The Fundamentals of Indian Contract Law

Introduction An agreement is a sum of 'offer' and

'acceptance’.
The Indian Contract Act, 1872 has a very
important place in the mercantile law of Promise: Section 2 (b), defines the term
our country. It is a key act that regulates “promise” as: “when the person to whom
Indian Contract Law and is based on the the proposal is made signifies his assent
principles of English Common Law. thereto, the proposal is said to be accepted.
Wherever a deal or an agreement is to be A proposal when accepted, becomes a
reached, the Contract Act is one of the promise”.
most central laws that regulates and
Offer/Proposal: Section 2 (a), defines
oversees all the business. Its applications
“proposal” as “an Expression of
are not limited to business and it affects
willingness, with a view to seek the assent
everybody. Its objective is to ensure that
of the other.
the rights and obligations arising out of a
contract are honoured and legal remedies Thus, a mere expression of willingness
are made available to those who are doesn’t constitute an offer/proposal.
affected.
Acceptance: As per Section 2 (b), when
Division of the Indian Contract Act the person to whom the proposal has been
made signifies his assent thereto, the offer
The division of this Act is as follows:
is said to be accepted. Thus, the proposal
i. Basic Principles of Contract when accepted becomes a promise.
(Sections 1-75)
Performance of the conditions of a
ii. Indemnity and Guarantee
proposal, or the acceptance of any
(Sections 124-147)
consideration for a reciprocal promise
iii. Bailment (Sections 148-181)
which may be offered with a proposal, is
iv. Agency (Sections 182-238)
an acceptance of the proposal.
What is a Contract?
Kinds of Contracts
According to Section 2 (h) of the Indian
From the point of view of Enforceability:
Contract Act, 1872, “A contract is “an
agreement enforceable by law”. i. Void: The contract which cannot
be enforced in any sense.
From the above definition, we find that a
ii. Voidable: The Validity of the
contract essentially consists of two
contract on the willingness of only
elements:
one of the parties and not the other.
(1) An agreement and iii. Valid: Both the condition of valid
agreement and enforceability by
(2) Legal obligation i.e., a duty
the law are satisfied.
enforceable by law.
Agreement: As per section 2 (e) “Every
Essentials of a Valid Contract: For a
promise or set of promises, forming the
contract to be valid the following
consideration for each other, is an
conditions must be satisfied:
agreement."
i. Offer and Acceptance
 ii. Consensus-ad-idem (meeting of by a party to a contract, or with his
minds) connivance, or by his agent, with
iii. Intention to create a legal intent to deceive another party
relationship thereto or his agent, or to induce
iv. Free and Genuine Consent him to enter into the contract.
v. Parties competent to contract
vi. Lawful consideration and object, iii. Coercion (Section 15): “Coercion”
i.e., something in return and that is the committing, or threatening to
must be lawful. commit, any act forbidden by the
vii. Agreement not declared void Indian Penal Code under(45,1860),
viii. Certainty of meaning or the unlawful detaining, or
ix. Possibility of performance threatening to detain, any property,
x. Necessary legal formalities to the prejudice of any person
whatever, with the intention of
Competent to Contract: According to
causing any person to enter into an
section 11, every person is competent to
agreement.
contract who is:
i. of the age of majority iv. Misrepresentation: "causing,
ii. of sound mind, and however innocently, a party to an
iii. not forbidden under any other law agreement to make a mistake as to
the substance of the thing which is
Free Consent: According to Section 13, " the subject of the agreement".
two or more persons are said to be in
consent when they agree upon the same v. Mistake of fact: "Where both the
thing in the same sense (Consensus-ad- parties to an agreement are under a
idem). mistake as to a matter of fact
According to Section 14, Consent is said essential to the agreement, the
to be free when it is not caused by agreement is void".
coercion or undue influence or fraud or
misrepresentation or mistake. These
factors vitiating the free consent are
mentioned below:
i. Undue influence: Section 16(2))
states that "A person is deemed to
be in a position to dominate the
will of another; Where he holds a
real or apparent authority over the
other.

ii. Fraud (Section 17): “Fraud”

means and includes any act or
concealment of a material fact or
misrepresentation made knowingly