The Indian Contract Act 1872

Institute of Management Technology - Ghaziabad

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IMPORTANT TERMS & DEFINITIONS
Section 2(h) of the Act defines the Term Contract “as an agreement enforceable by law”.

Section 2(e) defines agreement as “every promise and every set of promises, forming the
consideration for each other”.

Section 2(b) defines promise as “ When the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. Proposal when accepted becomes promise”.

Section 2(a) defines Proposal as “ 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.’

Section 2(d) defined Consideration as “ When at the desire of the promisor the promisee or
any other person has done or abstained from doing, or does or abstain from doing, or to do or
to abstain from doing, something, such act or abstinence or promise is called Consideration
for the Promise.”

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Contract = Agreement + Enforceability

Agreement: Following are the characteristic of Agreement

1. There must be two or more person to make an agreement because one person can not
enter into an agreement with himself.
2. Both the parties to an agreement must agree about the subject-matter of the agreement
in the same sense and at the same time.

Enforceability: To be enforceable by law, an agreement must possess the essential

elements of a Valid contract as contained in section 10, 29 and 56.

From the above equation it is clear that an agreement is independent in itself but to be a
contract it must give rise to Legal Obligation.

Hence every Contract is an agreement but every agreement is not a Contract.

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 ESSENTIAL ELEMENT OF A VALID CONTRACT
To be enforceable by law, an agreement must possess the following essential element of
a valid Contract as contained in section 10, 29 & 56 of the Act.
Lawful Offer & Lawful Acceptance
Intention to Create a Legal Obligation
Lawful Consideration
Capacity of Parties
Free Consent
Lawful Object
Writing & Registration
Certainty
Possibility Of Performance
Not Expressly declared void
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TYPES OF CONTRACTS
Valid Contract: A Valid Contract is an agreement
enforceable by Law.

Voidable Contract: As per section 2(i) “ An agreement which is enforceable

by law at the option of one or more of the parties but not at the option of the
other or others is a voidable Contract. Example: A contract brought as a result
of Coercion, undue – influence, fraud or misrepresentation.

Void Contract: The term void contract implies a

useless contract which has no legal obligation.

Unenforceable Contract: An unenforceable contract is good in

substance but because of some technical defect i.e., absence in writing,
barred by limitation etc. one or both the parties cannot sue upon it.

Illegal or unlawful Contract: It is a contract which the law forbids to

be made. The court will not enforce such a contract and also connected
contracts. All illegal agreements are void but all void agreements or
contract are not necessarily illegal.

Express Contract: A contract which is made by

words either spoken or written is said to be express
contract.
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TYPES OF CONTRACTS
Implied Contract: Where both the offer & acceptance constituting
an agreement are enforceable by law are made other than words i.e.,
by act and conduct of the parties, it is an implied contract.

Constructive or quasi Contract: A Contract which is neither express nor implied but the
law infers or recognizes a contract under certain special circumstances. For example the
obligation of the finder of lost goods to return them to the rightful owner. A quasi Contract
is based upon the equitable principle that a person shall not be allowed to retain unjust
benefit at the expense of another.

Executed Contract: If the consideration for the

promise in a contract is given or executed, such type of
contract is called contract with executed consideration.
Executory Contract : It is so called because the
reciprocal promises or obligation which serves as
consideration is to be performed in future
Unilateral Contract: A unilateral contract is a
contract where obligation is pending on the part of
one party only.
Bilateral Contract: Where the obligation or promise
in a contract is outstanding on the part of both the
parties, it is known as bilateral contract.
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 The Proposal Or Offer
Definition: When one person signifies to another his willingness to do or 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
or offer.
Three Essentials of Proposal:
1. It must be an expression of willingness to do or to abstain from doing anything.
2. The expression must be made to another person.
3. The expression must be made with a view to obtaining the assent of the other person.
Essentials of a Valid Offer:
 An offer may be express or implied.
 An invitation to offer is not an offer.
 An offer must contemplate giving rise to legal consequences.
 The terms of offer must be certain.
 An invitation to offer is not an offer.
 An offer may be Specific or General.
 Offer must be communicate to the offeree.
 Should not contain a term the non-compliance of which would amount to acceptance.
 An offer can be made subject to any terms and conditions.
 Two identical cross-offer do not make a contract as there is no formal acceptance.

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 Classification of Offers

General Offer: It is an offer made to the public in

general and hence anyone can accept it and do the
desired act.
Special Offer: When offer is made to a definite
person, it is known as specific offer and such offer can
be accepted only by that specified person.
Cross Offer: When two parties exchange identical
offer in ignorance at the time of each other’s offer, the
offer are called Cross offers.
Counter
Counter Offer:
Offer: When
When the
the offerree
offerree offers
offers to
to qualified
qualified acceptance
acceptance ofof the
the
offer subject to modification and variation in the terms of original offer,
offer subject to modification and variation in the terms of original offer,
he
he is
is said
said to
to have
have made
made aa counter
counter offer
offer amounts
amounts to to rejection
rejection of
of the
the
original offer.
original offer.
Standing, open or continuing offer: An offer is
allowed to remain open for acceptance over a period of
time is known as a standing, open or continuing offer.

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 ACCEPTANCE

●
WHEN THE PERSON TO WHOM THE PERPOSAL IS MADE SIGNIFIES HIS ASSENT THERETO,
Acceptance must be given
THEonly by the IS
PROPOSAL person to BE
SAID TO whom the offer is made.
ACCEPTED.

Acceptance must be absolute and unqualified [sec-7(1)].

Acceptance must be expressed in some usual and reasonable manner, unless the proposal
prescribes the manner in which it is to be accepted. [sec-7(2)].

Acceptance must be communicated by the acceptor.

Acceptance must be given within a reasonable time and before the offer lapses and/or is revoked.

Acceptance must be succeed the offer.

Rejected offer can be accepted only if renewed.

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 COMMUNICATION OF OFFER & ACCEPTANCE
Communication of offer: The communication of an
offer is complete when it comes to the knowledge of the
person to whom it is made (sec-4). An offer may be
communicated either by words spoken or written or it may
be inferred from the conduct of the parties.
Communication of acceptance:
1. As against the proposer, when it is put in course of
transmission to him so as to be out of the power of the
acceptor to withdraw the same;
2. As against the acceptor, when it comes to the knowledge
of the proposer.
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Consideration
According to Section 2(d) “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 abstain from doing something, such an
act or abstinence or promise is called consideration for
the promise”.
Consideration must move at the desire of the promisor.
Consideration from promisee or any other person.
Consideration may be Past, Present or future.
Consideration need not be adequate, but should be real.

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EXCEPTIONS TO THE RULE OF, ‘ NO
CONSIDERATION, NO CONTRACT’
Agreement made on account of natural love &
affection [sec. 25(1)]:
Agreement to compensate for the past voluntary
service [sec.25(2)]:
Agreement to pay a time - barred debt [sec.25(3)].
Completed Gift:
Contract of Agency:
Contribution to charity:

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 CAPACITY TO CONTRCAT
Every person who (a) has attained the age of majority, (b) is of sound
mind and © is not otherwise disqualified from contracting, is
competent to contract.(Section 11):
Age of 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.
Sound Mind: A person is said to be of sound mind for the purposes of making
a contract if, at the time when he makes it, he is capable of understanding it
and of forming a rational judgment as to its effect upon his interests.
Disqualified Person: As per section 11, the person ‘disqualified from
contracting by any law to which they are subject’ are incompetent to
contract. Example : Alien enemies, Foreign sovereigns and ambassadors,
convict, married women, insolvent, Joint stock company and corporation
incorporated under a special Act like L.I.C.

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Position of Agreement – incompetent party
Position of Minor’s Agreement:
1) An agreement entered into by minor is altogether void:
2) Minor can be beneficiary:
3) Minor can always plead minority:
4) Ratification on attaining majority is not allowed:
5) Liability for necessaries:

Contract by a person of unsound mind:

A person of unsound mind too is, under the Indian Contract Act, incapable of entering into a
contract. Although a contract by a person who is not of sound mind is void, such a person can enter
into a valid contract during an interval of lucidity.

 Contract by a disqualified person:

Besides minor and person of unsound mind, there are also other person who are disqualified from
contracting, particularly or wholly, so that the contracts by such person are void.

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FREE CONSENT
Section 13 of the contract act defines the term consent and lays down that ‘Two person or more are said to consent when they agrees upon the
same thing in the same sense.
Section 14 lays down that ‘Consent is said to be free’ when it is not caused by:
1) Coercion (Section 15)
2) Undue influence (Section 16)
3) Fraud ( Section 17)
4) Misrepresentation (Section 18)
5) Mistake (Section 20, 21 & 22)

Coercion Section-15: “ Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful
detaining, or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an
agreement.

Undue Influence Section 16: A contract is said to be induced by undue influence where (1) the relations subsisting between the parties are
such that one of the parties is in a position to dominate the will of the other and (2) he uses the position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of another: if.
1. Where he holds the real or apparent authority over the other. Eg. Master and servant.
2. Where he stands in a fiduciary relation to the other. Eg. Father & Son.
3. Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental distress.

Fraud: As per the act “Fraud” means, act committed by the party to deceive another party thereto or his agent, or to induce to enter into the contract.

Misrepresentation: Where a person asserts something which is not true, though he believes it to be true, his assertion amounts to
misrepresentation, may be either innocent or without reasonable ground.
All the contract caused by one of the above reason is voidable at the option of the party whose consent was affected.

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FREE CONSENT
Bilateral Mistake: Where the Parties to an
agreement misunderstood each other and are at cross
purposes, there is a bilateral mistake. Hence there is
no real correspondence of offer and acceptance, each
party obviously understanding the contract in a
different way. In such a case , the agreement is void ab
–initio.
Unilateral Mistake: Where only one of the
contracting parties is mistaken as to a matter of fact,
the mistake is unilateral mistake.

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EXPRESSLY DECLARED VOID AGREEMENT
Agreement in restraint of Marriage (Section – 26):

Agreement in restraint of trade (Section – 27):

Agreement in restraint of Legal proceedings (Section-28):

Agreement the meaning of which is uncertain (Section-29):

Agreement by way of wager (Section – 30):

Agreement contingent on impossible event (Section – 36):

Agreement to do impossible acts (Section – 56):

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PERFORMANCE OF CONTRACT
By the promisor himself: In the case of a contract involving personal skill,
taste or credit; e.g; a contract to paint a picture, the promisor must perform
the contract himself.
By the promisor or his agent: In the case of a contract of impersonal
nature; e.g; a contract of a sale of goods or a contract to lend a sum of
money, the promisor himself or his agent may perform the contract.
By the legal representative: In case of the death of the promisor before
performance, the liability of performance falls on his representative, unless
a contrary intention appears from the contract.
Performance by the third person: According to section 41, if a promisee
accepts performance of the promise from a third person, he cannnot
afterwards enforce it against the promisor. Thus, where a promissee
accepted a lesser amount of his claim, it was held that he could not enforce
the promise against the promisor.

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BREACH OF CONTRACT
Anticipatory Breach of Contract:
It is an important concept under the law of contractual relationship. When the
promisor refuses altogether to perform his promise and signifies his unwillingness
even before the time for performance has arrived, it is called Anticipatory Breach.
A promisee, instead of putting an end to the contract forthwith may keep the
contract alive upto the time when the contract is to be executed. But the amount
of damages in one case me be different from that in the other.

Actual Breach of Contract:

In contrast to anticipatory breach, it is a case of refusal to perform the promise on
the scheduled date. The parties to a lawful contract are bound to perform their
respective promises, he is said to have committed a breach. In that case, the other
party to the contract obtains a right of action against the one who has refused to
perform his promise.

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LIABILITY FOR DAMAGES & SUIT
Liability for Special Damages: Where a party to a contract receives a notice of special circumstances affecting
the contract, he will be liable not only for damages arising naturally and directly from the breach but also for
special damages.
Liability to Pay exemplary Damages: These damages may be awarded only in two cases viz;
1. For breach of promise to marry ; and
2. Wrongful dishonor by a banker of his customer’s cheque.
 Liability to pay nominal Damages: Nominal damages are awarded where the plaintiff has proved that there
has been a breach of contract but he has not in fact suffered any real damages. Such damages are awarded just to
establish the right to decree for the breach of contract. The amount may be a rupee or even ten paisa.
 Damages for deterioration caused by delay: In the case of deterioration caused to goods by delay. Damages
can be recovered from carrier even without notice. The word ‘deterioration’ not only implies physical damages to
the goods but it may also mean loss of special opportunity for sale.

 Suit for Quantum Meruit: The third remedy for a breach of contract available to an injured party against the
guilty party is to fill a suit upon quantum meruit. The phrase quantum meruit literally means : “ as much as
earned” or in proportion to the work done.
 Suit For Specific performance: Specific performance means the actual carrying out of the contract as agreed.
Under certain circumstances an aggrieved party may file a suit for specific performance.
 Suit for Injunction: Injunction is an order of a court restraining a person from doing a particular act. It is a
mode of securing the specific performance of the negative terms of the contract.

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CONTINGENT & QUASI CONTRACT
Contingent Contract: According to section 31 of the act,
contingent contract is a contract to do or not do
something, if some event collateral to such contract, does
or does not happen. Like Contract of Insurance.

Quasi – Contract: In the case of every contract, the

promisor voluntarily undertakes an obligation in favor of
the promisee. A similar obligation may be imposed by a
law upon a person for the benefit of another, even in the
absence of a contract, such contract is called Quasi -
contract.
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THANK YOU

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