LAW OF CONTRACT- HISTORY

Law anterior to Contract Act and introduction of

English Law:
The Charters of the 18th century, which
established ‘Courts of Justice’ for the three
presidency towns of Calcutta, Madras and Bombay,
introduced into their jurisdictions the English
Common and Statute Law in force at the time so far
as it was applicable to Indian circumstances.
‘Courts of Justice’ were at first Mayor’s court,
which, in Calcutta, was superseded by the Supreme
Court in 1774 and finally by High Court in 1862. The
Mayor’s Courts in Madras and Bombay were
replaced, in 1797, by the Recorders’ Courts. The
Recorders’ Court in Madras was abolished in 1800
and in Bombay 1823,
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 LAW OF CONTRACT- HISTORY
and a Supreme Court was established in the place
of Recorders’ Courts. Again the Supreme Court was
superseded by a High Court in both places in 1862.

Introduction of Hindu and Mohammedan Laws of

contract:
The indiscriminate application of English law to
Hindus and Mohammedans within the jurisdiction of
Supreme Courts led to many inconveniences.
Subsequently, the statute of 1781 empowered the
Supreme Court at Calcutta and the statute of 1797
empowered the Recorders’ Courts in Madras and
Bombay to determine all actions and suits against
the inhabitants of the said towns,

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 LAW OF CONTRACT- HISTORY
provided that their succession and inheritance to
lands, rents and goods, and all matters of contract
and dealing between party and party, should be
determined in the case of Mohammedans by the law
and usages of Mohammedans and in the case of
Hindus by the law and usages of Hindus and where
only one of the parties should be a Mohammedan or
Hindu by the laws and the usages of the defendant.
The effect of these statutes was to supersede
English law so far as regards Hindus and
Mohammedans in the case of contracts and other
matters enumerated in the statutes and to declare
the rights of Hindus and Mohammedans to their
own laws and usages.

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 LAW OF CONTRACT- HISTORY
The result was that in a suit on contract Hindu or
Mohammedan law of contract was applied till the
Indian Contract Act came in to force.
Hindus and Mohammedans laws of contract as
administered by High Court:
In 1862, High Courts were established for each of the
presidency towns of Calcutta, Madras and Bombay,
but the same personal law continued to be
administered to Hindus and Mohammedans. The
Hindu law of contract was in fact applied by the
High Courts in the exercise of their original
jurisdiction to Hindus and the Mohammedans law to
Mohammedans up to the passing of the Indian
Contract Act, 1872,

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 LAW OF CONTRACT- HISTORY
although the courts to which statutes of 1781 and
1797 were applicable had been abolished.

Laws administered in the Moffusil Courts:

The old Bengal Regulation III of 1793 (sec. 21)
directed the Judges in the Zilla and City courts in
cases where no specific rule existed to act
according to the ‘justice, equity and good
conscience’. Similar provisions occurred in the
Madras Regulation II of 1802 (sec. 17).
The expression “Justice, equity and good
conscience” has been interpreted to mean the
rules of English law so far as they are applicable
to Indian society and circumstances.
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 INDIAN CONTRACT ACT

INDIAN CONTRACT ACT 1872

WHEREAS it is expedient to define and amend

certain parts of the law relating to contracts ; It is
hereby enacted as follows.

Section 1- Short title.-This Act may be called the

Indian Contract Act, 1872.

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 INDIAN CONTRACT ACT
Extent, Commencements.-
It extends to the whole of India except the State of
Jammu and Kashmir; and it shall come into force
on the first day of September, 1872.
‘ Except the State of Jammu and Kashmir ‘-
omitted by section 95 of THE JAMMU AND
KASHMIR REORGANISATION ACT, 2019.
Nothing herein contained shall affect the
provisions of any Statute, Act or Regulation not
hereby expressly repealed, nor any usage or
custom of trade, nor any incident of any contract,
not inconsistent with the provisions of this Act.

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 INDIAN CONTRACT ACT
Scheme of Contract Act:
The scheme of the Indian Contract Act is that it
enacts in sections 1 to 75 provisions applicable in
general to all contracts, and then deals separately
with particular kinds of contracts, Indemnity,
Guarantee, Bailment, Pledge, Agency. Earlier Sale of
Goods and Partnership were the parts of the Indian
Contract Act. But they are no longer parts of the
Contract Act as separate statutes [ Sale of Goods
Act, 1930 and Indian Partnership Act, 1932] have
now been enacted dealing with these two subjects.

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 INDIAN CONTRACT ACT

Scope of the Act:

The contract Act does not profess to be a
complete code dealing with the law relating to
contracts. As appears from the preamble, the Act
purports to do no more than define and amend
certain parts of that land. But to the extent it deals
with a subject, it is exhaustive upon the same and it
is not permissible to import the principles of English
law. Therefore, the principles of English law cannot
be introduced where the subject is dealt with by the
Act. But if it is necessary to interpret the Act, the aid
of English law may be taken.

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 INDIAN CONTRACT ACT
When the law is codified it must be looked to as a
guide in the matter. The language of the provisions
of the Contract Act cannot be enlarged or construed
narrowly or otherwise modified in order to bring the
construction in accord with the scope and
limitations governing the English doctrine. In regard
to the law of contract, the courts in India have
generally been guided by the Common Law of
England where no statutory provision to the
contrary is in existence.
The decisions of Australian, Canadian and other
Commonwealth courts and of the courts of the
United States of America, when relevant, will have
persuasive authority and will be listened to in courts
in India.

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 INDIAN CONTRACT ACT
Act not retrospective:
The provisions of this Act do not apply to contracts
made before the Act came into force.
Is breach of contract a crime?
Section357 BNS (s- 491 of I.P.C.) -Breach of
contract to attend on and supply wants of helpless
person.--Whoever, being bound by a lawful contract
to attend on or to supply the wants of any person
who, by reason of youth, or of unsoundness of
mind, or of a disease or bodily weakness, is helpless
or incapable of providing for his own safety or of
supplying his own wants, voluntarily omits so to do,
shall be punished with imprisonment of either
description for a term which may extend to three
months, or with fine which may extend to five
thousand rupees, or with both.
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 LAW OF CONTRACT
Under this section, it is not the breach of
contract towards the other party to the contract that
is to be regarded, but the breach of the legal
obligation towards the incapable person, which had
been accepted and transferred by the contract.
According to Salmond, a contract is an
agreement creating and defining obligations
between the parties.
Section 2(h) of I.C. Act – An agreement
enforceable by law is a contract.
Contract = agreement + Enforceability by law
[ Section 10 of I.C. Act]
Agreement = Offer (Proposal) + Acceptance.
According to section 2 (e) of I.C. Act, every
promise and every set of promises, forming the
consideration for each other, is an agreement.
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 LAW OF CONTRACT
A proposal, when accepted, becomes a promise
[Section 2 (b) of I.C. Act ].
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:
Section 2 (a) of I.C. Act – “When one person signifies
to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent
of that other to such act or abstinence, he is said
to make a proposal”.
According to Section 2(c) The person making the
proposal is called the "promisor", and the person
accepting the proposal is called "promisee"

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 LAW OF CONTRACT
Section-10 of I.C. Act- What agreements are contracts-
“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.
Nothing herein contained shall affect any law in
force in India, and not hereby expressly repealed, by
which any contract is required to be made in writing
or in the presence of witnesses, or any law relating
to the registration of documents”.
Classification or Types of agreements & Contracts:
(I) According to Validity-
1. Valid agreement- Section 2(h)- An agreement
enforceable by law.
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 LAW OF CONTRACT
2. Voidable contract- Section 2(i)- An agreement
which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of
the other or others, is a voidable contract.
3. Void agreement- Section 2(g)- an agreement not
enforceable by law is said to be void.
(II) According to Formation-
1. Express Contract- Terms of a contract are
expressly agreed upon, whether by words spoken or
written, at the
time of the formation of the contract. Where the offer
or acceptance of any promise is made in words, the
promise is said to be express (section 9).

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 LAW OF CONTRACT
2. Implied Contract- It is one which is inferred from
the acts or conduct of the parties or course of
dealings between them. Proposal or acceptance is
made otherwise than in words, the promise is said
to be implied (section 9).
E.g. Obtaining a ticket from an automatic weighing
machine or getting into a public bus, etc.
3. Quasi -Contracts- It is created by law. Some
times parties are put in the same position as if
there were contracts ( Sections 68 to 72 of I.C.
Act).
(III) According to Performance-
[Link] Contract- Where both the parties have
performed their promises or obligations. E.g. ‘A’
paints a picture and ‘B’ pays the charge.
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 LAW OF CONTRACT
2. Executory Contract- where both the parties have
not performed their promises or obligations. E.g. ‘A’
has to deliver the goods and ‘B’ has to pay the price.
3. Partly Executed and Partly Executory Contract-
Where one party has performed the promise but not
the other. E.g. ‘X’ has paid the price, but ‘Y’ has
not delivered the goods.

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 LAW OF CONTRACT
Essentials of Valid Contract:
“Every contract is an agreement, but every
agreement is not necessarily a contract”.
An agreement is enforceable by law if it fulfils the
following conditions. In other words, an agreement to
become a contract it must have the following
essentials.
1. Offer and Acceptance;
2. Intention to create Legal relationship;
3. Lawful Consideration;
4. Capacity of Parties;
5. Free Consent;
6. Lawful Object;
7. Agreement not declared void;
8. Legal Formalities.
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 LAW OF CONTRACT- OFFER
1. Offer (Proposal):
Section 2 (a) of I.C. Act – “When one person
signifies to another his willingness to do or to
abstain from doing anything, with a view to
obtaining the assent of that other to such act or
abstinence, he is said to make a proposal”.
An offer is a proposal by one party to another to
enter into a legally binding agreement with him.
E.g. A says to B “Will you purchase my car for
Rs.1,50,000/-.
The person making the offer is called ‘Offeror’ or
‘Proposer’ and the person to whom it is made is
called the ‘Offeree’.
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 LAW OF CONTRACT- OFFER
Kinds of Offer: An offer may be -
1. Specific Offer and General Offer.
When an offer is made to a definite person or
group of persons, it is called as a ‘ Specific Offer’.
When an offer is made to the world at large, it is
called as a ‘General Offer’. When an offer is made to
the public, any person can accept it.
A leading case for the general offer is
Carlill v. Carbolic Smoke Ball Co. (1893) 1 Q. B.
256.
Facts: A company offered by advertisement to
pay 100 pounds to any one who contacts the
increasing epidemic influenza, colds or any disease
caused by taking cold, after having used the ball

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 LAW OF CONTRACT- OFFER
according to printed directions. It was added that “an
amount of 1000 pounds is deposited with the Alliance
Bank showing our sincerity in the matter”. The plaintiff
used the smoke balls according to the directions but she
nevertheless subsequently suffered from influenza. She
filed a suit to recover the amount from the company.
Court held that she could recover the amount.
2. Express Offer and Implied Offer: When an offer is
made by express words, spoken or written, this is known
as ‘Express Offer’. Sometimes an offer may be implied
from the conduct of the parties or the circumstances of
the case. This is known as ‘Implied Offer’. E.g. When a
transport company runs a bus on a particular route,
there is an implied offer by the transport company to
carry passengers for a certain fare. Case: Haridas
Ranchordas V. Mercantile Bank of India- (1920) 47 IA 17.

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 LAW OF CONTRACT- OFFER
Legal Rules as to or essentials of, a valid Offer:
1. Offer must give rise to Legal relationship or
Legal intention: There is no provision in the Indian
Contract Act requiring that an offer or its acceptance
should be made with the intention of creating legal
relation. But in English law it is a settled principal
that “to create a contract there must be a common
intention of the parties to enter into legal
obligation”. Case: Balfour v. Balfour-(1919) 2 K.B.
571. Case: Jones V. Padavatton- (1969) 2 All E R
616.
The intention of the parties is naturally to be
ascertained from the terms of the agreement and
the surrounding circumstances. It is for the court to
in each case to find out whether the parties must
have intended to enter into legal obligation. Thus, it
is a question of fact. 22
 LAW OF CONTRACT- OFFER
Generally, in the agreements regulating the social
relations, there is no legal intention. But in the
agreements regulating business relation, there is legal
intention.
The test of contractual intention is objective, not
subjective. What matters is not what the parties had
in mind, but what a reasonable person would think, in
the circumstances, their intention to be.
Case: Simpkins V. Pays- (1955) 3 All E R 10.
Case: Rose & Frank Co. Vs. J. R. Crompton- (1923) 2 KB
261.
2. Offer must be definite, certain and unambiguous:
If the terms of an offer are vague or indefinite, its
acceptance cannot create any contractual relationship.
E.g. A says to B, “I will sell you a car”. A owns
three different cars. The offer is not definite.
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 LAW OF CONTRACT- OFFER
[Link] must be communicated:
An offer must be communicated to the person to whom it
is made by the offeror or his duly authorized agent.
Acceptance of an offer, in ignorance of it, is no acceptance.
Case: Lalman v. Gouri Dutt- (1913) 11 All.L.J.489.
Australian case: R. Vs. Clarke- (1927) 40 CLR 227.
English case: Williams V. Carwardine- (1833) 2 LJKB 101.
4. Offer must be made with a view to obtaining the assent
and not merely with a view to disclosing the intention of
making an offer.
5. Offer should not contain a term the non-compliance of
which may be assumed to amount to acceptance. E.g. A
writes to B “ I will sell you my horse for Rs. 20,000/- and if
you do not reply within eight days, I shall assume that you
have accepted the offer.” There is no contract if B does not
reply.

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 LAW OF CONTRACT- OFFER
Offer and Invitation to Offer (or Treat):
Where a party, without expressing his final
willingness, proposes certain terms on which he is
willing to negotiate, he does not make an offer, only
he invites the other party to make an offer on those
terms. But he is not bound to accept the offer made
by the other party. An offer should be distinguished
from an invitation to receive offers. Invitation to offer
is offer to negotiate or offer to receive offer or offer to
chaffer.
Case: Harvey v. Facie- (1893) AC 552
Case: Pharmaceutical Society of Great Britain V. Boots
Cash Chemists Ltd.-(1952) 2 Q.B. 795
Case: Harris V. Nickerson- (1873) LR 8 QB 286.
Case: Bank of India V. O. P. Swarnakar, AIR 2003 SC
858.
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 LAW OF CONTRACT- OFFER
Cross offer- When two parties make identical offers to
each other in ignorance of each other’s offer, they are
called as ‘Cross Offers’. There can be no contract. [Tinn
v. Hoffmann-(1873)]
Section 4.- Communication when complete.
Section 5. -Revocation of proposals and acceptances.
------------------------------------------------------------------------
------
LAPSE OF OFFER:
Under following circumstances an offer or proposal
lapses: [under section 6]
1. By Notice of Revocation;
2. By lapse of time;
3. By failure to fulfil the condition precedent;
4. By the death or insanity of the proposer.
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 LAW OF CONTRACT- OFFER
Other circumstances:
1. Legislative Intervention;
2. Rejection;
3. Counter Offer or proposal.
------------------------------------------------------------------
----
1. Notice of Revocation: By the communication
of notice of revocation by the proposer to the other
party. A proposal may be revoked at any time before
the communication of its acceptance is complete as
against the proposer, but not afterwards (section 5,
[Link]).
Case: Henthorn V. Fraser- (1892) 2 Ch 27.
Case: Byrne V. Van Tienhoven- (1880): 5 C.P.D. 27 344.
 LAW OF CONTRACT- OFFER
Communication of revocation should be from offeror
himself:
In India, it is necessary that the communication of
revocation should be from the offeror or from his duly
authorized agent [ section 6(1)].
But it has been held in England that it is enough if
the offeree knows reliably that the offer has been
[Link]: Dickinson V. Dodds- (1876) 2 Ch D 463.
Revocation of General offer: Where an offer of a general
nature is published through newspapers, it can be
withdrawn by the same media and the revocation will be
effective even if a particular person, subsequently to the
withdrawal, happened to perform its terms in ignorance
of the withdrawal.

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 LAW OF CONTRACT- OFFER
Revocation of Bid:
In case of an auction, a bid may be retracted
(withdrawn) before the acceptance.
Case: Joravarmal Champalal Vs. Jeygopaldas
Ghanshamdas (1922) 43 Mad LJ 132.
Where a bid has been accepted provisionally:
Where a bid has been accepted provisionally
and is subject to confirmation by higher officers,
bidder can withdraw before any such confirmation
takes place.
Case: Union of India Vs. Bhimsen Walaiti Ram- (1969)
3 SCC 146.

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 LAW OF CONTRACT- OFFER
2. By lapse of time-
An offer lapses on the expiry of the time, if any,
fixed for acceptance. Where an offer says that it
shall remain open for acceptance up to a certain
date, it has to be accepted within that date. It is
enough if the acceptor has posted the acceptance
before the stipulated time, even if it reaches the
offeror after the stipulated date.
Where no time for acceptance is prescribed, the
offer has to be accepted within a reasonable time.
What is ‘reasonable time’ will depend upon the facts
and circumstances of each case.
Case: Ramsgate Victoria Hotel Co. Vs.
Montefoire- (1866) LR 1 Ex Ch 109.

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 LAW OF CONTRACT- OFFER
3. By non fulfillment of condition precedent:
Where the offer is subject to a condition
precedent, it lapses if it is accepted without fulfilling
the condition.
4. By the death or insanity of the proposer or the
offeror, provided offeree comes to know of it before
acceptance:
But there is no provision in the Act about the
effect of the death of an offeree. But an offer can be
accepted only by an offeree and not by any other
person.
Other circumstances:
1. Legislative Intervention- After making an offer, if
that offer becomes inoperative due to any law, it
lapses.
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 LAW OF CONTRACT- OFFER
2. Rejection- Once offeree rejects the offer, it lapses.
3. Counter Offer or proposal- A counter offer puts an
end to the original offer and it cannot be revived by
subsequent acceptance.
Case: Hyde V. Wrench-(1840)
Case: Nihal Chand Vs. Amarnath- AIR 1926 Lah 625.

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 LAW OF CONTRACT- ACCEPTANCE
ACCEPTANCE
A contract emerges from the acceptance of an offer.
It is the act of assenting by the offeree to an offer. In
other words, it is the manifestation by the offeree of his
willingness to be bound by the terms of the offer.
According to Anson, “Acceptance is to an offer what
a lighted match is to a train of gunpowder”.
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.
Acceptance may be Express or Implied: (Sec. 9, [Link])
It is express when it is communicated by words,
spoken or written. It is implied when it is to be gathered
from the conduct of the parties or surrounding
circumstances.

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 LAW OF CONTRACT- ACCEPTANCE
Who can accept?
In case of specific offer, it can be accepted by the
person to whom offer is made. If it is accepted by any
other person, there is no valid acceptance. In case of
general offer, any person can accept.
Legal rules as to valid acceptance:
1. It must be absolute and unqualified: [Section 7,
[Link]]
Partial Acceptance: Acceptance should be whole of the
offer. The offeree cannot accept a part of its terms which
are favourable to him and reject the rest. Such an
acceptance is another kind of counter proposal and does
not bind the offeror unless he agrees to the qualified
acceptance.
Case: Ramanbhai v. Ghasiram- ILR 1918 42 Bom 595.

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 LAW OF CONTRACT- ACCEPTANCE
Acceptance of counter-proposal: Where the
acceptance of a proposal is not absolute and
unqualified, the proposer may become bound, if, by
his conduct, he indicates that he has accepted the
qualifications set up.
Case: Hargopal Vs. People’s Bank of Northern India-
AIR1935 Lah 691.
Provisional Acceptance:
Sometimes an acceptance is made subject to final
approval. A provisional acceptance of this kind does
not ordinarily bind either party until the final approval
is given. Meanwhile the offeror is at liberty to cancel
his offer.
Case: Union of India Vs. Narain Singh-AIR (1953) Punj
274.

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 LAW OF CONTRACT- ACCEPTANCE
2. It must be communicated to the offeror:
To conclude a contract between the parties, the
acceptance must be communicated. A mere mental
determination to accept unaccompanied by any external
indication will not be sufficient. Acceptance must be
communicated to the offeror himself. A communication
to any other person is as ineffectual as if no
communication has been made.
Case: Felthouse v. Bindley- 1863.
Case: Haridwar Singh Vs. Bagun Sumbrui-(1973) 3
SCC889.
3. It must be given by the party or parties to whom offer is
made: Communication of acceptance should be from a
person who has the authority to accept. Information
received from unauthorized person is ineffective.
Case: Powell v. Lee-1908-

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 LAW OF CONTRACT- ACCEPTANCE
4. It must be according to the mode prescribed or
usual or reasonable mode: (section 7(2). [Link]) 5.
It must be given within a reasonable time: If any time
limit is specified, the acceptance must be given within
that time. If no time limit is specified, it must be
given within a reasonable time. Reasonable time is a
question of fact.
Case: Ramsgate Victoria Hotel Co. v. Montefoire-
1866.
6. It cannot precede an offer;
7. It must be given before offer lapses;
8. It must show an intention on the part of the acceptor
to fulfill terms of the promise;
9. It cannot be implied from silence.
---------------------------------------------------------------------
----
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 LAW OF CONTRACT- ACCEPTANCE
Revocation of Acceptance:
An acceptance may be revoked at any time
before the communication of the acceptance is
complete as against the acceptor, but not
Afterwards.
Section 5 -Revocation of proposals and acceptances.-

Section 4. Communication when complete.

According to English law, an acceptance once
made is irrevocable. Because, one cannot blow hot
and cold. In the words of Anson- “Acceptance is to
an offer what a lighted match is to a train of
gunpowder. Both do something which cannot be
undone” This rule is obviously confined in its
operation only to postal acceptance.
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 LAW OF CONTRACT- ACCEPTANCE
When does a contract come into existence?
When the parties are at a distance and are
contracting through post or by messengers or
through instantaneous communications, then the
question arises ‘When is the contract concluded?’
1. By Post-
A complete contract arises on the date when the
letter of acceptance is posted in due course.
Case: Adams v. Lindsell- (1818) 106 ER 250.
Case: Household Fire and Accident Insurance Co. v.
Grant- 1879

39
 LAW OF CONTRACT- ACCEPTANCE
2. Over Telephone, Telex or Oral communication:
The rule about instantaneous communications
between the parties is different from the rule about
the post. The contract is only complete when the
acceptance is received by the offeror and the
contract is made at the place where the acceptance
is received.
Case; Entores Ltd. V. Miles Far East Corporation-
(1955) All.E.R.
Indian Supreme Court endorsed the principle of
the Entores case in the Case of Bhagwandas v.
Girdhari Lal- AIR 1966 SC 543.

40
 LAW OF CONTRACT
STANDARD FORM CONTRACTS

Standard form of contracts:

Now a days large-scale business organizations,
like, LIC, Banks, Railway Authority, etc. have to
enter into thousands of contracts every day. It
would be difficult for such large-scale organizations
to draw up a separate contract with every individual.
Therefore, they keep printed forms of contract. They
are called as ‘Standard Forms of Contracts’. Such
standard contracts contain a large number of terms
and conditions in fine print which restrict and often
exclude liability under the contract.

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 LAW OF CONTRACT
STANDARD FORM CONTRACTS
The courts have found it very difficult to come to the
rescue of the weaker party, particularly where he has
signed the document. Hence, the individual deserves to
be protected against the possibility of exploitation
inherent in such contracts.
Following are some of the modes of protection which have
been evolved by the courts.
1. Reasonable Notice:
It is the duty of the person delivering a document to
give adequate notice to the offeree of the printed terms
and conditions. If it is not done, the acceptor will not be
bound by the terms.
Case: Henderson V. Stevenson- (1875) 32 LT 709.
Case: Parker Vs. South Eastern Rail Co.-(1874-80)All E R
166.
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 LAW OF CONTRACT
STANDARD FORM CONTRACTS
Case -Thompson Vs. London, Midland & Scottish
[Link]., (1930) 1 KB 41
Case: Chapelton Vs. Barry Urban District Council-
(1940) 1 KB 532.
Case: Curtis Vs. Chemical Cleaning & Dyeing Co.-
(1951) 1 KB 805.
2. Notice should be contemporaneous with contract:
Notice of the terms should be given before or at the
time of the contract. A subsequent notification will
indeed amount to a modification of the original contract
and will not bind the other party unless he has assented
thereto.
Case: Olley V. Marlborough Court Ltd.- (1949) 1 All E R 127
CA.

43
 LAW OF CONTRACT
STANDARD FORM CONTRACTS
3. Fundamental Breach:
Even where adequate notice of the terms and
conditions in a document has been given, the party
imposing the conditions may not be able to rely on
them if he has committed a breach of the contract
which can be described as ‘fundamental’.
Case: Alexander V. Railway Executive-(1951) 2 KB 882.
4. Strict Construction:
Exemption clauses are construed strictly,
particularly where a clause is so widely expressed as
to be highly unreasonable. Any ambiguity in the
mode of expressing an exemption clause is resolved
in favour of the weaker party.
Case: Akerib V. Booth- (1961) 1 All E R
380.
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 LAW OF CONTRACT
STANDARD FORM CONTRACTS
5. Liability in Tort:
Even where an exemption clause is exhaustive
enough to exclude all kinds of liability under the
contract, it may not exclude liability in tort.
Case: White V. John Warwick & Co. Ltd.- (1953) 1 WLR
1285.
Case: Ruther V. Palmer- (1922) 2 KB 87.
6. Unreasonable Terms:
Protection can be given by excluding
unreasonable terms from the contract. A term is
unreasonable if it would defeat the very purpose of
the contract or if it is repugnant to public policy.
Case: Lilly White V. Mannuswami- AIR 1966 Mad.13.
Case: M Siddalingappa Vs. T. Natarag-AIR 1970 Mys
154. 45
 LAW OF CONTRACT
STANDARD FORM CONTRACTS
7. Exemption clauses and third parties:
One of the basic principles of the law of contract
is that a contract is a contract only between the
parties to it and no third party can either enjoy any
rights or suffer any liability under it.
Case: Adler V. Dickson-(1955) 1 QB 158.

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 LAW OF CONTRACT
ESSENTIALS
2. Intention to create Legal relationship: When the two
parties enter into an agreement, their intention must
be to create legal relationship between them.
Agreement of a social or domestic nature do not
contemplate legal relationship.
Case: Balfour v. Balfour- (1919) 2 K.B. 571
Case: Rose and Frank Co. v. J. R. Crompton - (1925)
A.C. 445.
[For more details refer earlier discussion]

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3. Consideration:
‘Consideration’ means an advantage or benefit moving
from one party to other. In simple words, it means
‘something in return’. Agreement is legally enforceable only
when parties to the contract give and get something.
According to section 25 of the I.C. Act, an agreement
without consideration is void. But this rule is subject to
some exceptions. Consideration need not necessarily be in
cash or kind. It may be an act or abstinence, or promise to
do or not to do something. It may be past, present or
future. But it must be real and lawful.
Definition:
According to Pollock, “Consideration is the price for
which the promise of the other is bought, and the promise
thus given for value is enforceable.”
According to Blackstone, “Consideration is the
recompense given by the party contracting to the other.”
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Section 2(d) of the I.C. Act, defines as under:
“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”.
Legal rules as to Consideration:
1. It must move at the desire of the promisor or his
request:
If it is done at the request of the third party or
without the desire of the promisor, it will not be a
good consideration.
Case: Durga Prasad V. Baldeo- (1880) 3 All. 221.
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Case: Kedar Nath v. Gorie Mohamed-1886 ILR 14
Cal. 64.
Where there is no request for an act the promise will
be a bare promise (i.e. Nudum pactum) and
without any consideration.
Case: Doraswami Ayyer V. Arunachala Ayyer- AIR 1936
Mad. 135.
Unilateral Promise:
A unilateral promise is a promise from one side
only and is intended to induce some action by the
other party. The promisee is not bound to act,
because he gives no promise from his side.
Case: Abdul Aziz V. Masum Ali- AIR 1914 All 22.
Case: Jamuna Das V. Ram Kumar-AIR 1937 Pat. 358.
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Revocation of Unilateral Promises:
It is no doubt true that a promise which is given in
return for an act is revocable before the promisee begins
to alter his position by acting upon the promise.
Case: Errington V. Errington- (1952) 1 KB 290.
Promissory Estoppel-
Generally, estoppel means preventing a person from
going back of his promise. When a person makes
representation and the other party relying on it alters
or changes his position, then, the former is not allowed
to make any other representation which is contrary to
the first. Thus, former is estopped from going back of his
promise.
Case: Pournami Oil Mills V. State of Kerala- (1987)SCR 641.
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2. It may move from the promisee or any other
person:
Under the English law, consideration must move
from the promisee only. But under Indian law, it
may move from the promisee or any other person,
i.e. even a stranger. Case: Chinnayya v. Ramayya-
(1882) 4 Mad. 137
Doctrine of Privity of Contract: [Stranger to
contract cannot sue]- The general rule is that ‘
Contract is a contract between the parties to the
contract’. It means only parties to the contract may
sue or be sued on that contract. This rule is known
as the ‘Doctrine of Privity of contract’. “Privity of
contract’ means relationship subsisting between the
parties who have entered into contractual
obligations. 52
 LAW OF CONTRACT
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Case: Tweddle V. Atkinson-1861.
Case: Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge and
Co. Ltd.-(1915) AC 847.
Case: Beswick V. Beswick- (1966) 3 All E R 1.
In India- There are many decided cases which declare
that a contract cannot be enforced by a person who is
not a party to it and that the rule in Tweddle V.
Atkinson is as much applicable in India as it is in
England.
But there is no provision in the Indian Contract Act either
for or against the rule.
Case: Jamna Das V. Ram Autar-(1911) 30 IA 7, ILR 34
All 63.
Case: M. C. Chacko V. State Bank of Travancore- (1969)
2 SCC 343.
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EXCEPTIONS:
In the course of time, the courts have
introduced a number of exceptions in which the rule
of privity of contract does not prevent a person from
enforcing a contract which has been made for his
benefit but without his being a party to it. Many of
the exceptions are connected with the special
branches of the law of contract, such as negotiable
instruments, agency, bill of lading, railway receipts,
transfer of property, etc. Following are some of the
most commonly known exceptions:

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1. A Trust or Charge- A person (called
beneficiary), in whose favour a trust has been
created, can enforce it even though he is not a
party to the contract. Similarly, a person in whose
favour a charge or other interest in specific
immovable property has been created can enforce
though he is not a party to it.
Case: Rana Uma Nath Bakhs Singh v. Jang Bahadur-
AIR 1938 PC 245.
Case: Gregory & Parker V. Williams: (1817).
Case: Khwaja Mohm. Khan v. Hussani Begum-(1910)
12 Bom. LR 638.

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2. Marriage Settlement, Partition or other family
arrangements- When an arrangement is made in
connection with marriage, partition or other family
arrangements and the provision is made for the
benefit of a person, he may sue although he is not a
party to the agreement.
Case: Shuppu Ammal V. Subramaniyan- ILR (1910)33
Mad. 238.
Case: Veeramma V. Appayya – AIR 1957 AP 965.
Case: Daropti Vs. Jaspat Rai- (1905)Punj. Record 171.
3. Acknowledge & Estoppel:
Where the promisor by his conduct acknowledges
or otherwise constitutes himself as an agent of a third
party, a binding obligation is thereby incurred by him

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towards the third party. In other words, where by
the terms of a contract a party is required to make a
payment to a third person and he acknowledges it
to that third person, a binding obligation is thereby
incurred towards him.
Case: Devaraja Urs Vs. Ram Krishanaiah- AIR 1952
Mys. 109
4. Assignment of Contract:
The assignee of the rights and benefits under a
contract, not involving personal skill, can enforce the
contract subject to the equities between the original
parties.

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5. Covenants running with the land:
In case of transfer of immovable property, the
purchaser of land with notice that the owner of the
land is bound by certain conditions or covenants
created by an agreement affecting the land shall be
bound by them although he was not a party to the
original agreement, which contained the conditions
and covenants. [The principle of the famous case of
Tulk v. Moxhay- (1848) (1843-60) All E R 9].
Case: Smith & Snipes Hall Farm Ltd. V. River Douglas
Catchment Board- (1949) 2 All E R 179 (CA)

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3. Consideration may be past, present or future:
Past consideration- When consideration for a
present promise was given by a party in the past.

E.g. A renders some service to B at latter’s desire.

After a month, B promises to compensate A for the
services rendered to him. It is past consideration.
In England:
It is an age-old principle of English law that
consideration should be contemporaneous with the
promise. If the act is done before any promise is
made, it is called a past consideration and a past
consideration is no consideration.
Case: McArdle, In re- (1951) 1 All E R 905.

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ESSENTIALS- Consideration
But past act at request is good consideration.
It was established as early as 1616 in Lampleigh V.
Brathwait that a past act done at request will be good
consideration for a subsequent promise.
Besides this, two more exceptions have been admitted.
A promise to pay time-barred debt and a negotiable
instrument issued for a past consideration are both valid.
Position in India: It is not necessary for the courts in India
to follow the English rule as to past consideration. In
India, past consideration is good consideration.
Present or executed consideration: When
consideration is given simultaneously with promise, i.e.
at the time of promise, it is said to be present
consideration.

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Future or executory consideration: When consideration
from one party to the other is to pass subsequently to
the making of the contract, it is future or executory
consideration. In an executory consideration, the
liability is outstanding on both sides.
E.g.- D promises to deliver certain goods to P after a
week- P promises to pay the price after a month.
4. It may be an act, abstinence or forbearance or a
return promise:
Case: Debi Radha Rani V. Ram Dass- AIR 1941 Pat. 282.
Case: M. Ramiah V. A. Shankaranarayana-AIR 1958 Ker
246.

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5. It need not be adequate:
‘Something in return’ need not necessarily be equal
in value to ‘something given’. The law simply provides
that a contract should be supported by consideration.
But it must be of some value in the eye of law.
Explanation 2 to Section 25 deals with this matter.
Case: De La Bere V. Pearson-(1908) 1 KB 280.
6. It must be real and not illusory:
It must be real and of some value in the eye of law.
There is no real consideration in the following cases:
(a) Physical impossibility: A promises to put life into
the body B’s dead wife should B pay him Rs.10,000/-;
(b) Legal impossibility: A owes Rs. 10,000/- to B. He
promises to pay Rs. 500/- to C, the servant of B, who in
turn promises to discharge A from the debt.

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(c) Uncertain consideration: A engages B for doing a
certain work and promises to pay a ‘reasonable’
sum. There is no recognized method of ascertaining
the ‘reasonable remuneration. Here consideration is
uncertain.
Consideration, as defined in the Act, means
some act, abstinence or promise on the part of the
promisee or any other person which has been done
at the desire of the promisor. Does it mean that
even a worthless act will suffice to make a good
consideration if it is only done at the promisor’s
desire?
E.g.- A promises to give his new Innova car to B,
provided B will fetch it from the garage.
Case: White V. Bluett- (1853) 23 LJ Ex 36.
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ESSENTIALS- Consideration
7. It must be something which the promisee is not
already bound to do either by general law or under an
existing contract.
Performance of Existing Duties:
Consideration, generally, must be something more
than what the promisee is already bound to do. A
person may be bound to do something by law or by
contract.
Performance of a legal duty is no consideration for a
promise:
Case: R. Sashannah Chetti V. P. Ramaswami Chetti-
(1868).
Case: Glassbrook Brothers Ltd. V. Glamorgan County
Council-(1925) AC 270.

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Pre-existing contract with promisor:
Compliance with the legal obligation imposed by a
contract with the promisor can be no consideration. In
other words, performance of an existing contract with
the promisor is not a consideration for the subsequent
promise. Case:Ramachandra Chintaman vs. Kalu Raju-
(1877) 2 Bom.362.
Case: Stilk V. Myrick- (1809)
Pre-existing contract with third party:
Where a person has contracted to do an act and a
third person promises to pay him a sum of money if he
would go ahead with the performance, is there a
consideration for a promise? Yes.
Case: Shadwell V. Shadwell- (1860).
Case: Gopal Co. Ltd. V. Hazarilal Co. – AIR 1963 MP 37.

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8. It must not be illegal, immoral or opposed to public
policy. Section 23 of I.C. Act.
Promise to pay less than amount due:
English law: A promise to pay less than what is due
under a contract cannot be regarded as a consideration.
It has been held in Pinnell Case-(1602)
Case: Foakes V. Beer-(1884) 9 AC 606.
Exceptions to the rule in Pinnel case:
The Law Revision Committee, in its report in 1937,
recommended abolition of the rule. But while no
legislative action has followed the report, the courts have
tried to avoid the awkward result of the rule by admitting
following exceptions to it.
1. Part-payment by third party:
Part-payment by a third party may be a good
consideration for the discharge of the whole of the debt.
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ESSENTIALS- Consideration
Case: Hirachand Punamchand V. Temple-(1911) 2 KB
330.
2. Composition with creditors: Payment of a lesser sum
is a good satisfaction for a larger sum where this is
done in pursuance of an agreement of compromise
entered into by the debtor with his creditors.
3. Payment before time: Payment of a lesser sum before
time or in a different mode or at a different place than
appointed in the original contract or the gift of a
horse, hawk or robe, etc., in satisfaction is good.
4. Promissory Estoppel:
Case: Central London Property Trust Ltd. V. High Trees
House Ltd.- (1947) 1 KB 130.

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In India, promise to pay less than the due amount
is binding [section 63].
Section: [Link] may dispense with or remit
performance of promise.-
Every promisee may dispense with or remit,
wholly or in part, the performance of the promise
made to him, or may extend the time for such
performance, or may accept instead of it any
satisfaction which he thinks fit.
Example: A owes B 5,000 rupees. A pays to B, and
B accepts, in satisfaction of the whole debt, 2,000
rupees paid at the time and place at which the 5,000
rupees were payable. The whole debt is discharged.

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EXCEPTIONS TO THE RULE “NO
CONSIDERATION, NO CONTRACT: [Section 25
of I.C. Act.]
The general rule is ‘ex nudo pacto non oritur
actio’, - [from a bare agreement no action lies]
i.e. an agreement made without consideration is
void (Section 25 of I.C. Act). But there are some
exceptions to this rule under sections 25, 63 and
185 of I.C. Act.
[Under English law, a contract under seal is
enforceable without consideration. A contract under
seal means a contract which is in writing and which
is signed, sealed and delivered].

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ESSENTIALS- Consideration
1. Natural love and affection: [Section 25 (1)]
A written and registered agreement based on
natural love and affection between near relatives is
enforceable even if there is no consideration.
Conditions:
1. Agreement in writing and registered;
2. Based on natural love and affection;
3. Between near relatives.
E.g. F, for natural love and affection, promises to
give his son S, Rs. 10,000/-. F puts his promise to S
into writing and registers it. This is a contract.
Case: Rajlukhy Dabee V. Bhootnath Mookerjee-(1900)-
Case: Bhiwa V. Shivaram-(1899) 1 Bom LR 495.

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2. Compensation for past voluntary services: [Sec. 25 (2)]-
A promise to compensate, wholly or in part, a person
who has already voluntarily done something for the
promisor, is enforceable. In other words, a promise to
pay for a past voluntary service is binding.
E.g. A finds B’s purse and gives it to him. B promises
to A to give Rs. 50/-. This is a contract.
In order to attract this exception, it is necessary that
the service should have been rendered voluntarily and
also for the promisor.
3. Promise to pay a Time-barred debt: [Sec. 25 (3) ]- A
promise by a debtor to pay a time-barred debt is
enforceable provided it is made in writing and is signed
by the debtor or by his agent generally or specially
authorized in that behalf. The promise may be to pay the
whole or any part of the debt. The debt must be lawful
one.
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4. Completed Gift: (Explanation 1 to section 25)
Explanation 1.-Nothing in this section shall affect
the validity, as between the donor and donee, of any
gift actually made.
5. Agency: [section 185 of I.C. Act)- No consideration is
necessary to create an agency.
6. Section 63 of I.C. Act: Promisee may accept any
satisfaction instead of the performance of the proposal
which he thinks fit.

72