The Indian Contract Act 1872

● The Indian Contract Act, 1872 governs the law concerning contracts in India
● Regulates the conditions in which commitments made by parties to a contract
shall be legally binding, and the enforcement of these rights and duties.
● Present Scheme of the Act: The Indian contract act is divisible into two parts.
○ The first part (Section 1 to section 75) deals with the general principles
of the law of contract, and therefore applies to all contracts irrespective of
their nature.
○ The second part (Sections 124 to section 238) deals with certain
special kinds of contracts, e.g., Indemnity, guarantee, bailment, pledge,
and agency.
● Objectives: Main objective of this act is to ensure that both the parties under
contract must fulfill their obligations towards each other as per the terms and
conditions of the agreement. In case any party becomes the defaulter then the
aggrieved party has a right to seek legal remedy

Types of Contract
● On the basis of Validity: Valid, Void, Voidable, Unenforceable and Illegal
● On the basis of Formation: Express, Implied and Quasi
● On the basis of Performance: Executed, Executory, Unilateral and Bilateral

Essentials of Valid Contract

● Contract Definition: It is defined under Section 2 (h) of the Indian Contract Act
1872- as an agreement enforceable by law. Therefore, there must be an
agreement and it should be enforceable by law.
● According to Section 10 of the Indian Contract Act, “all agreements are contracts
if they are made by the free consent of the parties competent to contract, for a
lawful consideration and with a lawful object and are not expressly declared to be
void”
● Other than these there are some other essentials which we can interpret from the
context of the contract or through interpretation of various judgments of the
Indian judiciary

Plurality of Parties:
● It simply means for every valid contract a minimum of two people are required.
One person is required to give an offer and another to accept it.
 ● Person in this context could be a natural person or it could be an artificial legal
person like – Company, Schools etc.

Proposal/Offer
● The entire process of entering into a contract begins with the proposal or an offer
made by one party to another.
● According to the Indian Contract Act 1872, proposal is defined in Section 2(a) as
“when one person will signify to another person his willingness to do or not do
something (abstain) with a view to obtain the assent of such person to such an
act or abstinence, he is said to make a proposal or an offer.
● The person making the offer/proposal is referred to as the “promiser” and the
person who accepts an offer is referred to as “promisee”
● Offeror must express his willingness to do or abstain from doing an act. Only
willingness is not adequate.
● Elements:
○ There must be two parties
○ Every proposal must be communicated
○ It must create Legal Relations
○ It must be certain and definite
○ It may be specific or general

Agreement:
● Every promise or set of promises forming consideration for each other is
agreement. An agreement occurs when two minds meet upon a common
purpose.
● In order to create a valid contract, there must be an agreement between two
parties i.e. lawful offer of one party followed by a lawful acceptance of that offer
by another party.
● It must be absolute and unconditional. There cannot be conditional acceptance
that would amount to a counteroffer which nullifies the original offer
● An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
● Types:
○ Expressed Acceptance- When acceptance is expressed in writing or even
oral e.g. emails, fax etc.
○ Implied Acceptance - When acceptance is shown through the conduct or
behavior e.g. contractor renovating the house.
 ○ Conditional Acceptance - When acceptance is made with certain
conditions that tend to modify the original offer, hence it becomes a
counter offer.

Intention to Create Legal Relations

● Must be an intention among the parties that the agreement should be attached
by legal consequences and create legal obligations
● They should have the intention to impose duty on the promisor to fulfill the
promise and bestow a right on the promisee to claim its fulfillment.
● Here the point to be kept in mind is that social or domestic agreement between
relatives or neighbors are not enforceable in a court of law as they do not
contemplate legal relationship and thus any such agreement cannot become a
valid contract

Contractual Capacity
● According to Section 11 of the Indian Contract Act, 1872, person competent to
enter into a contract are:
○ Person who is of the age of majority according to the law to which he is
subject. It means the person must be at least 18 years old or more.
○ Person who is of sound mind. It means the person should be able to fully
understand the terms or promises of the contract at the time of the
formulation of the contract
○ Person not disqualified from contracting by any law to which he is subject.
It means the party should not be disqualified by any other legal
ramifications.

FREE CONSENT
● Two or more persons are said to consent when they agree upon the same thing
in the same sense
● It is essential that there must be free and genuine consent of the parties so as to
create a valid contract.
● If the consent of either of the parties is taken by coercion, undue influence, fraud,
misrepresentation or mistake then it is not a free consent.

Consideration
● Consideration means a reasonably equivalent or corresponding benefit being
passed on by the Promisor to the Promisee
● To make an agreement a valid contract, it must be supported by consideration.
 ● Gratuitous promises are not enforceable at law as no cause of action arises out
of bare promise.

Lawful Object and Lawful Consideration

● Consideration or object of an agreement is lawful, unless—
○ it is forbidden by law; or is of such a nature that, if permitted, it would
defeat the provisions of any law;
○ or is fraudulent in nature; or involves or implies, injury to the person or
property of another;
○ or the Court regards it as immoral, or opposed to public policy

Possibility of Performance
● Means the terms of the agreement must be capable of being performed by a
human being and should not enforce impossible act
● If the act is impossible in itself, physically or legally, it cannot be enforced at law

Unlawful and Void Agreements

● According to Sec 23 of ICA, an agreement of which the object or consideration is
unlawful is void.
● The consideration or the object of an agreement is unlawful in following cases:
○ it is forbidden by law, or
○ is of such a nature which defeats the provision of law or
○ is fraudulent or
○ causes any injury to a person or property of another or
○ the court considers it as immoral or
○ it is opposed to public policy.
● Void agreements are unenforceable but not illegal whereas illegal agreements
are both unenforceable and forbidden by law
● Agreements deemed as void:
○ Agreement made with incompetent parties
○ Agreement in restraint of trade
○ Agreement in restraint of marriage
○ Agreement in restraint of legal proceedings
○ Uncertain Agreement
○ Wagering Agreements
○ Wager and Insurance Contract
 Discharge of Contract
● Discharge of contract refers to the way in which it comes to an end. The various
modes of discharge of contract or the different ways are as follows
● Discharge by Performance:
○ When the respective parties of the contract perform their shares of the
promises, it is said that the contract is discharged. It is called the natural
mode of discharge.
● Discharge by Agreement or Consent:
○ “if the parties to a contract agree to substitute a new contract for it, or to
rescind or alter it, the original contract need not be performed
○ Novation: When the parties to a contract agree to substitute the existing
contract with a new contract that is called novation.
○ Alteration: When one or more of the terms of the contract is/are altered
by mutual consent of the parties to the contract
○ Rescission: When all or some of the terms of the contract are canceled,
that is known as rescission of a contract.
● Discharge by Impossibility of Performance:
○ Initial Impossibility: An agreement to do an impossible act is void
ab-initio.” It means agreement which is obviously impossible cannot be
binding.
○ Subsequent Impossibility: A contract sometimes becomes impossible or
unlawful and as a result void when capable to be performed after
formation.
● Discharge by Lapse of Time:
○ If the contract is not performed and no legal action is taken by the
promisee within the period of limitation, the contract is discharged and he
is deprived of his remedy at law
● Discharge by Operation of Law:
○ A contract can be discharged by operation of law which includes
insolvency or death, of the promisor and also merger, judgment of court
● Discharge by Breach of a Contract:
○ Failure to perform contractual obligation by either of the parties without
any lawful excuse, the contract discharged because it is a ground for
discharge of a contract.
 Breach of Contract
Breach of contract is a legal cause of action in which a binding agreement or
bargained-for exchange is not honored by one or more of the parties to the contract by
nonperformance or interference with the other party's performance.
Anticipatory Breach “ An anticipatory breach occurs when a party demonstrates his
intention to break a contract”
Actual Breach This may take place in any of the following two ways: On due date of
performance During the course of performance

Remedies to Breach of Contract

● Rescission:
○ The aggrieved party may rescind the contract.
○ In such cases, the injured / aggrieved party can either rescind the contract
or file a suit for damages.
○ In general, rescission of the contract is accompanied by a suit for
damages.
● Restitution:
○ It means return of benefits received by one party to the contract from other
party under a void contract
● Specific Performance:
○ Specific Performance means the actual carrying out of the contract as
agreed.
○ The Court may grant for specific performance where it is just and
equitable to do.
○ Granted under the following grounds.
■ Lack of standard for ascertaining the damages
■ Where compensation is not adequate relief
● Injunction:
○ It is an order of the Court restraining the wrongdoer from doing a wrongful
act.
○ It is usually granted to enforce negative stipulations in cases where
damages are not adequate.
● Quantum Merit:
○ Means payment in proportion to the amount of work done
● Damages:
○ When a contract has been broken, the party who suffers by such breach is
entitled to receive compensation for any loss or damage caused to him.
 Digital Contracts
● Section 10A of the Information Technology Act, 2000 deals with the validity of
contracts formed through electronic means and states that the contract is legal if
the contract creation, communication, and revocation of proposal/acceptance are
all represented in electronic form or through electronic records.
● Signatures of contract parties are necessary to demonstrate acceptance of the
terms and conditions for any contract to be legitimate. An electronic signature is
used in the case of an e-contract
Types of E-Contracts
● Shrink-wrap agreements
○ A licensing agreement for software purchases. In the event of shrink-wrap
agreements, the terms and conditions for access to such software goods
should be enforced by the person purchasing it, with the start of the
software product’s packaging
○ The Shrink-wrap Agreement protects the product maker by absolving the
manufacturer of any infringement of copyright or intellectual property rights
as soon as the customer rips the product or the covering for the goods
● Click or web-wrap agreements
○ Web-wrap agreements A Click-wrap contract refers to a web-based
contract that needs approval or assent of the user via the “I Accept,” or
“OK” button
○ Users must accept the conditions before using a specific software. Users
who do not agree with the terms and conditions will be unable to use or
purchase the product following cancellation or rejection
● Browse-wrap agreements
○ Is a contract that is binding on two or more parties through the usage of a
website
○ An ordinary user of a particular website is required to accept the terms
and conditions of use as well as other website rules for continued usage
○ Shrink-wrap Agreements and Click-Wrap Agreements are enforceable as
long as the contract’s general principles are not breached.
● E-signatures
○ The IT Act recognises two types of signatures:
■ Digital signatures generated by an asymmetric crypto-system and
hash function
■ Electronic signatures defined in its second schedule, wherein the
user of an Aadhar card is assigned a unique identification number
via which they can electronically sign documents via third-party
forums