CONTRACT ACT 1872

THE CONTRACT LAW 1872 IS APPLICABLE

TO WHOLE INDIA EXCPT THE STATE OF
JAMMU AND KASHMIR AND CAME INTO
FORCE ON THE FIRST DAY OF SEPT 1872.
CONTRACT
 Sec.2(h) of the Indian contract act defines
a contract as an agreement enforceable at
law. thus contract has two essential
elements(i) agreement (ii) obligation
 It creates rights and obligations between
the parties to the contract which are
collective .In case a party refuses to honour
a contracted obligation it will give right of
action to the other party.
Agreement
 An agreement is defined as every
promise and every set of promises
forming the consideration for each
other.

 An agreement is said to be contract

when it is enforceable by law.
Essential elements of contract
 Agreement -This require proposal from the side of one party and its
acceptance by the other party.
 Offer and acceptance
 Competent parties-the parties entering into the contract should be
competent to enter into the contract.e.g minor cannot enter into contract.
 Free consent-consent is said to be free if it has been given by the parties
independently without any fear and favour.
 Consideration-it means something in return. in a valid contract both the
parties should get something in return, subject to some exceptions.
 Legal objective-the purpose to enter into the contract should be legal and
enforceable at law.
 Not expressly declared void-the agreement must have not been
expressly declared void by any law in force in the country.
 Certainty-sec29 of the contract act provides that the meaning of contract
should be certain or capable to be made certain. for e.g. A agree to sell car
to B . The name and model of car is not stated in contract thus such
contract cannot be enforceable at law.
 Possibility of performance-the contract should be capable to perform. if
the act is impossible to perform physically or legally ,the agreement cannot
be enforced at law.
 Kinds of contract

Basis of Basis of mode of Basis of extent of

enforceability creation execution

Valid contract Express &implied Executed contract

contract

Voidable contract Constructive& Executory contract

Quasi contract

Void contract

Illegal contract
 Valid contract
Valid contract is an
agreement enforceable
by
law when all the
essential elements of
a valid contract
Are present.
 Voidable contract
 sec 2(i) defines
 voidable contract
 as 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. This
 happens when the
consent is not free. The party whose
consent is not free may either rescind
the contract or elect to bound it. A
voidable contract continue to be valid till
it is avoided by the party whose
consent was not free.
A contract becomes voidable in the
following two cases
 When a person promises to do something
for another person for a consideration but
the other person prevents him from
performing his promise, the contract
becomes voidable at his option (sec 53)
 When a party to a contract promises to
perform an obligation within a specified
time, any failure on his part to perform his
obligation within the fixed time makes the
contract voidable at the option of the
promisee (sec 55)
Example of voidable contract
 Suraj threatens to shoot Bhuvan if he
does not sell his new bajaj scooter to
Suraj for Rs20000.Bhuvan agrees.
The contract has been brought about
by coercion and is voidable at the
option of Bhuvan.
Void contract
A contract which is not enforceable
By law is void contract. Here no party
Can enforce at court of law.
Void contracts are valid at the time
Of execution but become void
afterwards due to certain reason.

Section 2(g)
Example of void contract
 A and B contract to marry each
other .before the time fixed for the
marriage ,A goes mad. The contract
to marry becomes void.
 A agree to sell B 100 bags of wheat
at Rs650 per bag. Before delivery
,the govt bans private trading in
wheat .the contract becomes void.
The reasons which transform a
valid contract into a void contract
 Supervening impossibility (sec56)
 Subsequent illegality
 In case of a contract contingent on
the happening of an uncertain future
event, if that event become
impossible.
Void agreement
 An agreement not enforceable by law
is said to be void.(sec2(g)).void
agreement does not give rise to any
legal consequences and is void
ab-initio
Example:an agreement with minor is
void agreement.
Expressly declared void
agreements
 Agreement in restraint of marriage(sec-26)
 Agreement in restraint of trade (sec-27)
 Agreement in restraint of legal
proceedings(sec-28)
 Agreements the meaning of which is
uncertain(sec-29)
 Agreements by way of wager(sec-30)
 Agreement contingent on impossible
events(sec-36)
 Agreement to do impossible acts(sec-56)
 Agreement
expressly
Declared void

Agreement to do
Agreement in Agreements the Agreements by Agreement contingent
Agreement in Agreement in impossible
restraint of legal meaning of which way of on impossible
restraint of restraint acts(sec-56)
proceedings(sec-28) is uncertain(sec-29) wager(sec-30) events(sec-36)
marriage(sec-26) of trade(sec-27)
1.Agreement in restraint of
marriage
section-26-void
 Every individual enjoys the freedom
to marry. Every agreement in
restraint of the marriage of any
person, other than a minor is void.
 For example : an agreement between
A and B that A will not marry in his
life by taking good consideration from
B,is void agreement
2.Agreement in restraint of trade
section-27-void
 Every agreement by which any one is
restraint from exercising a lawful profession
,trade or business of any kind is to that
extent is void.
 E.g-an agreement whereby one of the
parties agrees to close his business in
consideration of the promise by the other
party to pay certain sum of money ,is void
being an agreement is restraint of trade,
and the amount is not recoverable if the
other party fails to pay the promised sum
of money.(Madhub Chander Vs. Raj Kumar)
Exceptions to agreement of
restraining to trade
 Sale of goodwill
 Partners’ agreement

 Trade combination

In above agreements one party can

restrain other party to enter into
trade
Sale of goodwill
 The seller of the goodwill of a business can
be restrained from carrying on a similar
business ,within specified local limits, so
long as the buyer or any person deriving
title to the goodwill from him.provided the
restraint is reasonable in point of time and
space
 E.g-shikha after selling the goodwill of her
business to shruti promises not to carry on
similar business “anywhere in the world".
As the restraint is unreasonable the
agreement is void.
Partners’ Agreement
 An agreement among the partners
that a partner shall not carry on any
business other than that of the firm
while he is partner.
Trade combination
 Agreement in the nature of a business
combination between traders or
manufacturers e.g. not to sell their goods
below a certain price to pool profits or
output and to divide the same in an agreed
proportion does not amount to a restraint
of trade.
 FRASER & Co.Vs BOMBAY ICE COMPANY
3.Agreement in restraint of legal
proceedings -section 28-void
 An agreement by which a party is
restraint absolutely from taking usual
legal proceedings in respect of any
rights arising from a contract.
 An agreement which limits the time
within which one may enforce his
contractual rights, without regard to
the time allowed by the limitation Act.
4.Uncertain agreenment-sec-29-
void
 Agreement meaning of which is not
certain or not capable of being made
certain are void. Thus if the words
used by the parties are vague or
indefinite ,the law cannot enforce the
agreement
Obligation of person who has received
advantage under void agreement that
become void
 Section 65 ,the person receiving any benefits
from void agreement or contract has to
restore the benefit or to make compensation
to that person from whom he has received it
 Example: A pays B Rs1000 for B’s agreeing
to sell his horse to him. it turns out that the
horse was dead at the time of the bargain
,though neither party was aware of the fact
.in this case the agreement is discovered to
be void and B must repay to A Rs1000.
When contract become void and one party has
received some benefits

 Example in void contract

A is not bound to
A accept 1000 Compensate B for the
From B to dance Profit he could have if
In concert but A would dance.but A
He become A B Has to refund 1000 to
ill B.
Unenforceable contract
 An unenforceable contract is one
which is valid in itself ,but is not
capable of being enforced in a court
of law because of some technical
defects such as absence of
writing,registration,requisition stamp
etc.
Illegal or unlawful contract
 The contract which is contrary to law.
 An agreement is illegal when
objective or consideration is forbidden
by law, is fraudulent, involves injury
to the person or property to another,
the court regards it as immoral.
 All illegal agreements are void but all
void agreement are not illegal.
Tom enter into contract with Micky to kill Jerry
.such contract is not enforceable at law and hence
void and illegal

Because killing someone is forbidden by law.

Kinds of contract on the basis of
mode of creation
 Express contract
 Implied contract
 Constructive or quasi contract
Express contract
 The contract where both the offer and
acceptance enforceable by law are
made in words spoken or writing .
 I agree
To
I agree Buy
To sell Horse
My horse From
To donald Bose
Implied contract
 Where both parties to contract
constituting an agreement
enforceable by law are made
otherwise than in words i.e. by acts
and conduct of the parties, the
contract is known as implied contract.
example
 Where A coolie in uniform take up the
luggage of B to be carried out of the
railway station without being asked
by B and B allows him to do so,then
the law implies that B agrees to pay
for the services of A and there is an
implied contract
Constructive or quasi contract
 The contract which is created by law
is quasi contract. such contract does
not arise by virtue of any agreement
express or implied between the
parties but the law recognize a
contract under special cirmstances
Example of quasi contract
 Obligation of finder of lost goods to
return them to true owner .here the
finder and the owner have not
entered into contract but it is contract
under the eyes of law. and obligation
arises on one party.
Kinds of contract on the basis of
execution
 Executed contract
 Executory contract
Executed contract

Mickey found mouse’s

Mouse promise Purse and gave it
To give prize to To him and got the
Person who will prize
Find his purse

Here both the parties have performed their duties and obligation.
Thus the contract is executed contract
Executory contract

I will sell
My horse I will buy the horse
In Rs2000 In Rs2000

Neither Donald sell his horse nor Mickey pays to Donald

Thus both the parties still have not performed for their contract and hence the
Contract is executory contract
Privity of contract
 In general third party cannot sue for
the carrying out of promise made by
the parties to a contract.
Decided case on privity of contract
 In Shankar V.Umbabhai (1915) 37
Bom.471,A effected a policy of insurance
on his own life ,and the policy was
expressed to be for the benefit of his wife.
The wife was held not entitled to sue the
insurance company ,as she was not a party
to the contract of assurance .she could
have sued if the policy had been assigned
in writing to her by the assured ,or a trust
had been created by the assured.