Unit—7 Indian Contract Act 1872

The term law denotes the principles & rules that governs & regulates social conduct & observance of which can
be enforced through courts. According to Austin, “Law is a command of Sovereign”. Law in its most
general comprehensive sense, signifies a rule of action & is applied indiscriminately to all kinds of actions
whether animates or in animates, rational or irrational, in the legal sense the system of rights &
obligations which can be enforced in a court of law, & it includes all the rules of principles which regulates
our relations with other persons & with the State.
Agreement & contracts are two different things. It is important to know first what constitute a contract & what
constitute an agreement. We will then study which agreements are contracts, their distinction & different
types of agreements & contracts.
Essential elements of valid contract
1. Proposal & acceptance
2. Consideration-lawful consideration with a lawful object.
3. Capacity of parties to contract-competent parties.
4. Free consent.
5. An agreement must not be expressly declared to be void.
6. Writing & Registration, if so required by law.
7. Legal Relationship.
8. Certainty.
9. Possibility of performance.
10. Enforceable by law.

1) Proposal & acceptance: The first step towards to creating a contract is that one person shall signify or make
a proposal or offer to the other, with a view to obtaining the acceptance of that another person to whom
the offer is made. A proposal when accepted becomes a promise.
2) Consideration:

Every contract consists of 2 parts 1) Promise 2) Consideration for promise. A promise is often made in return for
a promise, for e.g. a buyer realizes the goods for the price. Price for goods is therefore, consideration here.
Consideration is the cause of promise. It is the most essential element of the contract. As a general rule,
agreement without consideration is void.

For e.g.: A agree to sell his house to B for Rs. 10,000/-. Here A’s promise to sell his house is for B’s
consideration to pay Rs. 10,000/- . Similarly B’s promise to pay Rs. 10,000/- for A’s consideration to sell his
house to B.

An agreement is a contract, only if it is made for the lawful consideration & with lawful object.

The consideration or object of an agreement is unlawful if :-

i] it is forbidden by law or

Ii] is of such a nature that, if permitted, it would defeat the provision of any law, or

Iii] is fraudulent,

Iv] involves or implies injury to the person or property of another,

V] the court regards it as immoral, or opposed to the public policy.

3) Capacity of Parties to contract – Competent Parties:- The person firstly should be major. Secondly he
should not be sound mind, for e.g. he should be insane (Mad) or lunatic (Mad) & finally he should not
posses any other disqualification from the contracting by any law which he is subject.
4) Free Consent: Parties to a contarct must give their free consent . The parties must be ad-idem means both
the parties must agree upon the same thing in the same sense. Two or more persons are said to be consent
when they agree upon the same thing in the same sense.(sec.13.)

Mere consent is not enough. Consent of parties must be free for e.g. It must not have been obtained by (i)
Coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation or (v) mistake.

5) Anagreement must nnot be expressly declared to be void: A void agreement is not enforceable by law
[sec.2 (g)]. It has no legal sanctity. It does not give rise to any rights & obligations. Void agreements are not
enforceable by law as they are opposed to public policy like agreement in restraint of trade or marriage or legal
proceedings. An agreement therfore should not be void in order to constitute a valid contract. Various
agreements are expressly declared void under the act.

6) Writing & Registration, if so required by law: Oral contract is a valid contract. However, the contract must
be in writing & registered, if so required by any law for e.g. Gift, mortgage, sale, lease under the Transfer of
Property Act 1882, Memorandum & Article of Association of a company under the Indian companies Act,
Contract under sub sec (1) & (3) of sec25 of the Indian Contract Act etc, Document specified under sec 17 of
Indian Registration Act 1908 are required to be registered. Usually, important documents are entered into writing
& are registered.

7) Legal Relationship: Agreements which create legal relationships or are capable of creating legal
relationships are contracts. For e.g. an invitation to a dinner does not create any legal relation & therefore, is not
a contract. Existence of legal relationship is determined by the intention of the parties. There must be a common
intention of the parties to create legal relations in order to constitute a contract. Agreements to buy & sell, to
marry, etc create legal relationships & are therefore valid contract.

8) Certainty: The terms of a contract should be clear. In other words, the contract must not be vague. Contracts
which are vague cannot be enforced. Such a contract can be avoided by showing that there is ambiguity. In
such case, there is nothing which neither party can enforce.
9) Possibility of performance: Contracts are based on impossibility of performance are not valid. The
contracts must be capable of being performed. For e.g. A promises to share with B 50% of the treasure, if B
creates a treasure by magic. Such agreements are incapable of performance & therefore void.

10) Enforceable by law: A contract in order to be valid must be enforceable by law which element distinguishes
agreement & contract. It is enforceable by law, it is a contract , otherwise it is an agreement. The aggrieved
party should be able to obtain relief through law in the event of breach of contract.