Historical Background of Indian Contract Act, 1872

The Indian Contract Act is the main source of law regulating contracts in India. It
was enacted by Imperial Legislative Council. It was enacted on 25th April, 1872
and it came into force on 1st September, 1872.

This act was passed by the British India and it is based on the principles of
English Common Law.  It determines the circumstances in which promises made
by the parties to a contract shall be legally binding on them. All of us enter into a
number of contracts everyday knowingly or unknowingly. Each contract creates
some rights and duties on the contracting parties. Hence this legislation, Indian
Contract Act of 1872, being of skeletal nature, deals with the enforcement of these
rights and duties on the parties in India.

Objective of the Indian Contract Act, 1872

The Indian Contract Act, 1872 is a legislation governing the contractual

relationship between two or more parties, individuals, companies, government, etc.
It deals with all aspects of contracts such as formation, performance, enforceability
of contracts and specific contracts.

Major definitions

1. Contract: As stated under the section 2(h) of The Indian Contract Act,
1872, every agreement which is enforceable by law is a Contract. An agreement
consists of reciprocal promises between the two parties. In case of a contract, each
party is legally bound by the promise made by him. Also, before any contract will
be enforced, it is essential that the terms of the contract must be clear, definite,
certain and complete contract must be free from doubt, vagueness and ambiguity
so as to leave nothing to be supplied by the court.

2. Void Agreements: According to the sec. 2(g) of Indian Contract Act, 1872,
an agreement not enforceable by law is said to be void. For instance, an agreement
by a minor has been held to be void. Sections 24 to 30 of The Indian Contract Act,
1872, will discuss about the agreements which are void. Those agreements include
an agreement without consideration, an agreement in restraint of marriage or of
trade. It should be noted that the term “contract” is never used with “void”. We
always use the term “void” with “agreement”, since these type of agreements are
not enforceable by the law, thats why they cannot be termed as “contract” and
same reason goes with Illegal Agreements.

3. Voidable Contracts: According to Section 2(i) of the Indian Contract Act,

1872, 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, is a voidable contract. Thus, a
voidable contract is the one which can be avoided by one of the parties to the
contract at his option. If that party doesnot avoid the contract, it remains valid, but
if the same party prefers to avoid the contract, then it becomes void. For instance,
when the consent of the party has been obtained by coercion, undue influence,
fraud or misrepresentation, the contract is voidable at the option of the party whose
consent has been so obtained.

4. Illegal Agreements: There are certain agreements which are illegal in the
sense that the law forbids the very act, the doing of which is contemplated by the
agreement. For example, an agreement to commit a crime or an agreement which
tends to corrupt public life is illegal. Such an agreement is patently opposed to the
public policy. Hence, the law forbids the making of such agreements.

Difference between Void Agreement and Voidable Contract

A void agreement is a nullity from its inception and no rights to accrue to any party
thereto or his transferee, etc. A voidable contract on the other hand, is a contract
which can be avoided by one of the parties thereto.

Difference between Void Agreement and Illegal Agreement

Void Agreements Illegal Agreements

1. Void agreements may not be 1. It has to oppose the public

opposed to the public policy. For
example, an agreement made with
a minor is void, although there is
nothing in such an agreement
which is opposed to the public
policy.
policy. For example, if an
agreement is made to commit
crime, it will be termed as illegal
agreement since it opposes the
public policy.

2. In case of a void agreement, a

 collateral transaction may not also 2. In an illegal agreement, the
be void. For example, A gives collateral transaction is also held
money to B to enable him to pay void. For example, A gives loan
his wagering debt. The wager is to B to smuggle goods,
the main transaction which is smuggling is the main transaction
void, but loan given by him is and loan is subsidiary to it. But,
subsidiary to it, which is not void loan transaction is also said to be
and A can recover his money tainted with the same illegality
from B. and A will not be able to recover
his money.
Whether, an agreement can be termed as illegal or not may depends on the degree
to which it is opposed to public policy. For example, an agreement in restraint of
trade is void, but we may not term it is an illegal agreement as we do when it is an
agreement to commit a crime.