelled the contract stating that C is not an eligible person to enter into a contract. Will B succeed in this case. Can the contract be cancelled.

B will not be succeeding in this case. As per law of agency anybody can be appointed as an agent. What ever the agent does it is as good as the principal has done. So the principal can appoint anyone as an agent. Hence C can be appointed as an agent. Hence B cannot cancel the contract stating the reason that the agent is not capable.

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List of 20 notable cases of Contract Law

This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article discusses twenty important case laws related to contract law which are often required for competitive examinations. 

Table of Contents

Introduction 

According to Section 2(h) of the Indian Contract Act, 1872 , an agreement enforceable by law is known as a contract. The contract law generally concerns rights in personam which means private rights that only affect two private individuals entering into a contract with each other. There are several important concepts in relation to contract law that can be better understood by means of case laws. This article aims to provide the same to its readers. 

Notable case laws of Contract Law

Before delving into the cases, let us briefly discuss about the essentials of a valid contract which are provided hereunder:

• Acceptance of the offer;
• Parties must be competent to enter into a contract;
• There must be a consideration which is to be lawful in nature;
• Free consent of the parties;
• Intention to enter into a legal relationship;
• The contract entered into must be certain;
• A contract must not be expressly declared to be void. 

The case laws that have been discussed hereunder are all related to the contract law jurisprudence and anyone studying contract law does come across these cases. 

Balfour v. Balfour (1919)

The 1919 case of Balfour v. Balfour was the foundation for the contract law as it gave birth to the purpose behind the creation of the legal reaction theory in contract law. Legal reaction theory means that one lawful act will be responsible for a subsequent legal act to take place. Lord Justice Atkin observed that agreements that are made between a husband and his wife, specifically personal family relationships, to provide maintenance costs, and other related capitals are generally not categorized as contracts because in general, the parties to the agreement do not intend to enter into an agreement that should be attending legal ends. Therefore, a contract cannot be enforceable by nature if the parties to the same do not intend to create legal relations with each other. 

Lalman Shukla v. Gauri Datt (1913)

The importance of knowledge and communication, in formation of a contract, was highlighted by the Allahabad High Court in the landmark judgment of Lalman Shukla v. Gauri Datt (1913). The Hon’ble Court observed that the fundamental necessity of a valid contract is the knowledge and assent of a proposal in order to convert the concerned proposal into an enforceable agreement. In the present case, none of the criteria discussed are being fulfilled as the plaintiff was unaware and there was an absence of assent about the particular act. This is also an important principle governing general offers in contract law, and a classic example of a general offer is offering a reward by means of an advertisement for finding a lost article. Only the person completing the required task is said to be accepting the offer.  

Rose and Frank Co v. Crompton and Brother Ltd (1925)

The House of Lords in the well-known case of Rose and Frank Co v. Crompton and Brother Ltd (1925) highlighted agreements that are enforceable by law. The Court, in this case, held that the very fact that the arrangement between the parties to the case does not constitute a legal contract will not ipso facto preclude the orders and acceptances from constituting legally binding contracts. Therefore, the absence of enforceability of a legal arrangement that is expressed under an agency agreement does not preclude the legal transactions.

Harvey v. Facey (1893)

The difference between an “invitation to offer”, and “offer” has been laid down by the Lords of Judicial Committee of the Privy Council on the appeal in the case of  Harvey v Facey (1893). While the case surrounded an issue that arose regarding the offer to sell a Bumper Hall Pen, the Privy Council observed that there never existed an agreement between the parties to the case. The Council went further to state that for a contract to be valid, a proposal and an acceptance are needed and to make the contract binding. Further, acceptance of the proposal must be notified to the individual who is proposing because a legally enforceable agreement requires sureness to hold from both the parties to the contract.

Ramsgate Victoria Hotel v. Montefiore (1866)

In the case of Ramsgate Victoria Hotel v. Montefiore (1866), the Court of Exchequer discussed revocation of an offer that resulted due to lapse of time. As the defendant wanted to purchase shares in the plaintiff’s hotel, and also went ahead to communicate the offer to the defendant, the plaintiff had accepted the offer after six months of its proposal. By that time the share value had decreased which affected the interest of the defendant to purchase the same. While passing an order in favor of the defendant, the Court drew attention to the fact that the plaintiff had not accepted the offer in spite of being provided with sufficient time to consider. As the offer was accepted after six months, the same can no longer be categorized as valid, and therefore even if the defendant doesn’t show interest in buying the shares, he will not be held liable for the same. 

Felthouse v. Bindley (1862)

The concept of acceptance was taken up by the Court of Exchequer Chamber, the United Kingdom in the case of F elthouse v. Bindley (1862). While accepting an offer proposed to a party, he or she cannot remain silent. If he or she remains so then the same cannot be presumed to be an acceptance of the proposed offer. The Court of law made it clear that there should be absolute clarity in the communication of the acceptance of an offer so as to proceed towards the formation of a valid contract. 

Pharmaceutical Society of Great Britain v. Boots Cash Chemist (1953)

The case of Pharmaceutical Society of Great Britain v. Boots Cash Chemist (1953) revolves specifically around the concept of “invitation to offer”. The case which appeared before the Courts of Appeal of England and Wales involved the defendant, a pharmaceutical company who introduced a new method of displaying the drugs for the shoppers, which could be used for purchasing drugs, and the plaintiff objecting to the same. The Court of law observed that “goods on a display are an invitation, not an offer” instead, the customers make an offer when they take the medicines to the register with the cashier being under the shopkeeper to accept the offer proposed. The Court reasoned that displaying medicines to the customers will be treated as an “invitation to treat”, and not as an “offer”. 

Bhagwandas Kedia v. Girdharilal & Co (1959)

The Supreme Court of India while deciding the case of Bhagwandas Kedia v. Girdharilal & Co (1959) took into account Sections 2 , 3 , and 4 of the Indian Contract Act, 1872. The Court observed that making an offer at a place that has been accepted elsewhere does not ipso facto form part of the cause of action in a suit for damage, in scenarios for breach of contract. Generally, a contract is the consequence of acceptance of offer and intimation of that acceptance, therefore the intimation must be by the same external manifestation which is recognized by the law, or is sufficient in the eyes of law.

Kedarnath v. Gorie Muhammad (1886)

The Calcutta High Court in a notable case of Kedarnath Bhattacharji vs Gorie Mahomed (1886), observed that although the promise made in this case was in relation to a charitable purpose and that the defendant, in this case, had no benefit,  the defendant was held responsible for the promise made by him. The Court believed that the defendant will be held liable, as it was noted that in this case people were asked to knowingly subscribe to the purpose for which the money was to be applied or used. Along with this, the people were aware that in the faith of their subscription they had to incur the obligation to pay the contractor for the work. In this case, the law of the applicant was recognized by the Hon’ble High Court as the conclusion of a contract with the contractor was made at the will of the promoter, which was to be perceived as a good consideration according to Section 2(d) of the Indian Contract Act, 1872.

Durga Prasad v. Baldeo (1880)

The two-Judge Bench of Allahabad High Court comprising Justices Pearson, and Oldfield decided on the validity and legitimacy of a contract in the well-known case of Durga Prasad v. Baldeo (1880). In this case, the Court referred to the doctrine of rule of law that is inherently related to Section 2(d) of the Indian Contract Act, 1872. Section 2(d) read with Section 25 of the Act of 1872 states that “any agreement without consideration is void”. Thus when the legislation itself clears the necessities of a valid agreement, there cannot exist any case which walks against the statutory rules. 

Leslie Ltd v. Sheill (1914)

The English Court of Appeal in the well-known case of Leslie Ltd v. Sheill (1914) took into account the issue as to whether the defendants, in the case, are entitled to equitable restitution against a loan provided to a minor or not. Explaining the doctrine of equitable restitution, the Court viewed that, “If an infant obtains property or goods by misrepresenting his age, he can be compelled to restore it so long as the same is traceable in his possession”. The Court went further to state that restitution stops whenever the repayment begins, and the principles of equity do not enforce any kind of contractual obligations against a minor. 

Mohori Bibee v. DharmodasGhose (1903)

A bench of Judges Lord Mcnaughton, Lord Davey, Lord Lindley, Sir Ford North, Sir Andrew Scoble, and Sir Andrew Wilson considered the ambit of minor’s agreement in the well-known case of Mohori Bibee v. DharmodasGhose (1903). The Privy Council expressly barred any person below the age of eighteen years to enter into a contract, and take major decisions in relation to the same. Thus in the present case where the plaintiff and the defendant had entered into a mortgage deed, the same was held to be void as the mortgage execution was carried out by a minor individual. 

Raghava Chariar v. Srinivara (1916)

The issue in the present case of Raghava Chariar  v. Srinivara (1916), the issue that appeared before the Madras High Court was whether a mortgage that had been executed in favor of a minor who had also advanced the mortgage money in totality, would be deemed to be enforceable by him or by any other person on his behalf, or not. In comparison to previous observations in the case of Mohori Bibee v. DharmodasGhose (1903) which has provided a restrictive view on the liability of minors in contracts, the present case holds greater significance in the current scenario as it facilitated in providing a divergent scope of safeguarding minors in the contracts.

Donoghue v. Stevenson (1932) 

The doctrine of negligence was laid down unambiguously by the House of Lords in the English case of Donoghue v. Stevenson (1932). In the present case, the injuries that were caused to the plaintiff from the defendant’s defective products were claimed on the basis of the contract of sale between the parties to the case. While it was the plaintiff’s friend who suffered the damage, the plaintiff did not, hence the plaintiff’s claim could only be on the grounds of negligence by the defendant. The issue before the Court was whether the defendant owed a duty of care to the plaintiff or not. Applying the “neighbor principle”, the Court rules out that the defendant did owe a duty of care to the plaintiff. 

Phillips v. Brooks (1919)

The issue as to whether a mistake to identify an essential of a contract ipso facto makes the contract void or not came before Judge Horridge of the King’s Bench Division in the case of Phillips v. Brooks (1919). The Court while ruling out in favor of the defendant observed that the claimant in the case intended to sell the ring to the man in front of him, that is a face-to-face contract, whoever that man turned out to be. No relevant mistake could therefore be scooped out from this case. As the property had passed to the rogue, the claimant in the case was therefore not entitled to recover the ring.

Dunlop Pneumatic Tyre Co Ltd. v. Selfridge & Co (1915)

In the case of Dunlop Pneumatic Tyre Co Ltd. v. Selfridge & Co (1915), the House of Lords delivered a judgment that accompanied the understanding of the concept of “construction of contract”. Dismissing the appeal in the present case, the Court held that as there existed no contract between the plaintiff and the defendant, therefore, the plaintiff, in this case, can no way sue the defendant. Taking a cue on the aspect of privity of contract, the Court observed that only the parties to a contract can sue each other over breach of the contract entered into, and the only exception to this general rule will be in case of a principal-agent relationship where the agent was unnamed by the party under whom he/ she was appointed. 

Hadley v. Baxendale (1854)

Consequential damage over breach of contract was determined by the English Court in the well-known case of Hadley v. Baxendale (1854). When the defendant made an error in carrying out his work which was assigned to him by the plaintiff in his mill, the latter claimed professional negligence on the latter’s part. The issue before the Court was whether the claim that was made by the plaintiff was disproportionate to the damages caused or not. Observing that losses can be claimed if it can be reasonably viewed to have been the outcome of the defendant’s actions, the Court ruled out that the defendant will not be liable to compensate the plaintiff for his losses on grounds that the plaintiff had not reasonably foreseen the consequences of the delay caused by the defendant. 

Dickinson v. Dodds (1876)

England’s Court of Appeal, in the well-known case of Dickinson v. Dodds (1876) took into account whether a defendant who had promised to keep his offer open till a certain day be bound by contractual obligations if he had revoked his promise and sold off his offer to a third party, prior to the specified date? Ruling out that there was no contract that was formed between the parties to the case, the defendant had no obligations to follow before he could revoke his promise. The Court reasoned that although the defendant had made an offer, he did possess the right to revoke the same before the offer was accepted by the plaintiff, hence was not liable for his action. 

Powell v. Lee (1908)

A well-known case of offer and acceptance was the case of Powell v. Lee (1908) which involved the plaintiff filing a suit against the defendant over breach of contract. The question that the King’s Division Bench considered was whether a person who acted in an unauthorized capacity, communicated an offer’s acceptance? Ruling that for an acceptance to be valid, the same should be communicated, and the same should be carried out by the person offering in an authorized capacity, the Court dismissed the plea of breach of contract between the plaintiff, and the defendant. 

Merritt v. Merritt (1970)

The Master of the Rolls decision in the case of Merritt v. Merritt (1970) plays a significant role in framing the contract law jurisprudence. Although the present case walks in the same line as the case of  Balfour v. Balfour (1919), the Court distinguished both these cases on the grounds that the present involves parties who are separated from their marital ties, whereas in the 1919 case, the parties where the couple was married. In the present case, the husband had signed an agreement with his wife of £40 per month in connection to their mortgage house. When the payment was made, the wife claimed the property to be hers. The Court of Appeal held the agreement to be binding in nature as against the decision made in the Balfours’ case. 

Conclusion 

It is necessary to take note of the cases which have been discussed in this article as questions surrounding them are often located in different law examinations. A law student must, therefore, have these cases at their fingertips. Although the list of twenty cases provided in this article is not exhaustive, they surely are the foremost ones to be learned along with the contract law. 

References 

• https://lawbhoomi.com/law-of-contracts-notes-study-materials-and-case-laws/
• http://www.a4id.org/wp-content/uploads/2016/10/A4ID-english-contract-law-at-a-glance.pdf
• https://grrajeshkumar.com/class-notes-on-contract-i-1st-sem-3-year-ll-b/

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Indian Contract Act 1872 | Business Law

• Post last modified: 29 May 2023
• Reading time: 30 mins read
• Post category: Business Law

Indian Contract Act, 1872

The Law of Contract constitutes the most important branch of Mercantile or Commercial Law. It is the foundation upon which the superstructure of modern business is built.

It affects everybody, more so, trade, commerce and industry. It may be said that the contract is the foundation of the civilized world.

The Indian Contract 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.

Table of Content

• 1 Indian Contract Act, 1872
• 2.1 Agreement
• 2.2 Promise
• 3.1 Offer and Acceptance
• 3.2 Consent
• 3.3 Capacity of the parties
• 3.4 Consideration
• 3.5 Not expressly declared to be void
• 6 Business Law Notes
• 7 Business Law Book References

What is Contract?

According to section 2(h) of the Indian Contract Act , 1872 “ An agreement enforceable by law is a contract. “

A contract is a combination of the two elements:

• There must be an agreement
• Agreement must be enforceable by law (obligation)

Contract = Agreement + Enforcement by law

Section 2(e) “ Every promise and every set of promises, forming the consideration for each other, is an agreement. ” Thus it is clear from this definition that a ‘promise’ is an agreement.

Agreement = offer + Acceptance

Section 2(b) “ when the 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. “

An agreement, therefore, comes into existence when one party makes a proposal or offer to the other party and that other party signifies his assent thereto.

Following are the characteristics of an agreement:

• Plurality of persons : There must be two or more persons to make an agreement because one person cannot enter into an agreement with himself.
• Consensus ad idem : The meeting of the minds is called consensus-ad-idem. It means both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time.

Legal obligation

As stated above, an agreement to become a contract must give rise to a legal obligation i.e. a duty enforceable by law.

• Elements of a Valid Contract

Section 10 of the Indian Contract Act, 1872 provides that “ all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void ”.

Thus, the essential elements of a valid contract are as follows:

• An offer or proposal by one party and acceptance of that offer by another party resulting in an agreement —consensus-ad-idem.
• An intention to create legal relations or intent to have legal consequences.
• The agreement is supported by a lawful consideration .
• The parties to the contract are legally capable of contracting .
• Genuine consent between the parties.
• The object and consideration of the contract is legal and is not opposed to public policy.
• The terms of the contract are certain .

Therefore, to form a valid contract there must be (i) an agreement (ii) based on the genuine consent of the parties , (iii) supported by a lawful consideration , (iv) made for a lawful object , and (v) between the competent parties .

Offer and Acceptance

Firstly, there must be an offer and its acceptance.

Such offer and acceptance should create legal obligations between parties . This should result in a moral duty on the person who promises or offers to do something.

Similarly, this should also give a right to the promise to claim its fulfilment . Such duties and rights should be legal and not merely moral.

Case law : In Balfour v. Balfour , a husband promised to pay maintenance allowance every month to his wife, so long as they remain separate. When he failed to perform this promise, she brought an action to enforce it. As it is an agreement of domestic nature, it was held that it does not contemplate to create any legal obligation.

Consent means ‘ knowledge and approval ’ of the parties concerned.

A contract is made when one person makes an offer while another person accepts the offer. This acceptance of the offer should be made without any force or threat . It means that a consent given should be free and genuine.

Example : A has two Bike – one black and the other white. He offers to sell one of his Bike to B. A intends to sell the black one while B accepts the offer believing that it is for the white Bike. Here, A and B are not thinking in the same sense of a particular thing. In this situation, there is a mistake, so it cannot be said to be free consent.

Capacity of the parties

The third essential element of a valid contract is the capacity of the parties to make a valid contrac t. Capacity or incapacity of a person could be decided only after calculating various factors.

Section 11 of the Indian Contract Act,1872 elaborates on the issue by providing that a person who-

(a) has not attained the age of majority, (b) is of unsound mind, and (c) is disqualified from entering into a contract by any law to which he is subject, should be considered as not competent to enter into any contract.

Therefore, law prohibits

• Persons of unsound mind
• Person who is otherwise disqualified like an alien enemy, insolvents, convicts etc from entering into any contract.

Consideration

Section 2(d) of the Indian Contract Act, 1872 defines consideration thus:

“ 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 ” .

In simple words ‘ Consideration ’ would generally mean ‘ compensation’ for doing or omitting to do an act or deed . It is also referred to as ‘quid pro quo’ viz ‘ something in return for another thing ’. Such a consideration should be a lawful consideration.

Example : A agrees to sell his toys to B for Rs. 100, B’s promise to pay Rs. 100 is the consideration for A’s promise to sell his toys and A’s promise to sell the toys is the consideration for B’s promise to pay Rs. 100.

Not expressly declared to be void

The last essential elements of a valid contract to clinch a contract are that the agreement entered into for this purpose 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 is illegal in nature.

Similarly, any agreement in restraint of trade, marriage and legal proceedings etc. are classic examples of void agreements.

Contract : A written or spoken agreement, especially one concerning employment, sales, or a tenancy that is intended to be enforceable by law. Promise : In contracts, a promise is essential to a binding legal agreement and is given in exchange for consideration, which is the inducement to enter into a promise. Agreement : An agreement creating obligations enforceable by law. The basic elements of a contract are mutual assent, consideration, capacity, and legality.

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. According to Section 2 (h) of the Indian Contract Act, 1872 “An agreement enforceable by law is a contract.” A contract, therefore, is a combination of the two elements:

• an agreement
• an obligation

Business Law Notes

( Click on Topic to Read )

• What is Business Law?
• Indian Contract Act 1872
• Types of Contract
• Offer: Types, Elements

Performance of a Contract

• Discharge of Contract
• Sales of Goods Act 1930
• Goods & Price: Contract of Sale
• Conditions and Warranties
• Doctrine of Caveat Emptor
• Transfer of Property
• Rights of Unpaid Seller
• Negotiable Instruments Act 1881
• Types of Negotiable Instruments
• Types of Endorsement

Promissory Note

Bill of Exchange

Crossing of Cheque

Business Law Book References

• Goel, P. K. (2006). “ Business Law for Managers ” Wiley
• Sheth, T. (2017). “ Business Law ” (2ed.) Pearson.
• Kuchhal. M.C. & Prakash. “ Business Legislation for Management ” (2ed.) Vikas Publishing.

Business Law  is also known as Commercial law or corporate law, is the body of law that applies to the rights, relations, and conduct of persons and businesses engaged in commerce, merchandising, trade, and sales.

Indian Contract Act 1872 Summary Note

The  Indian Contract Act  is divisible into two parts .

First part  (Section 1-75) deals with the  general principles of the law of contract .

Second part  (Sections 124-238) deals with certain  special kinds of contracts .

It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. – Sec. 31, The  Sale of Goods Act , 1930

Sales of Goods Act 1930

Sales of Goods Act 1930  came into force on 1st July 1930. It extends to the whole of India. It does not affect rights, interests, obligations and titles acquired before the commencement of the Act. The Act deals with the sale but not with mortgage or pledge of the goods.

The Sale of Goods Act, identifies the terms, “ Conditions and Warranties ” as being of a prime significance in a contract of sale.

Negotiation of an instrument  is the process by which the ownership of an instrument is transferred from one person to another.

The crossing of Cheque means that the specific cheque can only be deposited straightway into a bank account and cannot be instantly cashed by a bank or any credit institution.

Promissory Note , on the other hand, is a promise to pay a certain amount of money within a stipulated period of time. And the promissory note is issued by the  debtor .

Bill of exchange  is an instrument ordering the debtor to pay a certain amount within a stipulated period of time. Bill of exchange needs to be accepted in order to call it valid or applicable. And the bill of exchange is issued by the  creditor .

• What is Cheque?

A  cheque  is a bill of exchange, drawn on a specified banker and it includes ‘the electronic image of truncated cheque’ and ‘a cheque in electronic form’.

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• Essential Elements of a Valid Contract
• What is Discharge of Contract?
• Performance of Contract
• What is Promissory Note?
• What is Crossing of Cheque?
• What is Bill of Exchange?
• What is Offer?
• Limited Liability Partnership Act 2008
• Memorandum of Association
• Articles of Association
• What is Director?
• Trade Unions Act, 1926
• Industrial Disputes Act 1947
• Employee State Insurance Act 1948
• Payment of Wages Act 1936
• Payment of Bonus Act 1965
• Labour Law in India
• What Is Market Segmentation?
• What Is Marketing Mix?
• Marketing Concept
• Marketing Management Process
• What Is Marketing Environment?
• What Is Consumer Behaviour?
• Business Buyer Behaviour
• Demand Forecasting
• 7 Stages Of New Product Development
• Methods Of Pricing
• What Is Public Relations?
• What Is Marketing Management?
• What Is Sales Promotion?
• Types Of Sales Promotion
• Techniques Of Sales Promotion
• What Is Personal Selling?
• What Is Advertising?
• Market Entry Strategy
• What Is Marketing Planning?
• Segmentation Targeting And Positioning
• Brand Building Process
• Kotler Five Product Level Model
• Classification Of Products
• Types Of Logistics
• What Is Consumer Research?
• What Is DAGMAR?
• Consumer Behaviour Models
• What Is Green Marketing?
• What Is Electronic Commerce?
• Agricultural Cooperative Marketing
• What Is Marketing Control?
• What Is Marketing Communication?
• What Is Pricing?
• Models Of Communication
• What is Sales Management?
• Objectives of Sales Management
• Responsibilities and Skills of Sales Manager
• Theories of Personal Selling
• What is Sales Forecasting?
• Methods of Sales Forecasting
• Purpose of Sales Budgeting
• Methods of Sales Budgeting
• Types of Sales Budgeting
• Sales Budgeting Process
• What is Sales Quotas?
• What is Selling by Objectives (SBO) ?
• What is Sales Organisation?
• Types of Sales Force Structure
• Recruiting and Selecting Sales Personnel
• Training and Development of Salesforce
• Compensating the Sales Force
• Time and Territory Management
• What Is Logistics?
• What Is Logistics System?
• Technologies in Logistics
• What Is Distribution Management?
• What Is Marketing Intermediaries?
• Conventional Distribution System
• Functions of Distribution Channels
• What is Channel Design?
• Types of Wholesalers and Retailers
• What is Vertical Marketing Systems?
• What i s Marketing?
• What i s A BCG Matrix?
• 5 M’S Of Advertising
• What i s Direct Marketing?
• Marketing Mix For Services
• What Market Intelligence System?
• What i s Trade Union?
• What Is International Marketing?
• World Trade Organization (WTO)
• What i s International Marketing Research?
• What is Exporting?
• What is Licensing?
• What is Franchising?
• What is Joint Venture?
• What is Turnkey Projects?
• What is Management Contracts?
• What is Foreign Direct Investment?
• Factors That Influence Entry Mode Choice In Foreign Markets
• What is Price Escalations?
• What is Transfer Pricing?
• Integrated Marketing Communication (IMC)
• What is Promotion Mix?
• Factors Affecting Promotion Mix
• Functions & Role Of Advertising
• What is Database Marketing?
• What is Advertising Budget?
• What is Advertising Agency?
• What is Market Intelligence?
• What is Industrial Marketing?
• What is Customer Value
• What is Business Communication?
• What is Communication?
• Types of Communication
• 7 C of Communication
• Barriers To Business Communication
• Oral Communication
• Types Of Non Verbal Communication
• What is Written Communication?
• What are Soft Skills?
• Interpersonal vs Intrapersonal communication
• Barriers to Communication
• Importance of Communication Skills
• Listening in Communication
• Causes of Miscommunication
• What is Johari Window?
• What is Presentation?
• Communication Styles
• Channels of Communication
• Hofstede’s Dimensions of Cultural Differences and Benett’s Stages of Intercultural Sensitivity
• Organisational Communication
• Horizontal C ommunication
• Grapevine Communication
• Downward Communication
• Verbal Communication Skills
• Upward Communication
• Flow of Communication
• What is Emotional Intelligence?
• What is Public Speaking?
• Upward vs Downward Communication
• Internal vs External Communication
• What is Group Discussion?
• What is Interview?
• What is Negotiation?
• What is Digital Communication?
• What is Letter Writing?
• Resume and Covering Letter
• What is Report Writing?
• What is Business Meeting?
• What is Public Relations?
• What is Consumer Behaviour?
• What Is Personality?
• What Is Perception?
• What Is Learning?
• What Is Attitude?
• What Is Motivation?
• Consumer Imagery
• Consumer Attitude Formation
• What Is Culture?
• Consumer Decision Making Process
• Applications of Consumer Behaviour in Marketing
• Motivational Research
• Theoretical Approaches to Study of Consumer Behaviour
• Consumer Involvement
• Consumer Lifestyle
• Theories of Personality
• Outlet Selection
• Organizational Buying Behaviour
• Reference Groups
• Consumer Protection Act, 1986
• Diffusion of Innovation
• Opinion Leaders
• What is Brand Management?
• 4 Steps of Strategic Brand Management Process
• Customer Based Brand Equity
• What is Brand Equity?

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