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Important Case Laws of the Indian Contract Act, 1872

Introduction to the Indian Contract Act, 1872

A contract is an agreement between two or more parties, to perform a specific job or work order, often temporary or of fixed duration, and usually governed by a written agreement. In the legal language, the term ‘Contract’ can be defined as an agreement that the law will enforce in some way. It is legally binding and must contain at least one promise i.e., a commitment or offer, by an offeror to and accepted by an offeree to do something in the future. It is executory rather than executed. 

The Indian Contract Act, 1872 was formulated in the year 1872 by the British Government. It frames and validates all agreements between various parties to it. It contains all the provisions relating to the contract laws in India. 

Definition of Contract

Section 2(h) of the Indian Contract Act, 1872 defines the term ‘Contract’ as- “An agreement enforceable by law is a contract.”

Case Laws

Balfour vs. Balfour

This case was filed by Mrs. Balfour against her husband Mr. Balfour. They both lived in Ceylon and went to England for a holiday. During the holidays, Mrs. Balfour became ill and was advised by the doctors to stay back in England and not return to Ceylon. Thus, due to work pressure husband goes back to Ceylon leaving his wife back in England. An arrangement was made between them that Mr. Balfour will provide Mrs. Balfour with Rs. 30 every month as an allowance. For a few months, this arrangement was concrete but due to some differences they got separated and Mr. Balfour stopped sending Rs. 30 as an allowance to Mrs. Balfour. The Court dismissed this case and held that there can be numerous arrangements and agreements between two individuals but not all agreements or arrangements are contracts.

Lalman Shukla vs. Gauri Datt

In this case, the plaintiff, Lalman Shulka is the servant of Gauri Datt, the defendant. The nephew of Gauri Datt flees from the house so Gauri Datt orders Lalman Shukla to go and search for his nephew. When the plaintiff was away searching for the defendant’s nephew then the defendant announced that whoever brings back his nephew will be awarded Rs. 501/-. The plaintiff has no information about the announcement and was successful in finding the nephew of the defendant. Later, after the announcement of the reward Rs. 501/- is known to him he wants to claim that amount and files a suit.
The Court dismissed the case and held that the reward can only be claimed when there is a contract between the parties but when the plaintiff had no knowledge of the offer then there is no acceptance of it and when there is no acceptance of an offer then there is no contract between the parties. Moreover, in this case, it was the duty of the plaintiff to bring back the nephew, and hence no reward will be given to him.

Carlill vs. Carbolic Smoke Ball

In this case, Carbolic Smoke Ball is a company that makes an advertisement for its product ‘Carbolic Smoke Ball’ which states that if any individual uses its product as per the description and still is infected by influenza or cold then they will give Rs. 100/- to them. Then a lady, Carlill starts to use the product as per the description and still catches influenza and thus demands Rs. 100/- from the company and files a suit.

The counter-arguments given by the company was that firstly, the offer given by them is vague as there is no specific time limit. Secondly, there was no intention to enter into a legal obligation with the plaintiff. Thirdly, their offer was not with a particular individual nor any acceptance was communicated by the plaintiff to them. And lastly, there is no consideration.

The Court held that this is not a vague offer but it is a definite offer as the company has itself stated that while using their product if they are infected with any disease then they can claim Rs. 100/-.it further stated than there is no need to communicate the acceptance of the offer it is made to the public at large and if any individual satisfies all the conditions stated wherein. Thus, the performance of the conditions is sufficient acceptance without notification. Held, the plaintiff will be given the reward of Rs. 100/-.

Mohiri Bibee vs. Dharmodas Ghose

In this case, Brahmodatt is a money lender and Kedarnath is his agent who works under him. Dharmodas Ghose is a minor who mortgages his land to Brahmodatt for Rs. 20,000/-. In the first installment, Kedarnath gives Rs. 10,500 to Dharmodas Ghose. When the mother of Dharmodas Ghose receives information about this arrangement between Kedarnath and Dharmodas Ghose she writes a letter to Kedarnath that when this arrangement was made then Dharmodas Ghose was a minor and thus this arrangement shall be cancelled. On this Kedarnath demanded the money given to Dharmodas Ghose and filed a suit. Till the time the case reached Supreme Court Kedarnath died and it was filed by his wife Mohiri Bibee.

The argument given was that as per Section 64 of the Indian Contract Act, 1872 and Section 65 of the Indian Contract Act, 1872 if any contract is void or voidable then the benefits received by both parties have to restore. Then they relied on Section 41 of the Specific Relief Act, 1963 that stated that is an instrument is cancelled then the court can intervene and ask the party to compensate the benefits received.

The Supreme Court cancelled this contention and stated that Section 64 of the Indian Contract Act, 1872 and Section 65 of the Indian Contract Act, 1872 is not applicable here because it states that there has to be a contract and here there was no contract as one party is minor. By taking into consideration Section 41 of the Specific Relief Act, 1963 the Court held that as Brahmodatt and Kedarnath both knew that the other party is a minor thus, they should not receive any compensation.

Chinnaya vs. Ramayya

This case is a leading case for the ‘Privity of Contract’. Privity of Contract means that a stranger cannot sue in a contract. In this case, an old lady owns the land. A part of that land she gives it to her sister. After some time that lady gifts that land to her daughter on the condition that her daughter will pay Rs. 653/- as an annuity to the old lady’s sister. The daughter agrees to the condition and signs to it but later does not pay it and thus a suit was filed by the old lady’s sister. Here, Chinnaya is the old lady’s sister and Ramayya is the old lady’s daughter.

The argument given by Ramayya is that the estate received by her is a gift and she has no contract with Chinnaya then she has no obligation to pay.
The Supreme Court held that the gift deed and the annuity agreement are both simultaneous agreements and both can be considered as one transaction and thus, consideration has to be paid by Ramayya to Chinnaya.
Hence, Balfour v. Balfour, Lalman Shukla v. Gauri Datt, Carlill v. Carbolic Smoke Ball, Mohiri Bibee v. Dharmodas Ghosh, Chinnaya v. Ramayya is the most important case laws of the Indian Contract Act, 1872.


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Author: Sneha Mahawar from Ramaiah Institute of Legal Studies.

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