Law

06 February 2025 12:42

The Indian Contract Act governs how contracts are formed, executed, and enforced in
India. It lays down the legal framework to ensure fairness and enforceability in agreements.
Key Topics Covered
1. Definition of a Contract (Sec. 2(h))
○ A contract is an agreement enforceable by law.
○ Agreement = Offer + Acceptance + Consideration
2. Essential Elements of a Valid Contract
○ Offer & Acceptance (Sec. 2(a) & 2(b))
○ Intention to Create Legal Relations (Balfour vs. Balfour)
○ Lawful Consideration (Sec. 2(d))
○ Capacity to Contract (Sec. 11) – Minors, Unsound Persons, etc.
○ Free Consent (Sec. 14) – Coercion, Undue Influence, Fraud, Misrepresentation,
Mistake
○ Legality of Object (Sec. 23) – Agreements that are illegal or against public policy
are void.
○ Possibility of Performance (Sec. 56)
3. Types of Contracts Based on Enforceability
○ Valid Contract: Fulfills all legal conditions.
○ Void Contract: Lacks legal enforceability (e.g., contract with a minor).
○ Voidable Contract: Can be canceled by one party due to coercion, fraud, etc.
○ Illegal Contract: Involves unlawful acts (e.g., contract for smuggling).
○ Unenforceable Contract: Legally valid but lacks proper documentation.
4. Offer and Acceptance
○ Offer must be clear and communicated (Lalman Shukla vs. Gauri Dutt).
○ Offer can be general or specific (Carlill vs. Carbolic Smoke Ball Co.).
○ Counteroffer cancels the original offer (Hyde vs. Wrench).
○ Acceptance must be communicated (Sec. 4).
5. Consideration (Sec. 2(d))
○ "Quid Pro Quo" – Something in return for a promise.
○ Can be past, present, or future but must be lawful.
○ Without consideration, a contract is void (except for exceptions under Sec. 25).
6. Capacity to Contract (Sec. 11 & 12)
○ Minors: Cannot contract (Mohori Bibee vs. Dharmodas Ghose).
○ Unsound Mind: Can contract only when of sound mind.
○ Other Disqualified Persons: Alien enemies, convicts, etc.
7. Free Consent (Sec. 14-19)
○ Coercion (Sec. 15): Forcing someone into a contract (e.g., threatening harm).
○ Undue Influence (Sec. 16): Taking unfair advantage due to a dominant position.
○ Fraud (Sec. 17): Intentional deception to induce a contract.
○ Misrepresentation (Sec. 18): False statements made without intent to deceive.
○ Mistake (Sec. 20-22): Can be unilateral or bilateral. Bilateral mistakes make a
contract void.
8. Performance and Discharge of Contracts
○ Performance: Actual vs. Attempted.
○ By Agreement: Novation, Rescission, Alteration, Waiver.
 ○ By Impossibility (Sec. 56): Taylor vs. Caldwell – Contract becomes void if
performance is impossible.
○ By Breach: Actual or Anticipatory Breach.
9. Remedies for Breach of Contract
○ Rescission: Canceling the contract.
○ Damages (Hadley vs. Baxendale): Monetary compensation for loss.
○ Quantum Meruit: Payment for work done before breach.
○ Specific Performance: Court orders a party to fulfill the contract.
○ Injunction: Stops a party from doing something against the contract.

2. Sale of Goods Act, 1930

This act governs the sale and purchase of goods, defining rights, liabilities, and obligations
of buyers and sellers.
Key Topics Covered
1. Definition of "Goods" (Sec. 2(7))
○ Movable property except money and actionable claims.
○ Includes stocks, shares, crops, etc.
2. Types of Goods
○ Existing Goods: Owned and possessed by the seller.

Specific Goods (Clearly Identified)
 Ascertainable Goods (Identified Later)
 Unascertainable Goods (Part of Bulk)
○ Future Goods: Goods that will be acquired in the future.
○ Contingent Goods: Goods dependent on a condition (e.g., ship arrival).
3. Doctrine of Caveat Emptor ("Buyer Beware") (Sec. 16)
○ Buyer must check goods before purchase.
○ Exceptions:

Misrepresentation by the seller.
 Buyer relies on seller’s expertise.
 Sale by description/sample.
 Goods must be of merchantable quality.
4. Sale vs. Agreement to Sell (Sec. 4)
○ Sale: Ownership is transferred immediately.
○ Agreement to Sell: Ownership transfers later, subject to conditions.
5. Transfer of Ownership (Sec. 18-25)
○ Ownership passes when intended by both parties.
○ Specific goods transfer immediately upon contract.
○ Unascertained goods transfer when set aside for the buyer.
6. Rights of an Unpaid Seller (Sec. 45-54)
○ Right to Lien: Retain goods until payment.
○ Right to Stop Transit: Stop delivery if the buyer is insolvent.
○ Right to Resell: If the buyer defaults.
○ Right to Sue for Price or Damages: If payment is not made.
7. Breach of Contract and Remedies
○ Buyer’s Remedies

Right to sue for damages.
 Right to reject defective goods.
○ Seller’s Remedies

Right to sue for price.
 Right to resell goods.
 8. Conditions vs. Warranties (Sec. 12-17)
○ Condition: Essential to contract (breach allows contract termination).
○ Warranty: Secondary term (breach allows for damages but not termination).
9. Implied Conditions in a Sale
○ Condition as to Title: Seller has legal ownership.
○ Condition as to Description: Goods must match description.
○ Condition as to Merchantability: Goods should be fit for sale.
○ Condition as to Sample & Description: Bulk must match both.
10. Implied Warranties in a Sale
• Warranty of Quiet Possession: Buyer can use goods without interference.
• Warranty of Freedom from Encumbrances: Goods should not be pledged or
mortgaged.
11. Resale and Insolvency Rules
• In a Sale, the seller cannot resell without consequences.
• In an Agreement to Sell, the seller can resell if the buyer defaults.

Key Takeaways
• Indian Contract Act, 1872 ensures that contracts are legally binding and enforceable,
focusing on essential conditions like offer, acceptance, consideration, and remedies
for breach.
• Sale of Goods Act, 1930 deals with contracts involving movable goods, defining buyer-
seller rights, ownership transfer, and breach-related remedies.

Law/Case Year Relevance/Applicability

Indian Contract Act 1872 Governs the formation, execution, and enforcement of
contracts in India. Ensures agreements are legally
binding.
Mohori Bibee vs. Dharmodas 1903 A minor’s contract is void; a minor cannot be bound by
Ghose a contract.
Balfour vs. Balfour 1919 Intention to create legal relations—social agreements
are not enforceable as contracts.
Lalman Shukla vs. Gauri Dutt 1913 Communication of offer—A person cannot claim a
reward without prior knowledge of the offer.
Carlill vs. Carbolic Smoke 1893 A unilateral contract is valid if performance of the act
Ball Co. constitutes acceptance.
Pharmaceutical Society of GB 1953 Display of goods in a store is an invitation to treat, not
vs. Boots Cash Chemists Ltd an offer.
Taylor vs. Caldwell 1863 Doctrine of frustration—A contract is void if
performance becomes impossible due to unforeseen
events.
Hadley vs. Baxendale 1854 Damages for breach—Compensation is only awarded
for foreseeable losses.
Krell vs. Henry 1903 Frustration of contract—When an unforeseen event
destroys the purpose of a contract.
Hyde vs. Wrench 1840 Counteroffer cancels the original offer, which cannot
 be later accepted.

When These Cases Apply:

Contractual Disputes: The Indian Contract Act applies when determining the validity and
enforcement of contracts.
Contracts Involving Minors: The Mohori Bibee case applies when one party is a minor,
making the contract void.
Intent to Create Legal Relations: The Balfour case applies when determining if a social or
domestic agreement should be legally enforceable.
Communication of Offers: The Lalman Shukla case applies when there is a dispute
regarding offer and acceptance.
Unilateral Contracts: The Carlill case applies when a party performs an act in response to a
general public offer.
Retail Transactions: The Boots case applies to disputes about when a sale is completed in
self-service stores.
Impossibility of Performance: The Taylor case applies when unforeseen circumstances
make contract performance impossible.
Breach of Contract Damages: The Hadley case applies when assessing how much
compensation a non-breaching party can claim.
Frustration of Purpose: The Krell case applies when an event destroys the fundamental
purpose of a contract.
Effect of Counteroffers: The Hyde case applies when a party modifies an offer and later
tries to revert to the original.