Introduction to Contract Law

Indian contract act stipulates rules and regulations that outline the procedure to be followed in the event of any disputes emerging from the contracts. This act contains 266 sections and is valid across India except for Jammu and Kashmir.

It was enacted in 1872 and was enforced on 1st September 1872. In this act, the word ‘contract’ has been obtained from the Latin term ‘contructus’, which means ‘to work on contract’. Moreover, this law is centred on the principle of ‘pacta sunt servanda’, which implies ‘agreements must be kept’.

The law entails different aspects like what is an acceptance, offer, essentials of contract, quasi-contracts, voidable agreements, valid consideration, damages under the Indian contract act 1872, and more. It also includes a Contract of Indemnity, bailment, Guarantee, pledge, and Agency.

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Keep reading to learn all about the Indian contract act.

What is a contract?

A contract is a legal enforcement between two parties, companies, or businesses that bonds them in an agreement protected by law. The contract among the parties can be created verbally, in writing, or by conduct. When the offer is accepted by both the involved parties/companies/businesses, it is called an agreement. However, when the agreement is combined with law enforcement, it is termed a contract.

Section 2(H) of the Indian Contract Act 1872 defines the term “contract”. It stipulates that an agreement that is enforceable by the law is called a Contract. The intent should be defined to establish legal relationships between the two parties, while there can’t be a social, religious, or moral relationship between the said parties.

A contract provides certain privileges to parties involved and grants certain obligations they should fulfil. Note that a contract is an agreement, but all agreements are not contracts.

 Types of Contracts

The four major types of contracts are described below.

  1. Valid Contract: A contract that includes all essential elements within it is called a Valid Contract.
  2. Void Contract: A Void Contract is void from the start when it was formulated and can’t be enforceable by law. It doesn’t support enforceability.
  3. Voidable Contract: This contract begins as valid, but later it allows the parties to go ahead with it or reject it. Any party can request to declare it invalid if it has any flaw.
  4. Illegal Contracts: If the terms or conditions of the subject are not accepted by society, and it is already illegal, then it is known as an Illegal Contract.

 Fundamentals of a Valid Contract

According to Indian contract law, the two fundamental components of a Valid Contract are Agreement and Enforceable by law. Let’s understand these two terms briefly.

(i) Agreement

An agreement is a set of promises that constitutes form consideration for the involved parties. The Indian Contract Act 1872, section 2(e), defines this component. When a valid proposal/offer is legally accepted under legal consideration, it is called an agreement.  

 (ii) Enforceable by law

It suggests that if any breach of contract due to any party occurs, the abused party can approach the court and have it legally enforced. Alternatively, the court orders the party who breached the contract to correct it or recompense the abused party in the form of reimbursements.

Section 10 of Indian Contract Act 1872

Section 10 of ICA1872 (Indian Contract Act 1872) defines certain essential features that are obligatory for a valid contract. They are mentioned below.

  • There should be a lawful offer and acceptance.
  • There should be an intention defined to establish a legal relationship.
  • Lawful Object and Consideration should be taken into account.
  • Free consent should be imposed.
  • More important should not be explicitly acknowledged as void.

 What is an Offer/Proposal?

Here’s the definition of offer/proposal according to Section 2(a) of the Indian contract act 1872.

A person is said to make a proposal if they denote to another person their readiness to do or to refrain from doing anything, with a vision to obtain the approval of that other person to such act or abstention.

The person who prepares the offer/proposal is the promisor/offeror. The person on whom the proposal is prepared is the promisee/offeree.

The essential conditions that must be fulfilled for a valid offer are

  • Purpose of creating a legal obligation.
  • The offer must be implied or expressed.
  • Certainty of terms.
  • Silence is considered acceptance.
  • It must define the expression of readiness to do or refrain from anything.
  • An offer’s communication is complete when the person to whom it is prepared is made aware. It may be expressed or implied.
  • The offers are called “cross offers” when two parties make similar offers to each other but are unaware of each other’s offers.
  • The contract’s special terms and conditions should be explicitly communicated to the party to make them bound by it.

 Types of Offer/Proposal

Two types of offers are described below.

Specific offer: It is made to a specific individual/group of individuals and can be approved only by the individual(s) to whom it is made.

General offer: It is made to the general public at large-scale, and it can be approved by an individual who steps forward and fulfils the obligatory conditions.

What is Acceptance?

The definition of “Acceptance” according to section 2(b) of the Indian contract act 1872 is as follows:

When the person to whom the proposal is made indicates their approval thereby, the proposal is known as an acceptance. When a proposal/offer is accepted, it becomes a promise.

The essential requisites of a valid acceptance are as below:

  • Offerees should indicate their approval or acceptance.
  • Acceptance may be expressed in the form of written words or through conduct.
  • Acceptance should be explicitly communicated to the offeror themselves or their legal agent.
  • Someone must communicate acceptance with the right to accept.
  • Acceptance should be stated in the way agreed by the offeror.
  • To transform a proposal into a promise, the acceptance should be complete and unqualified (without any condition or qualification).

 What is Consideration?

Consideration is a fundamental requisite of the establishment of a contract. According to the Section 2(d) of the Indian contract law, the consideration is defined as,

‘When, at the wish of the promisor, the promisee or any other individual has performed or refrained from doing, or does or refrains from doing, or promises to do or to refrain from doing, an act, promise, or abstinence is known as consideration for that promise.

An agreement prepared without consideration shall not be void under the following conditions:

  • Past voluntary service
  • Natural love and affection
  • Time forbidden debt
  • The absence of consideration will not impact the authenticity of a gift
  • No consideration is required to create an agency

 What is the Privity of Contract?

The ‘Privity of Contract’ principle states that a contract only exists between the two parties, and no third person can litigate upon it. However, the following elements are exempted from the principle of the Privity of Contract:

  • Beneficiaries under trust or charge.
  • Marriage and family arrangement.
  • Estoppel or acknowledgment.
  • Anonymous main has the authority to litigate a third party subject to the obligations and rights between the agent and the third party.
  • The insurance policy’s assignee is entitled to litigate on the contract agreed upon between the insured and the insurer.

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The Indian contract law permits people to legalize and define their relations in the best possible way they want. It helps the contracts to function lawfully and also offers remedies to the individuals affected by it. Hence, it is one of the most significant acts in India. 

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When does an agreement become a valid contract?

If the following conditions are satisfied, an agreement becomes a valid contract: Offer and acceptance, Intention to prepare legal obligations, Lawful consideration, Contractual capacity, Legal formalities, Lawful object, Free consent, Must not be explicitly declared as void and Certain terms of the contract.

What are the types of agreements in the Indian contract act?

Indian contract act defines two types of agreements. An oral agreement, which consists of a set of gestures and terms established through spoken communication, is known as oral agreement. A written agreement is done by writing in a special format, including certain terms and conditions that the parties acknowledge with consideration.

What is the Breach of Contract?

A Breach of Contract happens when one of the parties can’t follow the terms and conditions agreed in the contract. It can occur due to the non-fulfilment of certain terms and conditions as stated in the contract. The parties can approach the court if the Breach of Contract can’t be resolved among them.

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