Indian Contract Act, 1872

The Indian Contract Act, 1872 governs the law of contracts in India and is the principal legislation regulating contract law in the country. It is applicable to all states of India. It outlines the circumstances under which promises made by the parties to a contract become legally binding. Section 2(h) of the Act defines a contract as an agreement that is enforceable by law.
The Act was enacted on 25 April 1872 and came into force on 1 September 1872. The Act, as enacted originally, had 266 Sections, divided into 11 chapters.
Later, the sections of Chapter 7 and 11 were repealed, as they were incorporated into separate legislations namely, Sale of Goods Act, 1930 and the Indian Partnership Act, 1932.
At present, the Indian Contract Act can be divided into two parts:
1. Offer 2(a): An offer refers to a promise that is dependent on a certain act, promise, or forbearance given in exchange for the initial promise.
2. Acceptance 2(b): When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.
3. Promise 2(b): A proposal when accepted becomes a promise. In simple words, when an offer is accepted it becomes promise.
4. Promisor and Promisee 2(c): When the proposal is accepted, the person making the proposal is called as promisor and the person accepting the proposal is called as promisee.
5. Consideration 2(d): When at the desire of the promisor, the 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 something such act or abstinence or promise is called a consideration for the promise. Price paid by one party for the promise of the other technical word meaning Quid pro quo which means something in return.
6. Agreement 2(e): Every promise and every set of promises forming the consideration for each other.
7. Reciprocal Promises 2(f): Promises which form the consideration and part of the consideration for each other are called 'reciprocal promises'.
8. Void agreement 2(g): An agreement not enforceable by law is void.
9. Contract 2(h): An agreement enforceable by law is a contract. Therefore, there must be an agreement and it should be enforceable by law.
10. Voidable contract 2(i): An agreement is a voidable contract if it is enforceable by law at the option of one or more of the parties there to (i.e. the aggrieved party), and it is not enforceable by law at the option of the other or others.
11. Void contract 2(j): A contract becomes void when it ceases to be enforceable by law.
According to Section 2(a), an offer refers to a promise that is dependent on a certain act, promise, or forbearance given in exchange for the initial promise.
Silence does not per-se amounts to communication- Bank of India Ltd. Vs. Rustom Cowasjee- AIR 1955 Bom. 419 at P. 430; 57 Bom. L.R. 850- Mere silence cannot amount to any assent. It does not even amount to any representation on which any plea of estoppel may be found, unless there is a duty to make some statement or to do some act free and offeror must be consent.
According to Section 2(d), consideration is defined as: "When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called consideration for the promise". Consideration means 'something in return'.
An agreement must be supported by a lawful consideration on both sides. Essentials of valid consideration must include:-
The consideration or object of an agreement is lawful, unless and until it is:
Contract opposed to public policy can be repudiated by the Court of law even if that contract is beneficial for all of the parties to the contract- What considerations and objects are lawful and what not- Newar Marble Industries Pvt. Ltd. Vs. Rajasthan State Electricity Board, Jaipur, 1993 Cr. L.J. 1191 at 1197, 1198 [Raj.]- Agreement of which object or consideration was opposed to public policy, unlawful and void – What better and what more can be an admission of the fact that the consideration or object of the compounding agreement was abstention by the board from criminally prosecuting the petitioner-company from offense under Section 39 of the act and that the Board has converted the crime into a source of profit or benefit to itself. This consideration or object is clearly opposed to public policy and hence the compounding agreement is unlawful and void under Section 23 of the Act. It is unenforceable as against the Petitioner-Company.
Section 11 of The Indian Contract Act specifies that every person is competent to contract provided that:
There are other laws of the land that disqualify certain persons from contracting. They are:-
According to Section 13, "Two or more persons are said to be in consent when they agree upon the same thing in the same sense (consensus-ad-idem)".
According to Section 14, "Consent is said to be free when it is not caused by coercion or undue influence or fraud or misrepresentation or mistake".
Elements vitiating free Consent:
1. Coercion (Section 15): "Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code under (45,1860), or the 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. For example, "A" threatens to shoot "B" if he doesn't release him from a debt which he owes to "B". "B" releases "A" under threat. Since the release has been brought about by coercion, such release is not valid.
2. Undue influence (Section 16): "Where a person who is in a position to dominate the will of another enters into a contract with him and the transaction appears on the face of it, or on the evidence, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in the position to dominate the will of the other".
3. Fraud (Section 17): "Fraud" means and includes any act or concealment of material fact or misrepresentation made knowingly by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract. Mere silence is not fraud. a contracting party is not obliged to disclose each and everything to the other party. There are two exceptions where even mere silence may be fraud, one is where there is a duty to speak, then keeping silence is fraud. or when silence is in itself equivalent to speech, such silence is fraud.
4. Misrepresentation (Section 18): "Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement".
5. Mistake of fact (Section 20): "Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void". A party cannot be allowed to get any relief on the ground that he had done some particular act in ignorance of law. Mistake may be bilateral mistake where both parties to an agreement are under mistake as to the matter of fact. The mistake must relate to a matter of fact essential to the agreement.
In law, the relationship that exists when one person or party (the principal) engages another (the agent) to act on their behalf, such as performing work, selling goods, or managing business affairs. The law of agency thus governs 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 vis-à-vis the third party. Hence, the process of concluding a contract through an agent involves a twofold relationship. On the one hand, the law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives to affect the legal position of the principal. On the other hand, it rules the internal relationship between principal and agent as well, thereby imposing certain duties on the representative (diligence, accounting, good faith, etc.).
Under section 201 to 210 an agency may come to an end in a variety of ways:
The principal also cannot revoke the agent's authority after it has been partly exercised, so as to bind the principal (Section 204), though he can always do so, before such authority has been so exercised (Section 203).
Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid (Section 206). As per section 207, the revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, until it becomes known to him and as regards third party, until the termination is known to them (Section 208). Sub-agent who is appointed by an agent for participate on behalf of his work.
When an agent's authority is terminated, it operates as a termination of sub-agent also (Section 210).
Enforcement of contracts is a significant challenge in India, as the legal system can be slow and litigious. India is ranked 163rd out of 191 countries surveyed by the world bank in terms of the ease of enforcing a contract.