INTRODUCTION TO

INDIAN CONTRACT
ACT 1872
 • The Indian Contract Act 1872 is act which specifies and deals
with the principles and law of the contract. 

INTRODUCTIO • This Act came into force from 1st of September of 1872.

• It is extended to whole of India.
N 
• It determines the circumstances in which promise made by
the parties to a contract shall be legally binding on them.
• All of us enter into a number of contracts everyday
knowingly or unknowingly. Each contract creates some right
and duties upon the contracting parties.
• This Act describes about the different stages involved in
the formation of the contract , breach of the contract and
remedies for it etc. 
• Indian Contract deals with the enforcement of these rights
and duties upon the parties in India.
At present the Indian contract Act includes following
provisions:
• First part Section 1-75  deals with the general principles of the
law of contract and therefore applies to all contracts irrespective
of their nature.
• Second part Section 124-238 deals with certain special kinds
of contracts. namely contracts of Indemnity and Guarantee,
Bailment, Pledge, and Agency.
IMPORTANT FACTS ABOUT INDIAN
CONTRACT ACT, 1872
RIGHTS AVAILABLE TO PARTIES UNDER
INDIAN CONTRACT ACT
• Rights in Rem (jus in rem) – "against a thing."
• available against the world at large.
• The freedoms given in article 19 of the Indian constitution with its restrictions are the
rights in rem. (Examples – Money/Property held by you)

• Rights in Personam (jus in personam) - "against a person.“

• A right in personam is available only against a particular person or party. (Example –
Mr. X owes Rs. 50,000 to Mr. Y. Here Mr.Y has the right to recover this amount from
Mr.X and not from anybody else)

Assumptions :
(a) There shall be freedom to the parties to the contract to determine their rights and obligations under contract and law shall enforce only what
the parties have agreed to be bound subject to certain limited principles.
(b) Rights and obligations created by parties shall be performed and their non performance shall give rise to legal consequences .
• Law of contract is not the whole law of agreements - concerned with those agreements
which contains all essentials under section 10 (law of contract does not covers all agreements
such as social, political, religious and other agreements without legal intentions)
• The law of contract is not the whole law of obligation (Indian Contract Act excludes from
its purview all obligations which are not contractual in nature and agreements which are
social in nature.)
• It has no retrospective effect (The law of the contract enacted as on 1st September, 1872,
and applies only on those contracts which are formed as on 1st September, 1872 or after it.)
 • Meaning : A  Contract refers to an agreement
between two or more parties creating mutual
obligations enforceable by law.
• Salmon defines contact as “An agreement
creating and defining obligation between the
CONTRACT  parties “
• Definition:  The Indian Contract Act, 1872
defines the term “Contract” under its section 2
(h) as “An agreement enforceable by law”.

Contract = Agreement + Enforceability

There should be minimum of two ESSENTIAL
parties 
ELEMENTS OF
It should be an agreement 
CONTRACT 

It should be an agreement with legal

consideration 

The agreement should be under the

lawful act 

The contract is an obligation 

EXAMPLE FOR CONTRACT 

• Developer promised to pay Graphic Designer $5000 for creating certain

promotional materials for Developer's multimedia work. Graphic Designer
created the materials and delivered them to Developer, as required in the
contract. Developer admits that the materials meet the contract
specifications. If Developer does not pay Graphic Designer, Graphic
Designer can go to court and get a judgment against Developer for breach of
contract. 
AGREEMENT 
• An agreement gives birth to a
contract. As per Section 2(e) of the
Indian Contract Act “every promise
and every set of promises, forming
the consideration for each other, is an
agreement
• It is evident from the definition given
above that an agreement is based on
a promise. What is a promise? 
• According to Section 2(b) of the Indian Contract Act “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. An agreement, therefore, comes into existence when one party makes a proposal or offer to the
other party and that other party signifies his assent thereto. In nutshell, an agreement is the sum total of
offer and acceptance.”
• Example :    

      A promises to B to sell his Laptop for Rs. 25,000/- and B accepts to purchase it for the said amount.
here 'A' and 'B' entered into an agreement.

     For the formation of an agreement there must be two or more persons or parties there must be a proposal
from one person or party and acceptance from the other person or party. The person making the proposal is
called the “Promisor”, and the person accepting the proposal is called “Promisee”

In the above example 'A' Promisor and 'B' is Promisee 

 TO FORM AN AGREEMENT, THE FOLLOWING
INGREDIENTS ARE REQUIRED:
• Parties: There need to be two or more parties to form an agreement

• Offer/ Proposal: Section 2 (a) defines proposal (offer) as “When one person signifies to another his
willingness to do or to abstain from doing something with a view to obtain the assent of that other to
such act or abstinence, he is said to make a proposal.”

• Acceptance: When the person to whom the proposal is made signifies his assent for the same thing in
the same sense as proposed by the offeror. [Section 2(b)]

• Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]

• Consideration: It is the price for the promise. It is the return one gets for his act or omission. [Section
2(d)]

• An agreement is, therefore, a promise or set of promises forming consideration

for all the parties. [Section 2(e)]
 Plurality of persons: There must be two or
more persons to make an agreement because
one person cannot enter into an agreement
CHARACTERISTIC with himself

S OF AN Consensus ad idem: The meeting of the

AGREEMENT minds is called consensus-ad-idem. It means
both the parties to an agreement must agree
about the subject matter of the agreement in
the same sense and at the same time. 
 An obligation is the legal duty to do or abstain
from doing what one has promised to do or
abstain from doing.

A contractual obligation arises from a bargain

between the parties to the agreement who are
OBLIGATION called the promisor and the promisee and they
requires to perform these promises legally.

In broad sense, therefore, a contract is an

exchange of promises by two or more persons,
resulting in an obligation to do or abstain from
doing a particular act, where such obligation is
recognized and enforced by law.  
RIGHTS AND OBLIGATIONS

• When parties have made a binding contract, they have created rights and obligations
between themselves.
• The contractual rights and obligations are correlative, e.g., A agrees with B to sell his car
for ` Rs.10,000 to him. In this example, the following rights and obligations have been
created:
(i) A is under an obligation to deliver the car to B. 
      B has a corresponding right to receive the car. 
(ii) B is under an obligation to pay 10,000 to A. 
    A has a correlative right to receive 10,000 
ALL AGREEMENTS ARE NOT CONTRACTS

• An agreement to become a contract must give rise to legal obligation. If an

agreement is incapable to be enforced by law, it remains only agreement and not
contract, such as:
 (a) Social Agreements 
 (b) Agreements without legal intention 
 (c) Agreements without consideration, etc., are agreement but not contract. However all contract
are agreement. Further all legal obligations are not contract. Only those obligations which have
their source in the contract are enforceable under the provisions of Indian Contract Act.  
TYPES OF AGREEMENT

• A) Valid Agreement: Valid agreement is said to be valid if it can be enforceable in the Court of

Law. Section 2(h) of the Indian Contract Act, 1872 says that, "an agreement enforceable by law
is a contract" 
• B) Void Agreement: According to Section 2(g) of the Indian Contract Act, 1872 an agreement
is not enforceable by law is said to be void. For example an agreement without consideration is
void. 
• (C) Illegal Agreement: An agreement with an unlawful object and consideration is known as
illegal agreement. An illegal agreement has no legal effects as between the immediate parties.
For example: agreements for the sale, or distribution of illegal substances
TYPES OF CONTRACT – ON THE BASIS OF
VALIDITY 

• Valid Contracts: The Valid Contract as discussed in the topic on Essentials

of a Contract  is an agreement that is legally binding and enforceable. It must
qualify all the essentials of a contract.

• A Contract between A and B and let us assume that their contract has all the
essential elements of a valid contract.
• Void Contract Or Agreement: The section 2(J) of the Act defines a void contract as “A
contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable”. This makes all those contracts that are not enforceable by a court of law as void.
• Example X a famous singer agrees to sing an album for a musical company. Unfortunately
suffered from throat cancer and not allowed to sing by doctor. Here the contract becomes void
contract.
• Contract to sell bike and bike gets stolen before sale is effected.
• Void Contracts can be of following two type
• Void ab initio
• Void due to impossibility of its performance
• Void agreements as per the provisions of Indian Contract Act , 1872
• Any agreement with a bilateral mistake is void.
• Agreements which have unlawful consideration and objects are void.
• Agreements made without consideration is void
• Agreement in restraint of marriage of any major person is void
• Agreement in restraint of trade is void
• Voidable Contract: These types of Contracts are defined in section 2(i) of the
Act: “An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of the other or others, is a voidable
contract.”
• Example: A Threatens B to murder if he does not sell his land for ` 100000/- B
agreed for it due to threat. It is a voidable contract which can be rejected by B.
• Illegal Contract: An agreement that leads to one or all the parties breaking a law
or not conforming to the norms of the society is deemed to be illegal by the court.
A contract opposed to public policy is also illegal.
• The object and consideration is said to be unlawful if
(a) it is forbidden by law; or
(b) is of such nature that, if permitted, would defeat the provisions of any law or
(c) is fraudulent; or (d) involves or implies injury to a person or property of another, or
(e) court regards it as immoral
(f) opposed to public policy.
These agreements are punishable by law and are void-ab-initio.
• Example X agrees to pay Rs. 1,00,000/- to Y to murdered Z it is an illegal agreement as it is
injurious to Z and forbidden under I.P.C.
“All illegal agreements are void because an illegal agreement is not enforceable by law but all void
agreements are not illegal,” as it is not necessary that object and consideration of every agreement
is unlawful.
• Unenforceable Contracts: Where a contract is good in substance but becomes
unenforceable due to some technical defect and cannot be enforced by law is called
unenforceable contract. These contracts becomes enforceable when these technical
defects (legal formalities) are completed.
• These defect may be the absence of writing, registration, time-barred by the law of
limitation, etc.
• Example A draws a promissory note without stamp it is not enforceable but further
after one week A come to know about the mistake and stamped it become enforceable.
TYPES OF CONTRACT – ON THE BASIS OF
FORMATION

• Express contract: Where the terms of the contract are expressly agreed upon
in words (written or spoken) at the time of formation, the contract is said to
be express contract.
• Gaga writes a letter to H, offering to sell her house to him for 45 lakhs. H,
by a written letter, gives his acceptance of the proposal.
• Implied contract: An implied contract is one which is inferred from the acts
or conduct of the parties or from the circumstances of the cases. Where a
proposal and acceptance is made otherwise than in words, it is said to be
implied contract.
• Example - an individual enters a restaurant and orders food/ boards a bus
• Quasi contracts: A quasi contract is created by law on the basis of principal
of equity.
• Courts create quasi contracts to prevent a party from being unjustly enriched,
or from benefitting from the situation when he does not deserve to do so.
• Example - T contracts with B to deliver goods to T’s residence. B accidentally
delivers it to C who consumes these goods and refuses to pay for it.
• C has enjoyed the benefit of goods but does not pay for it and B has to bear all
the burden of it. In such cases courts order C to pay back to B as he has
enjoyed the benefit of the goods.
• E-contracts are contracts that are executed and enacted by a software system
in the sense that they are not concluded by face to face communications i.e.
the “seller and buyer” or “supplier and consumer” do not meet in person to
form, negotiate and execute the terms of their contract.
• Exchanging e-mails or acceptance of a condition or terms or by downloading
can also imply a contract.
• Email, Website Forms, End User License Agreements (EULA)
TYPES OF CONTRACT – ON THE BASIS OF
PERFORMANCE/EXECUTION
• Executed Contract: When the contract is performed, it is known as an
executed contract. It is a contract in which both the parties have performed
their respective obligation.
• Example - a sales contract is complete when the transaction closes. The
buyer has paid the money, and the seller has transferred the title.
• Executory Contract: When the obligation in a contract, is to be performed
in future, it is described as an executory contract. A contract which is
partially performed or wholly unperformed is termed as executory contract.
• Unilateral Contract (only one party has to perform his obligation after formation of the
contract)
• Bilateral Contract (obligation of both the parties to the contract is outstanding.)
• Example, most leases or contracts for the sale of goods where the goods have
not been delivered by the seller and the buyer has not paid, are executory
contracts.