Study Notes
Indian Contract Act, 1872
Introduction
&
Basics-Offer, Acceptance,
Promise, Agreement,
Contract
Contract Act Introduction
INTRODUCTION
Contract Act is a branch of the Civil Law.
It has its basis on the English Common Law.
It plays a vital role in our everyday life as we come across many such situations wherein,
we enter into contracts. Thus, Contract Act governs the various provisions concerning
contracts in India and is considered as the Central Legislation relating to the formation
and validation of contracts which the parties enter into with each other.
It extends to the whole of India.
It was enacted on 25th of April, 1872 and it came into force on 1st of September, 1872.
Objective of the Act:
To ensure that the legal rights and obligations arising out of a contract are
fulfilled
To provide legal remedies to the aggrieved party in case of breach of contract or
non-performance by a party
PROPOSAL/OFFER
Proposal has been defined under Section 2(a): 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.
It is the foundation of every contract which the parties enter into as the entire process
of entering into a contract begins from offer/proposal.
As per Section 2(c) The person making the proposal is called the "promisor", and the
person accepting the proposal is called the "promisee".
A proposal to be valid must contain the following essential elements:
There must be two parties;
It must be certain and definite;
Every proposal must be communicated to the promisee;
It must be made with a view to create legal relation;
It must be made with an intention to obtain Assent of the other Party;
Should not contain such terms the non-compliance of which would amount to
acceptance
The various kinds of offer are:
Express and Implied offer: When an offer is made either orally or in writing it is
referred to as an expressed offer. Whereas, when an offer is made from the very
conduct or act of the parties it is known as implied offer.
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Contract Act Introduction
General and Specific offer: When an offer is made to the public at large it is
known as general offer whereas when it is made to a specific person who can
only accept the offer being made to him.
Cross and Counter: Cross offer is an offer wherein both the parties make an
identical offer to each other, in ignorance to each other’s offer. On the other
hand, counter offer is an offer where the person to whom offer is made instead of
accepting the terms of the offer as it is desires certain modification or variations
in the terms of the original offer being made to him. of the same
Standing: An Offer which remains open for acceptance or enforceable over a
period of time is known as standing offer.
Offer and Invitation to Offer:
In the case of an 'invitation to offer' the person sending out the invitation does not
make an offer but only invites the other party to make an offer. Wherein his
object is merely to circulate information that he is willing to deal with anybody
who, on such information, is willing to open negotiation with him.
Such an invitation for offer is therefore not considered to be an offer in the eyes
of law and does not become agreement by their acceptance.
Thus, we can say that invitation to offer is not a type of offer per se but it is
actually an offer to negotiate, an offer to receive offers. An offer is a final
expression of willingness to get into a contract.
Offer Invitation to Offer
It is the final expression of the willingness by This is not an offer but just an invitation to the
the offeror public to make an offer
Once an offer is accepted it will result into a This when once accepted will be resulting
valid and binding contract between the into an offer
parties
ACCEPTANCE
Acceptance as per Section 2(b) means- 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.
In simple words acceptance can be said to be an assent given to an offer being made
to someone which creates a legal relationship between the parties.
An offer when accepted, results in an agreement as an offer cannot create any legal
right or duty unless it has been accepted.
Essentials of a Valid Acceptance:
Acceptance should be Communicated:
o When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted.
o The offeror cannot impose upon the offeree an obligation to accept nor
proclaim that silence of the offeree shall be deemed to be an acceptance.
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Contract Act Introduction
Acceptance should be Absolute and Unqualified:
o For an acceptance to be a valid one it is required that the very
acceptance of an offer should be the acceptance of the same terms as
being offered by the offeror. Thus, there should not be any variations,
conditions or qualifications to the acceptance being given.
o Thus, we can say that an acceptance without any deviation of any kind in
the proposal or without any conditions is considered to be absolute and
qualified acceptance.
o So, in case if conditions are imposed while communicating acceptance or
any variation or modification are sought in the proposal, then such an
acceptance cannot be regarded as valid acceptance as it is not an
absolute and unqualified acceptance.
Acceptance should be Expressed in Usual and Prescribed Manner or in the
manner communicated by the proposer.
Acceptance should be made while the Offer is Still Subsisting so as to be legally
effective. So, an acceptance must be given within the specified time limit, and if
no time is stipulated, acceptance must be given within a reasonable time
because an offer cannot be kept open indefinitely.
Types of Acceptance:
Expressed Acceptance: When an acceptance is either written or oral, it is known
an Expressed Acceptance.
Implied Acceptance: When an acceptance is shown by an act/conduct, it is
known as an Implied acceptance.
PROMISE
Section 2(b) defines promise as: proposal when accepted becomes a promise.
Proposal Acceptance Promise
AGREEMENT
According to Section 2(e) an Agreement means: ‘Every promise and every set of
promises forming the consideration for each other’.
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Contract Act Introduction
Promise Consideration Agreement
CONTRACT
According to Section 2(h) Contract means: An agreement enforceable by law.
All agreements are not enforceable by law and therefore, all agreements are not
contract. Therefore, only those agreements which are enforceable by law are contracts.
Thus, enforceable by law means that an agreement consists of the necessary
components in order for it to be able to be imposed under law.
Agreement Enforceability Contract
ESSENTIALS OF A CONTRACT
According to section 10, an agreement to be enforceable must fulfil the following
conditions:
Offer and Acceptance: There should be an offer being made by one party to the
other. The offer made must be accepted by the other to whom it was made
resulting in an agreement between the parties.
Intention to create legal relationship: The very intention of the parties entering
into an agreement should be to create a legal relationship ad therefore, the rights
& duties arising out of the agreement should be legal & not merely moral i.e., of
domestic or social nature.
Free Consent: There should be free consent of the parties, when they enter into
an agreement. Consent is said to be free if it is not caused by coercion, undue
influence, fraud, mistake or misinterpretation
Capacity to Contract: Agreement should be entered between the parties who
are competent to contract i.e., who are of the age of majority, sound mind, & not
disqualified from contracting by any law to which he is subjected.
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Contract Act Introduction
Lawful Consideration & Object: There should be lawful consideration and
lawful object with respect to the contract being entered between the parties.
The agreement must not be one, which has been expressly declared to be
void.
Certainty & Possibility of Performance: A Contract is considered valid only
when it does not involve the performance of an impossible act.
TYPES OF A CONTRACT
On the Basis of Enforceability
Valid Contract S.2(h): A contract is said to be a valid contract when all the
essential conditions as laid down under section 10 of the Contact Act are
fulfilled.
Void Contract S. 2(j): A contract which ceases to be enforceable by law
becomes void, when it ceases to be enforceable. Thus, a contract which has no
consequences and which are not binding on the parties is a void contract.
o These types of contracts are valid at the time when the parties enter into
such contracts, however, later on they become void because of the
impossibility of performance which might be by reason of change of law,
the subsequent illegality etc.
Voidable Contract S.2(i): A contract which is enforceable by law at the option of
one or more of the parties, but not at the option of the other.
Unenforceable Contract – A contract which is a valid contract but due to some
technical defects the contract becomes void.
Note:
Void Agreement S.2(g): An agreement is said to be void when it has no legal effect or it
is unenforceable.
Illegal Agreements: Those contracts which are forbidden & punishable by law or
opposed to public policy.
SOME DIFFERNECES
Differences Void Contract Voidable Contract
Definition A contract which ceases to A contract which is
be enforceable by law, enforceable by law at the
becomes void when it ceases option of one or more of the
to be enforceable parties, but not at the option
of the other
Validity These are valid when the These contracts are
parties enter into it but avoidable at the very option
subsequently become of the aggrieved party. It
unenforceable due to certain remains valid until it is set
reasons aside or rescinded by the
party entitled to do so
Enforceability It cannot be enforced by It can be enforced or set
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Contract Act Introduction
either party aside at the option of the
aggrieved party
Reason Valid contracts become void Contracts are rendered
due to change of law, voidable by reason of
supervening impossibility etc. coercion, undue influence
and misrepresentation
Damages A suit for damages cannot be A suit for damages can be
brought and so damages brought by the aggrieved
cannot be given by either of party.
the partier to the other for the
non-performance, however,
benefits received by any of
the parties have to be
restored back
Differences Void Agreement Void Contract
Meaning Agreements which have no Contracts that are valid but
legal consequences and as ceases to be enforceable by
unenforceable as per law and thus, become void
Void ab initio These agreements are void These are valid at the
from the very beginning beginning but become void
later on due to change in the
law or the circumstances
Reason Lacks the requirements of a Due to change in law or the
valid contract circumstances becomes
impossible to be performed
Restitution Not allowed, except where Allowed when contract is
the court may grant it on discovered as void
equitable grounds
Differences Void Agreement Illegal Agreement
Meaning Agreements which have no Agreements whose creation
legal consequences and as is forbidden by law
unenforceable as per law
Nature All void agreements are not All illegal agreements are
illegal, as they may not have always void
the object or the
consideration as illegal but
they still may be void like
agreement with minor is void
but not illegal
Prohibited by Indian Penal Not prohibited Prohibited
Code
Penalty No liability for any penalty Parties herein are penalized
under any law as per law
Collateral Agreements May not necessarily be void Are always void
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Contract Act Introduction
On the basis of Formation:
Expressed Contract: A contract which is either in writing or oral.
Implied Contract: A contract which is neither in writing nor oral but inferred from
the acts or circumstances of a particular case.
E-Contracts: A contract which is made through e-commerce wherein the parties
hardly meet in person and where the electronic commercial transactions are
undertaken and completed. E-contracts have not been as such recognized by the
Indian Contract Act does but it does not also prohibit them. These types of
contracts have been recognized by the Indian courts but they must fulfil the
essentials of a valid contract under Section 10.
Quasi contracts: A contract created by law, which imposes legal obligations on
a person similar those contracts which are mutually entered into by the parties.
On the basis of Performance:
Executed Contracts: A contract where both the parties have performed their
respective obligations & there remains nothing to perform.
Executory Contracts: A contract where both the parties are yet to perform their
obligation or where there are unperformed obligations on both sides, or where
both parties have continuing obligations to perform.
Unilateral Contracts: A contact where one party has performed his obligation &
other is yet to perform his obligation.
Bilateral contracts: A contract where both the parties have performed their
respective obligations.
Proposal Promise Agreement Contract
