Guide to Indian Contract Act 1872 with FAQs

The Indian Contract Act, 1872, is a fundamental law in India that regulates contracts and agreements. It defines a contract as an agreement enforceable by law, requiring elements like offer, acceptance, consideration, and the intention to create legal obligations. The Act outlines essential components for a valid contract, including free consent, lawful consideration, competent parties, and legal purpose. It also addresses various types of contracts, such as void, voidable, and contingent contracts, and provides guidelines on the performance, breach, and termination of contracts, ensuring clarity and fairness in contractual relationships.

Table of Contents

1. Introduction
2. Essential Elements of a Contract, Offer & Acceptance
3. Void & Voidable Agreements
4. Consideration

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1. Introduction

Law revolves around rights and liabilities. In India people have three types of rights:

• Human Rights: There is no law. United Nations have adopted a Universal Declaration of Human Rights which has been adopted by member countries including India. We have National Human Rights Commission and State Human Rights Commission. Human is above common law.
• Constitutional Rights: This is available to all citizens as per constitution. Basic rights are called fundamental rights and if Govt. or Govt. organisation violates any right, remedy is available to the citizen by making writ petition to High Court.
• Contractual Rights: These are rights and obligations created voluntarily between parties by making contracts.

Before enactment of Indian Contract Act, 1872, the courts in India used to apply English Common laws as suited to Indian conditions, customs and usages. Some difficulties were noticed in using English Common laws. Accordingly later the courts started deciding cases based on Hindu Personal laws and Muslim personal laws. But the same were still not found fit to address the business complexities.

Accordingly separate Indian Contract Act, 1872 was enacted. This Act is based on English Common law, which is to a large extent made up of judicial precedents.

The law relating to contracts is contained in the Indian Contract Act, 1872.

The Indian Contracts Act came into force on 1st September, 1872.

The act is applicable to the whole of India.

2. Essential Elements of a Contract, Offer & Acceptance

Section 2(a)

Proposal/offer: When one person signifies to another, his willingness to do or to abstain from doing anything, with a view of obtaining the assent of that other person to such act, abstinence, he is said to make proposal.

Section 2(b)

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.

Section 2(c)

Promisor & Promisee: The person making the proposal is called “promisor” & person accepting it is called “promisee”.

Section 2(d)

Consideration: When at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing or promises to do or abstain from doing something, such act or abstinence or promise is called consideration.

Section 2(e)

Agreement: Every promise & every set of promises, forming the consideration for each other is an agreement.

Section 2(h)

Contract: An agreement between two or more parties enforceable by law.

All contracts are agreements, but all agreements are not contract.

All agreements need not give rise to a contract because for becoming contract, the agreement must give rise to legal obligation. An agreement can be social obligation or legal obligation. An agreement giving rise to legal obligation can only be contract; if it gives rise to social obligation then it cannot be converted into a contract

2.1 Meaning of Certain Terms

• Voidable contract: An agreement which is enforceable by law at the option of one or more parties thereto but not at the option of other is a voidable contract. Ex. Any one of the essential element of valid contract is missing.
• Void ab initio: The agreement which from the very beginning is null and void with no legal enforceability is called void ab initio.
• Void agreement: An agreement not enforceable by law is said to be a void agreement. It is void ab initio.
• Void contract: A contract which ceases to be unenforceable by law becomes void. Void contract is initially a perfectly valid contract but subsequent development turns it into a void contract.

2.2 Essential Element of Valid Contract

Agreement: For valid contract there must be an agreement which further comprises of offer (whose terms must be definite) & acceptance (which should be absolute & unconditional) between 2 or more parties.

Free consent: If the consent of the parties is obtained through coercion, undue influence, fraud, misrepresentation or mistake then a valid contract cannot take place. The consent must be free.

Lawful consideration: Consideration means something in return. It may be an act or abstinence. But it should be real & lawful.

Competent parties: A competent person is one who is

1. At least of 18 years
2. Of sound mind
3. Not disqualified by any law for contracting.

If any point is missing in the person then he cannot be termed as competent person.

Legality of object: The object of the contract must be legal or else the contract will not be valid.

Legal relationships: Parties must create legal relationship. Agreements with social or domestic obligations are not contract.

Agreements not to be expressly declared void: Agreements should not be void or illegal.

Certainty & capability of performance: The terms & conditions of agreement must be certain & capable of being performed.

Legal formalities: There are certain legal formalities to be fulfilled until which the agreement cannot be enforced. For eg. Registration, etc. The contract can be oral or written. Written is preferable.

2.3 Classification of Contract

2.4 Offer

An offer is an expression of willingness to contract on certain terms, made by promisor or offeror with an intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree or promisee or acceptor”.

Types of Offer

2.5 Offer and Invitation to Offer

In the case of invitation to offer the person sending out invitation does not make an offer but only invites the other parties to make an offer. Eg. The mannequins standing outside shops are not for sale. Instead, the owner is inviting us to visit their shop make an offer for clothes we want to buy. Now, it depends on owner to accept the same or not. One cannot force him to sell on the price stated except if price is specified by law then goods will be sold at specified price. An advertisement for sale of goods by auction, quotations, catalogues of prices or display of goods at show room with price tag, prospectus of company, invitation for subscriptions, invitation for jobs, etc. are invitation to offer not offer.

2.6 Legal Rules Regarding Offer

• Offer may be expressed or implied: An offer may be expressed or may be implied from the conduct of the parties or circumstances of the case.
• Offer may be specific or general: A specific offer is one which is made to a particular person or it can be made to public at large. It can be accepted by the person to whom it has been made, no one else can accept such an offer.
• Offer must give rise to legal obligation: An offer to be valid must create legal relationship between the parties. The very purpose of entering into an agreement is to make it enforceable at a Court of law.
• Terms of an offer must be definite and certain: The terms of an offer should not be vague or indefinite.
• Offer must be distinguished from an invitation to offer: An offer must be distinguished from an invitation to offer.
• Offer must be communicated: An offer must be communicated to the person to whom it is made. A person can accept the offer only when he knows about it. If he does not know it, he cannot accept it.
• Offer must be made with a view to obtaining the consent of the other party: The offer must be made with an intention to get the consent of the other party to do or to abstain from doing the act and not simply with a view to making known the intention of making an offer. Sometimes a person declares that he has the intention to do something and this does not amount to an offer. Such a declaration only means that the offer will be made or invited in future.
• Offer should not impose an unnecessary obligation to communicate non-acceptance: Thus an offeror cannot say that if acceptance is not communicated by Sunday next, the offer would be considered as accepted.
• Communication of Special Terms: Special terms of a contract must be communicated. These terms must be communicated beforehand only, if they are communicated afterwards then the customer are not bound by it.
• Offer to make an offer is not an offer

2.7 Acceptance

Acceptance is defined under section Sec 2(b) as previously discussed on page no. 2.
An offer can be accepted by the person to whom the offer is made. If it is a specific offer, then it will be accepted by that specified person or group. If the offer is made to public at large, then it can be accepted by any person.

2.8 Legal Rules Regarding Acceptance

• Acceptance must be absolute and unqualified Sec. 7(1): There must be an absolute and unqualified acceptance of all the terms of the offer. Qualified acceptance would amount to rejection of the offer.
• Acceptance must be communicated Sec. 7(2): Acceptance must be communicated by the acceptor or by other person authorised by offeree to the offeror. Silence cannot be construed as acceptance.
• Acceptance must be in a prescribed or reasonable mode Sec. 7(2): If the offer or prescribes no mode of acceptance, the acceptances must be communicated according to some usual and reasonable mode. The usual modes of communication are by words spoken or written or by conduct.
• Acceptance must be given within a reasonable time and before the offer lapses: Acceptance must be given within the specified time limit, if any and if no time is stipulated, acceptance must be given within a reasonable time because an offer cannot be kept open indefinitely.
  Again the acceptance must be given before the offer is revoked or lapses by reason of offeree’s knowledge of the death or insanity of the offeror. Acceptance given to a revoked offer is not valid.
  
• Acceptance cannot precede an offer: Acceptance must be given after receiving the offer.
• Acceptance must be given only by the person to whom the offer is made: An offer can be accepted only by the person or persons to whom it is made. It cannot be accepted by another person unless authorised by offeree.
• Rejected offer can be accepted only on renewal: Rejected offer can be accepted only, on renewal; offer once rejected can’t be accepted again unless a fresh offer is made.
• Revocation of acceptance: Under English Law acceptance is revocable, whereas under Indian Law acceptance is irrevocable.
• Acceptance to give an acceptance is not an acceptance

2.9 Communication, Acceptance & Revocation of Proposals

Communication is very important for contracts. It can be said as receiving or sending of information by related parties for proper understanding & undertaking of the contract. It can be through mails, phone, telegrams, etc.

Revocation means taking back. Revocation can be of both proposal and acceptance.

2.10 When Communication is Complete, in Different Cases

2.11 Modes for Revocation – Section 6

2.12 Frequently Asked Questions