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The Indian Contract Act 1872

The Indian Contract Act, 1872 codifies the legal principles that govern ‘contracts’. The Act basically identifies the ingredients of a legally enforceable valid contract in addition to dealing with certain special type of contractual relationships like indemnity, guarantee, bailment, pledge, quasi contracts, contingent contracts etc

All agreements are not studied under the Indian Contract Act, 1872, as some of those are not contracts. Only those agreements, which are enforceable by law, are contracts.

Contract: A Contract is an agreement enforceable by law [Section2(h)].

An agreement is enforceable by law, if it is made by the free consent of the parties who are competent to contract and the agreement is made with a lawful object and is for a lawful consideration, and is not hereby expressly declared to be void [Section10].

All contracts are agreements but all agreements are not contracts.

Agreements lacking any of the above said characteristics are not contracts. A contract that ceases to be enforceable by law is called ‘void contract’, [Section2(i)], but an agreement which is enforceable by law at the option of one party thereto, but not at the option of the other is called ‘voidable contract’ [(Section 2(i)].

Offer and Acceptance: Offeror undertakes to do or to abstain from doing a certain act if the offer is properly accepted by the offeree. Offer may be expressly made or may even be implied in conduct of the offeror, but it must be capable of creating legal relations and must intend to create legal relations. The terms of offer must be certain or at least be capable of being made certain.

Acceptance of offer must be absolute and unqualified and must be according to the prescribed or usual mode. If the offer has been made to a specific person, it must be accepted by that person only, but a general offer may be accepted by any person.

Communication of offer and acceptance, and revocation thereof-

(a) Communication of an offer is complete when it comes to the knowledge of the offeree.

(b) Communication of an acceptance is complete: As against the offeror when it is put in the course of transmission to him as against the acceptor, when it comes to the knowledge of the offeror.

(c) Communication of revocation of an offer or acceptance is complete: It is complete as against the person making it, when it is put into a course of transmission so as to be out of power of the person making it and as against the person to whom it is made, when it comes to his knowledge.

Meaning of certain terms:      

Proposal [(i.e., offer) Section 2(a)] 

When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that either to-

• Such act; or

• Abstinence, he is said to make a proposal (i.e. offer).

Promise [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.

Agreement [Section 2(e)]       

Every promise and every set of promises, forming consideration for each other, is an agreement.

Contract [Section 2(h)] An agreement enforceable by law is a contract.

Promisor and Promisee [Section 2(c)]    

When the proposal is accepted-the person making the proposal is called as ‘promisor’; and the person accepting the proposal is called as ‘promisee’

Consideration [Section 2(d)]

When, at the desire of the promisor, the promise

– has done or abstained from doing something; or

– does or abstains from doing something; or any other person

– promises to do or abstain from doing something, Such act, abstinence or promise is called a consideration for the promise.

Void agreement [Section 2(g)]

An agreement not enforceable by law is said to be void. A void agreement is not enforceable from the very beginning, i.e. it is void ab initio.

Voidable Contract [Section 2(i)]

An agreement is a voidable contract if-

– it is enforceable by law at the option of one or more of the parties thereto,

– it is not enforceable by law at the option of the other or others. Simply speaking, a contract which can be set aside (i.e. terminated or repudiated or avoided) at the option of the aggrieved party is a voidable contract. Until the contract is repudiated, it remains a valid contract. As per Section 64, the aggrieved party must restore the benefit that he has received under the contract. The other party is freed from his obligation to perform the contract.

Void contract [Section 2 (j)]  

A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Simply speaking, a contract which, when entered into, was valid, but subsequently became void due to impossibility of performance or change in circumstances or change in law or some other reason (termed as supervening impossibility), is termed as void contract.

Classification of Contract

Contracts on basis of formation are classified into-

Express Contracts

The contracts are made by the use of words or are written. Express contracts include written and oral contracts. Forming of conditions is done by either of these methods while making a contract.

A offers B to sell his house for 70,000 and B agrees to buy and make a written contract then it will be a type of express contract

Implied Contracts

Contracts made by the use of gestures or actions are known as implied contracts. A contract need not be formal or expressed all the time. Eg of implied contracts is bid at auctions, Consuming edibles at a restaurant as they create implied promises to pay for the benefits enjoyed. 

Contracts based on performance

Extend to which the contracts have been performed they can be classified into

Executed Contract-

Executed means the contracts which have already been performed or done. An executed contract is one in which both parties A and B to the contract have performed their respective obligation.

Example-A agrees to paint a portrait of B for rupees 200. A painted the portrait and B paid the price. The contract is hence set to be executed

Executory Contract-

An executory contract is a contract that is yet to be performed. In an executory contract, both parties obligations to perform are not completed

Example-When A has not painted the picture and b has not painted the time yet then it is an executory contract as both parties have to yet execute the contract.

Unilateral Contract-

A unilateral contract is a one-sided contract. It is a contract in which only one party has to fulfill his obligations at the time of formation of the contract.

Bilateral Contract-

A bilateral contract is one in which the obligation on the part of both the parties to a contract is outstanding. Thus it is similar to an executory contract. Both parties are involved in a bilateral contract who promise to implement certain things.

Contracts on basis of validity-

Valid Contract-

A valid contract is a contract in which all essential elements are present. Sec10 of the Indian Contract Act defines the essentials that are needed for a valid contract. A valid contract consists of lawful consideration, Free consent, lawful object, It should be enforceable by law, etc.

Voidable Contract-

According to sec 2(1)of the Indian contract act 1872-” An agreement which is enforceable by law at the option of one or more parties but not at the option of others is a voidable contract. A contract becomes voidable when an essential element to a contract that is free consent in a contract is missing. When consent of the party is said to be obtained by coercion, Undue Influence, Misrepresentation, Fraud the contract is voidable at the option of the party whose consent is not free.

Example -A promises to sell a plot to B for rupees 5000. His consent is caused by coercion; such a contract is then said to be voidable and can be avoided or accept the contract.

Void Agreement-

A contract that is void and unenforceable ab initio is called a void contract. According to 2(g)of the Indian Contract Act, An agreement that is not enforceable by law is said to be void. A void contract does not create any legal obligation.

Example-A minor’s agreement is void ab initio so it is void. This was held in the case of Mohini Bibi vs Dharmodar Ghose.

Void Contract

When a contract ceases to be enforceable by law becomes void when it ceases to be enforceable.

Void Contracts are contracts which when originally made were valid and binding on parties but eventually become void due to some circumstance.

Example-A Contract to import goods from a foreign country is valid but war breaks out between the exporting and importing country after the contract is made the contract becomes void.

Illegal Agreements-

An Agreement against the public policy or violates rules against public policies is called an illegal agreement. Thus agreements that are criminal or are immoral are illegal. All illegal agreements are void but not all void agreements necessarily are illegal.

Example-An agreement to sell drugs, and Agreement to kill someone, etc.

Unenforceable Contract-

An unenforceable contract is a contract that cannot be enforced in a court of law because of some technical defect. The defect may be in the form of absence of writing, registration, or barred by lapse of time.