Indian Contract Act, 1872

• The Indian Contract Act, 1872 came in to force on 1st September,

1872.
• It applies to the whole of India
• It occupies the most important place in the commercial law
• Without Contract Law it would be difficult to carry on trade or any
other business activity
• The objective of the Act is to ensure that the rights and obligations
arising out of a contract are honoured and legal remedies are made
available to those who are affected
• The Act deals with agreements which can be enforced through courts
of law
• The Act was passed by British India and is based on the principles of
English common law
Definition of Contract
• Pollock, “Every agreement and promise enforceable at law is
contract.”
• Salmond, “It is an agreement creating and defining obligations
between the parties.”
• Anson, “A contract is a legally binding agreement between two or
more persons by which rights are acquired by one or more to acts or
forbearances on the part of the other or others.”
• According to Section 2(h), “An agreement enforceable by law is a
contract.”
• Contract = agreement + enforceability
• A mere social agreement is not enforceable by law and thus it is not a
contract
• Eg: promise to go to movie, dinner
• Agreement according to section 2(e) of the Act, “every promise and
every set of promises, forming the consideration for each other, is an
agreement.”
• Eg: ‘A’ promises to deliver his car to ‘B’ and in return ‘B’ promises to
pay a sum of Rs.50,000 to ‘A’.
• It is said to be an agreement between ‘A’ and ‘B’.
• According to section 2(b), “When the person to whom the proposal is
made, signifies his assent thereto, the proposal is said to be accepted.
A proposal, when accepted, becomes a promise.”
• Eg: ‘A’ offers to sell his house to ‘B’ and ‘B’ accepted to buy the
house.
• There is an acceptance of proposal and thus resulted in a
promise
• Consensus ad idem means meeting of minds
• Unless there is no consensus ad idem, there can be no contract
• Eg: A, who owns two horses named Alfa and Beta, is selling horse Alfa
to B. B thinks he is purchasing horse Beta. There is no consensus ad
idem and consequently no contract.
• Obligation or Enforceability at Law
• An agreement to become a contract, must give rise to a legal
obligation or duty.
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• An agreement which gives rise to a social obligation is not a contract.
Essentials of a valid contract
• An agreement, to be enforceable by law, must posses the essential
elements of a valid contract as contained in section 10 of the Indian
Contract Act.
• According to section 10, “All agreements are contracts if they are
made by the free consent of parties competent to contract, for a
lawful consideration and with a lawful object, and are not hereby
expressly declared to be void.”
• Proper offer and acceptance
• Intention to create legal relationship
• Lawful consideration
• Competent parties
• Free consent
• Lawful object
• Certainty of meaning
• Possibility of performance
• Not declared to be void or illegal
• Legal formalities