INDIAN CONTRACT ACT 1872

INTRODUCTION

What is a contract? According to section 2(h) of the Indian contract, the definition of a contract is as follows- “An agreement enforceable by law is a contract” Now as students of law, we have all heard this statement several times, but what does it imply? We can break it down into two things: first, there should be an agreement in the first place, and second, it should be enforceable by law. Another assertion that can be made from this definition of a contract is the result of an agreement. Since an agreement has to be enforceable by law to be a contract, all agreements are not contracts as they are not enforceable by law. Still, all contracts are agreements as contracts have come into existence as they are enforceable by law, or we could say that the word “contract” itself means that it has been a result of an agreement that was enforceable by law. For example, an agreement to sell a car may be a contract, but an agreement to go out for dinner is just an agreement and not enforceable by law. So we have a simple equation or a formula for a contract – contract = agreement + enforceability at law.

Agreement and enforceability by law

But what is an agreement in the first place? The answer to that is found In section 2(e) of the Act, which defines an agreement as ‘every promise and every set of promises forming the consideration for each other is an agreement’[1] In an agreement there is a consideration from both sides for example A promises to sell his bike to B and B promises to pay a certain sum in return. The promise is the result of offer or proposal by one party to its acceptance by the other. so having discussed what an agreement means Here both are promised something is return, a contract is essentially like a symbiotic or interdependent relation where one cannot exist without the other and they are mutually benefitted by each other[2]. consideration is an essential element of a contract, it is defined in section 2(d); “when at the desire of the promisor, the promise or any other person has done something 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 consideration for the promise.”[3] Thus we can say that agreement = offer + consideration + acceptance. Now let us look at enforceability by law. It implies that the consenting parties must be entitled to uphold their contractual rights or seek remedy in case of breach of contract; if the agreement wasn’t necessitated to be enforceable by law, it could have been enforced by illegal means like coercion, extortion, or battery, Now for an agreement to be enforceable it has to meet certain essential conditions which have been defined in section 10 of the Indian contract act in the following words, “All agreements are contracts, which are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and not expressly declared to be void”,

The conditions are

  1. The agreement, i.e., offer and acceptance
  2. Capacity or competent to contract
  3. Free consent
  4. Lawful object and consideration
  5. Not expressly declared to be void

Offer and acceptance

Offer or proposal and its acceptance is the preliminary and most fundamental step to forming a contract; An offerer has to make an offer to the concerned party where he talks about his willingness to perform something or abstain from doing something to obtain the offeree’s consent. The exact definition of the term offer is given in section 2(a) of the Act- “when a person signifies to another his willingness to do or to abstain from doing something, with a view to obtaining the assent of that other person to such act or abstinence, he is said to propose.” [4]The offer must be communicated in a clear and specific manner, i.e., there shouldn’t be any ambiguity or vagueness in the offer. It may for example, be done by words or by mouth, writing or conduct. This covers not only their acts but also their omissions[5]. It is also essential to distinguish between a offer and an invitation to make an offer, invitation to offer is a  step before the actual offer itself, like advertisements in the newspapers; here, it is not an offer yet; it is up to the seller to accept or not to accept, it can also be drawn from this that offers are of two types, specific and general as the name suggests a particular offer is one which is made to a particular person or party, whereas an available offer is something which is made to the public at large.

Contractual intention

Another critical factor that exists while making an offer is an intention to contract; this means that the two parties entering into a contract must have the legal choice to do so. The intent of the parties is to be naturally ascertained from the terms of the agreement and the surrounding circumstances. To test contractual intention, the courts use an objective method in which they judge the situation based on reasonable prudence or, to put it simply, what a person with good judgment and common sense would have done. Generally, in the case of social agreements, it is understood that the two parties have no intention of entering into a contract, and it is merely s social obligation. On the other hand, the parties almost always have a legal intention to contract in business matters[6].

Acceptance

Acceptance is the step following a proposal; acceptance has been defined in section 2(b) in the following words “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted”[7]. An accepted proposal becomes a contract. For an acceptance to be valid, it must fulfill certain conditions.

 It must be absolute and unqualified, meaning the offeree has to accept the terms as they are and not change them or come up with a counteroffer, as a counteroffer doesn’t give rise to the contractual binding.

The offeree should make communication of acceptance to the offeror. The offeror has to know whether his offer has been accepted or rejected. However, this is not necessary every time as in certain cases merely acting on the terms of the offer acts as an acceptance to the same. For examples an announcement to pay a reward for finding a dog is an example of this, here the person who decided to act on the offer and find the dog doesn’t have to communicate to the offeror his acceptance explicitly. Acceptance should be made in the manner the offeror prescribes, and if it remains unspecified, it must be made reasonably. Approval must also be made within the stipulated time frame or in reasonable time, it also draws from common sense that acceptance of the offer should be communicated before the bid is revoked, as once the offer is withdrawn, the approval becomes nullified.

Consideration

We have looked at how consideration is defined in section 2(d) of the Indian contract act earlier but let us dissect it further. The first sentence of this definition gives rise to a key element of consideration: it is done at the desire of the promisor.  As established earlier, consideration is like an interdependent relationship, where there is something in return for both parties, so here it moves at the desire of the promisor. For example, if A says to B; I will pay you ₹500 for this t-shirt, so in this case, the consideration for A was the shirt. Since the promisor is making the offer, he will decide what he wants in return; if B had given him a pair of socks in this scenario, the proposal wouldn’t stand since that is not what A or the promisor wanted.

The second element is that consideration can come from the promise or any other person. An excellent example of this is when we shop online from sites like Amazon and Flipkart. A buys a Samsung phone from Amazon, but the phone delivered to him is not by Amazon itself but through the third party seller here, Samsung. This element was laid down in the landmark judgment of Chinnaya vs. Ramaya.[8] It was held that although the plaintiff was a stranger to the consideration since he was a party to the contract, he could enforce the promise to the promisor.

Consideration must be real

Some other essential elements are that consideration must be real and not illusionary; for example, a promise to make the sunrise from the west for ₹ one crore is illusionary and not feasible. It need not be adequate; for example, A contracts to sell his car to B for just ₹ 10,000, and B accepts it now. This price is grossly low and disproportionate for a car, but this is a valid consideration as long as the consent of the promisor is freely given.

Consideration can be past, present, or future

Another key aspect is that consideration includes both Act and omission, and it involves past, present and future, making it very vast and all-encompassing.

When the promisor has done or abstained from doing something, this is past consideration. For example, A finds B’s purse and returns it to him. B later promises to give A ₹ 50, here the promisor has done something in the past and later is rewarded for it.

Does or abstain from doing something, the consideration is in the present, and consideration can also be for the future. Consideration must be of some value: it should be quantifiable and actionable. Something which has value in the eyes of the law shouldn’t be immoral or opposed to public policy.

CAPACITY TO CONTRACT

The next element is free consent. The definition of “capacity to contract” is given in section 11and interpreting it can be concluded that there are three categories of people who are not competent to contract.

  1. A person who has not attained the age of majority.
  2. A person of unsound mind.
  3. A person who has been prohibited or disqualified from contracting by some law.[9]

Consent is a crucial element in forming a contract. The parties must freely consent to the agreement, i.e., it must be devoid of coercion, fraud, undue influence, misrepresentation, and mistake.

Lawful object and consideration

The consideration in an agreement is lawful unless

  1. It is forbidden by law
  2. It is of such nature that, if permitted, would defeat the provisions of law
  3. Is fraudulent
  4. Involves or implies injury to the person or property
  5. The court regards it as immoral or opposed to public policy

For example, if A promises to drop a prosecution, he has instituted against B for robber, and B promises to restore the value of the things taken. The agreement is void as the object here is unlawful.

Section 2(h) of the Act make an excellent attempt to define the word contract, to when we go on to fully understand it we see that each word has been comprehensively covered in the other sections of the Act. From agreement to enforceability by law to what constitutes an agreement, Offer and acceptance, free consent, competency to contract, and lawful consideration, all of which is clearly laid out, here every possible scenario is considered for example, what if acceptance is communicated in a manner not specified by the offeror; the solution to that can also be found in the Act itself which says that when an acceptance is communicated to the offeror in the manner not prescribed by them, then the duty is cast on the offeror to reject such acceptance in a reasonable time. And if he fails to do so, the contract becomes binding. This is an example of how holistic and well-drafted the Act is as it considers and provides a solution for every possibility. Another example of this is how silence doesn’t amount to fraud. A sells, by auction, to B, a horse that A knows to be unsound. A says nothing to B about the horses’ unsoundness. This is not fraud; but it does give room to certain circumstances where silence does amount to fraud cases where the promisor must speak, say in the above example, if the promisor and promise had been related B is A’s daughter and has just come of age. Here, the relation between the parties would make it A’s duty to tell B if the horse is unsound. this proves that the various sections of the act are in perfect harmony and cater to everything


[1] Avtar Singh. Law of Contract (a Study of the Contract Act, 1872) and Specific Relief. 12th ed. Lucknow: Eastern Book Co., 2008

[2] Fazaladdin Mandal vs. Panchanan Das, AIR 1957 Cal 92

[3] Avtar Singh. Law of Contract (a Study of the Contract Act, 1872) and Specific Relief. 12th ed. Lucknow: Eastern Book Co., 2008.

[4] Avtar Singh. Law of Contract (a Study of the Contract Act, 1872) and Specific Relief. 12th ed. Lucknow: Eastern Book Co., 2008

[5] Coffee Board v. Commr. of Commercial Taxes, (1988) 3 SCC 263

[6] Rose and Frank Co v JR Crompton & Bros Ltd, [1925] AC 445, [1924] All ER Rep 245, 132 LT 641

[7] Avtar Singh. Law of Contract (a Study of the Contract Act, 1872) and Specific Relief. 12th ed. Lucknow: Eastern Book Co., 2008

[8] L. Chinnayya vs K. Ramanna on 10 March, (1915) ILR 38 Mad 203

[9] Avtar Singh. Law of Contract (a Study of the Contract Act, 1872) and Specific Relief. 12th ed. Lucknow: Eastern Book Co., 2008