• The Indian Contract Act, 1872 came in to force on 1st September,
1872. • It applies to the whole of India • It occupies the most important place in the commercial law • Without Contract Law it would be difficult to carry on trade or any other business activity • The objective of the Act is to ensure that the rights and obligations arising out of a contract are honoured and legal remedies are made available to those who are affected • The Act deals with agreements which can be enforced through courts of law • The Act was passed by British India and is based on the principles of English common law Definition of Contract • Pollock, “Every agreement and promise enforceable at law is contract.” • Salmond, “It is an agreement creating and defining obligations between the parties.” • Anson, “A contract is a legally binding agreement 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.” • According to Section 2(h), “An agreement enforceable by law is a contract.” • Contract = agreement + enforceability • A mere social agreement is not enforceable by law and thus it is not a contract • Eg: promise to go to movie, dinner • Agreement according to section 2(e) of the Act, “every promise and every set of promises, forming the consideration for each other, is an agreement.” • Eg: ‘A’ promises to deliver his car to ‘B’ and in return ‘B’ promises to pay a sum of Rs.50,000 to ‘A’. • It is said to be an agreement between ‘A’ and ‘B’. • According to section 2(b), “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.” • Eg: ‘A’ offers to sell his house to ‘B’ and ‘B’ accepted to buy the house. • There is an acceptance of proposal and thus resulted in a promise • Consensus ad idem means meeting of minds • Unless there is no consensus ad idem, there can be no contract • Eg: A, who owns two horses named Alfa and Beta, is selling horse Alfa to B. B thinks he is purchasing horse Beta. There is no consensus ad idem and consequently no contract. • Obligation or Enforceability at Law • An agreement to become a contract, must give rise to a legal obligation or duty. Click to add text • An agreement which gives rise to a social obligation is not a contract. Essentials of a valid contract • An agreement, to be enforceable by law, must posses the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. • According to section 10, “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.” • Proper offer and acceptance • Intention to create legal relationship • Lawful consideration • Competent parties • Free consent • Lawful object • Certainty of meaning • Possibility of performance • Not declared to be void or illegal • Legal formalities