THE INDIAN CONTRACT ACT, 1872

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Indian Contract Act, 1872

The Indian Contract Act, 1872, is a fundamental piece of legislation that regulates contract law in India. It outlines the essential elements required for the formation of a legally binding contract, along with the conditions under which contracts can be considered void, voidable, or unenforceable. The Act is divided into various sections that deal with the principles of contract law, including offer and acceptance, consideration, capacity to contract, free consent, and the performance of contracts.

What is a contract?

A contract is a legally binding agreement between two or more parties that is enforceable by law. It is a fundamental concept in both commercial transactions and personal matters. Contracts are used to define the terms and conditions of an agreement, ensuring that all parties understand their rights and obligations.

For a contract to be valid, it typically must include the following elements:

Offer and Acceptance: One party must make a clear offer to engage in an agreement, and the other party must accept the terms of that offer. Acceptance must be in the manner prescribed by the offeror.

Consideration: There must be some form of value exchanged between the parties. This can be in the form of money, goods, services, or a promise to perform (or not perform) a particular action.

Capacity: All parties must have the legal capacity to enter into a contract. This generally means they must be of a certain age (usually the age of majority) and have a sound mind.

Consent: The consent of all parties must be genuine and not obtained through coercion, fraud, undue influence, or mistake.

Lawful Object: The purpose of the contract must be legal. A contract for an illegal purpose is not enforceable.

Legal Formalities: The contract must adhere to any legal formalities required by law, such as being in writing or registered, if applicable.

Contracts can be written, verbal, or implied by the conduct of the parties involved, although certain types of contracts (such as those involving real estate transactions) are required by law to be in writing to be enforceable.

A contract creates legal obligations that are enforceable. If one party fails to fulfill their obligations under the contract (known as a breach of contract), the other party may seek remedies such as damages, specific performance, or cancellation and restitution.

What is the Indian contract act?

The Indian Contract Act, 1872, came into force on the 1st day of September 1872. It is a fundamental piece of legislation that governs contract law in India. It lays down the legal framework for the formation, execution, and enforcement of contracts in the country. The Act specifies what constitutes a legally enforceable agreement, the conditions under which a contract can be considered valid, the effects of breach of contract, and the remedies available to the affected parties.

Key aspects covered by the Indian Contract Act include:

  • The Act defines how contracts are formed through offers and acceptances, creating legally binding obligations between parties.
  • It outlines who is competent to enter into a contract, including considerations of age, mental capacity, and legal disqualification.
  • The Act emphasizes that for a contract to be valid, consent must be freely given without coercion, undue influence, fraud, misrepresentation, or mistake.
  • It states that for a contract to be enforceable, there must be some form of consideration involved - something of value exchanged between the parties.
  • The purpose and consideration of the contract must be legal. A contract with an illegal object or consideration is void.
  • The Act distinguishes between agreements that are void ab initio (i.e., not enforceable by law from the outset) and contracts that are voidable at the option of one or more of the parties (e.g., contracts formed under undue influence).
  • It lays down the provisions regarding how contracts should be performed and the obligations of parties involved in the contract.
  • The Act provides for what constitutes a breach of contract and the remedies available, including compensation for loss or damage caused by such breach.
  • It also includes provisions for certain relations resembling those created by contracts, even though no formal contract has been executed by the parties involved. These are based on the principle of equity and are intended to prevent unjust enrichment.

The Indian Contract Act, 1872, serves as the backbone of business and commercial transactions in India, ensuring that contracts are formed and executed in a standard legal framework that protects the interests of all parties involved.

THE INDIAN CONTRACT ACT, 1872

The Indian contract act 1872 extends to

The Indian Contract Act, 1872, extends to the whole of India including the state of Jammu and Kashmir. As, with the abrogation of Article 370 in August 2019, the laws of India, including the Indian Contract Act, now also apply to the Union Territory of Jammu and Kashmir as well as the Union Territory of Ladakh, making the Act applicable throughout the entire territory of India.

Indian contract act acceptance

In the Indian Contract Act, 1872, the provisions related to the acceptance of an offer, which is a crucial step in the formation of a contract, are primarily discussed in Section 2(b) and detailed further in Sections 7 to 9.

Section 2(b): It defines acceptance as 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.

Section 7: It deals with the manner and form of accepting an offer to result in a binding contract. Acceptance must be absolute and unqualified, and it must be expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner of acceptance and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

Section 8: It elaborates on acceptances by performing conditions, or receiving consideration. According to this section, performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

Section 9: It deals with the implied acceptance by conduct. This section states that acceptance may be expressed or may be implied by the conduct of the acceptor.

These sections together outline the legal framework for the acceptance of offers within the context of contract formation in Indian law, emphasizing the need for acceptance to be clear, unambiguous, and in accordance with the terms of the offer to create a legally binding agreement.

Indian contract act cases

The Indian Contract Act, 1872, has been the foundation for numerous landmark judgments that have shaped the understanding and application of contract law in India. Below are some notable cases that highlight various principles and interpretations of the Act:

Carlill v. Carbolic Smoke Ball Company (1893)

Although not an Indian case, this English case has been influential worldwide, including in India, for its principles on the formation of contracts, particularly regarding the acceptance of unilateral offers. The Carbolic Smoke Ball Company advertised that they would pay £100 to anyone who contracted influenza after using their product as directed. When Mrs. Carlill did so and sued for the money, the court held that the advertisement constituted an offer that she accepted by performing the conditions stated in the offer, leading to a binding contract.

Balfour v. Balfour (1919)

Another English case, but its principles are recognized in Indian law as well. It distinguishes between social and domestic agreements and those intended to create legal relations. In this case, a husband's promise to pay his wife an allowance was held not to be legally binding as there was no intention to create legal relations.

Read: Balfour v. Balfour (1919) Case: Citation, Facts, Judgment & Significance

Satyabrata Ghose v. Mugneeram Bangur & Co. (1954 SC)

This case is significant for its interpretation of the doctrine of frustration under Section 56 of the Indian Contract Act. The Supreme Court held that a contract would become void if it becomes impossible to perform due to an event that the parties did not foresee or could not have been foreseen, thus excusing the parties from further obligations under the contract.

Mohori Bibee v. Dharmodas Ghose (1903)

This landmark case addresses the competency of parties under the Act. The Privy Council held that a contract with a minor is void ab initio, meaning it is not enforceable at law from the outset. This case established the principle that minors cannot enter into contracts under Indian law.

Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly (1986 SC)

This case dealt with the concept of unconscionable contracts and undue influence. The Supreme Court held that a contract would be voidable if it was unconscionable or if it was entered into under undue influence, where one party is at a significant disadvantage to another.

Hadley v. Baxendale (1854)

While this is an English case, its principles on damages for breach of contract have been adopted in Indian law. It established the rule that damages recoverable in a breach of contract case are those that either arise naturally from the breach or are such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract.

These cases, among others, illustrate the application of the Indian Contract Act, 1872, in various contexts, from contract formation to the determination of damages and the doctrine of frustration. They are essential readings for understanding the practical implications of the Act and how Indian courts interpret its provisions.

Indian contract act all sections

THE INDIAN CONTRACT ACT, 1872

____________

PRELIMINARY

Section 1. 
  • Short title.
  • Extent.
  • Commencement.
  • Saving.
Section 2: Interpretation-clause.

CHAPTER I: OF THE COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

3. Communication, acceptance and revocation of proposals.
4. Communication when complete.
5. Revocation of proposals and acceptances.
6. Revocation how made.
7. Acceptance must be absolute.
8. Acceptance by performing conditions, or receiving consideration.
9. Promises, express and implied.

CHAPTER II : OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS

Section 10: What agreements are contracts
Section 11. Who are competent to contract
12. What is a sound mind for the purposes of contracting.
13. “Consent” defined.
14. “Free consent” defined.
15. “Coercion” defined.
16. “Undue influence” defined.
17. “Fraud” defined.
18. “Misrepresentation” defined.
19. Voidability of agreements without free consent.
19A. Power to set aside contract induced by undue influence.
20. Agreement void where both parties are under mistake as to matter of fact.
21. Effect of mistakes as to law.
22. Contract caused by mistake of one party as to matter of fact.
23. What considerations and objects are lawful, and what not.
Void agreements
24. Agreement void, if considerations and objects unlawful in part.
25. Agreement without consideration, void, unless it is in writing and registered, or is a promise to
compensate for something done, or is a promise to pay a debt barred by limitation law.
26. Agreement in restraint of marriage, void.
27. Agreement in restraint of trade, void.
Saving of agreement not to carry on business of which good-will is sold.
28. Agreements in restraint of legal proceeding void.
Saving of contract to refer to arbitration dispute that may arise.
Saving of contract to refer questions that have already arisen.
Saving of a guarantee agreement of a bank or a financial institution.
29. Agreements void for uncertainty.
30. Agreements by way of wager, void.
Exception in favour of certain prizes for horse-racing.
Section 294A of the Indian Penal Code not affected.

CHAPTER III

OF CONTINGENT CONTRACTS

31. “Contingent contract” defined.
32. Enforcement of contracts contingent on an event happening.
33. Enforcement of contracts contingent on an event not happening.
34. When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.
35. When contracts become void which are contingent on happening of specified event within fixed time.
When contracts may be enforced, which are contingent on specified event not happening within fixed time.
36. Agreement contingent on impossible events void.

CHAPTER IV

OF THE PERFORMANCE OF CONTRACTS

Contracts which must be performed

37. Obligation of parties to contracts.
38. Effect of refusal to accept offer of performance.
39. Effect of refusal of party to perform promise wholly.
By whom contracts must be performed
40. Person by whom promise is to be performed.
41. Effect of accepting performance from third person.
42. Devolution of joint liabilities.
43. Any one of joint promisors may be compelled to perform.
Each promisor may compel contribution.
Sharing of loss by default in contribution.
44. Effect of release of one joint promisor.
45. Devolution of joint rights.
Time and place for performance
46. Time for performance of promise, when no application is to be made and no time is specified.
47. Time and place for performance of promise, where time is specified and no application to be made.
48. Application for performance on certain day to be at proper time and place.
49. Place for performance of promise, where no application to be made and no place fixed for performance.
50. Performance in manner or at time prescribed or sanctioned by promisee.
Performance of reciprocal promises
51. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform.
52. Order of performance of reciprocal promises.
53. Liability of party preventing event on which the contract is to take effect.
54. Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises.
55. Effect of failure to perform at fixed time, in contract in which time is essential. Effect of such failure when time is not essential. Effect of acceptance of performance at time other than that agreed upon.
56. Agreement to do impossible act. 
Contract to do an act afterwards becoming impossible or unlawful. 
Compensation for loss through non-performance of act known to be impossible or unlawful.
57. Reciprocal promise to do things legal, and also other things illegal.
58. Alternative promise, one branch being illegal.
Appropriation of payments
59. Application of payment where debt to be discharged is indicated.
60. Application of payment where debt to be discharged is not indicated.
61. Application of payment where neither party appropriates.
Contracts which need not be performed
62. Effect of novation, rescission, and alteration of contract.
63. Promisee may dispense with or remit performance of promise.
64. Consequences of rescission of voidable contract.
65. Obligation of person who has received advantage under void agreement, or contract that becomes void.
66. Mode of communicating or revoking rescission of voidable contract.
67. Effect of neglect of promisee to afford promisor reasonable facilities for performance.

CHAPTER V

OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT

SECTIONS

68. Claim for necessaries supplied to person incapable of contracting, or on his account.
69. Reimbursement of person paying money due by another, in payment of which he is interested.
70. Obligation of person enjoying benefit of non-gratuitous act.
71. Responsibility of finder of goods.
72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.

CHAPTER VI

OF THE CONSEQUENCES OF BREACH OF CONTRACT

73. Compensation for loss or damage caused by breach of contract.
Compensation for failure to discharge obligation resembling those created by contract.
74. Compensation for breach of contract where penalty stipulated for.
75. Party rightfully rescinding contract, entitled to compensation.

[CHAPTER VII SALE OF GOODS.][Repealed.].

CHAPTERVIII

OF INDEMNITY AND GUARANTEE

124. “Contract of indemnity” defined.
125. Rights of indemnity-holder when sued.
126. “Contract of guarantee”, “surety”, “principal debtor” and “creditor”.
127. Consideration for guarantee.
128. Surety’s liability.
129. “Continuing guarantee”.
130. Revocation of continuing guarantee.
131. Revocation of continuing guarantee by surety’s death.
132. Liability of two persons, primarily liable, not affected by arrangement between them that one shall be surety on other’s default.
133. Discharge of surety by variance in terms of contract.
134. Discharge of surety by release or discharge of principal debtor.
135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.
136. Surety not discharged when agreement made with third person to give time to principal debtor.
137. Creditor’s forbearance to sue does not discharge surety.
138. Release of one co-surety does not discharge others.
139. Discharge of surety of creditor’s act or omission impairing surety’s eventual remedy.
140. Rights of surety on payment or performance.
141. Surety’s right to benefit of creditor’s securities.
142. Guarantee obtained by misrepresentation invalid.
143. Guarantee obtained by concealment invalid.
144. Guarantee on contract that creditor shall not act on it until co-surety joins.
145. Implied promise to indemnify surety.
146. Co-sureties liable to contribute equally.
147. Liability of co-sureties bound in different sums.

CHAPTER IX

OF BAILMENT

148. “Bailment”, “bailor” and “bailee” defined.
149. Delivery to bailee how made.
150. Bailor’s duty to disclose faults in goods bailed.
151. Care to be taken by bailee.
152. Bailee when not liable for loss, etc., of thing bailed.
153. Termination of bailment by bailee’s act inconsistent with conditions.
154. Liability of bailee making unauthorized use of goods bailed.
155. Effect of mixture, with bailor’s consent, of his goods with bailee’s.
156. Effect of mixture, without bailor’s consent, when the goods can be separated.
157. Effect of mixture, without bailor’s consent, when the goods cannot be separated.
158. Repayment, by bailor, of necessary expenses.
159. Restoration of goods lent gratuitously.
160. Return of goods bailed on expiration of time or accomplishment of purpose.
161. Bailee’s responsibility when goods are not duly returned.
162. Termination of gratuitous bailment by death.
163. Bailor entitled to increase or profit from goods bailed.
164. Bailor’s responsibility to bailee.
165. Bailment by several joint owners.
166. Bailee not responsible on re-delivery to bailor without title.
167. Right of third person claiming goods bailed.
168. Right of finder of goods.
May sue for specific reward offered.
169. When finder of thing commonly on sale may sell it.
170. Bailee’s particular lien.
171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers.
Bailments of pledges
172. “Pledge”, “Pawnor” and “Pawnee” defined.
173. Pawnee’s right of retainer.
174. Pawnee not to retain for debt or promise other than that for which goods pledged.
Presumption in case of subsequent advances.
175. Pawnee’s right as to extraordinary expenses incurred.
176. Pawnee’s right where pawnor makes default.
177. Defaulting pawnor’s right to redeem.
178. Pledge by mercantile agent.
178A. Pledge by person in possession under voidable contract.
179. Pledge where pawnor has only a limited interest.
Suits by bailees or bailors against wrong-doers
180. Suit by bailor or bailee against wrong-doer.
181. Apportionment of relief or compensation obtained by such suits.

CHAPTER X

AGENCY

Appointment and authority of agents

182. “Agent” and “principal” defined.
183. Who may employ agent.
184. Who may be an agent.
185. Consideration not necessary.
186. Agent’s authority may be expressed or implied.
187. Definitions of express and implied authority.
188. Extent of agent’s authority.
189. Agent’s authority in an emergency.
Sub-agents
190. When agent cannot delegate.
191. “Sub-agent” defined.
192. Representation of principal by sub-agent properly appointed.
Agent’s responsibility for sub-agent.
Sub-agent’s responsibility.
193. Agent’s responsibility for sub-agent appointed without authority.
194. Relation between principal and person duly appointed by agent to act in business of agency.
195. Agent’s duty in naming such person.
Ratification
196. Right of person as to acts done for him without his authority.
Effect of ratification.
197. Ratification may be expressed or implied.
198. Knowledge requisite for valid ratification.
199. Effect of ratifying unauthorized act forming part of a transaction.
200. Ratification of unauthorized act cannot injure third person.
Revocation of authority
201. Termination of agency.
202. Termination of agency, where agent has an interest in subject-matter.
203. When principal may revoke agent’s authority.
204. Revocation where authority has been partly exercised.
205. Compensation for revocation by principal, or renunciation by agent.
206. Notice of revocation or renunciation.
207. Revocation and renunciation may be expressed or implied.
208. When termination of agent’s authority takes effect as to agent, and as to third persons.
209. Agent’s duty on termination of agency by principal’s death or insanity.
210. Termination of sub-agent’s authority.
Agent’s duty to principal
211. Agent’s duty in conducting principal’s business.
212. Skill and diligence required from agent.
213. Agent’s accounts.
214. Agent’s duty to communicate with principal.
215. Right of principal when agent deals, on his own account, in business of agency without
principal’s consent.
216. Principal’s right to benefit gained by agent dealing on his own account in business of agency.
217. Agent’s right of retainer out of sums received on principal’s account.
218. Agent’s duty to pay sums received for principal.
219. When agent’s remuneration becomes due.
220. Agent not entitled to remuneration for business misconducted.
221. Agent’s lien on principal’s property.
Principal’s duty to agent
222. Agent to be indemnified against consequences of lawful acts.
223. Agent to be indemnified against consequences of acts done in good faith.
224. Non-liability of employer of agent to do a criminal act.
225. Compensation to agent for injury caused by principal’s neglect.
Effect of agency on contracts with third persons
226. Enforcement and consequences of agent’s contracts.
227. Principal how far bound, when agent exceeds authority.
228. Principal not bound when excess of agent’s authority is not separable.
229. Consequences of notice given to agent.
230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal.
Presumption of contract to contrary.
231. Rights of parties to a contract made by agent not disclosed.
232. Performance of contract with agent supposed to be principal.
233. Right of person dealing with agent personally liable.
234. Consequence of inducing agent or principal to act on belief that principal or agent will be held
exclusively liable.
235. Liability of pretended agent.
236. Person falsely contracting as agent not entitled to performance.
237. Liability of principal inducing belief that agent’s unauthorized acts were authorized.
238. Effect, on agreement, of misrepresentation or fraud by agent.

CHAPTER XI

OF PARTNERSHIP [Repealed.].

The Indian contract act 1872 book

Books on the Indian Contract Act, 1872, serve as comprehensive guides to understanding and interpreting the provisions of the Act. These books are written by legal experts and often include commentary, case law, and examples to elucidate the practical application of the law. They are invaluable resources for law students, legal professionals, and anyone looking to understand the intricacies of contract law in India.

Some popular books on the Indian Contract Act, 1872, include:

"Pollock & Mulla: The Indian Contract Act, 1872": This is one of the most authoritative and widely cited books on the subject. It offers a detailed section-wise commentary on the Indian Contract Act, enriched with references to a wide range of case laws.

"R.K. Bangia's Law of Contract I": This book is a popular choice among law students for its clear explanations and structured approach to understanding contract law.

"Avtar Singh's Law of Contract": Known for its comprehensive analysis, this book explains the principles of contract law in a straightforward and easily understandable manner.

"Mulla: The Indian Contract and Specific Relief Acts": Another classic text, this book offers a detailed commentary on the Act and is frequently referenced by legal professionals and scholars.

These books can be found in law libraries, bookstores, and online platforms. They not only delve into the legal theory behind the Act but also discuss its practical implications, making them essential reading for anyone dealing with contracts in India.

Source: THE INDIAN CONTRACT ACT, 1872

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Barristery.in: THE INDIAN CONTRACT ACT, 1872
THE INDIAN CONTRACT ACT, 1872
The Indian Contract Act, 1872, came into force on the 1st day of September 1872. It is a fundamental piece of legislation that governs contract law in
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