The Indian Contract Act of 1872 is the basic law regulating contracts in India entirely, laying down the rules and principles constituting a valid agreement, its elements, and the legal result of its breach. It includes contract formation issues such as offer and acceptance-consideration, and so on-the capacity of the parties, and others.The Indian contract act of 1872 provides a framework within which the contracts and agreements in India are governed.This Indian Contract Act provides the necessary principles, rules, and procedures for the formation of contracts, the mode of performance of such contracts, and their enforceability. Also, specify the remedies in case of breach of contract. While entering into a contract, there must be a legal consideration between both parties. Section 2d of the Indian Contract Act 1872 defines the term consideration. That when two or more parties agree to do or not to do something by legally binding, Each Other is called consideration in a contract.

Indian contract Act is a topic which holds utmost importance in the UGC NET exam. It is a part of commerce paper 2 syllabus of UGC NET Commerce Exam. You can check the commerce syllabus.

In this article we will discuss about the meaning of Indian Contract Act 1872. The key Provisions, Considerations and remedies in case of breach of contact. We can expect at least 1 question from this topic.

In this article , learns will know about the following:-

• Introduction to Indian Contract Act, 1872
• The Key Provisions of the Indian Contract Act of 1872
• Indian Contract Act 1872 Sections
• Evolution of Indian Contract Law
• Essentials of Indian Contract Act 1872
• Types of Contracts under the Indian Contract Act, 1872
• Consideration
• Landmark Cases under the Indian Contract Act, 1872
• Remedies in Case of Breach of Contract

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The Key Provisions Of The Indian Contract Act Of 1872

Key principles under the Indian Contract Act 1872 ensure that all agreements meet the basic criteria of validity. There are certain provisions that are followed while entering into a contract. Some of the provisions are discussed below. 

• The offer and acceptance - There must be at least two parties, out of which one makes the offer and the other accepts. The person who makes an offer is called the promiser. The person who accepts the offer is called the promisee.
• Intention to create a legal relationship - The Contract between the parties must be able to create a legal relationship between the parties. The Contract which does not create a legal relationship is invalid. The Contract should be legally binding and enforceable by law.
• Free consent - The parties to the Contract must agree to the same thing in the same sense. The concept of the party should not be collected under coercion, fraud, and misrepresentation of the facts. In case better consent of the party is not free, then the Contract is voidable.
• The capacity of the parties - Indian Contract Act 1872 defines a person who has achieved the age of majority, a person with a sound mind, and a person who is not prohibited by the law can enter into a contract. A contract with a minor is void ab initio. A person with an unsound mind, a minor, cannot enter into a contract.

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Fig: indian contract act 1872

The Indian Contract Act, 1872, is a piece of legislation that governs contracts in India. It consists of several sections, and here are some of the key sections of the Indian Contract Act, 1872:

• Section 2: Definitions - This section defines various terms used throughout the Act, such as contract, agreement, promise, and consideration.
• Section 3: Communication, acceptance, and revocation of proposals - It deals with the communication of proposals, acceptance of proposals, and revocation of proposals.
• Section 4: Communication when complete - This section discusses when communication is considered to be complete.
• Section 5: Revocation of proposals and acceptances - It outlines the circumstances in which a proposal or acceptance can be revoked.
• Section 6: Revocation how made - This section explains how revocation of a proposal or acceptance should be made.
• Section 7: Acceptance must be absolute - It stipulates that acceptance must be unconditional and absolute to form a valid contract.
• Section 8: Acceptance by performing conditions, or receiving consideration - This section deals with the acceptance of a proposal by performing the conditions or receiving the consideration.
• Section 9: Promises, express, and implied - It distinguishes between express and implied promises.
• Section 10: What agreements are contracts - This section specifies the conditions that must be met for an agreement to become a contract.
• Section 11: Who are competent to contract - It deals with the capacity of individuals to enter into contracts.
• Section 12: What is a sound mind for the purpose of contracting - It explains what constitutes a sound mind for the purpose of making a valid contract.
• Section 13: "Consent" defined - This section defines the term "consent" and its importance in forming a valid contract.
• Section 14: "Free consent" defined - It defines "free consent" and the circumstances under which consent is considered to be free.
• Section 15: "Coercion" defined - It defines "coercion" and discusses when a contract is said to be induced by coercion.
• Section 16: "Undue influence" defined - This section defines "undue influence" and the situations in which it can render a contract voidable.
• Section 17: "Fraud" defined - It defines "fraud" and its consequences in the context of contracts.
• Section 18: "Misrepresentation" defined - It defines "misrepresentation" and its implications in contractual agreements.
• Section 19: Voidability of agreements without free consent - It discusses the voidability of agreements that are not made with free consent.
• Section 20: Agreement void where both parties are under a mistake - It deals with situations where both parties to a contract are under a mistake.
• Section 21: Effect of mistakes as to law - This section explains the effect of mistakes of law in a contract.

Study about objectives, importance and features of Indian Contract Act.

Evolution of Indian Contract Law

The Indian Contract Law evolved from English common law principles and was codified in 1872 to standardize contractual obligations. Over time, it has undergone key amendments to address India’s changing commercial and legal landscape.

Essentials of Indian Contract Act 1872

The Indian Contract Act 1872 outlines specific essentials for a valid contract, such as free consent and lawful consideration. The essentials of a valid contract under the Indian Contract Act, 1872, are stated below.

• Offer and Acceptance: There must be a lawful offer made by one party and a lawful acceptance of that offer by the other party. An offer is a proposal to do something, while acceptance is the agreement to the terms of the offer. The offer and acceptance must be communicated between the parties.
• Intention to Create Legal Relations: The parties involved in the contract must have a genuine intention to create a legal relationship, and the agreement should not be of a social or domestic nature. In other words, the parties must intend for the contract to be legally binding.
• Lawful Object: The object (purpose) of the contract must be lawful. It should not involve any illegal activities or actions contrary to public policy.
• Consideration: Every contract must be supported by valid consideration. Consideration is something of value exchanged between the parties. It can be money, goods, services, or a promise to do or refrain from doing something. Consideration is essential for the enforceability of a contract.
• Capacity of Parties: The parties entering into the contract must have the legal capacity to do so. This means they should be of sound mind and not disqualified by law, such as minors or persons of unsound mind.
• Free Consent: Consent to the contract must be given freely without any coercion, undue influence, fraud, misrepresentation, or mistake. If consent is obtained through any of these vitiating factors, the contract may be voidable.
• Certainty and Possibility of Performance: The terms of the contract must be clear and certain. It should be possible to perform the contract, and it should not be based on vague or uncertain terms.
• Legal Formalities: Some contracts may require compliance with specific legal formalities, such as written agreements, registration, or witnessing, as prescribed by law.
• Not Expressly Declared Void or Illegal: The contract must not be expressly declared void or illegal under the Indian Contract Act or any other law in India.
• Agreements Not Declared as Void: The contract should not fall under any category of agreements that are expressly declared void by the Act. For example, agreements without consideration or involving wagering are generally void.
• Possibility of Performance: The contract should be capable of being performed. If the performance of a contract becomes impossible due to factors beyond the control of the parties, it may be discharged.

Also read about essential elements of a valid contract.

Types of Contracts under the Indian Contract Act, 1872

Contracts form the backbone of any transaction when commercial or legal. Under the Indian Contract Act, 1872, contracts are classified into different types on the basis of their nature, enforceability, formation, and execution. Understanding these types is necessary for interpretation of the legal obligations, rights, and remedies arising from contractual relationships. Each classification informs the analysis of whether and when a contract becomes enforceable or void or is breached, thus considered the basic concept for students and professionals preparing for UGC NET or commerce-related examinations.

Bilateral Contract

Bilateral contracts are those contracts in which all parties are under mutual obligations and perform something for each other. This is the most common type of contract under which almost all business and personal dealings take place as it is a mutual exchange of promises.

• For Example, A agrees to sell his car to B for ₹1,00,000. A has to deliver the car during the sale, and B must pay the agreed amount.
• Importance: It forms the basis of most business transactions such as employment agreements, service contracts, and sale of goods. Such contracts are applicable under all parties regarding offer, acceptance, and consideration for validity.

Unilateral Contract

A unilateral contract is that wherein only one party promises to do something and the other party does not bound by law to act unless he desires to do so. All such kinds of contracts can be legally enforced once the other party completes the act as mentioned in the offer. There is no obligation to accept or act, but if action is taken, the promise must be honored.

• Example: A advertises a ₹500 reward to anyone who returns his lost dog. B finds and returns the dog. Now, A is legally bound to pay B ₹500.
• Importance: These contracts are generally made in the cases of reward advertisements for the advertisement, public offers, and contests, where performance can be stated as the only condition precedent for enforcement. The offeror cannot revoke the promise once the action is being performed or completed.

Void, Voidable, and Valid Contracts

This constitutes one of the classification-types based on enforceability of contracts as per the law:

• Valid Contract: All essential elements were present in such a contract, such as free consent, lawful object, lawful consideration, capacity to contract, and certainty of terms. This is legally enforceable in a court of law. 
• Example: Adult competent and legally able to sell goods to B and B is ready to pay. Enforceable.
• Void Contract: A contract that lacks one or more essential elements and has no legal effect from the beginning. Parties involved have no rights or obligations under such contracts.
• For Example, A contract entered into with a minor is void ab initio, i.e. Invalid from the start.
• Voidable Contract: A contract which is valid at first instance, but can be annulled by one of the parties because of coercion, misrepresentation, undue influence or fraud.
• Example: if A signs a contract with B under threat, A has the right to void it legally. 
• Importance: Knowing this distinction is important in determining whether a party will be able to sue for breach, or alternatively walk away from the contract on legal grounds.

Executed and Executory Contracts

It can also be classified into Executed Contracts or Executory Contracts. 

• Executed Contract: A contract into which both parties have completely fulfilled their obligations, and nothing remains outstanding. The duties of the contract become discharged, thus making the transaction complete. 
• Example: A buys a book from a bookstore that charges cash on delivery. Both sides have performed their promises, thus making it executed arrangements.
• Executory Contract: A contract where some or all parts are yet to be performed, it may be unilateral or bilateral, where both parties have future obligations to meet. 
• Example: A is to deliver 100 chairs to B in 10 days and upon delivery B is to pay ₹50,000. Up to the point when both parties perform, it shall remain executory.

Consideration

As per Section 2(d) of the Indian Contract Act 1872, consideration is an essential part of a valid contract. When both parties agree on the same thing in the same sense to do or not to do, something is called consideration. There are certain Essential elements of consideration that need to be fulfilled. Some of the important elements are discussed below.

Consideration Must Proceed At The Instance Of The Promisor

Doing or not doing something should be only done if the promisor desires the same thing. If the act is done voluntarily or at the instance of a third party, then the consideration is not valid.

Consideration Must Proceed From The Promisee Or Any Other Person

As long as the Contract carries a lawful consideration. It is not necessary who has furnished that consideration. When the promisor does not object, the consideration can move to any other person other than the promisee as well.

Consideration May Be Past, Present, Or Future

Considerations in a contract are of three types. The consideration in a contract can be the act which has already been performed. The consideration can be an act which will be performed in the future. We will be discussing the types of consideration briefly below. 

Past Consideration

Voluntary action has already been performed in the past. This action in the past will enable the party to enter into the Contract to do or not to do something. This is referred to as past consideration.

Present Consideration

Present consideration is also known as executed consideration. Present consideration means an act that has been performed in response to a positive promise.

Future Consideration

Future consideration is also referred to as executory consideration. Under the future consideration, the promisor is making an offer, and the promisee is accepting the offer to execute the Contract on a future date.

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Consideration Must Be Real

The consideration in a contract should be physically and legally possible. The consideration is not real if it is uncertain. If the consideration is uncertain, it becomes impossible to carry out the Contract. If the conservation is physically and legally not possible, then it avoids the Contract in the eyes of the law.

Consideration Must Be Lawful

The Contract needs to be legitimate in the eyes of the law. To be legitimate, the Contract must have lawful consideration. The consideration is said to be unlawful under the following points. 

• When it is legally prohibited.
•  It harms any other individual or their property.
• When it harms public policy.
• Remedies available in case of breach of Contract.

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Landmark Cases Under the Indian Contract Act, 1872

Landmark case decisions assist in interpreting and applying the provisions of the Indian Contract Act 1872 in actual situations. These are leading precedents established in regard to offer, acceptance, capacity, and breach. Knowing these will enhance conceptual clarity and exam preparation for UGC NET and other commerce examinations.

Carlill v. Carbolic Smoke Ball Co. (1893)

• Subject: Offer and Acceptance
• Facts:The company advertised that anyone using its smoke ball as directed and still contracting influenza would get £100. Mrs. Carlill made the right use of it but fell sick. The company held that there was no binding contract.
• Held:The court held that what was the advertisement was a unilateral offer to the world and that Mrs. Carlill's using the product as per the instruction was a valid acceptance. Thus, a legally enforceable contract came into being.
• Importance:This decision is an archetypical case of unilateral contracts whereby acceptance can be implied from conduct rather than necessarily communicated in any event. 

Mohori Bibee v. Dharmodas Ghose (1903)

• Topic: Capacity to Contract
• Facts: Dharmodas Ghose, a minor, mortgaged his property to a moneylender (Mohori Bibee). Later, his legal guardian filed a case stating that the contract was void as the boy was a minor.
• Held: According to the Privy Council, any contract with a minor is void ab initio (invalid from the beginning) under Indian law.
• Significance: Thus, this case settled that minors cannot enter a contract even when they misrepresent their ages, and any agreement made with a minor shall have no legal bearing.

Lalman Shukla v. Gauri Dutt (1913)

• Topic: Communication of Acceptance
• Facts: Lalman Shukla was a servant sent to search for his employer's missing nephew. Later, the employer announced a reward. Lalman, unaware of the offer, found the boy and later claimed the reward. 
• Held: The court held that there must be knowledge of the offer at the time of acceptance. Since Lalman was unaware of the reward upon finding the boy, he was not entitled to it.
• Significance: Reinforces the principle that acceptance without knowledge of the offer does not constitute a valid contract.

Remedies In Case of Breach of Contract

There are certain rules and regulations that are provided by the Indian Contract Act 1872 to follow while entering into a contract. Still, there are when a breach of Contract happens. A few remedies that are followed in case of breach of Contract are explained below. 

• Damages - the aggrieved party can claim damages for the losses they have suffered. The party who caused the breach of the Contract is liable to pay the damages.
• Injunction - under the remedy, the aggrieved party can ask the court to order the other party to do or not to do something. The party can only ask for the things that are decided while entering into the Contract.
• Arbitration - arbitration comes into account when both parties are unable to settle the dispute. When both parties are unable to settle the dispute with negotiation, they go for arbitration. The arbitrator will listen to both sides and then make a decision on mutual benefit.
• Specific performance - The aggrieved party can plead in court against the other party. The aggrieved party can ask the court to order the other party who breached the Contract to perform certain actions under the Contract.
• Rescission - under rescission, the Contract is totally canceled. This allows for the cancellation of the Contract and getting back the money or goods that have been exchanged between the parties.

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Conclusion

The Indian Contract Act of 1872 specifies the terms under which one can enter into a contract. This act has been formed to protect the parties in the Contract. Also, to reduce the unfair practices in entering into Contract. This act also provides remedies in case of breach of Contract and settles disputes. The Indian Contract Act 1872 is applicable all over India. This act has been amended several times according to the changing needs and conditions of the economy.

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Indian Contract Act 1872 Previous Year UGC NET Question

Which of the following is NOT an essential element of a valid contract under the Indian Contract Act, 1872?

1. A) Lawful consideration
   B) Offer and acceptance
   C) Reasonable profit
   D) Free consent

Correct Answer: C) Reasonable profit