INDIAN CONTRACT ACT, 1872

The Indian Law relating to contracts is embodied in the Indian

Contract Act, 1872. The Indian Contract Act was enacted in
1872, and it came into force on September 1, 1872. The Indian
Contract Act, 1872 is based mainly on English Common Law
which is to a large extent made-up of judicial precedents.
(There being no separate Contract Act in England). It is the
primary source of law regulating contracts in Indian law, as
subsequently amended. It determines the circumstances in
which promise made by the parties to a contract shall be
legally binding on them.
1) General principles of the law of contracts and quasi-
contracts [Sections 1-75],
2) Certain special kinds of contracts, which are as
follows: i) Indemnity and Guarantee [Section 124-147],
ii) Bailment and Pledge [Section 148-181],
iii) Agency [Sections 182 to 238].

Meaning and Definition of Contract

the word 'contract is derived from the latin word 'contractum'

meaning drawing together. section 2(h) of the indian contract
act, 1872 defines a contract as an "agreement enforceable by
law". a contract is an exchange of promises.

According to Pollock, "Every agreement and promise

enforceable by law is a contract.
Valid Contracts On the Basis of Enforceability

An agreement is a valid contract if it fulfills all the essential

requirements of a contract given under Section 10. A valid
contract is enforceable by law.
According to Section 2(1), it is "an agreement enforceable by
law", an agreement becomes enforceable by law when all the
essential elements of a valid contract are present. If one or
more of these elements is/are missing the contract is either.
void, voidable, illegal or unenforceable.
Void Contracts
Literally the word 'void" means "not binding in law. Accordingly
, the term 'void contract' implies a useless contract which has
no legal effect at all. Such a contract is a nullity, as for there has
been no contract at all,
It is a contract without any legal effect and cannot be enforced
in a Court of Law. Section 2(1) says that a void contract is "a
contract which ceases to be enforceable by law"
 Voidable Contracts
Section 2(1) says that, voidable contract is "an agreement
which is enforceable by law at the option of one or more parties
but not at the option of the other or others is a voidable
contract". Illegal or Unlawful Contracts

The word 'illegal' means 'contrary to law' and the term '
contract' means 'an agreement enforceable by law. As such to
speak of an 'illegal contract involves a contradiction in terms,
because it means something like this - an agreement
enforceable by law and contrary to law. There is apparent
contradiction in terms. Moreover, being of unlawful nature,
such an agreement can never attain the status of a contract.
Thus, it will be proper if we use the term 'illegal agreement in
place of 'illegal contract an illegal agreement is void ab initio.
Unenforceable Contracts
Where a contract in good in substance, but because of some
technical defect, it cannot be enforced by law it is called as
unenforceable contract. These contracts are neither void nor
voidable. Such contracts are good in stance. But due to non
fulfilment of prescribed legal formalities these cannot be
claimed in the court. As soon as the technical reason is
looked into and rectified such contracts may be allowed to
be enforced.
 Agreement Opposed to Public Policy

Agreement of Trading with Enemy: All agreements made with

an alien enemy are illegal on the ground of public policy. In
the event of war declared between two countries, citizens of
those countries become alien enemy to each other. Taking
into account national interest, no one is allowed to make an
agreeme with the citizens of enemy country. It is because it
may help that country. The contracts made with that country
before declaration of war will remain suspended till war
continues. When the war is over such agreements can be
enforced only with the permission of Government.
2) Agreement in Restraint of Personal Liberty: Article 21
of Indian Constitution has guaranteed personal freedom to
the citizens. Any agreement which takes away or unduly
restricts such personal liberty partially or completely of
any person is void being as oppose to public policy.

2) Agreement Tends in to Create Monopoly: An agreement

which tends to create monopoly is void on the ground of
public policy.

3)Agreements Interfering with Course of Justice: An

agreement, which interferes with course of justice, is void on
the ground of being opposed to public policy.
 Offer [Section 2(a)]

Offer is a proposal by one party to another to enter into a

legally binding agreement with him. A proposal is an
expression of will or intention. The word proposal is
synonymous with the English word "offer
According to Section 2(a) of the Indian Contract Act,
1872, "When one person signifies to another hist
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
Offeror Promisor and Offerce/Promisee [Section 2(c)]
The person who makes the offer/proposal is called an offeror
/promisor and the person to whom offer/psposal is made is
called the 'offeree/promisee
Consideration [Section 2(d)]
Section 2(d) defines consideration as follows: "When at the
desire of the promisor, the promiser 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.
According to Blackstone, "Consideration is the recompense
given by the party contracting to the other"
1)Consideration must be at the desire of the promisor.

2) consideration may past, present or future.

 Persons of Unsound Mind

Section 12 of the Indian Contract Act, 1872 lays down a

test of soundness of mind it defines the term 'sound
mind as follows: "A person is said to be of sound mind
for the purpose 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 effects upon his
interests"
sandness of mind way arise from:
1) Idiocy. It is God given and permanent, with no intervals of
saneness. The mental powers of an idiot are sandness of
mind way arise from:completely absent because of lack of
development of the brain.

2) Mental Decay: On account of old age, etc.

3)Drunkenness: It produces temporary incapacity, till the

drunkard is under the effect of intoxication, provided it is so
excessive as to suspend the reason for a time and create
impotence of mind.
4)Hypnotism: It also produces temporary incapacity, till
the person is under the impact of artificially
induced sleep
 Fraud (Section 17]
As per the Act "Fraud" means and includes any of the
following acts committed by a party to a contract, or with his
involvement or by his agent with intent to deceive another
party thereto or his agent, or to induce him to enter into the
contract:
1) The suggestion that an act is true when it is not true by one
who does not believe it to be true. Thus, a false statement
intentionally made is fraud. An absence of honest belief in the
truth of the statement made is essential to constitute fraud.
2) The active concealment of a fact by a person who has
knowledge or belief of the act. Active concralment of a
material fact is taken as much and as if the existence of such
fact was expressly denied or the reserse of it expressly stated.
Mere non-disclosure is not fraud, where there is no duty to
disclose.
3)A promise made without any intention of performing it.
If a man while entering into a contract has no
intention to per form his promise, there is fraud on his
part.
Misrepresentation [Section 18]
The term "misrepresentation' means a false representation of
fact made innocently or non-disclosure of a material fect
without any intention to deceive the other party.