\The law relating to contracts in India is contained in Indian Contract Act, 1872.

The Act was passed by British India and is based on the principles of English Common Law. It is applicable to the All the States of India except the State of amm! " #ashmir. It determines the circ!mstances in which promise made by the parties to a contract shall be legally binding on them. All of !s enter into a n!mber of contracts e$eryday %nowingly or !n%nowingly. Each contract creates some right and d!ties !pon the contracting parties. Indian contract deals with the enforcement of these rights and d!ties !pon the parties in India.

Contents

& 'istory ( )e$elopment * )efinition + Essential Elements of a ,alid Contract - Types of contracts . /ffer 0 Acceptance 1 Lawf!l consideration 2 Competent To Contract &3 4ree Consent && 5e$ocation of /ffer &( Agency &* 6otes &+ 5eferences &- External lin%s

History
The Third Law commission of British India formed in &1.& !nder the stewardship of Chairman Sir ohn 5omilly7 with initial members as Sir Edward 5yan7 5. Lowe7 .8. 8acleod7 Sir 9. Erle :s!cceeded by Sir. 9.8. ames; and !stice 9ills :s!cceeded by . 'enderson;7 had presented the report on contract law for India as )raft Contract Law :&1..;. The )raft Law was enacted as The Act 2 of &10( on (-th April &10( and the Indian Contract Act7 &10( came into force with effect from September &7 &10(. Before the enactment of the Indian Contract Act7 &10(7 there was no codified law for contract in India. In the <residency Towns of 8adras7 Bombay and Calc!tta law relating to contract was dealt with the Charter granted in &0(. by #ing =eorge I to the East India Company. Thereafter in &01&7 in the <residency Towns7 Act of Settlement passed by the British =o$ernment came into force. Act of Settlement re>!ired the S!preme Co!rt of India that >!estions of inheritance and s!ccession and all matters of contract and dealing between party and party sho!ld be determined in case of 'ind! as per 'ind! law and in case of 8!slim as per 8!slim law and when parties to a s!it belonged to different

pers!asions7 then the law of the defendant was to apply. In o!tside <residency Towns matters with regard to contract was mainly dealt with English Contract Laws? the principle of @!stice7 e>!ity and good conscience was followed.

Development
The Act as enacted originally had (.. Sections7 it had wide scope and incl!ded.

=eneral <rinciples of Law of ContractAAAAAAAAA & to 0Contract relating to Sale of =oodsAAAAAAAAAAAA0. to &(2 Special %inds of Contracts

:incl!des indemnity7 g!arantee7 bailment " pledgeAAAAAAAAAAAAAAAAA&(- to (*1 Contracts relating to <artnershipAAAAAAAAAAAA(*2 to (.. Indian Contract Act embodied the simple and elementary r!les relating to Sale of goods and partnership. The de$elopments of modern b!siness world fo!nd the pro$isions contained in the Indian Contract Act inade>!ate to deal with the new reg!lations or gi$e effect to the new principles. S!bse>!ently the pro$isions relating to the sale of goods and partnership contained in the Indian Contract Act were repealed respecti$ely in the year &2*3 and &2*( and new enactments namely Sale of =oods and 8o$ables Act &2*3 and Indian <artnership act &2*( were reBenacted. At present the Indian Contract Act incl!desA

=eneral <rinciples of Law of ContractAAAAAA & to 0Special %inds of Contracts

:incl!des indemnity7 g!arantee7 bailment " pledgeAAAAAAAAAAAAAAAAAAAAAAAAAA&(- to (*1

Definition
Section (:h; of the Act defines the term contract as Cany agreement enforceable by lawC. There are two essentials of this act7 agreement and enforceability. Section (:e; defines agreement as Ce$ery promise and e$ery set of promises7 forming the consideration for each other.C Again Section (:b; defines promise in these wordsA Cwhen the person to whom the proposal is made signifies his assent thereto7 the proposal is said to be accepted. <roposal when accepted7 becomes a promise.C

And other words Say Agreement is S!m of <romise

Essential Elements of a Valid Contract

According to Section &37 CAll agreements are contracts7 if they are made by the free consent of the parties7 competent to contract7 for a lawf!l consideration with a lawf!l ob@ect7 and not hereby expressly to be $oid.C Essential Elements of a ,alid Contract areA &.<roper offer and proper acceptance. there m!st be an agreement based on a lawf!l offer made by person to another and lawf!l acceptance of that offer made by the latter. section * to 2 of the contract act7 &10( lay down the r!les for ma%ing $alid acceptance (.Lawf!l considerationA An agreement to form a $alid contract sho!ld be s!pported by consideration. Consideration means Dsomething in ret!rnE :>!id pro >!o;. It can be cash7 %ind7 an act or abstinence. It can be past7 present or f!t!re. 'owe$er7 consideration sho!ld be real and lawf!l. *.Competent to contract or capacityA In order to ma%e a $alid contract the parties to it m!st be competent to be contracted. According to section && of the Contract Act7 a person is considered to be competent to contract if he satisfies the following criterionA

The person has reached the age of mat!rity. The person is of so!nd mind. The person is not dis>!alified from contracting by any law.

+.4ree ConsentA To constit!te a $alid contract there m!st be free and gen!ine consent of the parties to the contract. It sho!ld not be obtained by misrepresentation7 fra!d7 coercion7 !nd!e infl!ence or mista%e. -.Lawf!l /b@ect and AgreementA The ob@ect of the agreement m!st not be illegal or !nlawf!l. .. Agreement not declared $oid or illegalA Agreements which ha$e been expressly declared $oid or illegal by law are not enforceable at law? hence they do not constit!te a $alid contract. 0. Intention To Create Legal 5elationshipsABwhen the two parties enter in to an agreement7there m!st be intention to create a legal relationship between them ...if there is no s!ch intention on the part of the parties ..there is no contract between them ..agreements of a social or domestic nat!re do not contemplate legal relationship?as s!ch they are not contracts. 1. Certainty7 <ossibility /f <erformance

2. Legal 4ormalities &3. by s!rity

Types of contracts
n t!e "asis of validity# &. Valid contractA An agreement which has all the essential elements of a contract is called a $alid contract. A $alid contract can be enforced by law. (. Void contract[Section 2(j)] A A $oid contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be $alid and binding on the parties. It may s!bse>!ently become $oid. BB There are many @!dgments which ha$e stated that where any crime has been con$erted into a CSo!rce of <rofitC or if any act to be done !nder any contract is opposed to C<!blic <olicyC !nder any contractFthan that contract itself cannot be enforced !nder the lawB *. Voidable contractGSection (:i;H: An agreement which is enforceable by law at the option of one or more of the parties thereto, b t not at the option of other or others, is a !oidable contract" #f the essential element of free consent is missing in a contract, the law confers right on the aggrie!ed party either to reject the contract or to accept it" $owe!er, the contract contin es to be good and enforceable nless it is rep diated by the aggrie!ed party" +. #llegal contractA A contract is illegal if it is forbidden by law? or is of s!ch nat!re that7 if permitted7 wo!ld defeat the pro$isions of any law or is fra!d!lent? or in$ol$es or implies in@!ry to a person or property of another7 or co!rt regards it as immoral or opposed to p!blic policy. These agreements are p!nishable by law. These are $oidBabB initio. DAll illegal agreements are $oid agreements b!t all $oid agreements are not illegal.E -. %nenforceable contractA 9here a contract is good in s!bstance b!t beca!se of some technical defect cannot be enforced by law is called !nenforceable contract. These contracts are neither $oid nor $oidable. n t!e "asis of formation# &. &'press contractA 9here the terms of the contract are expressly agreed !pon in words :written or spo%en; at the time of formation7 the contract is said to be express contract. (. #mplied contractA An implied contract is one which is inferred from the acts or cond!ct of the parties or from the circ!mstances of the cases. 9here a proposal or acceptance is made otherwise than in words7 promise is said to be implied. *. ( asi contractA A >!asi contract is created by law. Th!s7 >!asi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal

obligation which is imposed on a party who is re>!ired to perform it. A >!asi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. n t!e "asis of performance# &. &'ec ted contractA An exec!ted contract is one in which both the parties ha$e performed their respecti$e obligation. (. &'ec tory contractA An exec!tory contract is one where one or both the parties to the contract ha$e still to perform their obligations in f!t!re. Th!s7 a contract which is partially performed or wholly !nperformed is termed as exec!tory contract. *. %nilateral contractA A !nilateral contract is one in which only one party has to perform his obligation at the time of the formation of the contract7 the other party ha$ing f!lfilled his obligation at the time of the contract or before the contract comes into existence. +. )ilateral contractA A bilateral contract is one in which the obligation on both the parties to the contract is o!tstanding at the time of the formation of the contract. Bilateral contracts are also %nown as contracts with exec!tory consideration.

ffer
<roposal is defined !nder section (:a; of the Indian contract Act7 &10( as Cwhen one person signifies to another his willingness to do or to abstain from doing anything with a $iew to obtain the assent of another to s!ch act or abstinence7 he is said to ma%e a proposalIofferC. Th!s7 for a $alid offer7the party ma%ing it m!st express his willingness to do or not to do something. B!t mere expression of willingness does not constit!te an offer. An offer sho!ld be made to obtain the assent of the other. The offer sho!ld be comm!nicated to the offeree and it sho!ld not contain a term that non compliance of which wo!ld amo!nt to acceptance. Classification of ffer &. *eneral +fferA 9hich is made to p!blic in general. (. Special +fferA 9hich is made to a definite person. *. ,ross +fferA Exchange of identical offer in ignorance of each other. +. ,o nter +fferA 8odification and ,ariation of /riginal offer. -. Standing, +pen or ,ontin ing +fferA 9hich is open for a specific period of time. The offer m!st be disting!ished from an in$itation to offer. Invitation to offer CAn in$itation to offerC is only a circ!lation of an in$itation to ma%e an offer7 it is an attempt to ind!ce offers and precedes a definite offer. Acceptance of an in$itation to an offer does not res!lt in formation of a contract and only an offer emerges in the process of negotiation. A statement made by a person who does not intend to bo!nd by it b!t7 intends to f!rther act7 is an in$itation to offer.

Acceptance
According to Section (:b;7 C9hen the person to whom the proposal is made signifies his assent thereto7 the proposal is said to be accepted.C

5!lesA &. Acceptance m!st be absol!te and !n>!alified. (. Comm!nicated to offeror. *. Acceptance m!st be in the mode prescribed. +. Acceptance m!st be gi$en within a reasonable time before the offer lapses. -. Acceptance by the way of cond!ct. .. 8ere silence is no acceptance. $ilence does not per%se amo&nts to comm&nication% 'an( of India )td. Vs. *&stom Co+as,ee% AI* 1-.. 'om. /1- at 0. /123 .7 'om. ).*. 8.2B 8ere silence cannot amo!nt to any assent. It does not e$en amo!nt to any representation on which any plea of estoppel may be fo!nded7 !nless there is a d!ty to ma%e some statement or to do some act 0. offree and offerer m!st be consent

)a+f&l consideration
According to Section (:d;7 Consideration is defined asA C9hen at the desire of the promisor7 the promisee has done or abstained from doing7 or does or abstains from doing7 or promises to do or abstain something7 s!ch an act or abstinence or promise is called consideration for the promise. CConsidertionC means to do something. In short7 Consideration means - id pro - o i.e. something in ret!rn. An agreement m!st be s!pported by a lawf!l consideration on both sides. The consideration or ob@ect of an agreement is lawf!l7 !nless and !ntil it isA &. (. *. +. -. forbidden by law7 or is of s!ch nat!re that7 if permitted7 it wo!ld defeat the pro$isions of any law7 or is fra!d!lent7 or in$ol$es or implies in@!ry to the person or property of another7 or the co!rt regards it as immoral7 or opposed to p!blic policy. consideration may ta%e in any formBmoney7goods7 ser$ices7 a promise to marry7 a promise to forbear etc.

,ontract +pposed to . blic .olicy can be /ep diated by the ,o rt of law e!en if that contract is beneficial for all of the parties to the contract0 1hat considerations and objects are lawf l and what not02ewar 3arble #nd stries .!t" 4td" Vs" /ajasthan State &lectricity )oard, 5aip r, 6778 ,r" 4"5" 6676 at 6679, 667: [/aj"]0 Agreement of which ob@ect or consideration was opposed to p!blic policy7 !nlawf!l and $oidB BB 9hat better and what more can be an admission of the fact that the consideration or ob@ect of the

compo!nding agreement was abstention by the board from criminally prosec!ting the petitionerBcompany from offence !nder Section *2 of the act and that the Board has con$erted the crime into a so!rce of profit or benefit to itself. This consideration or ob@ect is clearly opposed to p!blic policy and hence the compo!nding agreement is !nlawf!l and $oid !nder Section (* of the Act. It is !nenforceable as against the <etitionerB Company.

Competent To Contract
Section && of The Indian Contract Act specifies that e$ery person is competent to contract pro$idedA &. 'e sho!ld not be a minor i.e. an indi$id!al who has not attained the age of ma@ority i.e. &1 years. (. 'e sho!ld be of so!nd mind while ma%ing a contract. A person with !nso!nd mind cannot ma%e a contract. *. 'e is not a person who has been personally dis>!alified by law.

4ree Consent
According to Section &+7 C two or more persons are said to be consented when they agree !pon the same thing in the same sense :,onsens s0ad0idem;. A consent is said to be free when it is not ca!sed by coercion or !nd!e infl!ence or fra!d or misrepresentation or mista%e. Elements Vitiatin5 free Consent &. Coercion :Section &-;A CCoercionC is the committing7 or threatening to commit7 any act forbidden by the Indian <enal Code !nder:+-7&1.3;7 or the !nlawf!l detaining7 or threatening to detain7 any property7 to the pre@!dice of any person whate$er7 with the intention of ca!sing any person to enter into an agreement. (. Jnd!e infl!ence :Section &.;A C9here a person who is in a position to dominate the will of another enters into a contract with him and the transaction appears on the face of it7 or on the e$idence7 to be !nconscionable7 the b!rden of pro$ing that s!ch contract was not ind!ced by !nd!e infl!ence shall lie !pon the person in the position to dominate the will of the other.C *. 4ra!d :Section &0;A C4ra!dC means and incl!des any act or concealment of material fact or misrepresentation made %nowingly by a party to a contract7 or with his conni$ance7 or by his agent7 with intent to decei$e another party thereto of his agent7 or to ind!ce him to enter into the contract.

+. 8isrepresentation :Section &1;A C ca!sing7 howe$er innocently7 a party to an agreement to ma%e a mista%e as to the s!bstance of the thing which is the s!b@ect of the agreementC. -. 8ista%e of fact :Section (3;A C9here both the parties to an agreement are !nder a mista%e as to a matter of fact essential to the agreement7 the agreement is $oidC.

*evocation of

ffer

A proposal may be re$o%ed at any time before the comm!nication of its acceptance is complete as against the proposer7 b!t not afterwards. An acceptance may be re$o%ed at any time before the comm!nication of the acceptance is complete as against the acceptor7 b!t not afterwards. A proposal is re$o%ed B :&; by the comm!nication of notice of re$ocation by the proposer to the other party? :(; by the lapse of the time prescribed in s!ch proposal for its acceptance7 or7 if no time is so prescribed7 by the lapse of a reasonable time7 witho!t comm!nication of the acceptance? :*; by the fail!re of the acceptor to f!lfill a condition precedent to acceptance? or :+; by the death or insanity of the proposer7 if the fact of the death or insanity comes to the %nowledge of the acceptor before acceptance.

A5ency
In law7 the relationship that exists when one person or party :the principal; engages another :the agent; to act for him7 e.g. to do his wor%7 to sell his goods7 to manage his b!siness. The law of agency th!s go$erns 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 $isBKB$is the third party. 'ence7 the process of concl!ding a contract thro!gh an agent in$ol$es a twofold relationship. /n the one hand7 the law of agency is concerned with the external b!siness relations of an economic !nit and with the powers of the $ario!s representati$es to affect the legal position of the principal. /n the other hand7 it r!les the internal relationship between principal and agent as well7 thereby imposing certain d!ties on the representati$e :diligence7 acco!nting7 good faith7 etc.;. Jnder section (3& to (&3 an agency may come to an end in a $ariety of waysA :i; By the principal re$o%ing the agency L 'owe$er7 principal cannot re$o%e an agency co!pled with interest to the pre@!dice of s!ch interest. S!ch Agency is co!pled with interest. An agency is co!pled with interest when the agent himself has an interest in the s!b@ectBmatter of the agency7 e.g.7 where the goods are

consigned by an !pco!ntry constit!ent to a commission agent for sale7 with poor to reco!p himself from the sale proceeds7 the ad$ances made by him to the principal against the sec!rity of the goods? in s!ch a case7 the principal cannot re$o%e the agentMs a!thority till the goods are act!ally sold7 nor is the agency terminated by death or insanity. :Ill!strations to section (3&; :ii; By the agent reno!ncing the b!siness of agency? :iii; By the b!siness of agency being completed? :i$; By the principal being ad@!dicated insol$ent :Section (3& of The Indian Contract Act. &10(; The principal also cannot re$o%e the agentMs a!thority after it has been partly exercised7 so as to bind the principal :Section (3+;7 tho!gh he can always do so7 before s!ch a!thority has been so exercised :Sec (3*;. 4!rther7 as per section (3-7 if the agency is for a fixed period7 the principal cannot terminate the agency before the time expired7 except for s!fficient ca!se. If he does7 he is liable to compensate the agent for the loss ca!sed to him thereby. The same r!les apply where the agent7 reno!nces an agency for a fixed period. 6otice in this connection that want of s%ill contin!o!s disobedience of lawf!l orders7 and r!de or ins!lting beha$ior has been held to be s!fficient ca!se for dismissal of an agent. 4!rther7 reasonable notice has to be gi$en by one party to the other? otherwise7 damage res!lting from want of s!ch notice7 will ha$e to be paid :Section (3.;. As per section (307 the re$ocation or ren!nciation of an agency may be made expressly or impliedly by cond!ct. The termination does not ta%e effect as regards the agent7 till it becomes %nown to him and as regards third party7 till the termination is %nown to them :Section (31;. 9hen an agentMs a!thority is terminated7 it operates as a termination of s!bagent also