Indian contract act 1872

 Meaning and Definition
 Essentials
 Types
 Differences between Various Contracts

 Indian Contract Act 1872, is the main source of
law regulating contracts in Indian Law
 It determines the circumstances in which
promise made by the parties to a contract shall
be legally binding on them.
 Each contract creates some right and duties
upon the contracting parties.
 Indian contract deals with the enforcement of
certain rights and duties up on the parties.

 It really codifies the way we enter into a contract,
execute a contract, implement provisions of a
contract and effects of breach of contract.
 The Contract Act consists of limiting factors subject
to which contract may be entered into, executed and
breach enforced.
 It only provides a framework of rules and
regulations which govern formation and
performance of contract.
 The rights and duties of parties and terms of
agreement are decided by the contracting parties
themselves.
 The court of law acts to enforce agreement in case of
non performance.

 The Indian Contract Act 1872 may be divided
into two parts
 Section 1 to 75 deals with the general
principles of the Law of Contract
 Section 124 to 238 deals with special type of
contracts such as(i) (ii) Contract of indemnity
and guarantee (Section 124 to 147) Contracts of
bailment and pledge (Section 148 to 181)
 (iii) Contract of Agency (Section 182 to 238)

 Law of Contract constitute the most important branch
of Business Law. Without such a law, it would have
been difficult, impossible to carry out trade or
commerce.
 It is not only the business community which is
concemed with the law of contracts, but it affects every
person.
 Every one of us enters into a number of contracts from
sunrise to sunset.
 The basis of trade and commerce is the enforceability
of promises. We know that, the rights created by
promises are protected and enforced.
 The law of contract is a very important branch of

 The law of contract is a very important branch of
Mercantile Law regulating legality of agreement. It
determines the circumstance in which promises
made by the parties to a contract shall be legally
binding on them.
 The law of contract furnishes the foundation for its
other branches of commercial law or mercantile
law, such as Partnership Act, The Negotiable
Instrument Act, The Sale of Goods Act etc.
 A contract is an agreement which fulfills certain
requirements.

 Sir Salmond defines a contract as "an agreement
creating and defining obligations between the parties".,
 David M Walker says" a contract may be defined as an
agreement between two or more persons intended to
create legal obligations between them and to be legally
enforceable "Thus an agreement is always a promise to
do or not to do something.
 Generally, an agreement made on a personal basis will
not be regarded as a contract as no legal rights may be
acquired under it.

 According to Section2(h) of the Indian Contract
Act, 1872 "An agreement enforceable by law is
a contract".
 a contract must have the following two
elements:
 1. An agreement, and 2. Enforceability of an
agreement

 The term agreement is defined to Section 2 (e)
of the Indian Contract Act as "Every promise
and every set of promises, forming the
consideration for each other, is an agreement".

 Promise means a proposal or offer which has
been accepted
 Section 2 (b) states that "when the person to
whom proposal is made signifies his assent
thereto, the proposal is said to be accepted. A
proposal when accepted, becomes a promise".

 A proposal is a person's willingness made known to
another to do or to abstain from doing anything, with a
view to obtaining the assent of that other act or
abstinence.
 An agreement, therefore, comes into existence only
when one party makes a proposal or offer to the other
party and that other party gives his acceptance.
Therefore an agreement is the sum total of 'offer' and
'acceptance'.
 An agreement may be expressed by words or writing
or may be implied by the conduct of parties.
 Offer + Acceptance of offer

 1. At least two parties: Two parties are required to form
an agreement. One party makes the offer, and the other
party accepts it.
 2. Consensus ad idem or identity of minds: Consensus
ad idem means the two parties of the contract must
have agreed about the subject matter of the contract at
the same time and in the same sense. That is there must
be identity of minds among the parties regarding the
subject matter of the contract.
 For example, A has two cars, one maruti, and the other
indica. He has offered to sell one car to B. B accepts
thinking to purchase the Indica, while A, when he
offers, he has in his mind to sell the maruti, there is no
consensus and hence no contract.

 3. Promise or reciprocal promises:
 An agreement has been defined as every promise or set
of promises forming the considerations for each other.
Hence, promise is a necessary requirement of an
agreement.
 Enforceability by Law
 To consider an agreement as a contract, it must be
enforceable by law. That is it must give rise to a legal
obligation. An obligation which is not enforceable by
law is not regarded as a contract.
 Social, moral or religious agreements do not create any
legal obligations.

 Section 10 of the Contract Act defines a
Contract as "All agreement are contracts if
they are made by free consent of the parties,
competent to contract, for a lawful
consideration and with a lawful object, and
not hereby expressly declared to be void."

 In order to create a valid contract, there must be an
agreement between two parties.
 An agreement involves, a lawful offer' by one party
and 'lawful acceptance' of the offer by the other party
or parties.
 The adjective lawful' implies that offer and its
acceptance must confirm to the rules laid down in the
Indian Contract Act.
 That is in the case of an offer it must intend to create
legal relations, its terms must be certain and
unambiguous, it must be communicated to the person
to whom it is made. And in case of acceptance, it must
be absolute and unqualified, it must be made in the
prescribed manner, it must be communicated to the
proposer before the offer lapses.

 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 social or domestic nature do not
contemplate legal relations.
 Example: An agreement to dine at a friends house
is not an agreement intended to create legal
relations and therefore is not a contract.
Agreements between husband and wife also lack
the intention to create legal relationship and thus
do not result in contracts.

 The leading case on the point is Balfour V. Balfour
(1919). Mr. Balfour was a civil servant stationed in
Ceylon. Mrs. Balfour owing to ill heath, had to stay
in England and could not accompany him to
Ceylon. Mr. Balfour promised to send her £ 30 per
month as maintenance expenses while he was
abroad. But Mr. Balfour did not send any money to
Mrs Balfour. She filed a suit against Mr.Balfour for
recovering the said amount. But the court held
that, the agreement was of a domestic
arrangement, and the parties never intended to
enter into legal relations.

 It is one of the essential element of a valid
contract.
 Consideration has been defined as the price paid
by one party for the promise of the other.
 In simple words, it means 'something in return'.
 An agreement is legally enforceable only when
each of the parties to it gives something and gets
something.
 A promise to do something and getting nothing in
return, is usually not enforceable by law.

 The consideration may be an act i.e., doing
something or forbearance i.e., not doing
something or a promise to do or not to do
something or may in the form of money, goods
and services.
 It may be past, present or future.
 It must be real and lawful

 According to Sec 23 of the Indian Contract Act,
“ the consideration is considered lawful unless
it is forbidden by Law or is fraudulent or
involves or implies injury to the person or
property of another or is immoral or is opposed
to public policy”.

 The parties to an agreement must be capable of
entering into a valid contract, otherwise it cannot
be enforced by a court of law.
 According to Section 11 of Indian Contract Act, "
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".
 In other words, to create a valid contract, the
person must be major, must be of sound mind and
must not be declared disqualified from contracting
by any law to which he is subject.

 Minors
 Persons of unsound mind
 Persons disqualified by law to which they are
subject.
 If the parties to agreement are not competent to
contract, then no valid contract comes into
existence.
 Example: A, a minor borrowed Rs 50,000 from
B, and executed a mortgage of his properly in
favour of B. This was not a valid contract
because A is not competent to contract.

 A consent may not be free either on account of
mistake in the minds of the parties or on account
of the consent being obtained by some unfair
means like coercion, fraud, misrepresentation or
undue influence.
 If the consent is obtained by unfair means the
contract would be voidable, while in the case of
mutual mistake the contract would be void.
 According to Section 14, "Consent is said to be free
when it is not caused by coercion, undue influence,
fraud, misrepresentation or mistake, if the consent
of the parties is not free, then no valid contract
comes into existence”.

 The object of the agreement must be lawful i.e,
it must not be (i) illegal (ii) immoral or (iii)
opposed to public policy.
 If the object is unlawful the agreement is void.
 When a landlord knowingly lets a house for
gambling, he can not recover the rent through a
court of law.

 According to Section 23 of the Indian contract
Act, "the object is considered lawful unless it is
forbidden by law or is fraudulent or involves
or implies injury to the person or property of
another or is immoral or is opposed to public
policy“.
 Example: A lets a house on hire to B, a
prostitute, knowing that it would be used for
immoral purposes. The agreement is void
because its object is for immoral purposes.

 The agreement must not have been expressly declared to be
void.
 Under Indian contract Act there are five categories of
agreements which are expressly declared to be void.
 Agreement in restraint to marriage (Section 26)(b)
 Agreement in restraint of trade (Section 27)(c)
 Agreement in restraint of legal proceedings (Section 28)
 Agreements, the meaning of which is uncertain (Section 29)
 Agreements by way of wager (Section 30)
 Example: A promised to marry only B and in default pay
her Rs 2,00,000. A married to C and B sued A for the
recovery of Rs 2,00,000. In this case, B was not entitled to get
anything because this agreement was in restraint of
marriage and as such void.

 The terms of the contracts must be precise and
certain and must not be vague.
 If it is vague and is not possible to ascertain its
meaning it cannot be enforced.
 According to section 29 "Agreements the
meaning of which is not certain or capable of
being made certain are void.
 Example: A agrees to sell a car to B out of his
five cars. There is nothing whatever to show
which car was intended. The agreement is void
on the ground of uncertainty.

 Another essential feature of a contract is that, it must
be capable of being performed.
 According to Section 56 of the Indian Contract Act. "An
agreement to do an act impossible in itself it is void".
 If the act is impossible in itself, it cannot be enforced at
law.
 Example: A agrees B to discover treasure by magic and
B agrees to pay Rs. 5000 to A. This agreement is void
because it is an agreement to do an impossible act.
 In order to make a valid contract, all the above
elements must be compulsory. If anyone of them is
absent the agreement does not becomes a contract.

 Another essential elements of a valid contract is
that it must be written, attested or registered if it is
so essential under any law prevailing in the
country.
 Example Arbitration agreements, insurance
agreements, mortgage and lease of an immovable
property can only be done under a written and
registered contract as per the provisions of the
concerning Acts.
 Example: An oral agreement for sale of immovable
property is unenforceable because the law requires
that such agreement must be in writing and
registered.

 Section 2(h) of the Indian Contract Act defines " a
contract as an agreement enforceable by law".
 When we analyze this definition we find that a contract
has two distinct parts.
 First of all there must be an agreement.
 Secondly such an agreement must be enforceable by
law.
 Hence an agreement in order to be a contract must
satisfy certain conditions which are the essential
elements of a contract.
 A contract is an agreement creating and defining
obligations between parties.
 It is not the whole law of agreements. Only such
agreements which are enforceable by law are contracts.

 According to John Salmond,*contract is an agreement
creating and defining obligations between parties".
 Legal obligation is understood as a "legal tie which imposes
up on a person or persons the necessity of doing or
abstaining from doing a definite act or acts.
 In the Roman Law it is known as Vinculum Juris. At least
two persons are required for a contract, and the agreement
must be such as is enforceable by law, and the agreement
which give rights to a social or moral obligation is not a
contract.
 Example: A invites his friend B to come and stay with him
for a week. B accepts the invitation but when comes to A, A
cannot accommodate him as his wife had died the day
before. B cannot claim any compensation from A as the
agreement is a social one.

 Contracts may be classified :
 validity -
 Formation
 Performance

 Valid contract
 Void contract,
 Voidable contract,
 Unenforceable contract
 Illegal or Unlawful contracts.

 An agreement enforceable at law is a valid
contract. An agreement becomes a contract,
when all the essentials of a valid contract as
laid down in Section 10 of the Indian Contract
Act are fulfilled.
 If one or more of these elements is/are missing,
the contract is either voidable, void, illegal or
unenforceable.
 Example: If A offers to sell his Bajaj scooter to B
for Rs 36,000 and B agrees to buy it for that
price it is a valid contract.

 The literally meaning of the word void is 'not binding
in law'. So the void contract implies a useless contract
which has no legal effect at all and is a nullity.
 Section 2(i) defines "A contract which ceases to be
enforceable by law becomes void, when it ceases to be
enforceable". In other words, a void contract is a
contract which was valid when entered into but which
subsequently became void due to impossibility of
performance, change of law or some other reason.
 Example, a contract between a citizen of Pakistan and
India is a valid contract during peace but if war breaks
out between the two countries the agreement will
become void contract.

 According to Section 2(g) of the Contract Act,
"An agreement not enforceable by law is said to
be void".
 Void agreement is void-ab- initio, which means
that they are unenforceable right from the time
they are made.
 Example: An agreement with a minor or a
person of unsound mind is void ab initio
because a minor or a person of unsound mind
is incompetent to contract . Thus a void
agreement never matures into a contract.

 According to Section 2(i) of the Contract Act "an
agreement which is enforceable by law at the option of
one or more of the parties there to, but not at the option
of other or others, is a voidable contract".
 Usually a contract becomes voidable when the consent
of one of the parties to the contract is obtained by
coercion, undue influence, misrepresentation or fraud.
Such a contract is voidable at the option of the
aggrieved party i.e., the party whose consent was so
caused.
 Once it is avoided it is void. But if the party chooses to
affirm it, the contract continues to be valid. Hence, a
voidable contract is one which can be set aside or
repudiated or avoided at the option of the

 Hence, a voidable contract is one which can be
set aside or repudiated or avoided at the option
of the aggrieved party. Until the contract is set
aside or repudiated by the aggrieved party, it
remains a valid contract.
 Example: A, threatens to shoot B, if he does not
sell his new Maruti Car to A for Rs1,00,000. B,
agrees. The contract has been brought about by
coercion and is voidable at the option of

 It is a contract, which is valid in itself, but not
capable of being enforced in a court of law because
of some technical defect, such as absence of
writing, registration, requisite stamp etc., or time
barred by the law of limitation. Such contract will
not be enforced by the court until and unless the
defect is rectified.
 Example: An oral arbitration agreement is
unenforceable because the law requires an
arbitration agreement to be in writing. The defect
in under stamping can be removed by affixing
further stamps for the difference in value

 Illegal contracts are those which are prohibited
by law or otherwise against the policy of law.
Generally, the term illegal agreement is used in
place of illegal contract.
 An illegal agreement is one which is against
the public policy, or immoral or criminal in
nature.
 An illegal agreement is void ab-initio. (i.e. void
from the very beginning).Thus an agreement to
commit murder or assault or robbery would be
illegal and void ab-initio.

 Express contract
 Implied contract
 Quasi contract

 These are the contracts, which are entered into
between the parties, by words spoken or
written. In express contracts, parties make oral
or written declaration of their intentions and of
the terms of the transaction.
 Example: A telephoned B, of his intention to
sell his computer to B for Rs 15,000. If B accepts
the offer, the contract will be termed as express
contract

 Contracts which come into being on account of
the act or conduct of the parties and not by
their express words, written or spoken are
known as implied contracts
 Example: If B takes a seat in a bus, which is
plying between Calicut and Trichur, an implied
contract emerge that he will pay the prescribed
fare for taking him to his destination.

 Generally, a quasi-contract is not a contract at all.
 It is created by law.
 In a quasi-contract, there is no intention on either
side to make a contract.
 Ouasi-contract is also known as constructive
contract.
 It resembles a contract in that the rights and
obligation arise not by an agreement between the
parties but by operations of law.
 Example: The finder of lost goods is under an
obligation to find out the true owner and return
the goods.

 Unilateral,
 Bilateral,
 Executed
 Executory contracts

 A contract is said to be executed, when
both1.the parties to the contract have fulfilled
their respective obligations and nothing
remains to be done by either party.
 Example: B sells a watch to A for Rs1,500. A
pays the price. Here both the parties have
performed their obligation, and hence it is an
executed contract

 Executory contracts are the contracts where the
obligations on both of the parties are outstanding
wholly or in part, at the time of the formation of
the contract.
 In other words, a contract is said to be executory
when either both the parties to a contract have still
to perform their share of obligation in to or there
remains something to be done under the contract
on both sides.
 Example: B agrees to paint the house of A in next
month and A agrees to pay Rs 5000 in
consideration for the work. The contract is
executory because it is yet to be carried out.

 A contracts is said to be unilateral, where one
party has performed his obligation either before or
at that time when the contract comes into
existence.
 It is only the obligation of the other party which
remains outstanding at the time of formation of the
contract. This contract are otherwise known as one
sided contract.
 Example: B permits a coolie A, to carry his luggage
and put it on a carriage. A contract comes into
existence, as soon as the luggage is put in the
carriage. Now B has to fulfill his obligation i.e., pay
the reasonable charges to the coolie.

 When the obligation of both the parties are
outstanding at the time of the formation of the
contract, it is known as bilateral contract .
 Example: A promises to sell his Bajaj scooter to
B after one month. B promises to pay the price
on the delivery of the scooter. Here the
obligation of both the parties are outstanding at
the time of the formation of the contra

Basis Agreement Contract
Definition Every promise and every
set of promises forming
the consideration for
each other
An agreement
enforceable at law is a
contract
Creation It is the sum total of offer
and acceptance
It is the agreement and
its enforceability at law
Legal Effect Agreement lacks any of
the required elements of
a contract has no legal
effect
A contract is legally
binding and its terms
may be enforceable in a
court of law
Binding An agreement is not
always a concluded or
binding contract
A contract is always
concluded and binding
on the concerned parties
Concept All agreements are not
contracts because they
may not possess some of
the essential elements of
a valid contract
All contracts are
agreements because an
agreement is the
beginning of a contract

Indian contract act 1872

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