Sri Raghavendra Prasidathu

Introduction
Law is a body of principles recognised and applied by the state in the
administration of justice – Salmond.
“Ignorantia juris not excusat” – Ignorance of law is not an excuse.

The Indian Contract Act

The law relating to the contracts agreements is contained in the The Indian
Contract Act 1872. The Act is divided into
(1) Sections 1-75 dealing with general principles of law.

(2) Sections 124-238 some Special contracts.

124-147 – Indemnity of Guarantee

148-181 – Bailment & Pledge.

182-238 – Contract of Agency.

A contract is an agreement made between two or more persons which the law
will enforce.

Sec 2(h) of ICA – defines contract as an agreement

enforceable by law.
A contract is an agreement exacting and defining obligations between the parties
– Salmond.
Whenever an offer is accepted it becomes an agreement.
Offer is proposal, and it is defined as “Whey one person signifies to another, his
willingness to do or to abstain from doing anything, with an intention to obtain the
consent of other person, he is said to make a proposal (offer).
“Agreement = Offer + Acceptance”

Legal enforceability – contract.

 “An agreement is defined as every promise and every set of promises forming
consideration for each other.”

Offer is said to be accepted when there is “Consensus ad idem” i.e there must be
agreement in the same sense at the same time.
Eg. A owns two cars maruthi esteem and maruthi 800. He offers to sell his car to
B. B gives consent to purchase Maruthi Esteem. Here there is no consensus ad idem.
A invites B to dinner and B accepts to attend the dinner. When B reaches A’s
home, A will not be there and B has to incur expenditure. In this case B cannot file a suit
against A as it is a social agreement and not legally enforceable.
All contracts are agreements but all agreements are not necessity contracts.
A contract may be classified as valid, void and voidable depending on the
validity.
Valid contract : A contract is valid when all the essential elements of a valid
contract are present. If any one of the essential elements is not present the contract is
either voidable, void or illegal or unenforceable.
Viodable contract : 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. Sec 2(g)
Eg. : A promises to sell his car to B for Rs. 50,000. B’s consent is obtained by
Fraud. The contract is voidable at the option of A. He may avoid the contract or elect to
be bound by it.
The requisites of a valid contract
According to Sec. 10, 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 expressly declared to be void. In order to become a contract, an
agreement must have the following essential elements.

1. Offer and acceptance : This involves two parties one party making the offer
and the other party accepting it. The terms of the offer must be definite and the
acceptance of the offer must be absolute and unconditional. The acceptance must also
he according to the mode prescribed and must be communicated to the offeror.
2. Intention to create legal relationship : When the two parties enter into an
agreement, their intention must be to create legal relationship between them. If there is
no such intention on the part of the parties, there is no contract between them.
Agreements of a social or domestic nature do not contemplate legal relations. As such,
they are not contracts.
3. Lawful consideration : The agreement to be enforceable by law must be
supported by consideration. ‘Consideration’ means an advantage or benefit moving
from one party to the other. It is the essence of a bargain. In simple words, it means
something in return. The agreement is legally enforceable only when both the parties
give something and get something in return. A promise to do something, getting nothing
in return, is usually not enforceable by law. Consideration need not necessarily be in
cash or kind. It may be an act or abstinence (refraining from doing something) or
promise to do or not to do something. It may be present or past.
4. Capacity of parties-Competency : The parties to the agreement must be
capable of entering into a valid contract. Every person is competent to contract if he (a)
is of the age of majority. (b) is of sound mind and (c) is not disqualified from contracting
by any law to which he is subject (Secs. 11 & 12). Flaw in capacity to contract may arise
from minority, lunacy, idiocy, drunkenness etc., and status. If a party suffers from any
flaw in capacity, the agreement is not enforceable except in some special cases.
5. Free and genuine consent – It is essential to the creation of every contract that
there must be a free and genuine consent of the parties to the agreement. The consent
of the parties is said to be free when they are of the same mind on all the material terms
of the contract. The parties are said to be of the same mind when they agree about the
subject-matter of the contract in the same sense and at the same time (Sec.13). There
is absence of free consent if the agreement is induced by coercion, undue influence,
fraud, misrepresentation, etc. (Sec. 14).

6. Lawful Object : The object of the agreement must be lawful. In other words, it
must not be (a) illegal. (b) immoral, or (c) opposed to public policy (Sec. 23). If an
agreement suffers from any legal flaw, it would not enforceable by law.
7. Agreement not declared void : The agreement must not have been
expressly declared void by any law in force in the country. (Sec. 24 to 30 and 56).
8. Certainty and possibility of performance : The agreement must be certain
and not vague or indefinite (Sec. 29). If it is vague and if it is not possible to ascertain its
meaning, it cannot be enforced.
The terms of the agreement must also be such as are capable of performance.
An agreement to do an act impossible in itself cannot be enforced [Sec. 56(1)]. For
example, where A agrees with B to put life into his dead wife, the agreement is void as it
is impossible of performance.
9. Legal Formalities : A contract may be made by words spoken or written. As
regards the legal effects. There is no difference between a contract in writing and a
contract made by word or mouth. It is, however, in the interest of the parties that the
contract should be in writing. In some cases, the documents in which the contract is
incorporated is to be stamped. In some other cases, a contract, besides being a written
one, has to be registered.
If any one of the essential elements are absent, the contract becomes void.
Void Contract : A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable Sec. 2(f).

A contract may be initially valid but subsequently it become void.

 Eg. : A contract to import goods from a foreign country. When these countries
discontinues the Trade relations, the contract becomes void.
But the contract initially cannot be void. It can be a void agreement. A void
agreement not enforceable by law is void Sec.
:
Classification of contracts :
Express
According to Formation Implied
Quasi

Valid
Void
Validity Voidable
Illegal
Unenforceable

Executory
Performance
Executed
Questions :
Define (1) Contract
(2) Void Contract
(3) Voidable contract
(4) Valid contract
(5) Void agreement
(6) Illegal contract
(7) Unenforceable contract
(8) Executed contract
(9) Executory contract
(10) Express contract
(11) Implied contract

OFFER
An offer is a primary requirements of a valid offer. An offer is a proposal by one
party to another to enter into a legally binding agreement i.e., contract.
 Sec 2(a) of ICA – states as “When one person signifies to another his willingness
to do or to abstain from doing anything, with a view to obtain the assent of that other
person to such act or abstinance,” he is said to make a proposal.

Eg. : A writes to B, will you buy my Bajaj Scooter for Rs. 18,000/- ?
Here A signifies to B his willingness to sell his scooter with a view to get B’s
assent for the purchase of scooter.
A is making an offer to ‘B

Tender
A tender is also an offer and may either (a) a definite offer to supply specified
goods or services or (b) a standing offer.
Eg. : ABC and company invites tenders for the supply of one lakh bricks. PQ &R
submit the tenders. The company accepts P’s tender. There is a binding contract
between the company and P.
This is definite offer.
Standing offer : when goods or services are required over a certain period a
tracer invite tenders as a standing offer which is continuing offer.

CONSIDERATION
Consideration is what a promisor demands as the price for his promise. It is used
in the sense of quid pro quo which means ‘ something in return’. This ‘something may
be some benefit, right, interest or profit or it may also be forbearance, detriment, loss or
responsibility upon the other party.
It is defined as : When at the desire of the promisor
the prmisee or anperson
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 it called a consideration for the promise.
M agrees to sell his house to N for Rs. 10,000. Here N’s promise to pay the sum
of Rs. 10,000 is the consideration for M’s promise to sell the house, and M’s promise to
sell the house is the consideration for N’s promise to pay Rs. 10,000.
,

CAPACITY TO CONTRACT
Section 10 of the Contract Act the parties must be competent to contract. Competence
to contract is defined in Section 11.
Every person is competent to contract who is of the age of majority according to
the law to which he is subject, and who is of sound mind, and is not disqualified from
contracting by any law to which he is subject.
Thus the section declares the following persons to be incompetent to contract –
(1) minors, (2) persons of unsound mind, and (3) persons disqualified by law to which
they are subject.

A minor borrowed a sum of money executing a simple bond for it, and after
attaining majority executed a second bond in respect of the original loan plus interest.
It was held by a majority of two as against one that the suit upon the second
bond was not maintainable, as the bond was without consideration and did not come
under section 25(2) of the Contract Act.

FREE CONSENT
The expression “Free Consent” is defined in Section 14 :
Consent is said to be “free when it is not caused by.
(1) Coercion, as defined in Section 15, or
(2) Undue influence, as defined in Section 16, or
(3) Fraud, as defined in Section 17 or
(4) Misrepresentation, as defined in Section 18, or
(5) Mistake, subject to the provisions of Sections 20, 21 and 22.
Consent is said to so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation or mistake.

Agreements opposed to public policy

(1) Agreements by incompetent parties (Sec.11).
(2) Agreement made under a mutual mistake of fact (Sec. 20).
(3) Agreements the consideration or object of which unlawful (Sec. 23).
(4) Agreements the consideration or object of which unlawful in part (Sec. 24).
(5) Agreements made without consideration (Sec. 25).
 (6) Agreements in restraint of marriage (Sec. 26).
(7) Agreements is restraint of trade (Sec.27).
(8) Agreements is restraint of legal proceedings (Sec. 28).
(9) Agreements the meaning of which is uncertain (Sec. 29).
(10) Agreements by way of wager (Sec. 30).

(11) Agreements contingent on impossible events (Sec. 36).

(12) Agreements to do impossible acts (Sec. 56).
(13) In case of reciprocal promises to do things legal and also other things illegal,
the second set of reciprocal promises is a void agreement (Sec.57).
:

What is a contract of bailment

Bailment is defined in Section 148 of the Indian Contract Act,
1872 as, “A ‘bailment’ is the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when
the purpose is accomplished, be returned or otherwise disposed
of according to the directions of the person delivering them.” The
person who delivers the goods is called the ‘Bailor’ and the
person who receives the goods for the specific purpose is called
the ‘Bailee’. It is a special type of contract which is covered under
Chapter IX(Sections 148-171) of the Indian Contract Act, 1872.

There are two types of bailment.

 Gratuitous Bailment: Bailment without any consideration.

 Non-Gratuitous Bailment: Bailment with consideration.

Essentials features of a contract of bailment

Delivery of possession
For a purpose
Upon a contract
When the purpose is accomplished the goods be returned to the bailor
Or deliver to the person ordered by the bailor

Duties of the bailee:

1. To take reasonable care of goods as he takes care his own
goods .
2. Not use these goods for personal use.
3. Not to mix the goods with other without the permission of the
bailor
4. Not to set up adverse title
5. Duty to return the goods after accomplishment
6. To return any accretion to the goods

Duties of the Bailor

 1 Duty to disclose the known defects in the goods

2 Duty to indemnify the bailee

3 Duty to take back the goods

Finder of Goods becomes the implied bailee

Rights of the finder:

1. To be compensated for the expenses and trouble taken to keep

the goods safe and find the owner. (Section 168)
2. To sell the goods if:

1. The goods are of perishing nature.

2. The owner could not be found.

Taj Mahal Hotel v. United India Insurance Ltd., 2019

Facts of the case

In this case, on 01st August, 1998, a Maruti Suzuki Zen was parked in the
respondent’s hotel and the owner gave his car for the valet parking service.
When the owner returned to get his car back, he learned that his car was
stolen. A complaint against the thief was lodged but the car was nowhere to be
found. Respondent hotel’s valet parking service had stated that ‘parking of
vehicles was at the owner’s own risk inside and outside the hotel premises and
in case of theft, loss or damage the hotel will not be liable.’ The plaintiff
company paid a sum of Rs 2,80,000 to the car owner in order to settle the
insurance claimed by him. The plaintiff company sued the respondent hotel for
negligence.

Issues involved in the case

1. Whether this was a case of bailment?
2. Was the hotel liable for negligence under the law of bailment?
3. Was the car owner eligible for compensation due to the absence of
consideration between both parties?
Judgement of the Court
It was held by the supreme court that the theft of the car was a result of the
respondent’s negligence and the respondent would be liable. The supreme court
stated that the respondent cannot exclude its liability for negligence towards the
vehicle parked in the respondent’s parking. The consideration, in this case,
would be free parking to the customer for using the respondent’s services. It
can be inferred that if the general rule of bailment is applied, the bailee(hotel)
will be liable if there is a loss of goods(vehicle) due to its negligence.

Contract of pledge
Contract of pledge is a subset of a contract of bailment. Here, the
goods bailed are kept as a security for a debt or a performance of
a promise. Pledge is defined in Section 172 of the Indian Contract
Act,1872 as “The bailment of goods as security for payment of a
debt or performance of a promise is called ‘pledge’. The bailor is
in this case called the ‘pawnor’. The bailee is called ‘pawnee’.
Essential features of a contract of pledge
1,Delivery of possession\
2 Ownership cannot be transferred
3 Security against debt
4 Return of goods on repayment

Duties of the pawnor and the pawnee

Duties of the pawnor:
To compensate expenses
To repay the entire amount due along with interest
To disclose all the faults in the goods

Duties of the pawnee:

To take reasonable care of the goods

To return the goods after the pledged amount is returned by the pawnor
. To keep the goods separate
1. National Consumer Disputes Redressal
Commission (NCDRC): A national level court
functions for the whole country and deals
reimbursement claimed exceeds rupees one
crore. The National Commission is the top body
of Consumer Courts; it is also the highest
Appellate Court in the hierarchy.
2. State Consumer Disputes Redressal
Commission (SCDRC): A state-level court
functions at the state level with cases where
reimbursement claimed is above 20 lakh but up
to one crore. The State Commission has
Appellate jurisdiction over the District Forum.
 3. District Consumer Disputes Redressal
Forum (DCDRF): A district-level court functions
at the district level with cases where the
reimbursement claimed is up to 20 lacks.

At present, in India there are more than 620 District

Forums and more than 30 State Commissions. The
National Consumer Disputes Redressal Commission
(NCDRC) at the apex is located at Delhi.