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\The law relating to contracts in India is contained in Indian Contract Act, 1872. The

Act was passed by British Indiaand is based on the principles of English Common Law.

It is applicable to the All the States of India except the State of amm! " #ashmir.Itdetermines the circ!mstances in which promise made by the parties to a contract shall be

legally binding on them. All of !s enter into a n!mber of contracts e$eryday %nowingly

or !n%nowingly. Each contract creates some right and d!ties !pon the contracting parties.Indian contract deals with the enforcement of these rights and d!ties !pon the parties in

India.

Contents

& 'istory

( )e$elopment

* )efinition

+ Essential Elements of a ,alid Contract

- Types of contracts

/ffer

0 Acceptance

1 Lawf!l consideration

2 Competent To Contract

&3 4ree Consent

&& 5e$ocation of /ffer

&( Agency

&* 6otes

&+ 5eferences

&- External lin%s

History

The Third Law commissionof British Indiaformed in &1& !nder the stewardship of

Chairman Sir ohn 5omilly7with initial members asSir Edward 5yan75. Lowe7 .8.

8acleod7 Sir 9. Erle :s!cceeded by Sir. 9.8. ames; and !stice 9ills :s!cceeded by .'enderson;7 had presented the report on contract law for India as )raft Contract Law

:&1;. The )raft Law was enacted as The Act 2 of &10( on (-th April &10( and the

Indian Contract Act7 &10( came into force with effect from September &7 &10(.

Before the enactment of the Indian Contract Act7 &10(7 there was no codified law forcontract in India. In the !estions of inheritance and s!ccession and all matters of contract and dealing

between party and party sho!ld be determined in case of 'ind! as per 'ind! law and incase of 8!slim as per 8!slim law and when parties to a s!it belonged to different

http://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/English_Common_Lawhttp://en.wikipedia.org/wiki/Jammu_%26_Kashmirhttp://en.wikipedia.org/wiki/Jammu_%26_Kashmirhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Historyhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Developmenthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Definitionhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Essential_Elements_of_a_Valid_Contracthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Types_of_contractshttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Offerhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Acceptancehttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Lawful_considerationhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Competent_To_Contracthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Free_Consenthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Revocation_of_Offerhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Agencyhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Noteshttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Referenceshttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#External_linkshttp://en.wikipedia.org/wiki/Law_Commission_of_Indiahttp://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/John_Romillyhttp://en.wikipedia.org/wiki/John_Romillyhttp://en.wikipedia.org/wiki/Sir_Edward_Ryanhttp://en.wikipedia.org/wiki/Sir_Edward_Ryanhttp://en.wikipedia.org/wiki/Sir_Edward_Ryanhttp://en.wikipedia.org/wiki/Richard_Thomas_Lowehttp://en.wikipedia.org/wiki/Presidency_townhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Bombayhttp://en.wikipedia.org/wiki/Bombayhttp://en.wikipedia.org/wiki/Bombayhttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/George_I_of_Great_Britainhttp://en.wikipedia.org/wiki/Supreme_Court_of_Indiahttp://en.wikipedia.org/wiki/Supreme_Court_of_Indiahttp://en.wikipedia.org/wiki/Supreme_Court_of_Indiahttp://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/English_Common_Lawhttp://en.wikipedia.org/wiki/Jammu_%26_Kashmirhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Historyhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Developmenthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Definitionhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Essential_Elements_of_a_Valid_Contracthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Types_of_contractshttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Offerhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Acceptancehttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Lawful_considerationhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Competent_To_Contracthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Free_Consenthttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Revocation_of_Offerhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Agencyhttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Noteshttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#Referenceshttp://en.wikipedia.org/wiki/Indian_Contract_Act_1872#External_linkshttp://en.wikipedia.org/wiki/Law_Commission_of_Indiahttp://en.wikipedia.org/wiki/British_Indiahttp://en.wikipedia.org/wiki/John_Romillyhttp://en.wikipedia.org/wiki/Sir_Edward_Ryanhttp://en.wikipedia.org/wiki/Richard_Thomas_Lowehttp://en.wikipedia.org/wiki/Presidency_townhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Bombayhttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/George_I_of_Great_Britainhttp://en.wikipedia.org/wiki/Supreme_Court_of_Indiahttp://en.wikipedia.org/wiki/Supreme_Court_of_India

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pers!asions7 then the law of the defendantwas to apply. In o!tside !ity and good consciencewas followed.

Development

The Act as enacted originally had ( Sections7 it had wide scope and incl!ded.

=eneral

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And other words Say Agreement is S!m of !o;. It can be cash7

%ind7 an act or abstinence. It can be past7 present or f!t!re. 'owe$er7 considerationsho!ld be real and lawf!l.

*.Competent to contract or capacity In order to ma%e a $alid contract the parties to it

m!st be competent to be contracted. According to section && of the Contract Act7 aperson is considered to be competent to contract if he satisfies the following criterion

The person has reached the age of mat!rity.

The person is of so!nd mind.

The person is not dis>!alified from contracting by any law.

+.4ree Consent To constit!te a $alid contract there m!st be free and gen!ine consent ofthe parties to the contract. It sho!ld not be obtained by misrepresentation7 fra!d7 coercion7

!nd!e infl!ence or mista%e.

-.Lawf!l /b@ect and Agreement The ob@ect of the agreement m!st not be illegal or

!nlawf!l.

. Agreement not declared $oid or illegal Agreements which ha$e been expresslydeclared $oid or illegal by law are not enforceable at law? hence they do not constit!te a

$alid contract.

0. Intention To Create Legal 5elationshipswhen the two parties enter in to anagreement7there m!st be intention to create a legal relationship between them ...if there is

no s!ch intention on the part of the parties ..there is no contract between them

..agreements of a social or domestic nat!re do not contemplate legal relationship?as s!ch

they are not contracts.

1. Certainty7

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2. Legal 4ormalities &3. by s!rity

Types of contracts

n t!e "asis of validity#

&. Valid contract An agreement which has all the essential elements of a contract iscalled a $alid contract. A $alid contract can be enforced by law.

(. Void contract[Section 2(j)] A $oid contract is a contract which ceases to be

enforceable by law. A contract when originally entered into may be $alid and binding on

the parties. It may s!bse>!ently become $oid. There are many @!dgments which ha$estated that where any crime has been con$erted into a So!rce of contract itself cannot be enforced !nder the law

*. Voidable contractGSection (:i;H: An agreement which is enforceable by law at theoption of one or more of the parties thereto, bt not at the option of other or others, is a

!oidable contract" #f the essential element of free consent is missing in a contract, the law

confers right on the aggrie!ed party either to reject the contract or to accept it" $owe!er,the contract contines to be good and enforceable nless it is repdiated by the

aggrie!ed party"

+.#llegal contract A contract is illegal if it is forbidden by law? or is of s!ch nat!re that7

if permitted7 wo!ld defeat the pro$isions of any law or is fra!d!lent? or in$ol$es orimplies in@!ry to a person or property of another7 or co!rt regards it as immoral or

opposed to p!blic policy. These agreements are p!nishable by law. These are $oidab

initio.

DAll illegal agreements are $oid agreements b!t all $oid agreements are not illegal.

-. %nenforceable contract 9here a contract is good in s!bstance b!t beca!se of some

technical defect cannot be enforced by law is called !nenforceable contract. These

contracts are neither $oid nor $oidable.

n t!e "asis of formation#

&.&'press contract 9here the terms of the contract are expressly agreed !pon in words

:written or spo%en; at the time of formation7 the contract is said to be express contract.

(.#mplied contract An implied contract is one which is inferred from the acts or cond!ct

of the parties or from the circ!mstances of the cases. 9here a proposal or acceptance ismade otherwise than in words7 promise is said to be implied.

*. asi contract A >!asi contract is created by law. Th!s7 >!asi contracts are strictly

not contracts as there is no intention of parties to enter into a contract. It is legal

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obligation which is imposed on a party who is re>!ired to perform it. A >!asi contract is

based on the principle that a person shall not be allowed to enrich himself at the expense

of another.

n t!e "asis of performance#

&.&'ected contract An exec!ted contract is one in which both the parties ha$e

performed their respecti$e obligation.

(.&'ectory contract An exec!tory contract is one where one or both the parties to the

contract ha$e still to perform their obligations in f!t!re. Th!s7 a contract which ispartially performed or wholly !nperformed is termed as exec!tory contract.

*. %nilateral contract A !nilateral contract is one in which only one party has to perform

his obligation at the time of the formation of the contract7 the other party ha$ing f!lfilled

his obligation at the time of the contract or before the contract comes into existence.

+.ilateral contract A bilateral contract is one in which the obligation on both the

parties to the contract is o!tstanding at the time of the formation of the contract. Bilateral

contracts are also %nown as contracts with exec!tory consideration.

ffer

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5!les

&. Acceptance m!st be absol!te and !n>!alified.

(. Comm!nicated to offeror.

*. Acceptance m!st be in the mode prescribed.

+. Acceptance m!st be gi$en within a reasonable time before the offer lapses.

-. Acceptance by the way of cond!ct.

. 8ere silence is no acceptance. $ilence does not per%se amo&nts to comm&nication%

'an( of India )td. Vs. *&stom Co+asee% AI* 1- 'om. /1- at 0. /3 7 'om.

).*. 8 8ere silence cannot amo!nt to any assent. It does not e$en amo!nt to anyrepresentation on which any plea of estoppel may be fo!nded7 !nless there is a d!ty to

ma%e some statement or to do some act

0. offree and offerer m!st be consent

)a+f&l consideration

According to Section (:d;7 Consideration is defined as 9hen at the desire of thepromisor7 the promisee has done or abstained from doing7 or does or abstains from doing7

or promises to do or abstain something7 s!ch an act or abstinence or promise is called

consideration for the promise. Considertion means to do something.

In short7 Consideration means -id pro -oi.e. something in ret!rn.

An agreement m!st be s!pported by a lawf!l consideration on both sides.

The consideration or ob@ect of an agreement is lawf!l7 !nless and !ntil it is

&. forbidden by law7 or

(. is of s!ch nat!re that7 if permitted7 it wo!ld defeat the pro$isions of any law7 or

*. is fra!d!lent7 or in$ol$es or implies in@!ry to the person or property of another7 or+. the co!rt regards it as immoral7 or opposed to p!blic policy.

-. consideration may ta%e in any formmoney7goods7 ser$ices7 a promise to marry7 a

promise to forbear etc.

ontract +pposed to .blic .olicy can be /epdiated by the ort of law e!en if thatcontract is beneficial for all of the parties to the contract0 1hat considerations and

objects are lawfl and what not0ewar 3arble #ndstries .!t" 4td" Vs" /ajasthan State

&lectricity oard, 5aipr, 6778 r" 4"5" 6676 at 6679, 667 [/aj"]0Agreement of whichob@ect or consideration was opposed to p!blic policy7 !nlawf!l and $oid 9hat better

and what more can be an admission of the fact that the consideration or ob@ect of the

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compo!nding agreement was abstention by the board from criminally prosec!ting the

petitionercompany from offence !nder Section *2 of the act and that the Board has

con$erted the crime into a so!rce of profit or benefit to itself. This consideration or ob@ectis clearly opposed to p!blic policy and hence the compo!nding agreement is !nlawf!l

and $oid !nder Section (* of the Act. It is !nenforceable as against the

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+. 8isrepresentation :Section &1; ca!sing7 howe$er innocently7 a party to an agreement

to ma%e a mista%e as to the s!bstance of the thing which is the s!b@ect of the agreement.

-. 8ista%e of fact :Section (3; 9here both the parties to an agreement are !nder amista%e as to a matter of fact essential to the agreement7 the agreement is $oid.

*evocation of ffer

A proposal may be re$o%ed at any time before the comm!nication of its acceptance is

complete as against the proposer7 b!t not afterwards. An acceptance may be re$o%ed atany time before the comm!nication of the acceptance is complete as against the acceptor7

b!t not afterwards.

A proposal is re$o%ed

:&; by the comm!nication of notice of re$ocation by the proposer to the other party?

:(; by the lapse of the time prescribed in s!ch proposal for its acceptance7 or7 if no time isso prescribed7 by the lapse of a reasonable time7 witho!t comm!nication of the

acceptance?

:*; by the fail!re of the acceptor to f!lfill a condition precedent to acceptance? or

:+; by the death or insanity of the proposer7 if the fact of the death or insanity comes to

the %nowledge of the acceptor before acceptance.

A5encyIn law7 the relationship that exists when one person or party :the principal; engages

another :the agent; to act for him7 e.g. to do his wor%7 to sell his goods7 to manage hisb!siness. The law of agency th!s go$erns the legal relationship in which the agent deals

with a third party on behalf of the principal. The competent agent is legally capable of

acting for this principal $isK$is the third party. 'ence7 the process of concl!ding a

contract thro!gh an agent in$ol$es a twofold relationship. /n the one hand7 the law ofagency is concerned with the external b!siness relations of an economic !nit and with the

powers of the $ario!s representati$es to affect the legal position of the principal. /n the

other hand7 it r!les the internal relationship between principal and agent as well7 thereby

imposing certain d!ties on the representati$e :diligence7 acco!nting7 good faith7 etc.;.

Jnder section (3& to (&3 an agency may come to an end in a $ariety of ways

:i; By the principal re$o%ing the agency 'owe$er7 principal cannot re$o%e an

agency co!pled with interest to the pre@!dice of s!ch interest. S!ch Agency isco!pled with interest. An agency is co!pled with interest when the agent himself

has an interest in the s!b@ectmatter of the agency7 e.g.7 where the goods are

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consigned by an !pco!ntry constit!ent to a commission agent for sale7 with poor

to reco!p himself from the sale proceeds7 the ad$ances made by him to the

principal against the sec!rity of the goods? in s!ch a case7 the principal cannotre$o%e the agentMs a!thority till the goods are act!ally sold7 nor is the agency

terminated by death or insanity. :Ill!strations to section (3&;

:ii; By the agent reno!ncing the b!siness of agency?:iii; By the b!siness of agency being completed?

:i$; By the principal being ad@!dicated insol$ent :Section (3& of The Indian

Contract Act. &10(;

The principal also cannot re$o%e the agentMs a!thority after it has been partly exercised7so as to bind the principal :Section (3+;7 tho!gh he can always do so7 before s!ch

a!thority has been so exercised :Sec (3*;.

4!rther7 as per section (3-7 if the agency is for a fixed period7 the principal cannot

terminate the agency before the time expired7 except for s!fficient ca!se. If he does7 he is

liable to compensate the agent for the loss ca!sed to him thereby. The same r!les applywhere the agent7 reno!nces an agency for a fixed period. 6otice in this connection that

want of s%ill contin!o!s disobedience of lawf!l orders7 and r!de or ins!lting beha$ior hasbeen held to be s!fficient ca!se for dismissal of an agent. 4!rther7 reasonable notice has

to be gi$en by one party to the other? otherwise7 damage res!lting from want of s!ch

notice7 will ha$e to be paid :Section (3;. As per section (307 the re$ocation orren!nciation of an agency may be made expressly or impliedly by cond!ct. The

termination does not ta%e effect as regards the agent7 till it becomes %nown to him and as

regards third party7 till the termination is %nown to them :Section (31;.

9hen an agentMs a!thority is terminated7 it operates as a termination of s!bagent also