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A.
CZ
= c.:,

ICA, 187 2 : NATURE,

MEANING, ESSENTIALS
AND KINDS OF CONTRACT

i 1.1 INTRODUCTION
The Indian Contr act Act occup ies the most impo rtant place in the comm
er-
cial law. With out Contr act Act, it woul d have been difficult
to carry on
trade. It is not only the busin ess comm unity which is conc erned with
the
Contract Act, but it affec ts everybody.
The objective of the Act is to ensur e that rights and oblig ation s arisin
g out
of the contr act are hono ured and that legal reme dies are made avail
able
to an aggrieved party again st the party failing to hono ur his part
of
agree ment (guilty party). The India n Cont ract Act make s it oblig atory
that
this is done and comp els the defau lters to hono ur their comm itmen
ts.
According to Sir William Anso n - "The objec tive of the law is to main
tain
order becau se only in a state of order can a man feel safe and secur
e".

... 1.2 EXTENT AND COMMENCEMENT ,·

.

The India n Cont ract Act caine into force with effec t from 1st Septe
mber,
1872. The Act is exten ded to the whol e of India excep t the state of
Jamm u
and Kash mir. The Act is divisible into the following two parts :
► Part I (Sect ions 1-75) deals with the gener al princ ipals
of the law of
contr act and
► Part II (Sect ions 124-238) deals with certa in speci al kinds
of con-
tract e.g., Cont ract of Indem nity and Guar antee , Bailm cnt and Pledg
e
and Agen cy etc.
3
Pa ra 1.3
llNlT \ - INDIAN CONTRA ACT 1872
C r
N ot e: A bi.ll fo
I
4
r Ja m m u and Kashmir . .
du cc d and passed in the Reoigan isation Act, 2019 w as intr
Ra jy a Sa bh a oil 5t h Au t 2019 It 0•
by the Lok Sabha oil guS ' · ;a s Passed
6th August, 2019 and re the Pr
on 9th August, 2019. By ce ive d eSi ent assent
virtue of Jammu ~ o_ K hmlr Reo
2019 (w.e.f 31st Octobe as . rganisation A
r, 2019) the Indian Cont . ct,
whole of India. Prior to ra ct Ac t is app~cable to th e
this th e Indian Contract
w ho le of In di a ' Except Act w~s, applicable to th
the State of Jammu & e
Kashmir ·
,-

l 1.3 LIMITATIONS OR NATURE

-- • --- ~-.- - ... ~ •
-·
"I: t',-v ~ .. - - ~ ~ , . . .
,·, ·41t"

.
.,. .,. _,, •' ~t•
, . -· ~ ..
... ~
,-< _ ., __

Th e In di an Co nt ra ct Ac
t ha s th e following lim
itations :
1. It does not Deal with
all Branches of Contract.
no t de al t with by th e co So m e of th e contracts
nt ra ct ar e those relatin
of goods, negotiable in g to p~rtn~rship, sale
struments, insurance, bi
etc. Th er e ar e se pa ra te ll of ladmg, msolvency
Acts which deal with th
es e co nt ra ct s.
2. The law of Contract
Creates jus in Personam
rig ht 'in re m ' is availabl and not jus in rem. A
e against th e whole wor
pe rs on am ' is available ld, w he re as a right 'in
against a particular pe
Th e Co nt ra ct Act deal rs on or se t of persons.
s with rights in pe rs on
pa rti cu la r person) an am (rights against the
d no t with rights in re
goods). m (rights against the

;EXAMPLEsl
1. X owes Y f 10,000. Y
has right to recover this mo
right of Y is known as rig ney from X only. This
ht 'in personam '.
2. P owns a flat in Delhi
. He has a right to have qu
against every member of iet possession of the flat
the society. Similarly ever
under the obligation not y member of society is
to disturb his quiet possessi
known as right 'in rem'. on. This right of P is

3. It does not have Re

trospective Effect. The
in to op er at io n with ef In di an Co nt ra ct Act ca
fect fr om 1st Se pt em me
provisions of th e Act do be r, 18 72 . Th e various
no t apply to co nt ra ct s
ca m e in to operation. en te re d in to before it
4. It does not lay down
the Rights and Obligatio
no t lay do w n a nu m be ns of the Parties. It does
r of rights an d obligat
enf~rce, it con~ists ra ions w hi ch th e law will
th er a nu ~b er of limiti
w hi ch th e parties may ng principles subject to
cr ea te ng ht s an d oblig
w hi ch th e la w will upho ations fo r themselves
ld. The parties to a co nt
th e la w fo r themselves ra ct , in a sense, make
.
 5 l'1 f. 1 • K A, 1872: NATURE, MEAN INfi, trc. Para 1.4

ri,·oeF1N1r,oN oF coNTRAcr
"
C

Whal Is a Con1 ract ?

\'rtdtms law CX JWt'ts have defi ned the- <:ot1 f nH.:t as fo llows :
♦ ln the words of Sfr William Anson "Contrad is a legally binding
4,ip·t.'ctncnt made between two or more persons by whkh right!) are
ncquired by one or more to acts or forbearances (abstaining from
doing som ething) on the part of others."
♦ According to Pollock "Every agreement and promise enforceable at
law is a contract.n
♦ According to Salmond "Contract is an agreement creating and
defining obligations between the parties."
♦ According to Sec. 2(h) of /CA, 1872 "Contract is an agreement which
is enforceable by law."
Analysis of the above definitions of the contract reveals that a contract
must have following two elements :
1. Agreement, and
2. Enforceability/Enforceable by law
We ~an summarize it as under
Contract= Agreement+ Enforceability/Enforceable ·by law.
Now it is necessary to define both the terms.
What is an agreement?
According to Section 2(e) of the ICA, 1872 "Every promise and every set of
promises farming the consideration for each other is an agreement.•
Now it becomes necessary to define the promise.
According to Sec. 2(b) of the ICA, 1872, "A proposal when accepted,
becomes a promise."
We can summarize it as under :
A&reement = Offer (Proposal) + Acceptance of offer (Proposal)
Thus an agreement is the sum total of two terms, offer and acceptance.
-~,--iti~
Y •X offers to sell laptop to Y for r 30,000. Y accepts this offer. This offer after
acceptance becomes promise and this promise is known ll!_!f&r.e.~!!!!!._ 1:!t
between X andY.
Para 1.5
UNIT 1- INDIAN CONT
RACTACT' 1872
W ha t is an Enforce
ability of an Agreem
ent ? . .
An agre em en t is said .
to be enforceab le bY law if it gives n se to
obligation. In commer
cial or busi.ness agree ments it. is.
pr es d h legal
um e
parties intend to crea .
te legal relatio Wh reas m .
ca se
f • l/ dt at tl11 ~
arrangements, the us ns. e o so
. d cia . orneSli.t
ual presumptio . n · th at th e partie
cr ea te legal relations is s o not intend
: ta
Agreement + legal ob
ligation ---►~ co nt ra ct
Agreement + social ob / ► co nt ra ct
ligation 7
r·- .. ,-- -"·· -- --·· -·~ ~

t EXAMPLES i
1. A promises to sell hi
s car to B for f 10,000 re __
the car. This agreem ceived by hi m as th e pr
ent gives rise to an ob ice of
deliver the car to B. Th ligation on th e pa rt
is agreement is a cont of A to
2. A father promises ra ct.
to pay his son f 1000
Later he refuses to pay. every m on th as pock
In this case the agreem et money.
obligation is involved ent is no t a contract as
. social

1.s ALL .coN1· - weeMeN,■ s

. MENTS ARE ,:·
-.t
au,. ALL AGREE-
t~ "'- - . ·" . ,., . __.. .:._ ..~ -...c:·.X~~,i
di.k"¥,;.;.~}.;,~;,~:~
·. :4:> uh~ ~ ·. ~i:.{;1h,;;.,,S,;6.!{~;,,..t:,_
., ,;...
-. .
E ss en ti al s of a Val
id Contract
It is a valid an d tr ue
statement, it is necess statement. Before we ca n critically exam
ary to understand the in
m en t an d contract. meaning of tw o term e the
Section in this chapteBoth the terms have been explained in s, agree-
r. the earlier
This st at em en t implie
s the following two pa
I. All Contracts are A rts :
greements.
The first essential el
ement ~or a contract
witho1;1t an agreemen to be valid is an ag
reem ent :
th er e is smoke, th er et: th~re can b~ no co~tract. As th e saying go
is fire; for without fir es
Similarly w e ca n say, e th er e ca n be no sm , "~ here
th oke.
without.an agreemen at "Where th er e is contract, th er e is ag
t re
smoke, m th e same w th er e ca n be no co~tract. Ju st as a fire give em ent;
ay, an agreement give s birth to
Another essential elem s bi rt h to a contract".
ent of a contract is th e
to th e contract, th er e le
are many agreements gal obligation for the parties
obligations. As such w hich do no t cr ea te an
these agreements ca y leg~
Note: Example rega n never be te rm ed as
co ntracts.
section in this chapterding legal obligation ha s be en given
r. in the earlier
1 CH. 1 - ICA, 1872: NATURE, MEANING, ETC. Para 1.6

n. All Agreements are not Contracts

An agreement is termed as contract only when it is enforceable by law. ~ll
agreements are not necessarily legally enforceable. It can rightly be said
that an agreement has a much wider scope than a contract. For example,
that agreements which are not legally binding are an invitation to birthday
partY or going for a morning walk and its acceptance. These are agree-
ments and not contracts.

~1.6 ESSENTIALS OF A VALID CONTRACT ··,

! . .. . . - . . • •
.
All those agreements are contracts which possess the following essential
elements as per Section 10 of the Indian Contrac t Act :
1. Offer and Acceptance. There must be a 'lawful ~ r' and a '!awful
acceptance' of the offer, thus resulting in an agreem ent. The adjec-
tive 'lawful' implies that the offer and accepta nce must satisfy the
requirements of the Contrac t Act in relation thereto.
Explanation. The terms offer and accepta nce have been explain ed
with examples in the chapter 2.
2. Intention to Create Legal Relations. There must be an intentio n
among the parties that the agreem ent should be attache d by legal
consequences and create legal obligations. Agreem ents of a social or
domestic nature do not contemp late legal relation s and as such they
do not give rise to a contrac t.
,.- ...... ~---··~·E---·,_
t EXAMPL
An agreement to dine at a friends house is not an agreeme nt giving rise to
contract.

~ commercial and busines s agreem ents the law presum es that the par-
ties entering into agreem ent intend those agreem ents to have legal conse-
quences.
Agreements between husban d and wife also lack the intentio n to create
legal relationship and thus do not result in contrac ts. This provision will be
clear from the following case law :

*Balfour v. Balfour (1919)

Facts : A husband promised to pay his wife a househo ld allowance of 30
pound every month. Later the parties separate d and the husband failed to
 .
. ACT ACT, l 872 8
. 1Nnt/\N c oNTR
Pera l.6 UNI fl · . t succ eed as they did n
lf • WI 11 no Ot
av the prom ised nmou nt. I . Jcld, the W _c • 5
P . r 1,ligal JUTI
:___· _ _ _ _ __ _
I I n., )auon s o 0
1J~t~o~c~n:::•a~tc.:_~,~:1•~1y~
uin~k~-1~ cg:::ra:.:,.____ - ----
- 'cl (a1so refe rred to as rnutu -i
3. Consensus ad Idem. Consens us ad. I cm .
of mind) 1s a Ph rase in
. ct.
contra~t
agre eme nt mutual assent or mee t~g of the part ies
'b h forming th
'
·nten uons . h
the situation w ere t h ere h; e
t
law used to descn e t e 1
·
contract. In partic ul ar, 11 refer s to a
d · · the f orma11.on of the con tract. This con
common understan mg m . .
d necessary requ irem
dition or element is often considere a ent to th ·
e
formation of a contract.
r --- ·- -~ - ,.
EXAMPLE
. . d 'ii) Santro. He does not specify ---
X is the owne r of two cars (1) Honda city an P • ds b S
whic h of the two cars he wants to se ll tO y • y znten. hto uy an tro car
• d · h· b ·
There is no identity of mm zn t is case there fore in t e a senc e of con ·
sent there is no agreement.

4. Lawful Consideration. Another essential element~ of

a valid contract
is the presence of consideration. An agre eme nt mad e in the
absence
of consideration is void. Consideration is the pric e paid by
one party
for the promise of the other party. An agre eme nt is legally
enforce-
able only when each of the parties to it gives som ethi ng
and gets
something. This something in retu rn (quid pro quo ) is
known as
consideration. But only those consideration are vali d
which are
lawful.
5. Competence of Parties to Contract. Parties ente ring
into an agree-
men t mus t be competent and capable of ente ring into cont
ract .
~r•- •-• .... • ~ - - ~ ~, . ,

~ EXAMPLE1 ,, ,t

If X agrees to sell a govt. property to Y andY agrees to buy

that property it
could not be treated as a valid agreement as X .
the property. h .
is not aut onze d owner o
'f

~gr ::;! !~e th:= ;::: ;:~~ ::~: :en t or capable of entering into
an
According to Sec. 11 of ICA / be treated as a valid contract.
con trac t if he : , 18 2, every pers on is com pete nt to
( i) is of the age of majority
• . !
( ii) is of soun d mind and

, ·,.
~
r
Delhi Collag e of Arts & Commerce
I

Ace- No •..QLO 4lU b,!J1t>31

•••••• ••J. ._ ... D,w- ~
~2)-...

CH. 1 - ICA, 1872 : NATURE, MEANING, ETC. Para 1.6

9
( iii) is not disqualified from contracting by any law to which h e is
subject.
So it is clear from the above that the party must be of sound mind and
of age to enter into a valid agreement.
6. free Consent. According to Section 14, consent is said to be free
when it is not caused by :
(t) coercion ( Fo~c.e. , C.,~J)AJI 5..;·,JA.)
( it) undue influence
(iit) fraud
( iv) misrepresentation and
(v) mistake
If the contract is affected by any of the above four reasons then the
contract becomes voidable. If the consent is induced by mistake then
the agreement would stand void, valid or voidable depending upon
the type of mistake. An agreement can be treated as valid, when the
consent of the parties are free and not under any undue influence,
fear or pressure etc. The consent of the parties must be genuine and
free.
7. Legality of Object. The objective of the agreement must be legal or
lawful. Any Act prohibited by law will not be valid and such agree-
ments cannot be treated as a valid contract.

X rents out his flat for business of prostitution or making bomb, the acts
performing these are unlawful and cannot be treated as a valid contract.

Therefore the consideration as well as the object of the agreement

should be legal or lawful.
8. Certainty of Meaning in an Agreement. Wording of an agreement
must be clear and not uncertain or vague.

· 1. J agrees to sell 1500 tones of oil to M. But, what kind of oil i.s not men-
tioned clearly. So on the ground of uncertainty, this agreement stands void.
If the meaning of the agreement can be made certain by the circumstances.
~ It could be treated as a valid contract

D.C.A.C. LIBRAR1
 • Vl I • ' -.J
Oli 4
Para L7 IN D IA N CONTR
1 ACT ACT, 1872
UNTT - lo
.
2 If J is exclusiv
. e dealer of coconu ·t tlte m ea rn·n g o f th e ag re em ent c
be m ad e ce rt ai n by ' t ot d in that case, th
r,,ze cu. .cw ns ta nc e an e ag re em ent caann
be treate d as a "a
li d contract.
----
S ec ti o n 29 o f th
. . e ICA, lS ? 2 provlt.d th a t a g re e m e n ts th e m
o f w h ic h 1s n o t ce rt . o r ca p ab e oefs b ei n g m a d e c e rt a in , a reeanin g
am void.
9 . P o ss ib il it y o . S · 5
f Performance. According to ec. ' if th e a c t is irnpo6
sible o f p er fo rm an all l ally th e a g re s-
ce , Plwsic - 12.,r e m e n t ca n n o t be
d
en fo rc e Y aw b l Im _~ g t ·l ik e o n e c la im s to ru
· pos sible ag re em en s n at a
sp ee d o f 1000 k h . h t o f 1 0 0 fe e t et c. w o
m /h o r ju m p to
c re a te a v alid ag en t All suae h eiac g h 'c h a re n o t ca u ld not
b ei n g p er fo rm ed re em · ts w 1 p ab le of
w o u ld not. cr ea te al.id c o n tr a c t a n
tr e a te d as a v ali av . .. d ca n n o t be
d Contrac t • In essence,
m u st b e th er e to p o ss ib il it y o f p e rf
cr ea te a valid co ormance
1 0 . Agreement n tr ac t.
n o t Expressly D
b e a v al id co n tr ac eclared V o id . A
t sh o u ld n o t h av n ag re d em en t ~d
24-30 specify ce rt e b e e n d e c la re oSrdet_r to
ai n types of ag re a s voz . ec 10ns
d ec la re d as void em en ts w h ic h ~ a
. S o m e of th es e ar v e bee1;1 expressly
ri ag e, ag re em en e ag re em en ts m
ts in re st ra in t o re st ra m t of mar-
le g al p ro ce ed in g f tr ad e, a g re e m
s an d w ag er in g e n t in re st ra in t of
1 1 . L eg al Form
ag re em en ts .
alities. "!:h~~O~
m e n t m u st b e in !r~~t Act _d o es n
writing, it co u ld o t in si st th a t th
st ri ct ly-i n si st th a b e o ra l. B u t in so m e agree-
t t~ ~ _a g re ~ ~ ~ n t e c a se s th e law
to sell im m o v ab ~u~~ -b e in w ri ti n
le p ro p er ty m u st g li k e agreement
te re d _u n d e r th e b e w ri ti n g a n d
T ra n sf ~ ~~ - fr o p sh o u ld__ b e . regis-
a re v al id only w e rt y _i\C:t; 1882. -
h en tfiey fulfil th T h e se ~greemen
ti o n a n d signing e fo rm al it ie s li k ts
b y b o th th e p ar ti e w ri ti n g , registra
ties th e ag re em en es etc. In a b se n c ·
t ca n n o t ta k e th e o f th e se f ormal
e sh ap e o f a v a li i·
T h u s ab o v em en d c o n tr a c t.
ti o n ed a re th e m
In th e ab se n ce o o st im p o rt a n t e le
f an y o f th em , ag m e n ts o f a v al id
co n tr ac t. At th e re em en t sh al l n contract.
en d , w e c a n say o t b e tr e a te d as a valid
th o se ag re em en that_ all ~ontr_ac_t
eleme!'lts o f a val
t~ a re co n tr ac ts
w
~ _cg"'~ a g r_e e_!}"lent
id co~~.:a~t as _p crh ic h p o ss es s th e a b o v e st a te d
S ec ti o n 10.
s but o~\:
essent1~
f' . ' ·
_-1.7 THE LAW O
F CONTRACT IS• '
1
.~GR~~~ENTS NOT THE WHO ~

t-:IOR IS ITTH~ W LE LAW Of

T h is st a te m e n t HO LE LAW OF OBLIG
wil l b e d is cu ss ed u ATIONS
n d er th e foll .... .. . - , .

OWing two p a rt
s:
, .
i
r
ll CH. l - lCA, 1872 : NATURE, MEANING, ETC. Para 1.7
I, The Law of Contract ls not the whole Law of Agreements
A~~,01-ding to Sec. 2('1) of the Act. "A contract is an agreement enforceable
at Jaw•. An agreement to be enforceable at law should have alJ essentials of
ralid contract specified un der Section 1O. According to this section for
yalidity of the contract, "an agreement must be between competent parties,
for a lawful consideration, for a lawful object, made with free consent of
the parties, in w1iting attested and registered and finally should not have
been expressly declared as void under the Indian Contract Act."
Note. All these essentials have been discussed in detail in the earlier section
of this chapter.
Thus according to Sec. 10 of the Act agreements with social obligations
(Balfour vs. Balfour), incompetent parties, absence of free consent, unlaw-
ful object, unlawful consideration, expressly declared as void under the law
etc. cannot be termed as contract. The term "agreement" is wider as
compared to the term "contract".
One of the limitations of the Indian Contract Act is that it does not deal with
certain agreements such as partnership, sale of goods, negotiable instru-
ments and transfer of immovable properties. These are regulated by the
following Acts :
♦ Partnership Agreements. The Partnership Act, 1932
♦ Sale of Goods Agreements. The Sak of Goods Act, 1930 .
♦ Negotiable Instruments Agreements. The Negotiable Instruments
Act, 1881
♦
Trans/er of Immovable Property. The Transfer of Property Act, 1882
Thus we may conclude that the law of contract is not th; whole law of
agreements and the abovementione d agreements are beyond its scope.
U. The law of Contract ls not the whole law of Obligations
According to Salmond" A contract is an agreement creating and defining
obligations between the parties". Every contract gives rise to obligation and
that obligation is enforceable at law. The obligations which have their
source in contract are studied under the Indian Contract Act. But there are
CCrtain obligations which do not arise from a contract. These are :
(z) Obligations Arising from Torts or Civil Wrong. Where a person com-
mits an act of to11 against somt"'one e.g., causing accident due to
negligence, he is under obligation to reimburse th~ loss caust'd to
him. Such an obligation is ,:ast upon the wrong doer under the law
of torts.
Para 1.8 UNlT I - INDIAN CONTRACT ACT, 1872
ti
(ir) Obligati ons arising from Status e.g., trustee and b eneficiary.
(ii,) Obligati ons arising from Quasi Contracts (Secs . .68 · 72 ). Th ese ohli.
gations do not a1ise out of an agreeme nt but are unposed by the I·
e.g., responsib ilities of finder of go~ds and responsib ilities of a
son enjoying benefits of non-grat wtous acts etc.
p:;
( iv) Obligati ons arising from Judgmen ts of Courts. These obligations d
not originate from an agreeme nt but are imposed by the courts upo~
the parties by their verdict.
Thus the aforesaid discussio n leads us to conclude that law of contract ~
not the whole law of obligatio ns.
Sir John Salmond , therefore has rightly observed :
"The law of contract is not the whole law of agreeme nts nor is it the
whole law of obligations, it is the law of those agreeme nts which
create obligations, and those obligations which originate from a
contract. "

Contrac t can be classified accordin g to their:

♦ Creation /Format ion

♦ Extent of Executio n/Perfor mance

♦ Validity /Enforce ability
Contrac ts entered into by the parties can be classified on various basi
under followin g heads :
CLASSIFICATION OF CONTRA CTS

L Based on Creation/F ormation

I
1 1 1
rExecution:erfoiance
Express contract Implied contract Construct ive/ E-contract
Quasi contract
n Based

r
Executed Executory
contract
Partly executt!d &
Partly executory
1
Unilateral
contract contract
F
13 CH. t • lCA, 1R72 : NATPIH~, Mfl./\NJNc;, ETC. Para 1.8
)11. BnM'd on \'nlidity / F,nf on:t•Ahili l y

I
Valid
l 1
Void
1
Voidable
!
Jllcga]
l
Uncnforc..eable
rontrnd contract contract contract contract

FIGURE 1

I. Classification of Contracts based on Creation or Formation

On this basis the contracts may be placed into following categories :
(a) Express Contract. Express contract is one which is made by words
spoken or written
Express contract = Express offer + Express acceptance
( b) Implied Contract. An implied contract is one which is made other-
wise by words spoken or written. It is inferred from the conduct of
the parties or the circumstances of the particular case
Implied contract = Implied offer + Implied acceptance
Note. The terms express+ Implied offer and acceptance will be dis-
cussed in the Chapter 2.
rr= - - ---·- ·-· . "'fl

~EXAMPLES I

There is an implied contract when A :

(l) gets into a public bus
(ti) takes a cup of coffee in a restaurant
(ili) obtains a ticket from (I.Utomatic weighing .machine.
(Iv) withdraws money from ATM. '

r·· ··-· . .... . . , ·:,:1

~ CASE LAW ::. *Uptron Rural District Council vs. Powell ( 1942)
Pacta: A fire broke out in Powell's farm. He called upon the fire bdgade to
put out the fire which the latter did. Now Powell's farm did not come
under service zone although he believed it to be so. Held, he was liable to
pay for the services rendered as the services were rend\.~red by uptron fire
brigade on an implied promise to pay.

(c) Constructive or Quasi Contracts. It is a contn1ct in which th~re is no

intention on the part of either party to make a contract, but the law
Para 1.8 UNIT I • INDIAN CONTRACT ACT, 1872 14
imposes a contract upon the parties. Thus Ufl<lcr Quasi contraq3
the obligations are imposed by the laws.
r -
EXAMPLE
X deUvers a birthday gift to a wrong addressee Y. Y is under an obligation
eith er to pay for it or return it to X.

Quasi contracts are known as constructive contracts under the

English Law. Secs. 68-72 of ICA, 1872 deal with various types of
Quasi-contractual obligations.
( d) E-contract. £-Contract is any kind of contract formed in the course
of e-commerce by the interaction of two or more individuals using
electronic means, such as e-mail, the interaction of an individual
with an electronic agent, such as a computer program or the inter-
action of at least two electronic agents that are programmed to rec-
ognize the existence of a contract. The uniform computer informa-
tion transactions Act provides rules regarding formation, governance
and basic terms of e-Contract. Traditional contract principles and
remedies also apply to e-Contracts. This is ~lso known as electronic
contract.
£-contracts are the contracts executed by Electronic Data Inter-
change EDI. EDI means the electronic transfer from computer to
computer of information using an agreed standard to structure the
information. ·
II. Contract based on Execution/Performa~ce:
Such contracts may be placed into the following categories :
( a) Executed Contract. Executed contract is one where both the parties
to the contract have fulfilled their respective obligations under the
contract.

X offers to sell his bike to Y for r 80,000, Y accepts the offer. Both the
parties to the contract perform their respective obligations. It is an executed
contract.

( b) Executory Contract. A contract is said to be executory where both

the parties to the contract have still to perform their respective ob·
ligations.
►

15 CH. 1 - ICA, 1872: NATURE, MEANING, ETC. Para 1.8

~EXAMPLE '
X offers to sell his bike to Y for r 90,000 Y accepts the offer. If X has not
delivered the bike to Y and Y has also not paid the price to X. It is an
executory contract.

(c) Partly Executed and Partly Executory Contract. A contract where

one party to the contract has already performed his promise and
the other party has yet to execute his promise is known as partly
executed and partly executory contract.

. EXAMPLE .
X sells his cellphone to Y. X delivers the cellphone but Y has yet to pay the
price. For X it is an executed contract, where as it is executory contract for
Y as the price has yet to be paid

(d) Unilateral Contract. It is a contract where one party performed his

part of obligation and other party's obligation is outstanding. It is
also known as one sided contract.
Yo'"" - •. , . . _ - ,

I EXAMPLE ~
Tom promises to pay r 5000 to anyone who finds his lost bike. Harry finds
and restores the same to Tom The contract came into existence from the
time when Harry found the bike. Now Tom has to execute his promise by
paying r 5000 to Harry.

(e) Bilateral Contract (Reciprocal Contract). A contract is known as

bilateral where both the parties to the contract have to perform
their respective obligations. It is also known as two-sided contract
as the obligation is outstanding on the part of both parties. Bilateral
contract are commonly used in business transactions ; a sale of goods
is a type of bilateral contract.
r·· - . ·-·- ·.-, -· -
~
...-EXAMPLE .,;.:
X agrees with Y to sell his certain flat at a certain price at a certain date.
Here at the time of formation of contract the obligations of both the parties
are outstanding therefore, the contract is bilateral

m. Classification based on Validity /Enforceability~

On this basis contracts can be placed m:io following categories :
Para 1.8 llNlT I • INOJAN CONTRACT ACT, 1872
16
(a) Valid Contract. Acontract wlm:h, satis· f'ics'nil the essentials conta,
, . ,
11
undt'r Sec. 10 of JCA, 1872, is a valid contract. l'.d
Vold Agreement, According to Section 2(g) an agreement not en.
forccable by law is said to be void. Such agreements ar~ Voi(! ah
initio which means that they are void or unenforceable since the·
inception. Some time void agreement is not void from the very b~:
ginning but it is discovered to be void later on.
( b) Void Contract. As per sec. 2(J) of ICA, 1872, "A co~tract which ceases
to be enforceable by law becomes void when it ceases to be en.
forceable." In other words, a void contract is a contract which is
valid when entered into but which subsequently becomes Void due
to impossibility of performance, e.g., death of a person, change of
law, out break of war or some other reason.
r ~~- ~
~ EXAMPLES
1. A contracts to import goods from a foreign country may subsequently
become void when war breaks out between the two countries.
2. X offers to marry Y, Y accepts the offer. Later on Y dies in an accident,
this contract was valid at the time when it was formed but became void
whenY died

( c) Voidable Contract. As defined under section 2( i) of ICA, 1872 "void-

able contract is one which is enforceable by law at the option of one
or more of the parties thereto but not at the option of other or oth-
ers•. In other words, voidable contract is one in which consent of
the other party is not free i.e., it is induced by coercion, fraud, un-
due influence or misrepresentation. In such a contract the aggrieved
party has two options to exercise : affirmation or cancellation/ avoid-
ance of contract.

___-·_P_LE...._J_ _ _ _ _ _ _ _ _ _ __
___·_
(_EXAM
X at the gunpoint threatens to killY if he does not sell his fl.at for '5 lakh to
s
X. Y sells the fl.at to X and obtains payment. Here Y consent has been
induced by coercion and the contract becomes voidable at his option.

(d) Illegal contract. An illegal agreement is one the objective of which~

unlawful. Such an agreement is unenforceable by law. Thus ille~,
agreements are always void ab initio (le., void from the very begin·
ning).
17 CH. l - ICA, 1872: NATURE, MEANING, ETC. Para 1.9
Illegal Contract. An agree ment is illegal and void if its object or con-
sideration :
(a) is for bidde n by law ; or
( b) is of such a natur e that. if permitted, it would defea t the pro-
visions of law ; or
(c) is fraud ulent ; or
(d) involves or implies injury to the person or prope rty of another;
or
( e) the court regar ds it as immo ral or opposed to public policy
(Section 23 ).
Thus smuggling of goods, kidnapping of near and dear, planting of
bomb etc. are the comm on examples of illegal agree ment.

EXAMPLE
X lets out his house for gambling purpose to Y. Y does not pay the rent. X
canno t recover this rent amou nt from him throug h the court becau
se the
agree ment betwe en X andY is illegal and also its object is unlaw ful

All illegal agree ments are void but all void agree ments are not nec-
essarily illegal.
Note : Instead of illegal contr act the term 'illegal agree ment ' has
been used becau se due to the features under section 23, an illegal
agree ment can never attain the status of contr act.
(e) Unenforceable contract. It is a contr act which is actua lly valid
but
canno t be enfor ced becau se of prese nce of some technical defec t
(such as not in writing, under stamped). Such contr acts can be en-
forced after the removal of technical dcfect in them. In case of breac h
of such contract, the aggrieved party will not be entitled to the legal
remedies.
". -- .. - . -
t........
-, 1.9__....__SOM E DISTINCTIONS
.... , - . . ' '. ---- . .~-£-
. - . ____ .._ -·- . - --~ - -~- - ~ ~ ~ -

1.9.1 Distinction betwe en Agreement and Contract

Basis Agree ment Contr act
1. Meaning Agreement = Offer + Contra ct = Agreement +
Acceptance Enforceability
2. Scope All agreem ents are not All contra cts are
~ necessarily contra cts agreem ents
Para 1.9

Basis
UNIT I - INDIAN coNTR

Agreement
ACT ACT, 1872

Contract
·~
A contract always creat
3. Creation of An agreement may creat~ a legal obligation es
legal social obligation, domestic
obligation obligation or legal
obligation.
A contract is always
4. Validity & An agreement may or may
enforceable by law.
Enforceability not be enforceable
Parties do acquire rights in
5. Right of Parties do not acquire any
case of a contract.
parties right in case of an
agreement

1.9.2 Distinction between Void Agreement and Void Contract

Void Contract
Basis Void Agreement
1. An agreement not
A contract which ceases
Meaning
enforceable by law is said to be enforceable by law
to be void [Sec. 2(g)] becomes void contract [Sec.
2(1)]

2. Essential Void agreements do not They have all essential

f ea tu res of a have essential features of features but they become
valid contract a valid contract void subsequently.

3. Void ab initio Void agreement is void ab Void contract cannot

initio be void ab initio
4. Examples Agreements with the ( z) Contingent contract
minor ; agreement becoming void on the
without consideration ; happening or non-
agreement with bilateral happening of an event.
mistake ; wagering ( iz) Voidable contract
agreements etc. becoming void in case
of avoidance of the contract.:_
5. Principle of Principle of restitution/ It is applicable in case of
restitution restoration is not void contract i.e., benefits
(Sec. 65) applicable in case of can be restored back to the
void agreement party.

1.9.3 Distinction between Void Agreement and Voidable Contract

Basis Void Agreement Voidable Contra~

1. -Meaning Agreement not An agreement which is
enforceable by law is void enforceable at the option
agreement [Sec. 2(g)] of one or more of the I

parties is a voidable I
contract [Sec. 2( z)].
19 CH. 1 - ICA, 1872 : NATURE, MEANING, ETC.
-- Basi s
Cause
Void Agre emen t
2. Agreement beco mes void
beca use it lacks one of
essentials of a valid
contract.
,_
3. Time Void agre emen t is void
since its inception
- 4. Righ t to claim Right to compensation is
comp ensa tion not available to the party
in case he has suffe red
any loss in an agreement.
5. Enforceable It cann ot be enfo rced by
any party.
6. Righ ts of third Third party does not
party acquire any right.
. .
7. Effec t of lapse Ther e is no effect of lapse
of reasonable of reaso nabl e time beca use
time the agre emen t can neve r
beco me a valid cont ract
1.9.4 Distinction between Void Agreement and Illeg
Basi s Void Agreement
1. Meaning An agre emen t whic h is not
enfo rceab le by law is void
agre emen t [Sec. 2(g)].
2. Scope All void agre emen ts are not
necessarily illegal
3. Void ab initio Thou gh void agre emen t is
void ab initio, sometimes,
valid cont ract may beco me
void subsequently.
Par a 1.9
Voidable Cont ract
- :tl
Agreement beco mes
voidable wher e the cons ent
of the party had not been
free.
Voidable cont ract beco mes
void when an aggrieved
party decides to resci nd it.
In voidable cont ract if the
party has suffe red any
dam age or loss due to frau d
then he has the right to claim
from the othe r party .
It can oe enfo rced by the
party in case of affir mati on
A third party who
purc hase d good s in good
faith and for valu e befo re
the avoi danc e of the
cont ract, acqu ires good
title to thos e good s .
On the expiry of reaso nabl e
time the aggr ieved patty 's
right to avoi d the cont ract
is lost.
al Agreement
Illeg al Agre emen t
An agre emen t with the
illegal obje ctive or consi-
dera tion is illegal or to do
some act whic h is illegal
or imm oral or again st
publ ic policy (Sec. 23).
All illegal agre emen ts are
void.
illegal agre emen ts are void
ab initio.
 UNI T I - lNDJAN CON TRACT ACT, 'I 872

Bas is Void Agre eme nt Illeg al Agreeme-,., 1

4. Pu11ish111ent/ Part ies are not expo sed to In a n ill egal agrc c rri cnt if
crim inal puni shm e nt in case of the p arty h a s don e scJrnc.
liabi lity ·
void agre eme nt. · h JS
w h 1c . I·11 ega,I imm ora lctq
agam · s t p u br1c po I'icy, he niac,r
b e pu n is hed. y
11 S. Effe ct 011
collatera l
In case of void agre em ent Coll ater a l tran sact ions in
colla teral tran sac tions ca se of illeg al agre ements
tran sact ions
m ay not be valid. For are tain ted with illegality
exam ple, wag ering and th eref ore ill egal and
agre eme nt. In case of void . For exam ple, murd er.
wag ering agre eme nts
In case of mu rd er th e calla.
colla teral trans actio n is teral tran sact ion is also
~ valid. illegal.

TES T QUE STIO NS t- -- -- -- -- -- -- -- - · --,

cont ract. (Ref
1. Wha
Para s 1.4, a contract? Explain the essential elements of a valid
t is1.6)

ract". Explain.
2. "All
(Ref . Para racts are agreements, but all agreements are not cont
cont1.5)

3. "The law of contract is not the whole law of

agreements nor is it the whole
ple<
law of (Ref
(200 7) Para s.
. ation
oblig Critically examine the statement giving suit able exam
1. 7)

4. Dist ingu ish betw een : ,

(a) ~gre eme nt and cont ract (Ref. Para 1.9)

7)
(b) Voi~ and illegal agre eme nts (Ref. Para 1.9) (200
1.9)
(c) Void agre eme nt and void cont ract (Ref , Para
(d) Void agre eme nt and Voidable cont ract s (Ref
. Para 1.9)
Para J.9)
lI ~
(e) Bxe cute d and exec utor y cont ract s (Ref. ~

5. Writ ~ shor t note s on:

(a) ImP lied cont ract (b) Bilateral cont ract (Ref. Para J./!J
(c) Agr eem ents discovered to.be void (d)
lJne nfoi 'ceab le cont ract s

PRA CTIC AL PRO BLE MS f ··~ - - - - - - - - -- - - -

y fer a dinner at his house oJI '
1. Ove r a cup of tea In a resta\lJ.'ant, X lnvttea the
X'a liOQae at 8PPGlnted 11m but xtaiJs~
'
I

I'
Sun day . Yhires a taxi.and reach1111
ped onn his !>l"Oitllse. Can Yrec ovet/ any dam aa,, ~ e,