2. INDIAN CONTRACT ACT, 1872
• Enacted by: Parliament of India
• Date enacted: 25 April 1872
• Date commenced: 1 September 1872
• Total sections: 238
• Extent: All States of India except the State of
Jammu & Kashmir
• The Indian Contract Act consists of the following two parts:
Part 1: deals with the General Principles of Law of Contract Sections 1 to 75
Part 2: deals with Special kinds of Contracts such as:
Contract of Indemnity and Guarantee,
Contract of Bailment and Pledge,
Contract of Agency.
3. CONTRACT
Section 2 (h) defines a contract as “an agreement enforceable by law”
A contract therefore is an agreement the object of which is to create a legal
obligation ie, a duty enforceable by law.
Thus to make a contract there must be:
>An agreement: As per section 2(e), Every promise and every set of promises
forming the consideration for each other, is an agreement
>Legal obligation: Duty enforceable by law
4. ESSENTIALS OF A VALID CONTRACT
• According to Sec. 10, “All agreements are contract if they are made by the free
consent of parties, competent to contract, for a lawful consideration, with a
lawful object, and are not expressly declared by the Act, to be void.”
5. ESSENTIAL ELEMENTS OF A VALID CONTRACT
OFFER AND ACCEPTANCE:
• The first step in creating a contract is an offer by one party and its acceptance by
another party
• According to Section 2(a) “When one person signifies to another his willingness
to do or to abstain from doing anything , with a view to obtaining the assent of
that other, such act or abstinence is called Proposal or Offer”
• The person making the ‘proposal’ or ‘offer’ is called the ‘Promisor’ or ‘Offeror’
• The person to whom the offer is made is called the ‘Offeree’
• An offer may be:
• express: either verbal or written or,
• implied: non verbal conduct or action between two parties
6. LEGAL RULES REGARDING A VALID OFFER
• An offer may be ‘express’ or ‘implied’
• The term of the offer must be certain or not vague
• An invitation to offer is not an Offer
• An offer may be ‘specific’ or ‘general’
• An offer must be communicated to the offeree
• An offer can be made subject to any terms and conditions
7. INTENTION TO CREATE LEGAL RELATIONS:
• The intention of the parties to a contract must be to create a legal relationship
between them.
• If the intention of the parties is not to create legal obligations, then it will remain
an agreement and cannot be a valid contract.
• For example, if a father fails to give his daughter the promised pocket money, the
daughter cannot sue the father, because it was purely a domestic arrangement.
• Thus, the agreements, which do not result in legal relations, are not contracts.
COMPETENT OF PARTIES:
• The agreement must be between parties who are competent or capable to
contract.
• Section 11 of the Indian Contract Act specifies that every person is competent to
contract provided,
(a) is of the age of majority according to the law to which he/she is subject,
and
(b) who is of sound mind, and
8. (c) is not disqualified from contracting by any law to which he/she is subject.
NOT DECLARED TO BE VOID:
• There have been certain agreements which have been declared to be void by
the Law of our Country, if entered into, shall not be enforceable by the Court
• Example, Amar promises to pay Rs. 50,000 to Akbar, if Akbar does not marry at
all. This agreement is void, as marriage is right of every individual. Restrain of
marriage is expressly declared as void by the Law.
9. LAWFUL CONSIDERATION:
• Consideration is a technical word meaning quid pro quo i..e. something in return.
• It must result in benefit to one party and a detriment to the other party or a
detriment to both.
• Example: A agrees to sell his books to B for Rs. 100, B’s promise to pay Rs. 100 is
the consideration for A’s promise to sell his books and A’s promise to sell the
books is the consideration for B’s promise to pay Rs. 100.
• Also, the object of the agreement must be lawful. It must not be illegal, immoral,
or opposed to public policy.
LAWFUL OBJECT:
• Objectives of an agreement should be lawful.
• It must not be illegal or immoral or opposed to public policy. It is lawful unless it
is forbidden by law.
• When the object of a contract is not lawful, the contract is void.
10. FREE CONSENT:
• The consent of the parties must be genuine.
• The term ‘consent’ means parties to a contract must agree upon the same thing
in the same sense. i.e. there should be consensus ad idem.
• As per section 14 of Indian Contract Act, consent is said to be free when it is not
caused by any of the followings:-
I) Coercion – as defined in section 15, or
II) Undue influence – as defined in section 16, or
III) Fraud – as defined by section 17, or
IV) Misrepresentation– as defined by section 18
V) Mistake subject to provision of section 20, 21 and 22.
11. CERTAINTY AND POSSIBILITY OF PERFORMANCE:
• For a contract to be valid, it must be possible for a party to fulfil the promises
made under the agreement.
• As per section 56 of Indian Contact Act, an agreement to do an act impossible in
itself is void. If an act is deemed to be impossible (or become impossible
afterwards), such agreement is void (or become void when the act become
impossible)
NECESSARY LEGAL FORMALITIES:
• Wherever a particular type of contract requires by law to be in writing and
registered, it must comply with the necessary formalities as to writing,
attestation and registration otherwise unenforceable.
• Example: Where it requires an agreement to make a gift for natural love and
affection, there it must be in writing and registered, to be valid.
12. KINDS OF CONTRACTS
On the basis of
Mode of Creation
• Express Contract
• Implied Contract
On the basis of
Enforceability
• Valid Contract
• Void Contract
• Voidable
• Unenforceable Contract
• Illegal Contract
On the basis of
Extent of Execution:
• Executed Contract
• Executory Contract
13. EXPRESS CONTRACT
• An express contract is one in which the terms and conditions are spelled out in
the contract, either verbally or in writing. Once an express contract has been
established and agreed upon, an identical implied contract cannot exist
• An example of an express contract may be if you hire a website designer to
design your business’s website. The terms and conditions are spelled out,
including details such as deadlines and payment dates, both parties agree and
sign the contract, and the work on building your new website begins.
IMPLIED CONTRACT
• An implied contract is one in which the terms and conditions are inferred by the
actions of the parties involved.
• For example, A’s neighbor hires him to mow his lawn every Friday for the entire
summer. A mow his neighbor’s lawn for the first three weekends of the summer
and get paid on Saturday morning each time. The fourth Friday he mow the lawn
and when he arrive at his neighbor’s house on Saturday morning, his neighbor
refuses to pay him. The law will infer that there is a contract between A and his
neighbor, even though they never put anything in writing.
14. VALID CONTRACT
• The Valid Contract as discussed in the topic on “Essentials of a Contract” is an
agreement that is legally binding and enforceable. It must qualify all the
essentials of a contract.
VOID CONTRACT
• The section 2(j) of the Act defines a void contract as “A contract which ceases to
be enforceable by law becomes void when it ceases to be enforceable”. This
makes all those contracts that are not enforceable by a court of law as void.
Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs.
8,000. A dies of natural causes in 4 years. The contract is no longer valid and
becomes void due to the non-enforceability of the agreed terms.
15. VOIDABLE CONTRACT
• These types of Contracts are defined in section 2(i) of the Act: “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.”
• Suppose a person A agrees to pay a sum of Rs. 10,000 to a person B for an
antique chair. This contract would be valid, the only problem is that person B is a
minor and can’t legally enter a contract. So this contract is a valid contract from
the point of view of A and a “voidable” contract from the point of view of B. As
and when B becomes a major, he may or may not agree to the terms. Thus this is
a voidable contract.
16. UNENFORCEABLE CONTRACT
• An unenforceable contract is a written or oral agreement that will not be
enforced by courts.
• There are many different reasons that a court may not enforce a
contract. Contracts may be unenforceable because of their subject matter,
because one party to the agreement unfairly took advantage of the other party,
or because there is not enough proof of the agreement.
• For example, A agrees to sell to B 100kgs of rice for 10,000/-. But there was a
huge flood in the states and all the rice crops were destroyed. Now this contract
is unenforceable and can not be enforced against either party.
17. ILLEGAL CONTRACT
• An agreement that leads to one or all the parties breaking a law or not
conforming to the norms of the society is deemed to be illegal by the court. A
contract opposed to public policy is also illegal.
• Example: Contracts for the sale or distribution of controlled substances such as
drugs, Contracts for illegal activities including prostitution or gambling,
Employment contracts for the hiring of underage workers
18. EXECUTED CONTRACT
• A contract between two or more parties is said to be executed when the act or
forbearance promised in the contract has been performed by one, both or all
parties.
• Basically, it means that whatever the contract stipulated, has been carried out.
Thus the contract has been executed.
• Example: A goes to the local coffee shop and buys a cup of coffee. The barista
sells him the coffee in exchange for the cash payment. So it can be said that this is
an executed contract. Both parties have done their part of what the contract
stipulates.
19. EXECUTORY CONTRACT
• In an executory contract, the consideration is either the promise of performance
or an obligation. In such contracts, the consideration can only be performed
sometime in the future, hence the name executory contract.
• Here the promises of consideration simply cannot be performed immediately
• Example: Contractor receives payment from the owner when building milestones
are complete; contractor performs duties for the building owner.
