Chapter 5: Indian Contract Act

About the Indian Contract Act, 1872

• The law relating to contract is governed by the Indian Contract Act, 1872. The Act came into force on the first day of September, 1872.
• The Indian Contract Act mostly deals with the general principles and rules governing contracts.
• An agreement gives birth to a contract. 

Agreement-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.

An agreement is the sum total of offer and acceptance

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.

Characteristics of an Agreement:

• Plurality of persons
• Consensus ad idem

Where parties have made a binding contract, they have created rights and obligations between themselves.

 Agreements in which the idea of bargain is absent and there is no intention to create legal relations are not contracts.

The essential elements of a valid contract are:

• An offer or proposal by one party and acceptance of that offer by another party resulting in an agreement – consensus-ad-idem.
•  An intention to create legal relations or an intent to have legal consequences.
• The agreement is supported by a lawful consideration.
•  The parties to the contract are legally capable of contracting.
•  Genuine consent between the parties.
• The object and consideration of the contract is legal and is not opposed to public policy.
• The terms of the contract are certain.
• The agreement is capable of being performed i.e., it is not impossible of being performed. 

Flaws in Contract-

• Void Agreement
• Voidable Contract
• Illegal Agreement

The general rule is that all natural persons have full capacity to make binding contracts. But the Indian Contract Act, 1872 admits an exception in the case of:

The terms of the contract are certain

•  minors,
•  lunatics, and
•  persons disqualified from contracting by any law to which they are subject.

The law says that it will not aid any one to evade consequences on the plea that he was mistaken.

Misrepresentation; be either (i) Innocent misrepresentation, or (ii) Wilful misrepresentation with intent to deceive and is called fraud.

Coercion as defined in Section 15 means “the committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain, any property to the prejudice of any person whatever with the intention of causing any person to enter into an agreement”.

Undue Influence Under Section 16 of the Indian Contract Act, 1872, a contract is said to be produced by undue influence “where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other”.

One of the requisites of a valid contract is that the object should be lawful.

A contract is said to be discharged or terminated when the rights and obligations arising out of a contract are extinguished.

Contracts may be discharged or terminated by any of the following modes:

•  performance, i.e., by fulfillment of the duties undertaken by parties or, by tender;
•  mutual consent or agreement
•  lapse of time
•  operation of law
•  impossibility of performance
•  breach of contract.

A contract of indemnity is a contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.

A contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default.

A bailment is a transaction whereby one person delivers goods to another person for some purpose, upon a contract that they are, when the purpose is accomplished to be returned or otherwise disposed of according to the directions of the person delivering them.

Pledge or pawn is a contract whereby an article is deposited with a lender of money or promisee as security for the repayment of a loan or performance of a promise.

An agent is a person who is employed to bring his principal into contractual relations with third-parties.

Electronic contracts are not paper based but ratherin electronic form are born out of the need for speed, convenience and efficiency.