An introduction to Indian Contract Act, 1872 by Shraddha Pandit

INDIAN CONTRACT
ACT, 1872
BY SHRADDHA PANDIT
© ADV. SHRADDHA PANDIT

INTRODUCTION
 Like most other Acts passed during the British colonial
rule, the roots of the Contract Act too can be found in
the English Common Law. The Indian Contract Act, 1872 came
into force on 1st September, 1872.
 It extends to the whole of India. With some amendments, it
is still in force and remains largely unchanged.
 The Preamble to the Act states, “WHEREAS it is expedient
to define and amend certain parts of the law relating to
contracts…”

IMPORTANT CONCEPTS
 Let us now go through some important concepts as explained
in the Act:
 According to Salmond,
 “A contract is an agreement creating and defining
obligation between two or more persons by which rights are
acquired by one or more to acts or forbearance on the part
of others.”
 Section 2(h) of the Indian Contract Act says, “An
agreement enforceable by law is a contract.”
 ‘Enforceable’ means which is recognized by a court of law
and can be legally enforced.

Section 2 (a) of the Act says, “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
to such act or abstinence, he is said to make a proposal”
(not shaadi ka proposal)
Section 2 (b) of the Act says, “When the person to whom the
proposal is made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when accepted, becomes a
promise.”
Section 2 (c) of the Act says, “The person making the
proposal is called the “promisor”, and the person accepting
the proposal is called the “promise.” A valid contract is
always a binding promise. (Vada kiya to nibhana padega)

Section 2 (d) of the Act says, “When, at the desire of the
promisor, the 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.” (Contract Ka Mulya)
Section 2 (e) of the Act says, “Every promise and every set
of promises, forming the consideration for each other, is an
agreement.”
Section 2 (f) of the Act says, “Promises which form the
consideration or part of the consideration for each other
are called reciprocal promises.”

ESSENTIALS OF A VALID CONTRACT
 TWO OR MORE PARTIES TO THE CONTRACT
 ALL PARTIES BE MAJOR (ATTAINED MAJORITY OF AGE) AND NOT BE
MINOR
 ALL PARTIES MUST BE OF SOUND MIND AND NOT INSANE
 INTENTION TO ENTER INTO A CONTRACT
 OFFER & ACCEPTANCE (BETWEEN PROMISOR AND PROMISEE)
 LAWFUL OBJECT
 LAWFUL CONSIDERATION
 NOT PROHIBITED OR EXPRESSLY DECLARED TO BE VOID BY ANY LAW
FOR THE TIME BEING IN FORCE IN INDIA

 EXAMPLE 1
 IF A ENTERS INTO A CONTRACT WITH B FOR BUYING SLAVES, WILL
IT BE A VALID CONTRACT? NO LAWFUL OBJECT (HUMAN
TRAFFICKING/ CHILD LABOUR), SO VOID AND EVEN PUNISHABLE
 EXAMPLE 2
 Mr. R ENTERS INTO A CONTRACT WITH Mr. S FOR THE SUPPLY OF
INK FOR PRINTER. MR. S GIVES HIM INK AND MR. R PAYS HIM
WITH ILLEGAL DRUGS IN THE PLACE OF CASH. IS IT A VALID
CONTRACT? NO LAWFUL CONSIDERATION, SO VOID AND EVEN
PUNISHABLE

 EXAMPLE 3
 MISS SHARMA (12 YEARS OLD) ENTERS INTO A CONTRACT WITH
MRS. JOSHI (35 YEARS OLD) FOR PURCHASE OF 1 DOZEN
NOTEBOOKS. IS THIS A VALID CONTRACT? NO MAJORITY OF ALL
PARTIES, CONTRACT WITH MINOR IS VOID AB INITIO (MOHORI
BIBI V. DHARMODAS GHOSH, 1903)
 EXAMPLE 4
 LILY CONTRACTS WITH JOHN FOR JOINING HIS GYM & YOGA
CLASSES. SHE ATTENDS HIS CLASSES BUT DOES NOT PAY FOR
THEM. LATER ON JOHN COMES TO KNOW THAT LILY IS INSANE. IS
THE CONTRACT VALID AND CAN JOHN CLAIM HIS
FEES/CONSIDERATION FROM HER? NO, CONTRACT WITH INSANE
PERSON IS VOID

OTHER ESSENTIALS FOR A VALID
CONTRACT
 FREE CONSENT (FREE WILL/ ASSENT)
 CONSENT MEANS: TWO OR MORE PERSONS ARE SAID TO CONSENT
WHEN THEY AGREE UPON THE SAME THING IN THE SAME SENSE AND
ARE NOT INDUCED BY COERCION, FRAUD, FORCE, UNDUE
INFLUENCE, MISTAKE, DEATH THREAT, MISREPRESENTATION.
 POSSIBILITY OF PERFORMANCE
 SHOULD BE IN WRITING, REGISTERED WHEREVER NECESSARY (AS
PER INDIAN REGISTRATION ACT,1908 AND INDIAN STAMP ACT 1899
/ MAHARASHTRA STAMP ACT 1958)
 REMEMBER: YOU ALSO CANNOT ENTER INTO AGREEMENTS WITH AN
ALIEN ENEMY: A NATIONAL OF A COUNTRY WHICH IS AT WAR WITH
INDIA

 EXAMPLE 5,
 IF MR. B, WHO IS A DOCTOR INDIRECTLY PUTS PRESSURE OR INFLUENCES HIS
PATIENT MR. C, TO TRANSFER AMOUNT FROM HIS BANK ACCOUNT TO THE
DOCTOR’S ACCOUNT, IS THIS A VALID CONTRACT? NO, IT IS INDUCED BY
UNDUE INFLUENCE.
 EXAMPLE 6,
 IF MISS BASU, WHO IS AN OLD AND SICK WIDOW, IS THREATENED BY HER
NEIGHBOUR AT GUN POINT, MR. ROY TO SIGN ON A CONTRACT, SAYING THAT HE
IS TAKING CARE OF HER AND SHE IS TRANSFERING 50 LAKH RUPEES IN HIS
FAVOUR, IS IT A VALID CONTRACT? NO, IT IS INDUCED BY COERCION / DEATH
THREAT

TYPES OF CONTRACTS
 LEGAL / ENFORCEABLE / VALID (as explained earlier)
 ILLEGAL/ UNENFORCEABLE / VOID
 VOIDABLE
 QUASI-CONTRACTS
 INDEMITY. GUARANTEE, BAILMENT
 E-CONTRACTS

 ILLEGAL/ UNENFORCEABLE / VOID
 Contracts which are illegal or unlawful in nature or
impossible to perform or expressly declared to be void are
Void agreements.
 Examples are agreements based on gambling, wager (Jua),
agreements in restraint of trade, agreements in restraint
of marriage, agreements in restraint of legal proceedings,
agreements with a minor, agreements for unlawful or
immoral purpose (selling adulterated food or drinks and
without a license), agreements with an insane person, etc.

LACK OF CONSIDERATION: VOID
AGREEMENTS
 There is another special provision in the Act regarding
void agreements. According to Section 25 of the Act, an
agreement made without consideration is void. Therefore,
there must be some if not adequate consideration.
 Unless (exceptions):
1. It is the contract in writing and registered (gifts of
movable and immovable property)
2. It is for compensating someone for his voluntary services
toward the promisor in the past (past favours)
3. It is a promise made in writing to pay a whole or part of
a debt that is barred by the law of limitation (past
debts)

 VOIDABLE
 1. A Contract Becomes Void Due To Passage Of Time Or
Impossibility To Perform, Hence It Can Be Set Aside.
 2. A Contract Is Said To Be Voidable, When The Consent Of
One Of The Parties Is Not Free Consent (There may be
Coercion, Fraud, Force, Undue Influence, Mistake, Death
Threat Or Misrepresentation at play). Thus, the aggrieved
party can set aside such a contract.

 QUASI-CONTRACTS
 The law imposes such special obligations where in spite of
no written contract based on the principles of equity
(moral good and justice) that a person shall not get undue
benefit at the cost of another, one person has to fulfil
the contract towards another person.

 (Example: Shyam finds a wallet full of money and debit
cards. He is legally bound to return them back to the
person who they belong to.)
 (Example: Ramesh finds a pizza delivered to his door by
mistake. He is bound to pay for the same if he accepts it
as his own.)

 INDEMITY BOND
A contract entered into for protection against damage or
loss, especially in the form of a promise to pay for
anything that happens in the future.
 BAILMENT
 A “bailment” is the delivery of goods by one person to
another for some purpose, upon a contract that they shall,
when the purpose is accomplished, be returned or otherwise
disposed of according to the directions of the person
delivering them. The person delivering the goods is called
the “bailor” (giver) and the person to whom they are
delivered is called the “bailee” (receiver).

 (Example is:
 Miss Uma gave cloth and measurement to the tailor to
stitch a school uniform for herself and paid him his
charges. The tailor cannot now keep the cloth with him. He
is under an obligation to stitch her clothes and return
them back to her.
 Here, Uma is the “bailor”, tailor is the “bailee”, and
the contract is known as “bailment.”)

 E-CONTRACTS
 Shrink wrap contracts / boilerplate contracts packaged
with products; usage of the product is deemed acceptance
of the contract.
 Web-wrap, click-wrap and browse-wrap are related terms
which refer to license agreements in software which is
downloaded or used over the internet.
 Software agreements

OTHER TYPES OF CONTRACTS
 Hire & purchase, rental agreements
 Agreements for transfer of property (Sale, Gift, Mortgage, Lease, Leave and
License, etc.)
 Opening a new bank account or locker
 Agreements for Talent Acquisition / HR / Employer-Employee Agreement
 NDA, Confidentiality agreements
 IPR agreements
 Agreements for Travel and Tourism (Hotel booking, Tour company, Site Seeing)
 Admission / Enrolment into University, Coaching classes, Gym, Sports Club,
etc. are all different types of contracts

DISCHARGE OF CONTRACT
 BECOMES VOID
 BECOMES IMPOSSIBLE TO PERFORM
 BY OPERATION OF LAW
 BY MUTUAL AGREEMENT
 BY BREACH OF CONTRACT
 BY PERFORMANCE OF CONTRACT
 BY ANY OF THESE MODES THE CONTRACT ENTERRED INTO COMES TO
AN END.

QUIZ
 1. IN WHICH YEAR DID THE CONTRACT ACT COME
INTO FORCE?

 2. WHO SAID ?
“A CONTRACT IS AN AGREEMENT CREATING AND
DEFINING OBLIGATION BETWEEN TWO OR MORE
PERSONS BY WHICH RIGHTS ARE ACQUIRED BY ONE
OR MORE TO ACTS OR FORBEARANCE ON THE PART OF
OTHERS”

 3. FILL IN THE BLANKS:
 SECTION 2 (B) OF THE ACT SAYS, “WHEN THE
PERSON TO WHOM THE PROPOSAL IS MADE
SIGNIFIES HIS ASSENT THERETO, THE PROPOSAL
IS SAID TO BE ACCEPTED. A PROPOSAL, WHEN
ACCEPTED, BECOMES A _________.”

 4. MR. HENRY CONTRACTED WITH MISS MORRY FOR
THE SUPPLY OF HAY FOR HIS CATTLESHED. MISS
MORRY SUPPLIED HIM WITH HAY WORTH RS.
10,000. BUT, LATER ON IT WAS REVEALED THAT
MR. HENRY WAS NOT OF SOUND MIND. CAN MISS
MORRY MAKE HIM PAY HER THE DUE AMOUNT?

 5. A CONTRACTS WITH T, AND HIRES HIS HOUSE
FOR GAMBLING. IS IT A VALID CONTRACT? (GIVE
REASON)

 6. IS CONTRACT WITH AN ALIEN ENEMY VALID IN
THE EYES OF INDIAN LAW?

 7. WHAT IS THE OTHER NAME FOR E-CONTRACTS
AND BOILERPLATE CONTRACTS?

 8. IF LUCKY GETS A BURGER DELIVERED AT HIS
DOORSTEP BY MISTAKE, IS HE BOUND TO PAY FOR
THE SAME IF HE ACCEPTS THE ORDER? WHAT KIND
OF CONTRACT IS THIS CALLED?

 9. WHAT IS THE CONTRACT WITH A MINOR
CALLED?

 10. CAN ONE PERSON MAKE A CONTRACT ALL
ALONE?

FURTHER READING
 INDIAN CONTRACT ACT, 1872 (BARE ACT)
 INDIAN CONTRACT ACT BY AVTAR SINGH, EASTERN BOOK COMPANY
 INDIAN CONTRACT ACT BY POLLOCK & MULLA, LEXIS NEXIS

An introduction to Indian Contract Act, 1872 by Shraddha Pandit

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