The Indian Contract Act, 1872 is a foundational piece of legislation in the domain of Indian commercial law. It governs contracts and agreements and outlines the legal framework for their formation, performance, enforcement, and breach. The Act ensures that promises made during commercial dealings are legally binding and provides remedies in case of non-performance.
Overview and Scope
- Enacted on 25th April 1872, came into force on 1st September 1872.
- Extends to whole of India, except the state of Jammu & Kashmir (now under J&K Reorganization Act, 2019).
- Originally had 11 chapters, but over time it was split into:
- General Principles of the Law of Contracts (Sections 1–75)
- Contracts relating to Special kinds:
- Contract relating to indemnity and guarantee (Chapter VIII)
- Contract of bailment and pledge (Chapter IX)
- Contract of agency (Chapter X)
- Other parts like Contracts Relating to Partnership and Sale of Goods have been separated into:
- Indian Partnership Act, 1932
- Sale of Goods Act, 1930
Key Definitions (Section-wise)
- Contract [Section 2(h)]: An agreement enforceable by law.
- Agreement [Section 2(e)]: Every promise or set of promises forming consideration for each other.
- Promise [Section 2(b)]: A proposal when accepted.
- Proposal [Section 2(a)]: When one person signifies to another his willingness to do or abstain from doing something.
- Consideration [Section 2(d)]: Something in return; necessary for a valid contract.
Essential Elements of a Valid Contract (Section 10)
- Offer and acceptance
- Lawful consideration
- Capacity of parties
- Free consent
- Lawful object
- Not expressly declared void
- Certainty and possibility of performance
Types of Contracts
- On the basis of formation: Express, Implied, Quasi-contract
- On the basis of enforceability: Valid, Void, Voidable, Illegal, Unenforceable
- On the basis of performance: Executed, Executory, Unilateral, Bilateral
Free Consent (Section 13-22)
Consent is free when it is not caused by:
- Coercion (Section 15)
- Undue Influence (Section 16)
- Fraud (Section 17)
- Misrepresentation (Section 18)
- Mistake (Section 20-22)
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Performance of Contract (Sections 37–67)
- By whom: Either party or a third party (if permitted)
- How: Actual performance or attempted (tender of performance)
- When: Within stipulated time or reasonable time
Discharge of Contract
A contract may be discharged:
- By performance
- By mutual consent (novation, rescission, alteration)
- By impossibility of performance (doctrine of frustration – Section 56)
- By breach of contract
Remedies for Breach of Contract (Sections 73–75)
- Damages: Ordinary, Special, Vindictive, Nominal
- Specific Performance
- Injunction
- Quantum Meruit: Payment for work done when contract is void or incomplete
Relevant Case Laws
- Carlill v. Carbolic Smoke Ball Co. (1893) – Unilateral offer and its acceptance
- Balfour v. Balfour (1919) – Domestic agreements not contracts
- Lalman Shukla v. Gauri Dutt (1913) – Knowledge of offer required for acceptance
- Harvey v. Facey (1893) – Mere statement of price not an offer
- Mohori Bibee v. Dharmodas Ghose (1903) – Minor’s agreement is void ab initio
- Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) – Doctrine of frustration in Indian law
Important Doctrines Under the Act
- Doctrine of Privity of Contract: Only parties to a contract can sue or be sued.
- Doctrine of Consideration: Consideration must move at the desire of the promisor.
- Doctrine of Frustration: A contract is void if an unforeseeable event makes its performance impossible.
FAQs on Indian Contract Act, 1872
Q1. Is a contract with a minor valid?
No, as per Mohori Bibee v. Dharmodas Ghose, contracts with minors are void ab initio.
Q2. Can silence be considered acceptance?
No. Acceptance must be communicated clearly (Felthouse v. Bindley).
Q3. What is the limitation period for filing a suit for breach of contract?
Three years from the date of breach under the Limitation Act, 1963.
Q4. Is oral contract valid under Indian law?
Yes, if it fulfills all essentials of a valid contract.
Situation-Based Questions
Q1. A offers to sell his bike to B for ₹50,000. B replies, “I will buy it for ₹45,000.” Is there a contract?
Ans: No. This is a counteroffer, not acceptance. The original offer stands rejected.
Q2. X, a minor, enters into a contract to buy a laptop. Can the seller sue him for non-payment?
Ans: No. Contracts with minors are void ab initio. They are not enforceable.
Q3. A agrees to supply goods to B on 1st April. On 25th March, a government law bans the trade of those goods. What happens to the contract?
Ans: The contract is discharged under Section 56 (frustration due to impossibility).
Conclusion
The Indian Contract Act, 1872 forms the backbone of all commercial transactions in India. Understanding its provisions not only helps in interpreting contractual relationships but also plays a vital role in legal compliance, business integrity, and dispute resolution. Mastery of this Act is essential for law students and professionals alike.
