Indian Contract Act, 1872 - Key

Concepts and Principles

1. Introduction to Contracts
 Definition of Contract: A contract is defined as an agreement that is enforceable by
law. This means that the terms of the agreement are recognized and protected by
the legal system, allowing parties to seek legal remedies in case of a breach. The
existence of a contract creates rights and obligations for the parties involved,
ensuring that they can rely on each other's promises.
 Essential Elements:
 Agreement: A contract must consist of an agreement, which is formed when one
party makes an offer and the other party accepts that offer.
 Enforceability by Law: For an agreement to be considered a contract, it must be
capable of being enforced in a court of law, meaning that the legal system can
compel parties to fulfill their obligations.

Agreement vs. Contract

Basis Agreement Contract

An agreement is a set of promises or A contract is a specific type of

Meaning commitments made by two or more parties. It agreement that is legally enforceable
does not necessarily have legal backing. and can be upheld in a court of law.

It includes both legal agreements (which are

It is limited to agreements that can be
Scope enforceable) and social agreements (which are
enforced by law.
not).

An agreement may not create a legal A contract always creates legal

Legal
obligation (e.g., a promise to meet for coffee obligations, and failure to fulfill it can
Obligation
has no legal backing). result in legal action.

Example:
 Agreement: If a friend promises to help you move to a new apartment, this is an
agreement based on mutual understanding but lacks legal enforceability.
 Contract: If you sign a lease for an apartment, this is a contract because it is
enforceable by law, and both parties have legal obligations.

3. Essentials of a Valid Contract (Section 10)

1. Agreement: A valid contract must consist of an agreement, which is formed through an offer
made by one party and accepted by another. This agreement must clearly outline the
intentions of both parties regarding the terms of the contract.

2. Two Parties: A contract must involve at least two parties—one party making the offer and
the other party accepting it. This ensures that there is a mutual exchange of promises or
commitments.

3. Free Consent: For a contract to be valid, the consent of both parties must be freely given.
This means that neither party should be forced, threatened, or misled into entering the
agreement. If consent is obtained through coercion, undue influence, fraud,
misrepresentation, or mistake, the contract may be voidable.

4. Competency of Parties: The parties entering into the contract must be legally competent.
This means they must be of legal age (usually 18 years or older), of sound mind (able to
understand the nature and consequences of the contract), and not disqualified by any law
(such as being a minor or mentally incapacitated).

5. Lawful Consideration: Consideration refers to something of value that is exchanged

between the parties. For a contract to be valid, the consideration must be lawful, meaning it
cannot be illegal or against public policy. For example, a contract to sell illegal drugs would
not be enforceable because the consideration is unlawful.

6. Legal Object: The object of the agreement must be lawful. This means that the purpose of
the contract cannot involve illegal activities or actions that violate public policy.

7. Not Void: The agreement should not be expressly declared void by law. Certain agreements
are automatically void, such as those that involve illegal activities or that are impossible to
perform.

Example:
 A contract for the sale of a car is valid if it includes an agreement (offer and acceptance),
involves two parties (buyer and seller), has free consent, both parties are competent, the price
is lawful, the object (the car) is legal, and it is not void under any law.

4. Types of Contracts
Based on Validity
 Valid Contract: A valid contract is one that is legally binding and enforceable.
It contains all the essential elements required by law and can be upheld in a court of
law. For example, a signed agreement for the sale of a house is a valid contract.

 Void Contract: A void contract is one that cannot be enforced by law. It is

treated as if it never existed. This can occur if the contract is for an illegal purpose or
 if it lacks one of the essential elements of a valid contract. For instance, an
agreement to commit a crime is a void contract.

 Voidable Contract : A voidable contract is a valid contract that may be

enforced at the option of one or more parties. This means that one party
has the right to affirm or reject the contract due to certain circumstances,
such as misrepresentation or undue influence. For example, if a person
signs a contract under pressure, they may choose to void the contract later.

 Illegal Contracts : Illegal contracts are agreements that are forbidden by law.
Such contracts are not enforceable in a court of law because they involve
illegal activities. For instance, a contract for the sale of stolen goods is an
illegal contract.

Based on Formation
 Express Contract: An express contract is one where the terms are explicitly
stated, either in writing or verbally. For example, a written employment
contract outlining the duties and salary of an employee is an express
contract.

 Implied Contract : An implied contract is formed through the actions or

conduct of the parties involved, rather than through written or spoken
words. For example, when you go to a restaurant and order food, there is
an implied contract that you will pay for the meal after consuming it.

 Quasi-Contract: A quasi-contract is not a true contract but is imposed by law

to prevent unjust enrichment. This means that even in the absence of a
formal agreement, the law may recognize certain obligations. For example,
if someone finds and returns lost property, they may be entitled to a
reward, even if there was no prior agreement.

 E-Contracts: E-contracts are contracts created electronically, often through

websites or online platforms. They are subject to the same legal principles
as traditional contracts. For instance, when you accept the terms and
conditions on an e-commerce website before making a purchase, you are
entering into an e-contract.

Based on Performance
 Executed Contract: An executed contract is one where both parties have
fulfilled their obligations. For example, if a person sells a car and the buyer
pays the agreed price, the contract is executed.
 Executory Contract: An executory contract is one where obligations are yet
to be performed by one or both parties. For instance, if a contractor agrees
to build a house for a client, the contract is executory until the house is
completed.

 Unilateral Contract : A unilateral contract involves a promise made by one

party in exchange for an act by another party. For example, if someone
offers a reward for finding their lost pet, the contract is unilateral until
someone finds the pet and claims the reward.

 Bilateral Contract: A bilateral contract involves mutual promises made by

both parties. For example, in a sales contract, the seller promises to deliver
goods, and the buyer promises to pay for them.

5. Offer and Acceptance

Offer (Section 2(a))
 Definition: An offer is a proposal made by one party (the offeror) to another
party (the offeree) indicating a willingness to enter into a contract on
specific terms. The offer must be clear, definite, and communicated to the
offeree. If accepted, it creates a binding obligation.
 Types of Offers:
 General Offer: A general offer is made to the public at large and can be
accepted by anyone. For example, a company offering a reward for
information leading to the capture of a fugitive is making a general offer.
 Specific Offer: A specific offer is made to a particular individual or group.
For instance, if A offers to sell his car to B for ₹300,000, that is a specific
offer.
 Cross Offer: A cross offer occurs when two parties make identical offers to
each other without knowing that the other has made a similar offer. For
example, if A offers to sell a book to B while B simultaneously offers to buy
the same book from A, both are cross offers.
 Counter Offer: A counter offer is a response to an original offer that modifies
its terms. For instance, if A offers to sell a bike for ₹20,000 and B responds
with an offer of ₹15,000, B has made a counter offer.

Essentials of a Valid Offer

1. Intention to Create Legal Relations : The offer must indicate a clear intention
to create legal obligations. For example, a casual promise to lend a friend
money for a movie does not create a legal obligation.

2. Certainty: The terms of the offer must be clear and specific. An offer stating
"I will sell my car" without specifying the price is not valid due to
uncertainty.

3. Communication: The offer must be communicated to the offeree. An offer

that is not communicated cannot be accepted. For instance, if A makes an
offer to B but B is unaware of it, there is no valid acceptance.

Obtaining Assent : The offer must be aimed at obtaining the acceptance of

the offeree. This means that the offeror intends to be bound by the terms of the
offer if the offeree accepts.

5. Conditional Offers: An offer may be conditional, meaning that it is subject to

certain conditions. For example, "I will sell you my car if you can pay the full
price in cash."

6. Non-compliance Not Acceptance : Silence or inaction cannot be considered

as acceptance of an offer, unless there is a legal or customary practice that
implies acceptance by silence.

Acceptance (Section 2(b))

 Definition: Acceptance is the unqualified assent of the offeree to the terms
of the offer. Acceptance must be made in the manner prescribed by the
offeror, if any.

 Legal Rules:

1. Acceptance can only be made by the person to whom the offer is made : Only
the offeree can accept the offer. If someone else accepts the offer, it does
not create a valid contract.

2. Must be absolute and unqualified : Acceptance must be clear and

unambiguous, without any conditions or modifications. A conditional
acceptance is considered a counter offer.

3. Must be communicated: Acceptance must be communicated to the offeror,

either directly or through an authorized representative.
4. Must be in the prescribed mode : If the offeror specifies a particular mode of
acceptance (e.g., in writing, by email, etc.), the offeree must follow that
mode.

5. Must be given within the specified time or reasonable time : If the offer
specifies a time limit for acceptance, the offeree must accept within that
time. If no time limit is specified, acceptance must be made within a
reasonable time.

Example:
 A offers to sell his car to B for ₹300,000. B accepts the offer by saying "I
accept your offer to buy the car for ₹300,000." This creates a valid contract.

6. Communication of Offer and Acceptance

 Communication of Offer : The offer must be communicated to the offeree for
it to be valid. The offeror can communicate the offer directly or through an
authorized representative.

 Communication of Acceptance : Acceptance must be communicated to the

offeror for it to be valid. The offeree can communicate the acceptance
directly or through an authorized representative.

 Revocation of Offer and Acceptance : An offer can be revoked at any time

before acceptance. Acceptance can be revoked at any time before it is
communicated to the offeror.

7. Special Cases
 Invitation to Offer : An invitation to offer is not an offer itself, but an invitation
for others to make offers. For example, advertisements, catalogs, and price
lists are generally considered invitations to offer.

 Quasi-Contracts : A quasi-contract is a legal concept that imposes

obligations on a party who has received a benefit from another party, even
if no formal contract exists. Quasi-contracts are not true contracts, but they
can be enforced by law.

Here are the case laws presented one by one in paragraph form:

1. Balfour v. Balfour (1919): In this case, a husband had promised to pay his wife an
allowance while he was abroad. When he later refused to make the payments, the wife sought
 legal recourse. The court held that the promise was a mere social agreement and did not
create any legal obligations, as there was no intention to create a legally binding contract
between the parties. This case illustrates that not all agreements are enforceable by law,
particularly those that are social in nature.
2. Carlill v. Carbolic Smoke Ball Co. (1893): This landmark case involved a unilateral offer
made by the Carbolic Smoke Ball Company, which advertised that it would pay £100 to
anyone who contracted influenza after using its product as directed. Mrs. Carlill used the
product and subsequently contracted influenza. The court upheld her claim, ruling that the
advertisement constituted a binding contract. This case demonstrates that a contract can be
formed through an offer made to the public, which is legally enforceable.
3. Hyde v. Wrench (1840): In this case, the defendant, Wrench, offered to sell his farm to
Hyde. Hyde responded with a counter-offer, which Wrench rejected. The court ruled that the
original offer was no longer valid once the counter-offer was made. This case illustrates the
principle that a counter-offer constitutes a rejection of the original offer, emphasizing the
importance of mutual assent in contract formation.
4. Jones v. Padavatton (1969): This case involved an informal agreement between a mother
and daughter regarding the daughter's education and living expenses. The mother had
promised to support her daughter while she studied for the Bar. When the mother sought to
terminate the agreement, the daughter claimed that it was a binding contract. The court ruled
that the arrangement lacked the necessary legal intention to create a contract, highlighting
that informal agreements, especially those of a familial nature, may not be enforceable.
5. Hadley v. Baxendale (1854): This case established the principle of consequential damages in
contract law. Baxendale, a carrier, was contracted to deliver a broken mill shaft to Hadley.
Due to delays, Hadley suffered lost profits because he could not operate his mill. The court
held that Baxendale was not liable for the lost profits because they were not within the
reasonable contemplation of both parties at the time the contract was made. This case
underscores that a contract creates legal obligations, and parties can seek damages for
breaches, but those damages must be foreseeable.

These cases collectively illustrate the distinctions between agreements and contracts,
emphasizing the legal principles that govern enforceability and obligations in contractual
relationships.

8. Summary of Key Terms

 Proposal: A proposal is a statement or action that expresses a willingness
to enter into a contract on specific terms.

 Promise: A promise is a commitment made by one party to another,

indicating a willingness to fulfill certain obligations.

 Agreement: An agreement is a mutual understanding between two or more

parties about their respective rights and obligations.

 Contract: A contract is a legally enforceable agreement between two or

more parties that creates rights and obligations.
 Promisor: A promisor is a party who makes a promise in a contract.

 Promisee: A promisee is a party to whom a promise is made in a contract.

 Consideration: Consideration refers to the value or benefit exchanged

between the parties in a contract.

 Void Agreement : A void agreement is an agreement that is not enforceable

by law due to illegality or immorality.

 Voidable Contract : A voidable contract is a valid contract that can be

rescinded or avoided by one or both parties due to some legal defect.

 Illegal Contract: An illegal contract is an agreement that is forbidden by law

due to its immoral or illegal nature.

 Express Contract: An express contract is a contract in which the terms are

explicitly stated, either in writing or verbally.

Implied Contract : An implied contract is a contract in which the terms are

not explicitly stated, but can be inferred from the actions or conduct of the parties
involved.

 Quasi-Contract: A quasi-contract is a legal construct that allows for the

enforcement of obligations in the absence of a formal contract, typically to
prevent unjust enrichment.
 E-Contract: An e-contract is a contract that is formed electronically, often
through the internet, and is subject to the same legal principles as
traditional contracts.
 Executed Contract: An executed contract is one in which both parties
have fulfilled their obligations and the contract has been completed.
 Executory Contract: An executory contract is one in which one or both
parties have yet to perform their obligations.
 Unilateral Contract: A unilateral contract is a contract where one party
makes a promise in exchange for the performance of an act by another
party. The contract is only binding when the act is completed.
 Bilateral Contract: A bilateral contract is a contract where both parties
exchange promises to perform certain actions. Each party is both a
promisor and a promisee.

9. Conclusion
Understanding the principles outlined in the Indian Contract Act, 1872 is
crucial for anyone engaging in agreements or contracts. The act provides a
framework for the formation, execution, and enforcement of contracts,
ensuring that parties can rely on the legal system to uphold their rights and
obligations.

By recognizing the distinctions between various types of contracts, the

essential elements required for validity, and the processes of offer and
acceptance, individuals and businesses can navigate contractual
relationships more effectively. Whether dealing with express or implied
contracts, understanding the nuances of communication, revocation, and
the legal implications of agreements can help prevent disputes and ensure
that contracts are enforceable.

In summary, contracts play a vital role in everyday transactions, and having

a solid grasp of the laws governing them can empower individuals and
businesses to engage confidently in their dealings.