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INDIAN CONTRACT ACT, 1872

Introduction:
Indian Contract Act, 1872 came in force on 1st September 1872. It is one of those laws which
are given by Britishers long back but still serve purpose and deals with almost all the aspects
related to any contract.

Contract: An agreement enforceable by law is called “Contract”. [ Sec. 2 (h)]

What makes any agreement enforceable by law is known as essentials of a valid contract.
They are as follows:

-Proper offer and acceptance

(The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom
the proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus, the
proposal when accepted becomes a promise.” After such proposal is accepted it becomes
promise.
E.g.; A offers to buy B’s car for rupees two lacs and B accepts such an offer. It’s a promise. An
offer does not create any legal obligations, but after the offer is accepted it becomes a promise.
And a promise is irrevocable because it creates legal obligations between parties. An offer can be
revoked before it is accepted. But once acceptance is communicated it cannot be revoked or
withdrawn.
Rules of valid acceptance:
: Acceptance can only be given to whom the offer was made)

-Intention to create a legal relationship

(It amounts to intention to be a party to a legal contract and enforce it legally. It can be seen
as the willingness and readiness of the parties to follow all of the obligations which accrue
out of that contract. Without an intention to create legal relation contract would not be
considered legal, enforceable, and binding. And thus, parties will not be able to sue each
other in case of a breach. To decide the presence of such intention, the court start with initial
presumptions depending upon whether the agreement is origination in domestic set-up or is it
purely a commercial transaction.)
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-Certainty of meaning
(Section 29 says; Agreements void for uncertainty. —Agreements, the meaning of which is
not certain, or capable of being made certain, are void. —Agreements, the meaning of which
is not certain, or capable of being made certain, are void.
Illustration:
: A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind of
oil was intended. The agreement is void for uncertainty.
: A agrees to sell B one hundred tons of oil of a specified description, known as an article of
commerce. There is no uncertainty here to make the agreement void.)

-Lawful consideration
Consideration means something in return. According to section 2(d) of the Indian
Contract Act “when at the desire of the promisor, 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.”
Example:
: A offers to sell his car to B for a sum of 1,00,000. B accepts the offer. In this
contract,
A is the promisor and it is his desire to sell his car for 1,00,000
B is promisee and on the desire of A he is purchasing the car for 1,00,000
The consideration for A’s promise is sum of 1,00,000 while consideration for B’s
promise is the car.
Because; both these elements, termed as consideration are not barred by any law in
force as being illegal, they can be treated as lawful consideration.
Essentials:
: It should be at the desire of the promisor only
: It can be past, present or future.
: It is not necessary that it must be adequate
: It must be real and not illusory or impossible
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-Necessary legal formalities

If all legal formalities are not carried out then the contract is not enforceable by law.
Example:
A promise to pay a time barred debt- must be in writing.

-Agreement not expressly declared void

The agreement should be such that it should be capable or being enforced by law. Certain
agreements have been expressly declared illegal or void by the law.

-Lawful object
S.23 of The Indian Contract Act talks about what is lawful object and what is not. The
consideration or object of an agreement is lawful, unless- It is forbidden by law; or is of such
a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or
involves or implies injury to the person or property of another; or the Court regards it as
immoral, or opposed to public policy. In each of these cases, the consideration or object of an
agreement said to be unlawful. Every agreement of which the object or consideration is
unlawful is void.

-Possibility of performance
According to s. 56 of the Indian Contract Act, An agreement to do an act impossible in itself
is void.
A contract to do an act which, after the contract is made, becomes impossible, or, by reason
of some event which the promisor could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful.
Example:
A agrees with B to discover treasure by magic. The agreement is void.

-Capacity of the parties

S. 11 of the Indian Contract Act enlists conditions, if present then only person can be a party
to contract or said to be holding the capacity to be a party to contract. They are as follows:
: Majority
In India the age of majority is regulated by the Indian Majority Act (Act IX of 1875). Every
person domiciled in India attains majority on the completion of 18 years of age.
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: Sound Mind
A person is said to be of sound mind for the purpose of making a contract if at the time when
it, he is capable of understanding it and of forming a rational judgement as to its effect upon
his interests.
A person who is usually of unsound mind but occasionally of sound mind may make a
contract when he is of sound mind. Similar is the case with a person who is generally of
sound mind but occasionally of unsound mind.
An agreement entered into by a minor is altogether void.

-Consensus -ad- idem

To make contract valid, there must be consensus ad idem or identity of minds in the sense
that parties have agreed about the subject matter of the contract at the same time and in the
same sense, as evidenced by offer and acceptance (Section 13)

-Free consent
S.14 of the Indian Contract Act defines consent. It says; it is when two or more persons agree
upon the same thing and in the same sense.
The said consent is called free when not given because of coercion, undue influence, fraud,
misrepresentation, or mistake.
Coercion:
According to S.15 of the Indian Contract Act, consent is not free but rather obtained by coercion
intimidation or threats are used to gain consent.
It makes contract voidable.

Undue Influence:
Consent is said to be obtained using undue influence when; one party to the contract is in a
position of trust and controls the other party wrongfully, such a person uses his dominant position
to gain an unfair advantage over the other.
Such relationship must be fiduciary in nature, meaning which is based on trust and confidence.

Fraud:
According to S.17 of Indian Contract Act, Fraud includes any of the following acts
committed by a contracting party or its connivance or its agent in order to deceive or induce a
party or its agent to enter into the contract:
The effective concealment of the fact by one who is aware of the fact,
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A promise made without intention to carry it out,

Any other fact deceiving other party,
Any other act or omission law recognises to be fraudulent.

Misrepresentation:
It is explained under S.18 of the Indian Contract Act as follows;
Misrepresentation means truth is misrepresented, it’s a release of deceiving details resulting
in the presumption that the other party will entre into a deal and then lose. Nevertheless, the
information provided by the guilty party is the result of a genuine belief in the matter.
Example:
‘A’ told ‘B’ that his radio is in good condition, because of the confidence he had in ‘A’, ‘B’
bought the radio from him. The radio did not work properly after some time, ‘B’ thought he
was misled by ‘A’, but ‘A’ believed his radio was in good condition and had no intention of
deceiving him. So, here misrepresentation is in the part of ‘A’, because he did not know that
the radio is not working properly.

CONTRACT= ACCEPTED PROPOSAL+ENFOCIABILTY BY LAW

Thus, we can say that “contract” is a promise or set of reciprocal promises, which are seen as
legal obligations arising out of an agreement which follows all the necessary elements such as
free consent, intention to create a legal relationship, compatible parties, lawful obligation,
lawful consideration etc.
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Types of Contract:
On the basis of formation
Express Contract:
Offer and acceptance are made in express manner
Implied contract:
Offer and acceptance are made using conduct
Quasi Contract:
Parties have not entered into a contract but by the virtue of law they are obliged as if they
have entered into a contract with each other

On the basis of performance

Executed Contract:
Both the parties have done their parts
Executory Contract:
One or both the parties are under obligation to do their parts

On the basis of obligation

Unilateral Contract:
Only one party has obligation at the time of its formation
Bilateral Contract:
Both the parties have obligation to perform at the time of formation

On the basis of validity

Valid Contract:
An agreement that fulfils all essentials mentioned under section 10 of the Indian Contract
Act, 1872

Voidable Contract:
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An agreement which is enforceable at the one or more parties to it but not at the option of
other or all other parties
Illegal Contract:
Agreement whose object or consideration is unlawful or illegal

Void Contract:
A contract unenforceable by the law.

Unenforceable Contract:
Contract which is valid in all respect but because of technical formalities cannot be enforced

Offer + Acceptance = Promise

Offer: When one person signifies to another his willingness to do or abstain from doing
anything, with a view to obtain the consent of that other to such act or abstinence he is said to
make a proposal/ offer
Acceptance: When the person to whom the proposal is made signifies his consent, the
proposal is said to be accepted.
Promise: Proposal when accepted becomes promise.

Requirements for valid offer:

-Express or Implied
-Specific or general
-Communicated
-Should not contain a term, whose non-compliance would amount to acceptance
- Certain
- Definite
- Capable of creating a legal relationship
- Distinct from invitation to offer

Valid Acceptance:
- Acceptance from a proper person
-Within a specified time
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-Using prescribed mode (if any)

- Absolute and unqualified
-Communicated to offeror
- In response to offer
-Made before the offer lapses
-Mental acceptance is not accepted

Consideration:
Something in return = Quid Pro Quo
Legal Requirements:
- Must move at the desire of the promisor
- May move from promise or any other person
- May be past, present, or future
- Need not be adequate
- Must be real and not illusory
- Must be different from promisor’s existing obligations

Consent:
To make a contract valid one, a consent by the virtue of law must be free. Meaning that it
must not be obtained by either coercion, undue influence, fraud, or misrepresentation.
If the consent is obtained by any of the above mentioned methods then the contract becomes
voidable at the option of aggrieved party.

Capacity:
Every person is competent to contract who-
Is of the age of majority
Is of a sound mind
Is not disqualified by law

Breach of contract:
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When there is no timely fulfilment of the contractual obligation it amounts to the breach of a
contract. It is one of the types of discharge of a contract.
Actual breach happens when party does not perform its duty when the performance is due
And Anticipatory Breach takes place when a party repudiates his obligation before the time
of performance.
Compensation or damages for breach of contract can be in the form of – ordinary damages,
special damages, vindictive damages, nominal damages, real damages, etc.
Remedies available for breach of contract are; suit for recission, suit for damages, suit for
quantum merit, suit for specific performance, and suit for injunction.

Following are the most important judgements:

1) Pharmaceuticals Society of Great Britain v/s Boots Cash Chemists Ltd.
: Offer and invitation to offer

2) Harvey v/s Facey

: Offer and invitation to offer

3) Balfour v/s Balfour

: Intention to create a legal relationship

4) Lalman Shukla v/s Gauri Dutt

: Communication of an offer is necessary

5) Carlil v/s Carbolic Smoke Ball Company

: Contract arising out of general offer

6) Felthhouse v/s Bindley

: Acceptance should be communicated

7) Powell v/s Lee

: Communication of acceptance can be made by offeree or his authorised agent
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8) Central Inland Water Transport Corporation Ltd. v/s Brojo Nath

: Terms of contract should be reasonable

9) Durga Prasad v/s Baldeo

: Consideration only at the desire of the promisor

10) Dunlop Pneumatic Tyre Company Ltd. v/s Selfridge & Company Ltd.
: Privity of contract

11) Mohori Bibee v/s Dharmodas Ghose

: Minor’s capacity to contract