SHREEYASH CAREER ACADEMY

INDIAN CONTRACT
ACT, 1872
ASHISH BAHETY
ACA, CS, LLB

Preamble

WHEREAS it is expedient to define and
amend certain parts of the law relating to
contracts ; It is hereby enacted as follows

This Act may be called the Indian Contract

Act,1872.

It extends to the whole of India *[except the

State of Jammu and Kashmir];
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What is Contract ?

SECTION 2 (h)

“An agreement enforceable by law is a

contract”.

Contract = Agreement + Enforceability at

Law

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What is Agreement ?

Section 2(e)

Every promise and every set of promises,

forming the consideration for each other, is
an agreement.

Promise/(s) Promise/(s) = Agreement

In exchange for each other

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What is Promise ?

When a person to whom the proposal is
made, signifies his assent there to, the
proposal is said to be accepted.

A proposal, when accepted, becomes a

promise.

Promise = Proposal/Offer + Acceptance

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What is Proposal ?

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

Proposal = Willingness + To seek assent of

other

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What is Acceptance ?

When a 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.

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What agreements are

contracts?

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.

Contract = Consent + Competency +

Consideration + Object.

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What is Consent ?

Two or more person are said to consent
when they agree upon the same thing in the
same sense.

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What is Free Consent ?

Consent is said to be free when it is not caused
by -
1. Coercion,

2. Undue Influence

3. Fraud

4. Misrepresentation

5. Mistake

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Who are Competent to

Contract?

Every person is competent to contract who is
of the age of majority according to the law to
which he is subject, and who is sound mind
and is not disqualified from contracting by
any law to which he is subject.

Competency = Age + Sound Mind + No

Disqualification

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What is Consideration?

“When at the desire of the promisor,
promisee or any other person has done or
abstained from doing , or, does or abstains
from doing, or, promises to do or to abstain
from doing, some thing, such act or
abstinence or promise is called a
consideration for the promise.”

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Lawful Object & Consideration

The consideration or object of an agreement
is lawful, unless -It is forbidden by law; or is
of such nature that, if permitted it would
defeat the provisions of any law or is
fraudulent; of involves or implies, injury to the
person or property of another; or the Court
regards it as immoral, or opposed to public
policy.

In each of these cases, the consideration or
object of an agreement is said to be unlawful.

Every agreement of which the object or
consideration is unlawful is void.
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Essentials of a Valid Contract

1. Intention to create legal relationship.
2. Lawful object
3. Agreement not expressly declared void
4. Proper offer and it s acceptance
5. Free Consent
6. Capacity of parties to contract
7. Certainty of meaning.
8. Possibility of performance.
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Essentials of a Valid Contract

9. Lawful consideration
10. Legal formalities

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1. Intention to Create Legal

Relationship

The parties entering into a contract must
have an intention to create a legal
relationship.

If there is no intention to create a legal
relationship, that agreement cannot be
treated as a valid contract.

Generally there is no intention to create a
legal relationship in social and domestic
agreements.
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2. Lawful Object

The objective of the agreement must be
lawful. Any act prohibited by law will not be
valid and such agreements cannot be treated
as a valid contract.

A rents out his house for the business of
making bomb, the acts performing there are
unlawful. Hence such agreement cannot be
treated as a valid contract.

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3. Agreement not expressly

declared void

Section 24 to 30 specify certain types of
agreement which have been expressly
declared void.

For example

Agreement in restraint of legal proceedings,

Agreement in restraint of trade,

Agreement in restraint of marriage and

Agreement by way of wager.
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4. Proper offer and its

acceptance

There must be two or more parties.

One person cannot make an offer and accept it.

The offer must be clear and properly
communicated.

Similarly proper and unconditional acceptance
must be communicated to the offerer.

Proper offer and proper acceptance should be
there to treat the agreement as a contract which
is enforceable by law.
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5. Free Consent

Consent is said to be free when it is not caused
by (i) coercion, (ii) undue influence (iii) fraud, (iv)
misrepresentation, or (v) mistake.

If the contract made by any of the above four
reason, at the option of the aggrieved party it
could be treated as a void contract.

An agreement can be treated as a invalid
contract when the consent of the parties are not
free or under any undue influence, fear or
pressure etc.
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6. Capacity of parties to contract

Parties entering into an agreement must be
competent and capable.

Ex, If A agrees to sell Taj Mahal, is he capable &
competent ?

If any of the party is not competent or capable of
entering into the agreement, that agreement
cannot be treated as a valid contract

Every person is competent to contract
o the age of majority
o who is of sound mind, and
o not disqualified from contracting
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7. Certainty of meaning

Wording of the agreement must be clear and not
uncertain or vague.

Suppose Dhoni agrees to sell 500 Balls to Kallis.
But, what kind of ball is not clear. So on the ground
of uncertainty, this agreement stands void.

If the meaning of the agreement can be made
certain by the circumstances, it could be treated as
a valid contract.

For example, if Dhoni and Kallis are sole trader of
tennis ball, the meaning of the agreement can be
made certain by the circumstance and in that case,
the agreement can be treated as a valid contract.
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8. Possibility of performance

If the act is impossible of performance,
physically or legally, the agreement cannot
be enforced by law.

Impossible agreements like one claims to run
at a speed of 100km/hr or take 7 wickets in
an over. would not create a valid agreement.

In essence, there must be possibility of
performance must be there to create a valid
contract.
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9. Lawful consideration

Quid Pro Quo - An agreement must be supported
by a consideration of something in return.

Agreement must be supported by some type of
service or goods in return of money or goods.

It can be a promise to act (doing something) or
forbearance (not doing something).

Consideration may be present, future or can be
past

Agreement is valid only when the acts are legal

Illegal works like killing another for money, or
immoral works or illegal acts are cannot be treated
as a valid agreement.
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10. Legal formalities

The contract act does not insist that the agreement
must be in writing, it could be oral.

But, in some cases the law strictly insist that the
agreement must be in writing like agreement to sell
immovable property must be in writing and should
be registered.

These agreement are valid only when they fulfill the
formalities like writing, registration, signing by the
both the parties are completed.

If these legal formalities are not completed, it cannot
be treated as a valid contract.
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Thank You
“ You cannot teach a man
anything; you can only help him
to find it within himself.”
Galileo Galilei.

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