1.

Introduction to Law of Contract & Indian Cntract Act,1872 Before the

year 1872, there was no uniform Law of Contract applicable to the
whole of British India. The Supreme Court of India established by the
Royal Charter adopted the Law of England with some modifications while
the judges in Mufussil Courts were to a great extent without the guidance of
any law. They were guided by the principle that their decisions should
be in accordance with justice, equity and good conscience. The Indian
Contract Act came into force on the first day of September, 1872 Prior
to this enactment, the law relating to contracts as applied in India was
wanting in uniformity and certainty. It was a mixed bag. It was partly
English law, partly Hindu law and partly Muslim law. What principle of
which law would be applied by the court to the point in dispute was
extremely difficult to predict before hand till the judicial pronouncement
was made. Law was never certain because the courts also changed their
views form time to time. The Indian Contract Act,1872 did greatly
shorten, simplify and ascertain one of the most important branches of law.
It endeavored to codify, that is to say arrange clearly and
systematically, the chief rules relating to the formation, ratification,
and discharge of all agreements enforceable by law, made between
two or more persons by which rights are acquired by one or more than
one to act or forbearances on the part of others. The Contract Act of 1872
dealt, interalia, with the Sale of Goods, Indemnity and Guarantee, law of
Bailment, Agency and Partnership. However, many leading jurists and
lawyers criticized this Act for many reasons. In 1925 the Civil Justice
Committee observed “ The Indian Contract Act was in some respects a
foresighted statute, but it was never among the best of our codes and today
it needs amendment.” Attempts have been made to improve the
Contract Act, in 1930 a separate Act on Sale of Goods was passed. In
consequence of the passage of these Acts, the corresponding Chapters
of the Contract Act have been repealed. Apart from this, the Contract
Act has not been much modified from the date of its enactment The
Law Commission of India has made recommendations for the
amendment of the Law of Contracts in some respects, but these
recommendations have not been fully implemented so far.

2. DEFINITIONS: INTERPRETATION CLAUSE: Section 10 has to be read

along with section 2(Interpretation clause). Section 2 provides: 2 In this
Act the following words and expressions are used in the following
senses unless a contrary intention appears from the context: a)
“Proposal”: 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.
b) “Acceptance” and “Promise”: 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; c) “Promisor
and Promisee”:The person making the proposal is called the
‘promisor’, and the person accepting the proposal is called the
‘promisee’; d) “Consideration”: When at the desire of the promisor,
the promisee or any other person has done or abstained from doing,
or promises to do or to abstain from doing something, such Act or
abstinence or promise is called ‘consideration’ for the promise; e)
“Agreement”: Every promise and every set of promises forming the
consideration for each other is an agreement; f) “Reciprocal
Promises”: Promises, which form the consideration or part of the
consideration for each other are called ‘reciprocal promises’; g) ”Void
Agreement”: An agreement not enforceable by law is said to be void;
h) “Contract”: An agreement enforceable by law is a contract. i)
“Voidable Contract”: An agreement which is enforceable by law at the
option of one or more parties thereto but not at the option of the
other or others, is a voidable contract; j) “Void contracts”: A contract
which ceases to be enforceable by law becomes void. From the point
of view of the legality and the essentials of a contract laid down under
Section 10, there is difference between an agreement and a contract.

3. CONTRACT & AGREEMENT: MEANING, DEFINITION, DIFFERENCE The

object of Law of Contract is to ensure that what a man has been led to
expect shall come to pass, i.e., what has been promised to him shall be
performed. A Contract to a layman, means a piece of paper, on which
are certain conditions the parties have agreed to. There are, however,
only a few Contracts, which have to be expressed in writing, and in our
everyday lives, all of us assume contractual obligations without
writing, and sometimes without words. A contract has been variously
defined because like an elephant, it is easier to describe than to define a
contract. An early attempt to define contract was made by Sir
Frederick Pollock, according to him “A contract is a promise… that law
will enforce.” Anson, defined a contract as “a legally binding
agreement made between two or more persons.” The definition of
Contract in Section 2(h) of the Indian Contract Act, is built upon successive
definitions of the essentials of a contract as “an agreement enforceable by
law.” 3 Agreement: Sec.2(e) defines an agreement as “Every promise, and
every set of promise forming the consideration for each other”. Agreement
implies two or more persons who agree upon the same thing in the
same sense. It may create legal obligations. An agreement can come
into existence only when the parties communicate with each other
(offer and its acceptance) with a view to create contractual rights and
obligations/duties between the contracting parties. An agreement
between the two parties is the result of a proposal or offer by one party
followed by its acceptance by the other. [see sections 2(a) and 2(b)]. Every
agreement in its ultimate analysis, is made of a proposal/offer from one
side, and its acceptance by the other. Only those agreements are contracts,
which are enforceable by law. Contract(sec. 2(h) :‘An agreement
enforceable by law is called a contract’. . In other words an agreement
that the law will enforce is a contract. If an agreement is not enforceable by
law, it is not a contract but it is only an agreement. Thus to make a contract,
there must be: A. An agreement: and B. The agreement should be
enforceable by law.

4. ESSENTIALS OF CONTRACT: (Sec.10) An agreement is regarded as a

contract when it is enforceable by law.The conditions of enforceability
are laid down in Section 10.Section 10 provides: “All agreements are
contracts if they are made by the free consent of the parties
competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to by void.”(section-10)
Therefore, an agreement to be legally binding, enforceable and to result in a
valid contract: must satisfy the following requirements: I. The agreement
must be made with the free consent of the parties ; II. The parties must be
competent to contract; III. There must be consideration; IV. The
consideration and object must be lawful; and V. The agreement must not be
expressly declared to be void; The agreement must comply with the
provision of any law requiring it to be in writing, or attested or registered.
Although written form of agreements is not obligatory under Indian
Contract Act,1872,but it will be the better if agreement is in writing.
Section 10 sets out the various elements or essentials, which may affect the
validity of a contract and thus prevent it from being legally binding or
enforceable. Therefore, “every contract is an agreement but every
agreement is not a contract. It has been noted above that in order that an
agreement becomes a contract, it has to satisfy all the essentials of a valid
contract as mentioned in section 10. A contract is an 4 agreement creating
an obligation, that is, a duty enforceable by law. Such an agreement is
binding on both the parties. The two essential elements of a contract are:
(1) agreement, and (2) agreement must be enforceable by law. Thus if
there is an agreement between A and B, that A will paint a picture for B,
and B will pay Rs.1000 to A, the agreement is a contract. Because on
account of the agreement B is entitled to an act that is, painting of a picture,
to be performed by A. Therefore, if an agreement creates a legal
relationship between the parties and enables a man to compel another to
do or not to do something or enables both to perform their respective
promises, it is a contract. All agreements are not contracts but all contracts
are agreements: For example, if A agrees to go to picture with B or if A
agrees to dine with B on a particular date but fails to turn up on the
appointed date, does not create legal obligation between the parties but
creates only social obligation. The parties cannot bring a suit against each
other, as the agreement does not create legal obligations, which can be
enforced. If an agreement creates legal obligations/contractual obligations,
which can be enforced through a court of law, the agreement is called a
contract. Thus all the agreements are not contracts, however, all contracts
are agreements. The conditions for enforceability of an agreement to
become a contract are laid down under section 10. Question: How can you
distinguish ‘Contract’ from an ‘Agreement’.------------------------ I. Free
Consent: Thirdly, the agreement must be made by the free consent of the
parties. “Consent” means “to agree upon the same thing in the same sense”
(S:13). According to Section 14, defines and explains ‘free consent’ .
‘Consent’ is said to be free when it is not caused by: a) Coercion (S:15)
b) Undue influence (S:16) c) Fraud (S:17) d) Misrepresentation (S:18
and 19), and e) Mistake (S: 20, 21 and 22) Where consent to an
agreement is caused by coercion, undue influence, fraud and mis-
representation, the agreement is a contract voidable at the option of
the party whose consent was so caused. An agreement, which is
enforceable by law at the option of one or more, parties thereto, but not at
the option of the other or others is a voidable contract [S: 2(i)]. For
example, “A” threatens to shoot B if he does not let out his house to him (A),
and B agrees. The agreement has been brought about by coercion and is
voidable at the option of B. Where consent is caused by mistake of both the
parties the agreement is void. Mistake must be of fact and not of law. A void
agreement is not enforceable at the option of any party. Therefore,
‘consent’ is said to be free when it is not caused by Coercion, Undue
influence, Fraud and Misrepresentation and the agreement is a contract
voidable at the option of the party whose consent was so caused.
II. Capacity to Contract: Who is competent to contract? Capacity to
contract or competent to contract is also one of the essentials of a
valid contract. Section 10 requires that the parties must be competent
to contract. Competence of the parties to a contract is defined in
Section 11, which provides: “Every person is competent to contract: 5
a) Who is of the age of majority according to the law to which he is
subject; b) Who is of sound mind, and c) Who is not disqualified from
contracting by any law to which he is subject. In other words, section
11 declares the following persons to be incompetent to contract: a)
Minors; b) Persons of unsound mind, and c) Persons disqualified by
law to which they are subject.
III. Consideration{ Secs: 2(d) & 25} Consideration: Consideration is
another essential of a valid contract. Keeping in view the essentials of
a contract laid down under section 10, the law enforces only those
promises/agreements, which have been made for consideration
(section 2(d)). “Consideration” may consist either in some right, interest,
profit or benefit accruing to one party, or some forbearance, detriment, loss
or responsibility given, suffered or undertaken by the other in respect of
the promise (Currie v. Musa 1875 L. R. 10 Ex. 153, 162). The Calcutta High
Court in the case of Fazulluddin v. Panchudass A. I. R Cal. 92. observed:
“Consideration is the price of a promise, a return or quid pro quo
something of value received by the promisor as inducement of the
promise.” A “nudum pactum” (without consideration) promise is not
enforceable. According to section 25, “an agreement without
consideration is void”. In other words, Every agreement of which the
object or consideration is unlawful is void.However, there are some
cases laid down in section 25 in which contracts without consideration are
enforceable but apart from these cases the plea of nudum pactum(without
consideration) is always available. Subject to few exceptions the general
rule is that an agreement without consideration is void(S: 25). But it should
be clearly understood that in India the consideration can proceed from the
promisee or any other person. What is essential is that there must be some
consideration. For example, A agrees to sell his house to B for 10, 000 Rs.
Here B’s promise to pay the sum of 10,000 Rs is the consideration for A’s
promise to sell he house and A’s promise to sell the house is the
consideration for B’s promise to pay Rs. 10, 000. These are lawful
considerations. Question: Define consideration. Give
examples.----------------------------------------- IV. Lawful Object end
Consideration Legality of Object and Consideration: Legality of object
and consideration is yet another important element of a valid contract
(see S:10). Section 23 mentions the circumstances where the consideration
or object of an agreement is declared unlawful. Section 23 provides: The
consideration or object of an agreement is lawful, unless: a) It is
forbidden by law; or b) It is of such nature if permitted, would defeat
the provisions of any law; or 6 c) It is fraudulent; or d) It involves or
implies injury to the person or property of another; or The court
regards it as immoral or opposed to public policy. In each of these
cases, the consideration or object of an agreement is said to be unlawful.
“Every agreement of which the object or consideration is unlawful is void”.
For example: 1. “A” promises to obtain for B an employment in the public
services and B promises to pay Rs. 10,000 to A, the agreement is void, as
the consideration for it is unlawful. 2. A, B and C entered into an agreement
for the division (among them) of gains acquired or to be acquired by them
by fraudulent means. The agreement is void as its object is unlawful. V.
Agreement Not Expressly Declared Void under I.C. Act Not Expressly
Declared Void: Lastly, the agreement must not be such as is expressly
declared to be void by the Contract Act itself, e.g., an agreement by way of
wager is void (S:30). [For further examples of void agreements see
sections,23, 26 to 29 of the Act.] In the words of Sir Charles Odgers: “The
law of Contract is concerned with those kinds of agreements which the law
recognises and of which it will insist on performance or in the alternative
will oblige the offending party to pay compensation to the other”

5. FORMS OF CONTRACT: EXPRESS, IMPLIED, STANDARD: It is well

settled that while the Contract Act merely provides certain elementary
conditions under which the Contract becomes binding on parties, it does
not provide any particular form of a contract. A contract may be either
express or implied. An express contract is one, the terms of which are
declared orally or in writing. An implied contract is one which the law
assumes from the conduct of the parties It is, therefore, clear that the
parties to a contract may agree to a particular form or condition or of mode
in which the contract is to be executed. For example, where the
Government enters into a contract with a person or vice versa, the
particular form in which the contract is to be executed has been provided
in the Constitution. Similarly, Section 72 of the Railways Act also provides
for a particular mode or a standard form in which the contract has to be
entered into. This does not mean that the provisions of the Contract Act
stand suspended either by the Constitution or the Railways Act. Express
Contract and Implied Contract: An express contract is one, the terms of
which are declared orally or in writing. If the facts of a particular case show
that execution of a written contract was a condition precedent for coming
into force of the contract between the parties, then it cannot be said that
any concluded contract in absence of any written contract being executed
has come into force between the parties (J.K. Industries Ltd. V. Mohan
Investments & Properties Pvt. Ltd, AIR 7 1992 Delhi 305). Where the
proposal and acceptance is made in words, it is an express contract. An
implied contract is one which the law assumes from the conduct of the
parties that they intend to make a contract enforceable by law e.g.,
where a person having an over draft account with a bank, operates on the
account after notice from the bank that the rate of interest with regard to
such account has been enhanced. (Union of India v. S. S. H. syndicate, Poona,
AIR 1976 S. C. 879). ITQ: Discuss various kinds of agreements/contracts.
The Indian Contract Act did greatly shorten, simplify and ascertain one of
the most important branches of law. It endeavored to codify, that is to say
arrange clearly and systematically, the chief rules relating to the formation,
ratification, and discharge of all agreements enforceable by law, made
between two or more persons by which rights are acquired by one or more
than one to Act or forbearances on the part of others. It is well settled that
while the Contract Act merely provides certain elementary conditions
under which the Contract becomes binding on parties, it does not provide
any particular form of a contract. It is, therefore, clear that the parties to a
contract may agree to a particular form or condition or of mode in which
the contract is to be executed. It has been noted above that in order that an
agreement becomes a contract, it has to satisfy all the essentials of a valid
contract as mentioned in section 10. A contract is an agreement creating an
obligation, that is, a duty enforceable by law. Such an agreement is binding
on both the parties. The two essential elements of a contract are: (1)
agreement, and (2) agreement must be enforceable by law. Thus if there is
an agreement between A and B, that A will paint a picture for B, and B will
pay Rs.1000 to A, the agreement is a contract. Because on account of the
agreement B is entitled to an Act that is, painting of a picture, to be
performed by A. Therefore, if an agreement creates a legal relationship
between the parties and enables a man to compel another to do or not to do
something or enables both to perform their respective promises, it is a
contract. The law of contract is the foundation upon which the
superstructure of modern business is built.