Indian Contract Act 1872
Contract - Agreement between 2 or more persons which law will
Enforce.
Essentials:
 2 or more parties
 Offer and Acceptance – one has to offer and other has to Accept
 Identity of Minds – Agreed upon the Subject Matter
 Consideration – Something in return –every contract must be supported
by Consideration
 Capacity – Competent parties to contract
 Free Consent – Free from flaw, not caused by coercion / Undue
influence
 Lawful Consideration – The consideration must be lawful
 Legality of Object – recognized and approved by society.
Classification of Contract:
I According to Validity – Contract based on agreement – all essentials
Are present. If any one is missing then it is void able/ void/ illegal and
Unenforceable.
Void able Contract – Enforceable at the option of one or more of parties
Eg: A promises to sell his house to B for Rs.2lakhs. His consent was
Obtained by force. The contract is void able at the option of A.
Void Contract – A contract which is not enforceable by law – A contract
Entered with minor.
Illegal Agreement: Criminal in nature, which is immoral
Unenforceable Contract – Cannot be enforced in court of law because
Of technical defect – Eg – Time barred, Lapse of time.
II According to Formation:
Express Contract – Terms expressly agreed – by words spoken/ written
At the time of formation of contract.
Implied Contract – Conduct of Parties – A lunch taken in a hotel, it is
Implied that bill will be paid.
III According to Formation
• Executed Contract – Both Parties have performed their obligations
• Executory Contract – Both parties are yet to perform their obligations
• Unilateral contract – One has fulfilled his obligation, other is yet to do
his act.
• Bilateral – Similar to Executory Contract.
Offer and Acceptance:
The person making the proposal is referred as “Proposor” or “Offeror”
The Person accepting the offer - “Offeree” or “acceptor”
Legal rules relating to Offer: u/s 2(a):
• It must be definite – definite terms or capable pf being definite
• It must be distinguished from Quotation or invitation to offer
• Must give rise to legal consequences
• Can be made to the individual or entire world
• An offer is different from tender.
• An offer must be communicated to the offeree.
Acceptance u/s 2(b)
Person to whom the proposal is made signifies his assent thereto, the
Proposal is said to be accepted.
Essential of Valid Acceptance:
• Communicated in a reasonable manner, expressed in words, spoken,
written or may be conduct.
• Communication of acceptance may be waived off by the offeror
• Acceptance must be made before offer lapses or is revoked or rejected
• Acceptance must be absolute and unconditional and should correspond
with the terms of offer.
• Acceptance once made concludes the Contract.
Consideration: u/s 2(d) – Something in return
• Consideration at the desire of the promisor – any thin done voluntarily
does not constitute valid consideration
• Adequacy – May not be adequate but real and lawful
• Past, Present and Future
Exceptions: Natural love and affection, Promise to compensate a person
Who has voluntarily done something for the promisor, A promise to
Discharge a time barred debt..
Capacity to Contract::
u/s 10 Agreement become contract if entered in to
By parties competent to contract.
u/s 11 following persons are incompetent to enter into contract::
• Minor
• Person of unsound mind
• Persons disqualified by law to which they are subject to
• Convict
• Bankrupt
• Alien enemy
• Foreign ambassadors
• Insolvent
Free Consent:
Consent – Act of accepting the offer by free will ie without any force.
u/s 11 following are considered consent which is not free.
• Coercion – u/s 15 A person is compelled to enter into contract by use
of force – under threat, threat, threatening to commit, unlawful detention
forbidden by IPC 1860
• Undue influence u/s 16 unfair persuasion, one party is in dominant
position eg Doctor and patient, Teacher and Student
• Misrepresentation –
False statement (information is wrong)
Person making it honestly believes to be true
non-disclosure of material facts – without intention to deceive other
party, positively asserts to be true.
•Fraud u/s 17
False statement made knowingly
Facts are not true
Active concealment of facts
Intention to cheat
• Mistake of Law:
Law of the country – ignorance is no excuse
Of Foreign Country – u/s 21, such mistake is treated as mistake of fact
and agreement in such case is void.
• Mistake of Fact u/s 20
• Bilateral Mistakes –
Mistakes must be mutual
Mistake relate to matter of fact essential to agreement
Existence of subject matter, identity of subject matter
Quality of subject matter.
• Unilateral Mistake u/s 22
One party is mistaken regarding the subject matter or in expressing or
understanding the terms.
Legality of the Object:
Consideration and purpose of agreement must be lawful
Following consideration or object is unlawful
• Object forbidden by law, Object defeats provisions of law,
• Court regards the object immoral, oppose to public policy
• To commit crime, restrict legal proceedings, contempt of court,
• Interference in administration of justice, trafficking,
• restraint of paternal rights, restricting personal liberty
• Agreement of restraint of marriage,
• Agreement in restraint of trade
• Agreement to defraud creditors.
Termination and Discharge of Contract:
 By Performance – Parties have fulfilled their obligations
 By Agreement or Consent:
Agree to substitute new contract or to rescind or alter it, the original
Contract is discharged and need not be performed.
Novation – u/s 62 – a new contract is substituted for an existing one
between the same parties
Rescission u/s 62 – when all or some of the terms of the contract are
cancelled it may occur by mutual consent, where one fails in
performing of their obligation, the other party may rescind the contract
claim compensation for breach of contract.
Alteration u/s 62 – One or more terms of contract is altered by mutual
consent – old contract is discharged.
Remission u/s 63 – acceptance of less fulfillment of promise made
Acceptance of lesser sum than what is contacted for in discharge
Of whole debt.
Waiver – Parties agree they shall no longer bound by the contract.
Mutual abandonment of rights of parties to contract.
 Discharge by Impossibility of Performance:
Impossibility at the tike of agreement – pre contractual or initial
impossibility
Impossibility – Subsequent to the formation of Contract – post
contractual – destruction of subject matter, death, incapacity,
Change of law, out break of law.
 Discharge by Lapse of Time – Limitation Act 1963
 Discharge by Breach of Contract
Breaking the obligation without legal excuse
Remedies:
Recission – may sue to treat the contract as rescinded and refuse
Further performance – he is absolved of all his obligations
Damages – monetary Compensation
Ordinary Damages, Special damages, Vindictive damages,
Nominal damages, Loss of reputation, Cost of decree,
Liquidated damages, Payment of interest, Quantum Meruit,
Specific Performance,
Injunction – Stay Order.