Indian Contract Act 1872 is the main 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. All of us enter into a number of contracts everyday knowingly or
unknowingly. Each contract creates some right and duties upon the contracting parties. Indian
contract deals with the enforcement of these rights and duties upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It applies to
the whole of India except the state of Jammu and Kashmir. It is not a complete and exhaustive
law on all types of contracts.

Contents
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 1 Definition
 2 Essential Elements of a Valid Contract
 3 Types of Contracts
 4 Offer
 5 Acceptance
 6 Lawful Consideration
 7 Competent To Contract
 8 Free Consent
 9 Revocation of Offer
 10 Agency
 11 Notes
 12 References
 13 External links

[edit] Definition
Section 2(h) of the Act defines the term contract as "an agreement enforceable by law".

Section 2(e) defines agreement as "every promise and every set of promises, forming the
consideration for each other."

Again Section 2(b) defines promise in these words: "when the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted,
becomes a promise."

[edit] Essential Elements of a Valid Contract

According to Section 10, "All agreements are contracts, if they are made by the free consent of
the parties, competent to contract, for a lawful consideration with a lawful object, and not hereby
expressly to be void."

Essential Elements of a Valid Contract are:-

1.Proper offer and proper acceptance.

2.Lawful Consideration: An agreement to form a valid contract should be supported by

consideration. Consideration means “something in return” (quid pro quo). It can be cash, kind, an
act or abstinence. It can be past, present or future. However, consideration should be real and
lawful.

3.Competent to Contract or Capacity.

4.Free Consent: To constitute a valid contract there must be free and genuine consent of the
parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue
influence or mistake.

5.Lawful Object and Agreement: The object of the agreement must not be illegal or unlawful.

6. Agreement not declared void or illegal: Agreements which have been expressly declared void
or illegal by law are not enforceable at law; hence does not constitute a valid contract.

7. Intention To Create Legal Relationships

8. Certainity, Possibility Of Performance

9. Legal Formalities

[edit] Types of Contracts

On the basis of Validity:

1. Valid contract: An agreement which has all the essential elements of a contract is called a
valid contract. A valid contract can be enforced by law.

2. Void contract[Section 2(j)]: A void contract is a contract which ceases to be enforceable by

law. A contract when originally entered into may be valid and binding on the parties. It may
subsequently become void.

3. Voidable contract[Section 2(i)]: An agreement which is enforceable by law at the option of

one or more of the parties thereto, but not at the option of other or others, is a voidable contract.
If the essential element of free consent is missing in a contract, the law confers right on the
aggrieved party either to reject the contract or to accept it. However, the contract continues to
be good and enforceable unless it is repudiated by the aggrieved party.
4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if
permitted, would defeat the provisions of nay law or is fraudulent; or involves or implies injury
to a person or property of another, or court regards it as immoral or opposed to public policy.
These agreements are punishable by law. These are void-ab-initio.

“All illegal agreements are void agreements but all void agreements are not illegal.”

5. Unenforceable contract: Where a contract is good in substance but because of some technical
defect cannot be enforced by law is called unenforceable contract. These contracts are neither
void nor voidable.

On the basis of Formation:

1. Express contract: Where the terms of the contract are expressly agreed upon in words (written
or spoken) at the time of formation, the contract is said to be express contract.

2. Implied contract: An implied contract is one which is inferred from the acts or conduct of the
parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise
than in words, promise is said to be implied.

3. Tacit contract.

4. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not
contracts as there is no intention of parties to enter into a contract. It is legal obligation which is
imposed on a party who is required to perform it. A quasi contract is based on the principle that a
person shall not be allowed to enrich himself at the expense of another.

On the basis of Performance:

1. Executed contract: An executed contract is one in which both the parties have performed their
respective obligation.

2. Executory contract: An executory contract is one where one or both the parties to the contract
have still to perform their obligations in future. Thus, a contract which is partially performed or
wholly unperformed is termed as executory contract.

3. Unilateral contract: A unilateral contract is one in which only one party has to perform his
obligation at the time of the formation of the contract, the other party having fulfilled his
obligation at the time o the contract or before the contract comes into existence.

4. Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the
contract is outstanding at the time of the formation of the contract. Bilateral contracts are also
known as contracts with executory consideration.

[edit] Offer
Proposal is defined under section 2(a) of the Indian contract Act, 1872 as "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 other to such act or abstinence, he is said to make a proposal/offer".
Thus, for a valid offer, the party making it must express his willingness to do or not to do
something. But mere expression of willingness does not constitute an offer. An offer should be
made to obtain the assent of the other. The offer should be communicated to the offeree and it
should not contain a term the non compliance of which would amount to acceptance.

Classification of Offer

1. General Offer: Which is made to public in general.

2. Special Offer: Which is made to a definite person.

3. Cross Offer: Exchange of identical offer in ignorance of each other.

4. Counter Offer: Modification and Variation of Original offer.

5. Standing, Open or Continuing Offer: Which is open for a specific period of time.

The offer must be distinguished from an invitation to offer.

Invitation to offer

An invitation to offer is only a circulation of an offer, it is an attempt to induce offers and

precedes a definite offer. Acceptance of an invitation to an offer does not result contract and only
an offer emerges in the process of negotiation. A statement made by a person who does not
intend to bound by it but, intends to further act, is an invitation to offer.

[edit] Acceptance
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."

Rules:

1. Acceptance must be absolute and unqualified.

2. Communicated to offeror.

3. Acceptance must be in the mode prescribed.

4. Acceptance must be given within a reasonable time before the offer lapses.

5. Acceptance by the way of conduct.

6. Mere silence is no acceptance.

[edit] Lawful Consideration

According to Section 2(d), Consideration is defined as: "When at the desire of the promisor, the
promisee has done or abstained from doing, or does or abstains from doing, or promises to do or
abstain something, such an act or abstinence or promise is called consideration for the promise."

In short, Consideration means quid pro quo i.e. something in return.

An agreement must be supported by a lawful consideration on both sides.

The consideration or object of an agreement is lawful, unless and until it is- 1.forbidden by law,
or 2.is of such nature that ,if permitted ,it would defeat the provisions of any law ,or 3.is
fraudulant ,or involves or implies injury to the person or property of another ,or 4.the court
regards it as immoral ,or opposed to public policy. 5.consideration may take in any form-
money,goods,services,a promise to marry, a promise to forbear etc.

[edit] Competent To Contract

Section 11 of The Indian Contract Act specifies that every person is competent to contract
provided:

1. He should not be a minor i.e an individual who has not attained the age of majority i.e. 18
years.

2. He should be of sound mind while making a contract. A person with unsound mind cannot
make a contract.

3. He is not a person who has been personally disqualified by law.

[edit] Free Consent

According to Section 13, " two or more persons are said to be consented when they agree apon
the same thing in the same sense (Consensus-ad-idem).

A consent is said to be free when it not caused by coercion or undue influence or fraud or
misrepresentation or mistake.

Elements Vitiating free Consent

1. Coersion (Section 15): "Coercion" is the committing, or threatening to commit, any act
forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any
property, to the prejudice of any person whatever, with the intention of causing any person to
enter into an agreement.
2. Undue influence (Section 16): "Where a person who is in a position to dominate the will of
another enters into a contract with him and the transaction appears on the face of it, or on the
evidence, to be unconscionable, the burden of proving that such contract was not induced by
undue influence shall lie upon the person in the position to dominate the will of the other."

3. Fraud (Section 17): "Fraud" means and includes any of the following acts committed by a
party to a contract, or with his connivance, or by his agent, with intent to deceive another party
thereto of his agent, or to induce him to enter into the contract.

4. Misrepresentation (Section 18).

5. Mistake of fact (Section 20).

[edit] Revocation of Offer

A proposal may be revoked at any time before the communication of its acceptance is complete
as against the proposer, but not afterwards. An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor, but not afterwards.

A proposal is revoked -

(1) by the communication of notice of revocation by the proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so
prescribed, by the lapse of a reasonable time, without communication of the acceptance;

(3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or

(4) by the death or insanity of the proposer, if the fact of the death or insanity comes to the
knowledge of the acceptor before acceptance.

[edit] Agency
In law, the relationship that exists when one person or party (the principal) engages another (the
agent) to act for him, e.g. to do his work, to sell his goods, to manage his business. The law of
agency thus governs the legal relationship in which the agent deals with a third party on behalf of
the principal. The competent agent is legally capable of acting for this principal vis-à-vis the
third party. Hence, the process of concluding a contract through an agent involves a twofold
relationship. On the one hand, the law of agency is concerned with the external business relations
of an economic unit and with the powers of the various representatives to affect the legal position
of the principal. On the other hand, it rules the internal relationship between principal and agent
as well, thereby imposing certain duties on the representative (diligence, accounting, good faith,
etc.).

Under section 201 to 210 an agency may come to an end in a variety of ways:
 (i) By the principal revoking the agency – However, principal cannot revoke an agency
coupled with interest to the prejudice of such interest. Such Agency is coupled with
interest. An agency is coupled with interest when the agent himself has an interest in the
subject-matter of the agency, e.g., where the goods are consigned by an upcountry
constituent to a commission agent for sale, with poor to recoup himself from the sale
proceeds, the advances made by him to the principal against the security of the goods; in
such a case, the principal cannot revoke the agent’s authority till the goods are actually
sold, nor is the agency terminated by death or insanity. (Illustrations to section 201)
(ii) By the agent renouncing the business of agency;
(iii) By the business of agency being completed;
(iv) By the principal being adjudicated insolvent (Section 201 of The Indian Contract
Act. 1872)

The principal also cannot revoke the agent’s authority after it has been partly exercised, so as to
bind the principal (Section 204), though he can always do so, before such authority has been so
exercised (Sec 203).

Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate the
agency before the time expired, except for sufficient cause. If he does, he is liable to compensate
the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an
agency for a fixed period. Notice in this connection that want of skill continuous disobedience of
lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of
an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage
resulting from want of such notice, will have to be paid (Section 206). As per section 207, the
revocation or renunciation of an agency may be made expressly or impliedly by conduct. The
termination does not take effect as regards the agent, till it becomes known to him and as regards
third party, till the termination is known to them (Section 208).