The Indian Contract Act, 1872

By S.K Tannan
 Introduction
We enter into contracts almost every day.
Taking a seat in a bus amounts to entering into a
contract.
You go to restaurant and take snacks, you have entered
into a Contract.
However, in such situations, we do not realize that we
have entered into a Contract.
The people who are engaged in trade, industry and
commerce, they carry on business by entering into
contracts.
The law relating to Contracts is found in the Indian
Contract, 1872
 INTRODUCTION
The law of contracts differs from the other branches of
law.
It does not lays down so many precise rights and duties
which the law will protect and enforce.
 It only contains a number of limiting principles,
subject to which parties may create rights and duties
for themselves.
 The law will uphold those rights and duties.
 What is a contract
Section 2 (h) of the Indian Contract Act, 1872 defines
a contract as “an agreement enforceable by law”.
Section 2 (e) defines agreement as “every promise and
every set of promises forming consideration for each
other”
Section 2 (b) defines promise as “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”
What is a contract act
The Contract Act is e law of those agreements which
create obligations, and in the case of breach of a
promise by one party to the agreement, the other has a
legal remedy.
All legal obligations are not contractual in nature.
A legal obligation having its source in an agreement
only will give rise to a contract.
An obligation which does not have its origin in an
agreement does not give rise to a contract.
Some of the obligations are: torts or civil wrong,
judgments of courts, Contracts of records etc
Essential ELEMENTS OF A VALID
CONTRACT
o As per section 10 of the Act, “All agreements are
contracts if they are made by free consent of the
parties, competent to contract, for a lawful
consideration and with a lawful object and are
not hereby expressly declared to be void”
o The essential elements of a valid contract are:
(1) Agreement
(1) Intention to create legal relationship
(2) Free and genuine consent
(3) Parties competent to contract
(4) Lawful consideration
 Essential ELEMENTS OF A VALID
CONTRACT
(5) Parties Competent to Contract
(6 ) Lawful object
(7) Agreements not declared void or illegal
(8) Certainty of meaning
(9) Possibility of performance
(10) Necessary legal formalities
Essential Elements of a Valid Contract
(1) Agreement:
 To constitute a Contract, there must be an agreement.
 An agreement is composed of two elements:
(a) Offer
(b) An Acceptance
 The party making an offer is known as offeror, and the
party to whom the offer is made , is known as the offeree.
 Thus there are essentially to be two parties to an
agreement..
 They both must be thinking of the same thing in the same
sense.
 In other words, there must be consensus-ad-idem.
Essential Elements of a Valid Contract
(2) Intention to create legal relationship:
There should be an intention on the part of the
parties to create a legal relationship.
An agreement of a purely social or domestic nature
is not a contract.
However, even in the case of agreements of purely
social or domestic nature, there may be an
intention of the parties to create legal obligations.
In that case, the social agreement is intended to
have legal consequences.
Essential Elements of a Valid Contract
(3) Free and Genuine Consent:
The consent of the parties to an agreement.
The consent of the parties should not be obtained
by misrepresentation, fraud, undue influence,
coercion or mistake.
If the consent is obtained by any of these sources,
then the contract is not valid.
Essential Elements of a Valid Contract
(4) Parties competent to contract:
 According to Section 11 of the Indian Contract Act,
every person is competent to contract if he or she is:
(i) Of the age of maturity
(ii) Of sound mind
(iii) Not disqualified for contracting by any law to which
he or she is subject to
 Therefore, if a party to a contract is suffers from any
of these flaws, the contract is unenforceable except
in certain exceptional circumstances
Essential Elements of a Valid Contract
(5) Lawful Consideration:
The agreement must be supported by consideration
from both sides.
Each party to the agreement must give or promise
something and receive something or a promise to
return.
Consideration is the price for which the promise of the
other party is sought.
However, this price need not be in terms of money, it
can be in terms of kind.
The consideration must be real and lawful.
Essential Elements of a Valid Contract
(6) Lawful Object:
The object of the agreement must be lawful and
not one which the law disapproves.
(7) Agreement not declared illegal or Void:
There are certain agreements which have been
declared illegal or void by the law.
In such cases, even if an agreement possesses all
the elements of a valid contract, the agreement
may not be enforceable by the law.
Essential Elements of a Valid Contract
(8 ) Certainty of Meaning:
The meaning of the agreement must be certain or
capable of being made certain , otherwise the agreement
will not be enforceable by law.
For example, A agrees to sell 10 metres of cloth. But this
does not show what type of cloth is intended for sale.
Therefore, the agreement may not be enforceable by law.
However, if the special description of the cloth is
expressly stated, say Terry cot (80:20), the agreement
would be enforceable by law as there is no uncertainty
about its meaning.
Essential Elements of A Valid Contract
(9) Possibility of Performance:
The terms of the agreement should be capable of
performance.
An agreement to do an act impossible in itself
cannot be enforced by law.
For instance, A agrees with B to discover treasure
by magic.
Such types of agreements cannot be enforced.
Essential Elements of A Valid Contract
(10) Necessary legal Formalities:
A contract may be oral or in writing.
However, if a particular type of contract is
required by the law to be in writing , it must
comply with necessary formalities as to writing,
registration, attestation etc, if necessary.
If such legal formalities are not carried out, then
the contract is not enforceable by the law.
 Void Agreements
An agreement which is not enforceable by either of
the parties is a void agreement.
Such an agreement is without any legal effect.
Under Section 11, an agreement with a minor is void.
Some instances of void agreements are:
(i) Agreements entered into through a mutual mistake
of fact between the parties
(ii) Agreements, the object or consideration is unlawful.
(iii) Agreements part of the consideration or object is
unlawful.,
 Void Agreements
(iv) Agreements made without consideration.
(v) Agreements in restraint of trade
(vi) Agreements in restraint of legal proceedings
(vii) Uncertain agreements
(viii) Impossible agreements
(ix) An agreement to enter into an agreement in
future.
(x) Wagering agreements.
 Void Agreements
An illegal agreement is one which transgresses some
rules of basic public policy or which is criminal in
nature. Or which is immoral.
Such an agreement is a nullity and has a much wider
import than a void agreement.
All illegal agreements are void, but all void agreement
are not necessarily illegal.
An illegal agreement is not only void as between the
immediate parties, but this has further effect that even
collateral transactions to it become tainted with
illegality.
 Void Agreements
For example, A borrows Rs 15000/ from B, and enters
into a contract with F, a foreigner, to import goods
which are prohibited by law.
B has the knowledge of the purpose of the loan.
The agreement between A and B is collateral to the
main agreement between A and F.
Since the main agreement is illegal, therefore, the
collateral is also tainted with illegality.