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Introduction: Part 1-Indian Contract Act 1872

The Indian Contract Act was passed in the year 1872 and it came into force on the 1st day of
September, 1872
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It consists of 238 sections
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Chapter VII of the
Contract Act is wholly repealed by the Indian Sale of Goods Act, 1930 (vide section 65)
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The provisions of the Act do
not apply to contracts made before the Act came into force
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In case of a contract in which two or more countries are involved in respect of its performance,
questions arise as to the law of which country would govern such a contract
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In the absence of an expressed intention, the rule to apply is
to infer an intention from the terms and nature of the contract and the general circumstances
of the case
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In such a contract, if a payment is to be made,
it should be of the legal tender governing the country in which payment is to be made
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1 Meaning
An agreement enforceable by law is a contract
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Thus it can be said that a contract is an agreement;
an agreement is a promise and a promise is an accepted proposal
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Hence it is a bilateral transaction
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This mode is known as E-contract
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3 Definition
Section 2h of the Indian contract Act of 1872 defines “a contract as an agreement
enforceable by law”
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For more Information
on Eminent Jurists click below

Meaning and Kinds of Contracts

In law a contract means the following:

Points to be noted:
acts; only agreements that give rise to legal
obligations are contracts
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4 What is an Agreement?

An agreement is defined in section 2 (e) of the Indian Contract Act of 1872
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5 What is a Promise?
Section 2 (b) of the Indian Contract Act of 1872 defines a promise as: “A proposal
when accepted becomes a „promise”
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The „promisee‟ is the person that accepts the proposal”
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50 lakhs to Malthi
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The promise between Rani and Malthi is an agreement
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If either
party defaults in carrying out its obligation there will be breach of contract if the
agreement is enforceable by law
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Shyam forgets and Geeta is very upset
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Illustration
Meeta makes an agreement to sell five mobile phones for Rs
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Madhuri accepts the offer
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This agreement is a contract
because there is an offer by Meeta for some consideration and Madhuri accepts it
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Every contract is an agreement but every agreement may not be a contract
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An agreement becomes a contract according to section 10, if a promise is made between
two people who are competent to enter into a contract
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Under section 2 (g) an agreement that is not enforceable by law is void
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The law of contracts does not take into consideration any agreement in which there
is no legal obligation
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The Contract Act deals with
only those agreements where there is an intention to create a legal obligation
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However, parties entering into a contract in domestic, social or religious events that do
not have the intention to create any legal obligations cannot be said to have any
legal obligation unless proved otherwise
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Therefore, all contracts create legal obligations but all obligations do not become a
contract
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”

Illustration
Mr
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2006
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It is now his responsibility to take good care of his family
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This is a
social obligation
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Illustration
Mr
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8,ooo/-to Sweetie
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Sweetie is under the obligation to pay Modi and take
the delivery of the Machine
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Illustration
Mr
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Bedi during their separation period
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In brief contract means: the following: -

contract
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1 Meaning
An agreement enforceable by law is a contract
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Thus it can be said that a contract is an agreement; an agreement is a promise and a
promise is an accepted proposal
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Hence it is a bilateral
transaction
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20 each to be delivered on
Saturday and Pummy agrees to the deal, it is a valid contract
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Illustration
If Ram promises to fix Meena's car, there is no contract unless Meena promises
something in return for Ram‟s services of fixing the problem of the car
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2
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This mode is known as E-contract
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3 Definition
Section 2h of the Indian contract Act of 1872 defines a contract as an agreement
enforceable by law
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These definitions
are given below:• Sir John William Salmond: “An agreement creating and defining obligations between
the parties”
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”
• Sir William Anson: “A contract is an agreement enforceable at law made between two
or more persons by which rights are acquired by one or more to acts or forbearances on
the part of the other or others
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Thus in law a contract means the following:
• Existence of two parties
• Existence of an agreement between two or more parties
• Existence of a legal obligation between parties who enter into an agreement
Points to be noted:• All agreements are not contracts; only agreements that give rise to legal obligations
are contracts
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4 What is an Agreement?
An agreement is defined in section 2 (e) of the Indian Contract Act of 1872
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5 What is a promise?
Section 2 (b) of the Indian Contract Act of 1872 defines a promise as: A proposal when
accepted becomes a „promise‟
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The „promisee‟ is the person that accepts the proposal
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50 lakhs to
Malthi
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The promise between Rani and Malthi is an agreement
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If either
party defaults in carrying out its obligation there will be breach of contract if the
agreement is enforceable by law
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Illustration 1
Geeta invites Shyam for dinner to her house
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Does Geeta have a remedy? Can she go to court to get Shyam to pay the expenses of
the dinner?
Answer: Geeta cannot go to court for compensation as the invitation to dinner and its
acceptance is only an agreement and not a contract
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6000 each to Madhuri
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If Madhuri fails to purchase the mobile phones, can Meeta go
to court to enforce the contract?
Answer: Meeta can ask for enforceability of the contract
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Similarly if Meeta was to breach the contract then Madhuri could apply for enforceability
of the contract
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The law of contract in India does not give any guidelines to people entering into a
contract or the terms and conditions of the contract but it regulates the contract by
providing general principles of contract law
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It should be a contract with the
free consent of the two parties, with a lawful consideration and a lawful object and the
agreement should not be void
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What is enforceability of agreement?
An agreement can be enforceable by law only if there is some legal obligation
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An obligation is to do, or to restrict, a certain act or activity
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When there is an agreement that involves some business or commercial contracts it
creates a legal obligation because the parties to the contract have the intention to create
a legal obligation
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The Contract Act governs only those legal obligations that are created out of
agreements
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This proves the statement made by Salmond that “the law of contract is not the whole
law of agreements, nor is it the whole law of obligations
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Ali gets married on the 15th of April
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His wife gave birth to a baby girl in 2007
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The obligation to maintain his
family is not out of any agreement but out of love and affection for his family
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Only agreements which create legal obligations, are termed as
contracts
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Modi agrees to sell his old washing machine for Rs
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This
agreement becomes an obligation on Modi to deliver the machine to Sweetie on the
stipulated date at an agreed price
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This agreement is a legal obligation, so it becomes a
contract
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Bedi carried out the provisions of the court order by providing maintenance to Mrs
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This is not a contract but an obligation carried out in
acceptance of a court order

In brief contract means: the following: • It must have at least two parties
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• The agreement between the parties should have a legal obligation
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3 CHARACTERISTICS OF A CONTRACT
Section 10 of the Indian Contract Act, 1872 enumerates certain essential elements of a
valid contract
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It consists of two elements
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Thus a contract must have two parties
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The Contract Act defines an offer or proposal in the following words:
“When a person signifies to another his willingness to do or to abstain from doing
something with a view to obtaining his assent thereto, he is said to have made a
proposal
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”
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2 Legal Relationship

The intention of the two parties should be to create a legal relationship
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It is also necessary to
take into consideration what would be a reasonable intention of the person who enters
into the contract
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It is presumed that
business dealings and commercial agreements are made with the intention to create a
legal relationship
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On the other hand business dealings may not
establish a legal relationship in an agreement and would therefore not enforceable
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Balfour went for a vacation with his wife to England from Ceylon
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Since his wife was not well she continued to stay in
England
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Balfour promised to send a monthly maintenance amount to her
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Mrs
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The court
held that it was a domestic matter and it did not create any legal relationship
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Case Law 2
Jones Vs Padavatton
A mother promised to pay for her daughter‟s education when she studied abroad
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The following case is a little different
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Thus the law of contracts may have within its purview domestic cases,
social relationships and employer employee matters as well if it can be proved that the
intention was to create legality and enter into a contract
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Mr
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In return Mrs
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This was a valid contract and breach of
the case was enforceable by law
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However in the
following commercial dealing the intention was not to create legal relationship
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Case Law 4
Rose & Frank Co
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was appointed by Crompton Bros as their agents
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The courts held that this was not a binding agreement and therefore could not be termed
as a legal contract as there was no intention to create a legal relationship even though it
was a business dealing
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There was a business dealing between the two parties but the agreement stated that it
would not give rise to any legal relationship and rights and duties would not be
enforceable or give right to litigation
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The court held that this was not a valid contract, as it was not legally binding
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Free Consent

Section 14 of the Indian Contract Act states there should be free consent between the
parties making an agreement
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If the consent is not free, the contract is not valid
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This is not a valid contract,
as the agreement was not made with free consent
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This is called consensus ad idem, when
there is a meeting of minds of both the parties
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Illustration
Mr
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However his secretary
Rita thinks that she is buying the new red sports model car
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3 Capacity of Parties

The parties entering into a contract should be competent to make an agreement
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Illustration

Meera is a lunatic and gets attacks of lunacy at intervals
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She is competent to contract when she is not under the influence of an attack of lunacy
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Does she have the capacity to enter into a contract?
Leena cannot enter into a contract because she is a minor
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4 Status of other Entities

Any company is competent to enter into a contract according to the legislations under
which they are governed
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Partners are allowed to enter into contracts under the Partnership Act of 1932
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5 Lawful Consideration

According to Section 2(d), 23 and 25 of the Act a valid contract must have a
consideration
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It
may or may not be an adequate return but there has to be some value and it should not
be fraudulent, unlawful, immoral or opposed to public policy
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Consideration may not be in cash only
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It can also
be an act or abstinence from doing something
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Illustration
Ali sold 5 fountain pens for Rs
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Is this a lawful consideration?
This is a lawful consideration as Megha gives roses instead of cash
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The consideration may not be of equal value
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55,000
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Is this a valid contract?
This agreement has a promise and a consideration but it does not have lawful
consideration since X got the things unlawfully through theft
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6 Object of an Agreement

According to section 23 of the Indian Contract Act 1872 the object of an agreement
should be within the purview of law
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The object should be legal, moral and according to public policy
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Legal object implies
the following:
• Agreements should be lawful
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• Agreements should be such that they do not cause injury or harm to any person or
property
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• Agreements should be within public policy
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Since agreements are being
made according to the Indian Contract Act, they should be within the Indian law
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Whenever an
agreement is a valid contract and is made in writing it should be complete with all legal
formalities
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The contract
will become void
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In the following cases contracts have to be in writing:
• Cheques, bills of exchange, promissory notes and other negotiable instruments
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• An agreement with a promise to pay a time barred debt
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• Important documents of a corporate organization especially the Memorandum of
Association and Articles of Association
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• Arbitration agreements must be in writing to be enforceable by law
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• The Transfer of Property Act, 1882, specifically states that all immovable properties
must be registered
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• When a promise is made with natural love and affection and without consideration
the agreement should be registered
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8 Valid but not enforceable agreement

In many cases even a valid contracts may not be enforceable by law
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Hence it is important to know the law
of the country in which the agreement is made otherwise the legal rights cannot be
exercised (Sections 24 to 30 and 56)
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• Agreements for restraint in trade (Section 27)
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• Agreements that are ambiguous and where meaning is not clear (Section 29)
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• Agreements that are contingent on the happening of some events (Section 36)
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These agreements are lawful but they are not enforceable because they impose certain
restraints to the freedom of a person
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To summarize, the essential elements of a valid contract are as follows:• A valid contract must have an agreement
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• The contract will be valid if there is free consent
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• There should be some lawful consideration for both parties to make the contract
enforceable
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• The legal formalities of the contract should be complete
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• Certain agreements are lawful but they cannot be enforced due to the laws of certain
countries or some restraints not acceptable within the country
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4 CLASSIFICATION OF CONTRACTS

The Indian Contract Act classifies contracts into different categories
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(A) Enforceable/legal validity contracts can be classified into the following:
• Valid Contract
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• Void Contract
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• Illegal Agreement
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(B) Contracts according to their mode of creation/formation are the following:
• Express Contract
• Implied Contract
• Quasi Contract
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Unlike the Indian law of contract, in England contract has been broadly classified under
two heads:(a) Formal Contracts
(b) Simple Contracts

Meaning and Kinds of Contracts

Institute of Lifelong Learning, University of Delhi
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Such contracts
may be valid contracts, voidable contracts, void agreements, void contracts, agreements
discovered to be void, unlawful or illegal agreements and unenforceable contracts
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Valid Contract: A valid contract is one, which satisfies the essential elements
described in section 10 of the Indian Contract Act
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It should have the intention to create legal relations
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It should have clear terms
with free consent of both the parties
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In those cases when the consent is not given freely but coercion has been used the party
has the option to continue with the contract or rescind it
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Illustration
Ruhi wanted to buy a gold chain for her mother‟s birthday
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On the due date the chain was not ready
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The goldsmith wanted compensation
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If he did not deliver the goods on time Ruhi has the right to
rescind the contract
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He/she
may decide to go ahead with the contract as well
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However if the party decides to continue with the contract,
the terms and agreements will continue to be valid and the contract will also be a valid
one
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The camera turned out to be a cheap one with a fake
branding
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The contract is voidable due to misrepresentation
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3
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The agreement becomes unenforceable for the following reasons:
• According to section 56 if a contract is illegal or impossible to conduct it becomes
void
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(ii) Contracts of record are those that adhere to judgements
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2
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They
are also called parol contracts
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e
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They can also be implied by conduct
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• Any contract which becomes impossible to perform either on the happening or not
happening of a particular event is a void contract
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Illustration
Anil made an agreement with Suman to sell house no P-21 in Sushant Lok in Gurgaon
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Before the due date for the transaction to take

place there was an earthquake and the house fell down
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This contract is void because the agreement was made on the basis of the house in
possession
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Illustration
Madhuri entered into a contract with Salma
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On the due date, the specialist making the
ornaments died and she could not deliver the jewels
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It was valid
and enforceable by law when it was made but due to this circumstance it became a near
impossibility to carry it out
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On pursuation by her parents she sells the car to Rohit
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In other words these agreements
are void
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Therefore a void agreements does not create any legal rights
between the parties to the contract
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There is a
flaw in the agreement itself
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If he/she does, the agreement is null and void
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Illustration

Neena agrees to deliver anklets for a consideration of Rs
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Since this is an impossible agreement, it is void
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• When the contract has after its formation, subsequently become illegal
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• When a contingent contract cannot be carried out due to the fact that the event
becomes impossible to achieve
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e
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A void contract
is valid when it is made but due to certain lapses it becomes unenforceable by law
subsequently
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• Collateral transaction will be legal unless the agreement itself is illegal
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2 Void Agreement and Voidable Contract: Distinction

The difference between void agreement and void contract can be discussed on the basis
of (i) enforceability (ii) compensation and restitution and (iii) the effect on collateral
agreement
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They
are said to be void ab initio
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It is a valid contract if it
is not repudiated
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Compensation and restitution: In a void agreement there is no compensation
because the agreement is not enforceable by law
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It follows therefore that restitution is allowed in a voidable contract unless the parties
knew of the illegality of the agreement at the time of formation
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Such agreements will be correspondingly void because of
illegality in consideration or object in the agreement
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Illegal
agreements cannot become contracts because they are unenforceable
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A minor entering into an agreement is void but not illegal
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An illegal agreement is void ab initio
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If a person has borrowed money illegally he cannot be asked to return the money
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Illustration
A pays to B a sum of Rs 1,00,000 who again gives the amount to Z for black marketing
of onions which are in short supply
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In the case of a contract it may be enforceable by law when it was formed and become
void due to attaining subsequent illegality
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Money can be
recovered in this transaction because it was not illegal at the time of entering into a
contract
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3 Distinction between void & illegal agreements
➢ Illegal agreements are void but valid contracts can become void due to certain
subsequent developments
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➢ All illegal agreements are void but all void agreements are not illegal
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For Example, if ceratin documents have to be
registered and they have not been registered then such documents become
unacceptable by the court
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Hence formalities should be complete to make a contract enforceable by law
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6 (B) CONTRACTS: ACCORDING TO MODE OF
CREATION
Contracts on the basis of mode of creation refer to Express Contracts, Implied Contracts
and Quasi Contracts
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Express Contract: When an offer is made in words or in writing and another person

accepts it, an express contract is formed
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Illustration
Priya writes to Prem offering to sell her car for a price of Rs
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Prem accepts the
offer by responding through an email
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Raj
accepts the offer
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It is
an express contract
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Implied Contract: A contract is said to be implied when it has to be inferred from
the action, gestures or conduct of the parties
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It
has to be implied from circumstances of the case
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Illustration
Janaki attended an informal meeting of a company
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There is
an implied contract that Janaki should be paid for her services because the company
allowed her to attend the meeting and also used her suggestions for the benefit of the
company
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Madan‟s car though he was not asked to do so
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Madan
accepted the services
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This is an implied contract as the porter expects payment for his
services and Mr
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They can be express and implied contracts
both
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Illustration: Ram offers to buy an I Pod from Tilak for Rs 10,000
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Ram‟s offer is expressed in words and Tilak‟s acceptance is
implied by his conduct
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It combines the characteristics
of both express and implied modes of creation
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Quasi Contract: When contracts are not in actual fact either express or implied but
there is circumstantial evidence to show that they are actually contracts, they are called
Quasi Contracts or semi contracts
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These are known as “certain
relations resembling those created by contracts”
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Monica treats it as her own and begins to
use it for her official purposes
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She should pay for
the use of the computer, which was kept with her for safe- keeping
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7 CONTRACTS ACCORDING TO PERFORMANCE
Contracts can be classified according to performance measures
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1
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The contract is completed and executed
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Illustration
Rajesh goes to a Westside store and buys a shirt for himself
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He leaves the store as the contract is executed
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2
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This obligation will be
performed in the future
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In some executory contracts both parties decide to complete their
contract in the future because of certain important reasons
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Immediately Zara sends the payment for it
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This is partly an executed and partly an executory contract
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He expects a consideration of Rs 3,500
for it which Tina accepts
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It is still not complete
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Unilateral Contract: In some contracts one party has already completed his/her
obligation but now the other party is left to complete his/her part of the contract
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These contracts are also called contracts with executory
consideration
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Illustration
Murli‟s dog was lost while he was taking a morning walk
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Sashi found the dog and returned it to the
owner

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