INDIAN CONTRACT ACT, 1872

Subject Matter

Relevant Section

Key Issue

Citation Details

Summary Judgment

Proposal

Section 2: This section is the definition clause, in which 'Proposal' is defined as an offer made by one person by showing his wish to do or not to do something and taking the consent for it of other person to whom such offer is made.

Whether the sale was completed at the shelf when the goods were selected, or at the cash desk?

The Pharmaceutical Society of Great Britain vs. Boots Cash Chemists (Southern) Ltd. (05.02.1953 - UKWA): MANU/UKWA/0122/1953

Facts: The defendants operated a self-service retail chemist shop. The customers took the items they required from the shelves, put them into a basket, and then took them to the cash desk. The pharmacist supervised the transaction at the cash desk. The issue in this case was whether the sale was completed at the shelf when the goods were selected, or at the cash desk.

Held: It was held that the display of articles is merely an invitation to treat and not an offer. The shopkeeper has the right to accept or reject the same.

Communication of Proposal

Section 2(a): defines proposal;

Section 2(b): defines promise;

Section 2(d): defines consideration

Can there be a contract if the other party has no knowledge of the offer?

Lalman Shukul vs. Gauri Dat (17.04.1913 - ALLHC): MANU/UP/0388/1913

Facts: Defendant's nephew had gone missing. Many servants were sent to look for him. Later a price of Rs.501 was also announced. However the servant who found the boy did not know about the reward. Few months later when he was terminated, he filed a suit for the reward money.

Held: There can be no acceptance unless there is knowledge of an offer. Though it was not the duty of the Plaintiff as a servant to search for the missing boy yet, having undertaken the task before the offer, he was bound to perform it and, therefore, his search for the boy could not be regarded as a consideration of the Defendant's promise.

Acceptance by Silence

No relevant section

Can silence of the offeree be treated as acceptance?

Paul Felthouse vs. Bindley (18.07.1862 - ENRP): MANU/ENRP/2298/1862

Facts: Felthouse wanted to buy a horse from his nephew. He wrote him a letter stating the amount he was willing to pay and that if he does not recieve a reply, he'd consider the horse sold to him. The nephew couldn't reply to the lettter. Later when an employee of the nephew sold the horse to somebody, Felthouse filed a case against him for breaching his contract and selling his horse.

Held: Felthouse did not have ownership of the horse as there was no acceptance of the contract. Acceptance must be communicated clearly and cannot be imposed due to silence of one of the parties.

Bailment

Section 148: defines bailment as the delivery of goods from one person to another under a contract for a specific purpose. The goods are to be returned after the purpose is accomplished.

Under bailment, are custody and possession different?

Kaliaperumal Pillai vs. Visalakshmi Achi (13.08.1937 - MADHC): MANU/TN/0329/1937

Facts: A woman gave some gold to a goldsmith for making jewellery. Every evening she used to visit the jeweller, take the unfinished jewels, lock them in a box and take the keys with her while leaving the locked box with the jeweller. One morning when she came back, the jewellery was missing from the box.

Held: Even though the physical custody of the box was with the jeweller, it is not the same as possession. Since the lady used to take the keys with herself, the jewels will be considered to be in her possession for the night.

Bailment

Section 148: provides that the delivery of goods from one person to another to qualify as bailment has to be under a contract.

Can there be bailment without contract?

Ram Gulam and Ors. vs. Government of U.P. (22.08.1949 - ALLHC): MANU/UP/0079/1950

Facts: The plaintiffs' ornaments were stolen. When they were seized by the police from somebody else's house, they were kept in the Collectorate Malkhana as stolen property. From there, the ornaments were stolen again and could not be traced. Plaintiffs sued the government.

Held: There was no contract of bailment between the plaintiff and the government. The ornaments were never handed over to them by the plaintiffs. Hence, the government is not liable to indemnify the plaintiffs.

Responsibility of Bailee

Section 152: provides that the bailee is not responsible for any damage caused to the goods despite taking due care.

Is the bailee liable for damage caused to the goods in their possession even though the cause of damage was outside their control?

Gopal Singh Hira Singh vs. Punjab National Bank and Ors. (17.07.1975 - DELHC): MANU/DE/0005/1976

Facts: The plaintiffs sued the defendants for recovery of the value of goods that they had pledged with the defendants' in erstwhile Pakistan. The defendants were claiming that the goods got destroyed in the riots following the partition of India and Pakistan.

Held: In the extraordinary situation that developed after the partition, the entire staff fled to protect their lives and left the property of the banks and other institutions uncared for. These properties were mercilessly looted or we subjected to the reason, fire and other modes of destruction. Therefore, it cannot be said that the bank failed to take such care of the goods as a person of ordinary prudence would have taken of his own.

Indemnity

Section 124: deals only with indemnity wherein the loss is caused by the indemnifier;

Section 125: deals only with the rights of the indemnity-holder in the event of his being sued.

When does the liabilty of the indemnifier arise?

Gajanan Moreshwar Parelkar vs. Moreshwar Madan Mantri (01.04.1942 - BOMHC): MANU/MH/0039/1942

Facts: The plaintiff mortgaged a property at the request of the defendant. therefore, the defendant is liable to indemnify the plaintiff in respect of all liability under the mortgage and the deed of further charge. Defendant's counsel argued that the cause of action arises when the damage which the indemnity is intended to cover is suffered, and a suit brought before actual loss accrues is premature.

Held: An indemnity might be worth very little if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he had satisfied the judgment that he could sue on his indemnity. Therefore, if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off.

Continuing Guarantee

Section 130: lays down that continuing guarantee can be revoked at any time by giving notice to the creditor;

Section 131: pertains to revocation of continuing guarantee in case of surety's death.

Does a contract of guarantee continue even after the death of the surety?

Durga Priya Chowdhury vs. Durga Pada Roy and Ors. (24.03.1927 - CALHC): MANU/WB/0075/1927

Facts: A man when signed the contract to be someone's surety, he also agreed to make his legal heirs bound by the contract after his death.

Held: Unless there is any contract to the contrary, the death of the surety operates as a revocation of a continuing guarantee. In the instant case, there was a clear clause in the contract, binding the heirs.

Proposal

Section 2: This section is the definition clause, in which 'Proposal' is defined as an offer made by one person by showing his wish to do or not to do something and taking the consent for it of other person to whom such offer is made. If the person to whom the offer was made gives his consent or approval to such offer, then the proposal or offer becomes a promise.

Whether quotation of price is an offer?

Harvey and another v Facey and others (Jamaica) (29.07.1893 - ): MANU/UKPC/0001/1893

Facts: The parties in this case were negotiating for the sale and purchase of a property owned by Respondents. Harvey and Anor asked Facey if he would sell them the property and the minimum price at which Facey would sell it. In response, Facey stipulated his minimum price for the property, but he was silent as to whether he was ready to sell the property to Harvey and Anor. Harvey and Anor sent Facey a telegram in which they agreed to pay Facey the stipulated price. Harvey and Anor regarded this telegram as obligating Facey to sell them the property at that price. When Facey attempted to sell the property to other buyers, Harvey and Anor accused Facey of breaching their contract and sued Facey for specific performance.

Held: The court held that quotation of price is not an offer and therefore no binding contract happened between the parties.

Acceptance by performing conditions, or receiving consideration

Section 8: The performance of any condition by the acceptor mentioned in the proposal and also, the acceptance of any consideration which is offered with a proposal implies the acceptance to such proposal.

Whether the offer was merely an invitation to treat and not a contract?

Carlill vs. Carbolic Smoke Ball Company (07.12.1892 - UKWA): MANU/UKWA/0001/1892

Facts: A medical firm advertised that its new wonder drug, a smoke ball, would cure people's influenz flu, and if it did not, buyers would receive 100. The aggreived bought the defendants product and used it in the manner as presecribed by the product. After some days she again got flu. When sued, Carbolic argued the ad was not to be taken as a serious, legally binding offer. It was merely an invitation to treat, and a gimmick.

Held: It was held that while making an offer, the offer or expressly or impliedly indicated that there is no need of intimating acceptance to the said offer and only performance of the conditions of offer would be enough to result in valid contract.

Persons competent to contract

Section 11: A person can be capable of entering into a contract if he is of the age of majority i.e. 18 years and is of sound mind and is not subjected to any disqualification under any law.

Whether contracts with minor are valid or not?

Mohori Bibee and another vs. Dharmodas Ghose (04.03.1903 - PRIVY COUNCIL): MANU/PR/0049/1903

Facts: The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favour of the defendant, Brahmo Dutt, who was a moneylender to secure a loan of Rs. 20,000. The actual amount of loan given was less than Rs. 20,000. The plaintiff brought an action against the defendant stating that he was a minor when the mortgage was executed by him and, therefore, mortgage was void and inoperative and the same should be cancelled.

Held: Court held that agreements with minor are void-ab-initio.

Agreement without consideration

Section 25: If any agreement is formed without consideration it will be void. But, if the consideration is based on natural love and affection or a promise has been made to compensate, promise to pay a part of payment, then such an agreement is a contract. This section will not affect the validity of any gift made b y the donor to the donee. And also, the agreement in which the consideration is not proper and the consent is freely given, it will not be void.

Whether a contract is enforceable if consideration for the promise had not moved at the desire of the promisor?

Durga Prasad vs. Baldeo and Ors. (31.03.1880 - ALLHC): MANU/UP/0115/1880

Facts: The petitioner had constructed some shops at the market with the promise of paying commissions on the sales made at his shop. The respondent spent some money for the improvement of the condition of the market on the authority of the government. Later, the petitioner denied to pay the respondent with the commission.

Held: It was held that since the consideration for the promise had not moved at the desire of the promisor, the same was not sufficient to support the promise.

Effect of accepting performance from third person

Section 41: When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

Whether there as any contract between the plaintiff and the defendant?

DUNLOP PNEUMATIC TYRE COMPANY, LIMITED vs. SELFRIDGE AND COMPANY, LIMITED (26.04.1915 - UKHL): MANU/UKHL/0001/1915

Facts: Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price . As part of the agreement, Dunlop also required their dealers to gain the same agreement with their retailers, who in this instance was Selfridge. This was agreed between the dealer and Selfridges, which effectively made Dunlop a third-party to that agreement. Sometime after this, Selfridge sold the tires below the agreed price and Dunlop sued for damages and an injunction to prevent them from continuing this activity.

Held: The court applied the doctrine of privity of contract and held that there was no contract between the plaintiff and defendant and hence the plaintiff cannot sue the defendants for breach of contract.

Agreement without consideration

Section 25: If any agreement is formed without consideration it will be void. But, if the consideration is based on natural love and affection or a promise has been made to compensate, promise to pay a part of payment, then such an agreement is a contract. This section will not affect the validity of any gift made b y the donor to the donee. And also, the agreement in which the consideration is not proper and the consent is freely given, it will not be void.

Whether the plaintiff and all other persons interested can sue the defendant for payment of the amount subscribed?

Kedarnath Bhattacharji vs. Gorie Mahomed (26.11.1886 - CALHC): MANU/WB/0012/1886

Facts: Plaintiff being the commissioner of Howrah and one of the trustees of the Howrah town hall fund, contemplated that if the necessary amount is raised by the way of subscription, they would build the town hall. The subscribers of the fund, while promising the money, undertook that in pursuance of the commissioner entering into a contract for erecting the building, they are paying a certain amount. After certain amount was raised, the plaintiff entered into a contract with the contractors for building the hall. One of the subscribers, who had promised to pay Rs.100 refused to pay and plaintiff sued. Question was whether the plaintiff and all other persons interested can sue the defendant for payment of the amount subscribed.

Held: The Court held that an act done at the promisor's desire is good consideration for his promise even if it is of no significance or benefit to him. Hence, the plaintiff and other persons interested could sue for the amount subscribed and defendant has to pay the money promised.

Agreement to do impossible acts

Section 56: This section provides that the agreement becomes void when the performance of the act becomes impossible or unlawful.

Whether the defence of frustration of contract be taken where there is merely delay in performance of contractual duties?

Satyabrata Ghose vs. Mugneeram Bangur and Comapny and Ors. (16.11.1953 - SC): MANU/SC/0131/1953

Facts: The plaintiff sued the defendants for wrongfully repudiating the contract of developing the lands which were sold to the plaintiff, and asked for specific performance of the same. Defendant took the defence of frustration as the lands which needed to be developed were temporarily requisitioned by the Govt. under the defence rules such that for unspecified period of time, any development work if executed on the land would be illegal. The contract was made at a time when war conditions were prevailing and any such requisition was imputed to be in contemplation of the parties while forming contract. Further, no time was specified in the contract.

Held: The court held that the doctrine of frustration is applicable in contracts where performance of the act becomes unlawful or impossible thereby upsetting the object of the contract. However, in this case the doctrine does not apply as there was a mere delay in the performance of contract.

Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises

Section 54: This section explains that reciprocal promises are conditional and dependent.

Whether reciprocal promised are conditional?

Nathulal vs. Phoolchand (16.10.1969 - SC): MANU/SC/0492/1969

Facts: The plaintiff was the owner of a ginning factory constructed on an agricultural land and nominally held in the name of his brother. He sold the factory to the defendant who paid half the price at once and was put in possession, the balance being payable on a fixed date. The buyer defaulted in paying up on that date and the seller rescinded the contract and brought an action for possession.

Held: Supreme Court held that when a certain act for the performance of the contract has been decided by the parties, that has to be considered taking into account if that particular party is ready and willing to perform his part of the contract or not.

Considerations or objects of a valid agreement

Section 23: An agreement or contract is void if its purpose is the commission of an illegal act or it is expressly or impliedly prohibited by any law or its performance is not possible without disobedience of any law.

Validity of unreasonable clauses in a service agreement?

Central Inland Water Transport Corporation Limited and Ors. vs. Brojo Nath Ganguly and Ors. (06.04.1986 - SC): MANU/SC/0439/1986

Facts: Plaintiffs worked in a company which was dissolved by Court's order and they were then inducted into defendant Corporation upon latter's terms and conditions. After years of serving Corporation, plaintiffs were arbitrarily kicked out of the Corporation by virtue of Rule 9(i) of said terms and conditions which provided for termination of employees' services on three months notice on either side upon which three months salary to be paid by Corporation. Plaintiffs requested Court to quash Rule 9(i) on grounds of unconscionability.

Held: Supreme Court held that unreasonable clauses in a service agreement between persons having gross inequality of bargaining power was wholly unreasonable and was against the public policy.