Indian Contract Act,1872

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INDIAN

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Definition of Contract

Acc to Sec. 2 (h)

" A contract is therefore is

an agreement the object of which is to

create a legal obligation .

create a legal obligation .“

“

Contract essentially contains two elements:

(1) An agreement, and

(2) Legal obligation

i.e.,

a duty enforceable by

law

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Agreement.

As per Section 2(e): "

As per Section 2(e): "Every promise and every set of promises,Every promise and every set of promises, forming the consideration for each other, is an agreement." forming the consideration for each other, is an agreement." What ts a 'promise'

What ts a 'promise'??

Section 2(b) which defines the term:"

Section 2(b) which defines the term:"When the person to whom theWhen the person to whom the proposal is made signifies his assent thereto, the proposal is proposal is made signifies his assent thereto, the proposal is

said to

said to be accepted. be accepted. A proposal, A proposal, when accepted, when accepted, becomes abecomes a promise."

promise." (a)

(a) Plurality Plurality of of personspersons.. There must be two or more persons to makeThere must be two or more persons to make an agreement because one person cannot

an agreement because one person cannot enter into an agreemententer into an agreement with himself.

with himself.

(b) Consensus-ad-idem

(b) Consensus-ad-idem.. Both the parties to an -agreement mustBoth the parties to an -agreement must agree about the subject-matter of the agreement in

agree about the subject-matter of the agreement in the same sensethe same sense and at the same time.

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2.

2. Legal obligation.

Legal obligation.

.

"All contracts are agreements but all

agreements are not contracts."

" Agreements which create obligations, and

those obligations, which have their

source in agreements

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Essential Elements of a Valid Contract Essential Elements of a Valid Contract

A contract has been defined in Section 2(h)

A contract has been defined in Section 2(h) as "an agreement enforce-able by as "an agreement enforce-able by law"

law" .

.

The essential elements of a valid contract are

The essential elements of a valid contract are as follows:as follows:

1.

1. Offer-and acceptance.Offer-and acceptance. There must be a 'lawful offer'

There must be a 'lawful offer' and a 'lawful acceptance' of the offer, and a 'lawful acceptance' of the offer, thusthus

resulting in an agreement. The adjective 'lawful' implies that the offer and resulting in an agreement. The adjective 'lawful' implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation acceptance must satisfy the requirements of the Contract Act in relation thereto.

thereto. 2.

2. Intention to create legal relations.Intention to create legal relations.

There must be an intention among the parties that

There must be an intention among the parties that the agreement should bethe agreement should be attached by legal conse-quences and create

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3.

3. Lawful consideration.Lawful consideration.

"The 'consideration' may be an act (doing something) or "The 'consideration' may be an act (doing something) or

forbearance (not doing s"ometnlhg)or a promise to do or forbearance (not doing s"ometnlhg)or a promise to do or not to do something. It may be past, present

not to do something. It may be past, present or future. But or future. But only those considerations are valid which are 'lawful'.

only those considerations are valid which are 'lawful'. The consideration is 'lawful'

The consideration is 'lawful' , unless—it is forbidden by law; or is of , unless—it is forbidden by law; or is of such a nature that, if permitted it would

such a nature that, if permitted it would defeat the provisions of defeat the provisions of any law^ or is fraudulent; or involves or implies injury to the

any law^ or is fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is opposed to person or property of another; or is immoral; or is opposed to public policy (Sec. 23).

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4. Capacity of parties

4. Capacity of parties. The parties to an agreement

. The parties to an agreement

must be competent to contract, otherwise it cannot

be enforced by a court of

law. In order to be

competent to contract the parties must be of the

age

of majority and of sound mind and must not be

disqualified from contracting by any law to which

they are subject

they are subject (Sec II).

(Sec II).

If any of the parties to the agreement suffers from

minority, lunacy, idiocy, drunkenness, etc., the

agreement is void

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5.

5. Free

Free consent

consent

.

. Free consent of all the parties to an agreement is another essential element of a validFree consent of all the parties to an agreement is another essential element of a valid

contract.'Cor.sent1 means that the par-ties must have agreed upon the same thing in the same contract.'Cor.sent1 means that the par-ties must have agreed upon the same thing in the same sense (Sec. 13). There is absence of 'free consent1, if the agreement is induced by

sense (Sec. 13). There is absence of 'free consent1, if the agreement is induced by (/) coercion, (/) coercion, (//) undue influence (//) undue influence , (///) fraud, , (///) fraud, /v) mis-representation, or /v) mis-representation, or (v) mistake (Sec. 14). (v) mistake (Sec. 14).

If the agreement is vitiated by any of the first four factors, t

If the agreement is vitiated by any of the first four factors, the contract would be yiodable and cannothe contract would be yiodable and cannot be enforced by the party guilty of coercion, undue influence etc

be enforced by the party guilty of coercion, undue influence etc

6.

6. Lawful object.Lawful object. For the formation of a valid contract it is also nec-essary that the parties to anFor the formation of a valid contract it is also nec-essary that the parties to an

agreement must agree for a lawful object. The object for which the agreement has been entered agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or

into must not be fraudulent or illegal or immoral or opposed to public illegal or immoral or opposed to public policy or must not imply policy or must not imply injuryinjury to the person or property of another (Sec. 23).

to the person or property of another (Sec. 23).

7.

7. Writing and registration.Writing and registration. According to the Indian Contract Act, a contract may be oral or inAccording to the Indian Contract Act, a contract may be oral or in

writing. But in certain special cases it lays down that the agreement, to be valid, must be in writing writing. But in certain special cases it lays down that the agreement, to be valid, must be in writing or/and registered.

or/and registered. 8.certainty.

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KINDS OF CONTRACTS

1.

1. Valid contract.Valid contract. A valid contract is an A valid contract is an agreement enforceable by law. Anagreement enforceable by law. An

agreement becomes enforceable by law when all the essential elements of a agreement becomes enforceable by law when all the essential elements of a valid contract as enumerated above are present.

valid contract as enumerated above are present.

2.

2. Voidable contract.Voidable contract. According to Section 2(i), According to Section 2(i), "an agreement which is"an agreement which is

enforceable by law at the option of one or

enforceable by law at the option of one or more of the parties tmore of the parties thereto, buthereto, but not at

not at the opthe option of tion of the other the other or others, or others, is a is a voidable voidable contract." Thus, contract." Thus, a,a, voidable contract is one which' is enforceable by law at

voidable contract is one which' is enforceable by law at the option of one of the option of one of the parties.

the parties.

3. Void contract

3. Void contract. Literally the word 'void' means 'not binding in law'. S. Literally the word 'void' means 'not binding in law'. Section 2(j)ection 2(j) defines: "A contract which c

defines: "A contract which ceases to be enforce-able by law becomes void,eases to be enforce-able by law becomes void, when it ceases to be enforceable.“

when it ceases to be enforceable.“

4.

4. Unenforceable Unenforceable contract.contract. An unenforceable contract is one which is valid inAn unenforceable contract is one which is valid in itself, but is not

itself, but is not capable of being enforced in a court of capable of being enforced in a court of law because of somelaw because of some technical defect such as absence of \

technical defect such as absence of \vriting, registration, requisite stamp,vriting, registration, requisite stamp, etc.,

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5.

5. Illegal

Illegal or

or unlawful

unlawful contract

contract.

.

The word 'illegal' means 'contrary to

The word 'illegal' means 'contrary to law' and the law' and the term 'contract' means 'an agreementterm 'contract' means 'an agreement enforceable by law.' As such to speak of an 'illegal contract' involves a contradiction in enforceable by law.' As such to speak of an 'illegal contract' involves a contradiction in terms, because it means something like this—an agreement enforceable by law and terms, because it means something like this—an agreement enforceable by law and contrary to law.

contrary to law.

An agreement is illegal and void i

An agreement is illegal and void if its object or f its object or consideration:consideration: (a) is forbidden by law; or

(a) is forbidden by law; or

(b) is of such a nature that, if permitted, it would defeat the provisions of any law; or (b) is of such a nature that, if permitted, it would defeat the provisions of any law; or (c) is fraudulent; or

(c) is fraudulent; or

(d) involves or implies injury to the person or property of another; or (d) involves or implies injury to the person or property of another; or

(e) the court regards it as immoral, or opposed to public policy (Sec.23).B (e) the court regards it as immoral, or opposed to public policy (Sec.23).B Illegal and void agreements distinguished

Illegal and void agreements distinguished.. Despite the similarity be-tween an illegal and

Despite the similarity be-tween an illegal and a void agreement that in either case thea void agreement that in either case the agreemen

agreement is t is voidvoid ab-initioab-initio and cannot be enforced by law, the two differ from eachand cannot be enforced by law, the two differ from each other in the following two respects:

other in the following two respects:

(i)An illegal agreement is narrower in scope than a void agreement. 'All il

(i)An illegal agreement is narrower in scope than a void agreement. 'All illegal agreementslegal agreements are void but all void agreements are not necessarily ill

are void but all void agreements are not necessarily illegal.'egal.' (ii)

(ii) An illegal agreement is wider in An illegal agreement is wider in effect in relation to collateral transactions than a effect in relation to collateral transactions than a voidvoid agreemen

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6. Express Contract

7. Implied Contract

8. Quasi Contract :- contracts have little or

no affinity with contract

9. Executed contracts

10. Executory contract

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THE PROPOSAL OR OFFER

The words 'proposal' and 'offer' are synonymous and are used interchangea-bly. The words 'proposal' and 'offer' are synonymous and are used interchangea-bly.

Section 2(a) of the Indian Contract Act defines a 'proposal' as, "

Section 2(a) of the Indian Contract Act defines a 'proposal' as, "when onewhen one person signifies to another his willingness to do or to abstain from person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal".,

such act or abstinence, he is said to make a proposal"., This definition reveals the follow-ing

This definition reveals the follow-ing three essentialsthree essentials of a 'proposal':of a 'proposal':

(i)

(i) It It must must be be anan expression of the willingnessexpression of the willingness to do or to abstain from doingto do or to abstain from doing something.

something. (ii)

(ii) The expression of willingness to do or to The expression of willingness to do or to abstain from doing some-thing mustabstain from doing some-thing must be

be to another person.to another person. (///") The expression of

(///") The expression of willingness to do or to abstain frwillingness to do or to abstain from doing some-thingom doing some-thing must be made

must be made with a view towith a view to obtaining the assent of the other personobtaining the assent of the other person toto such "act or abstinence.

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Legal rules for valid Offer

1.

An offer may be

An offer may be Express or Implied

Express or Implied

2.

Must contemplate to give rise to legal

consequences and be

capable of creating legal relations

3.

Terms must be certain

4.

Invitation to offer is not an offer

5.

May be specific or general

6.

Must be communicated to the offeree

7.

Should not contain a term the

Should not contain a term the non compliance of which

non compliance of which

would amount to

would amount to acceptance

acceptance

8.

Can be made subject to

Can be made subject to any terms and conditions

any terms and conditions

9.

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Acceptance

. Section 2(b) states that "

. Section 2(b) states that " A proposal when accepted becomes a A proposal when accepted becomes a promise"

promise" and defines' 'acceptance' asand defines' 'acceptance' as "when the "person to"when the "person to whom the proposal is made signifies his assent thereto, the whom the proposal is made signifies his assent thereto, the proposal is said to be accepted

proposal is said to be accepted ."."

Legal rules regarding a valid Acceptance Legal rules regarding a valid Acceptance 1.

1. Must be given only by the person to whom the offer was madeMust be given only by the person to whom the offer was made 2.

2. Must be absolute and unconditionalMust be absolute and unconditional 3.

3. Must be in some usual and Must be in some usual and reasonable manner reasonable manner 4.

4. Must be communicated by the acceptor Must be communicated by the acceptor 5.

5. Must be given within reasonable timeMust be given within reasonable time 6.

6. Must succeed the offer Must succeed the offer 7.

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Consideration

Definition Definition

Section 2(d) of the

Section 2(d) of the Indian Contract Act defines consideration as follows:Indian Contract Act defines consideration as follows: "When at the desire of the promisor, the promisee or any other "When at the desire of the promisor, the promisee or any other person has done or abstained from doing,

person has done or abstained from doing, or does or abstainsor does or abstains from doing, or promises to do

from doing, or promises to do or to abstain from doing^' or to abstain from doing^' something, such act or abstinence or promise is called a something, such act or abstinence or promise is called a consideration for the promise."

consideration for the promise." Essentials of valid consideration Essentials of valid consideration

1.

1. Must move at the desire Must move at the desire of the promisor of the promisor

2.

2. May move from promise or any other person ( A stranger to a contractMay move from promise or any other person ( A stranger to a contract can not sue

can not sue

3.

3. May be past, present or May be past, present or futurefuture

4.

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Capacity of Parties

An essential ingredient of a valid

An essential ingredient of a valid contract is that the contracting partiescontract is that the contracting parties must be 'competent to contract' (Sec.10).

must be 'competent to contract' (Sec.10). Section 11 lays down that "

Section 11 lays down that "Every person is competent to contract Every person is competent to contract who has attained the age of majority according to the

who has attained the age of majority according to the law tolaw to which he is subject, and who is of sound

which he is subject, and who is of sound mind,, and is not mind,, and is not disqualified from contracting by any Saw to which he is disqualified from contracting by any Saw to which he is subject."

subject." Thus theThus the

Section declares that a person is

Section declares that a person is incompetent to contract under theincompetent to contract under the following circumstances:

following circumstances: I.

I. if he is if he is a minor, aca minor, according to the cording to the law to which law to which he is subject,he is subject, II. if he is of unsound mind, and

II. if he is of unsound mind, and

III. if he is disqualified from contracting by any law to

III. if he is disqualified from contracting by any law to which he iswhich he is subject.

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Disqualified persons



Alien Enemies



Foreign sovereigns band ambassadors



Convict



Married Women



Insolvent



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"Consent" defined "Consent" defined

-Two or more person are said to

Two or more person are said to consent when they agree upon the sameconsent when they agree upon the same thing in the same sense.

thing in the same sense.

Free consent" defined Free consent" defined

Consent is said to be free when it is not caused by Consent is said to be free when it is not caused by

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(1) coercion, as defined in section 15, or coercion, as defined in section 15, or

(2) undue influence, as defined in section 16, or (2) undue influence, as defined in section 16, or (3) fraud, as defined in section 17, or

(3) fraud, as defined in section 17, or

(4) misrepresentation, as defined in section 18, or (4) misrepresentation, as defined in section 18, or

(5) mistake, subject to the provisions of section 20,21, and 22. (5) mistake, subject to the provisions of section 20,21, and 22. Consent is said to be so

Consent is said to be so caused when it would not have been given but for caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or the existence of such coercion, undue influence, fraud, misrepresentation, or mistake

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Voidability of agreements without free

consent

When consent to an agreement is caused by coercion, fraud or When consent to an agreement is caused by coercion, fraud or

misrepresentation, the agreement is a contract voidable at

misrepresentation, the agreement is a contract voidable at the optionthe option of the party whose consent was so caused. A party to contract,

of the party whose consent was so caused. A party to contract, whose consent was caused by

whose consent was caused by fraud or mispresentation, may, if hefraud or mispresentation, may, if he thinks fit, insist that the contract shall be

thinks fit, insist that the contract shall be performed, and that he shallperformed, and that he shall be put on the position in which he would have been if the

be put on the position in which he would have been if the representations made had been true.

representations made had been true.

Exception : If such consent was caused by misrepresentation or by Exception : If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the

silence, fraudulent within the meaning of section 17, the contract,contract, neverthless, is not voidable, if the party whose consent was so neverthless, is not voidable, if the party whose consent was so caused had the means of discovering

caused had the means of discovering the truth with ordinarythe truth with ordinary diligence.

diligence.

Explanation : A fraud or misrepresentation which did

Explanation : A fraud or misrepresentation which did not cause thenot cause the consent to a contract of the party on whom such fraud was practised, consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a

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Void agreements

An agreement not enforceable by law is said to

An agreement not enforceable by law is said to be void" (Sec.2(g)].be void" (Sec.2(g)]. Thus a void agreement does not give rise to any legal consequences Thus a void agreement does not give rise to any legal consequences and is void

and is void ab initio.ab initio. 1.Agreements by

1.Agreements by a minor a minor or a person or a person of unsound of unsound mind_ Sec.l mind_ Sec.l 00 2.

2. Agreements made Agreements made under a bilateral munder a bilateral mistake of fact istake of fact material to tmaterial to thehe agreement (Sec. 20)

agreement (Sec. 20) 3.

3. Agreements of Agreements of which the which the consideration or consideration or object is uobject is unlawful (Sec.nlawful (Sec. 23)

23) 4.

4. Agreements of Agreements of which the which the consideration or consideration or object is uobject is unlawful in nlawful in pan,pan, and the illegal part cannot be

and the illegal part cannot be separated from the legal part (Sec. 24)separated from the legal part (Sec. 24) 5.

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EXPRESSLY DECLARED VOID AGREEMENTS EXPRESSLY DECLARED VOID AGREEMENTS

The last essential of a valid contract as declared by Section 10 is

The last essential of a valid contract as declared by Section 10 is thatthat

it must not be one which is 'expressly declared' to be- void . it must not be one which is 'expressly declared' to be- void . 1.

1. Agreements Agreements in restraint in restraint of marriage of marriage (Sec. 26).(Sec. 26). 2.

2. Agreements Agreements in restraint in restraint of trade of trade (Sec. 27).(Sec. 27). 3.

3. Agreements in Agreements in restraint of lerestraint of legal proceedinggal proceedings (Sec. 28s (Sec. 28).). 4.

4. Agreements the Agreements the meaning omeaning of which is uf which is uncertain (Sec.29).ncertain (Sec.29). 5.

5. Agreements Agreements by way by way of wager_ of wager_ (Sec. 30).(Sec. 30). 6.

6. Agreements Agreements contingent contingent on impossible on impossible events (Sec.36).events (Sec.36). 7.