THE INDIAN CONTRACT ACT 1872 (In simple words)

OVERVIEW –

This Unit Refers to the essentials of a legally enforceable agreement or contract. It sets out rules for the offer and acceptance and revocation thereof. It states the circumstances when an agreement is voidable or enforceable by one party only, and when the agreements are void , i.e. not enforceable at all.

Nature of Contracts

PART – 1 ( DEFINITION WITH SECTIONS ) – 20

1). Contract – As per the terms of Section 2(h) of Indian Contract Act, 1872 Defines contract as ” An Agreement Enforceable by Law “CONTRACT = ACCEPTED PROPOSAL/AGREEMENT + ENFORCEABILITY BY LAW .

2). Agreement – As per the terms of Section 2(e) of Indian Contract Act , 1872 defines Agreement as ” Every promises or every set of promises forming the consideration from each other ” .

3). promise – As per the terms of the Section 2(b) of The Indian Contract Act , 1872 ” The promise ” is defined as ” When the person to whom the proposal is made Signifies his assent thereto ; The proposal is said to be accepted . ” proposal when accepted becomes a promise ” .

4). Enforceability by Law – ” An agreement to become a contract must give rise to the legal obligations which means duly enforceability by law ” .

5). Section 10 of Indian Contract Act , 1872 – As per the terms of Section 10 of the Indian Contract Act , 1872 defines as ” All agreements are contracts if they are made by the free consent ; parties competent to the contract having lawful consideration and lawful object and not expressly declared as a void ” .

6). Free Consent – “When two or more person’s agree upon the same thing at a same sense”. known as Free Consent ( section 13) .

7). Valid Contracts – Valid contracts are the contracts which are binding and enforceable by law. containing all the essential elements of a valid contracts .

8). Void Contracts – As per the terms of the Section 2(j) of the Indian Contract Act , 1872. ” Where a contract ceases to be enforceable by law , becomes void when ceases to be enforceable . Void contracts are the one which cannot enforced by the law ” .

9). Voidable contracts – As per the terms of Section 2(i) of the Indian Contract Act , 1872 defines as “When a contract is Voidable at the option of one or more parties not at the option other or others parties known as Voidable Contracts .

10). Illegal Agreements – Illegal Agreements are the agreement which are unlawful in nature” which is prohibited by law . and collateral to these agreements are always null and void .

11). Unenforceable contracts – When a contract is in a good substance but due to technical defect i.e. Absence in writing , time barred Acts , Known as Unenforceable contracts which can be enforceable by law .

12). Express Contracts – Express contracts are the contracts when made by words , or by writing known as “Express Contracts”. when an offer/ proposal or Acceptance is made by words or by in writing the promise is said to be express .

13). Implied Contracts – Implied contracts are the contracts which are made by implications , or by an Act or Conduct of the parties is known as Implied Contracts .

14). Quasi Contracts – Quasi Contracts are the contracts imposed by the law ; where the party having no intention to perform the contract ; but due to legal obligations , they have to performed their obligations . If any party receive any benefit thereof ; under the contract must repay or return to the real owner “.

15). E.com Contracts – E-com contracts are the contracts between the parties through electronic form of data . also known as EDI contracts , Cyber click contracts , and Execute contracts.

16). Executed Contracts – Executed contracts are the contracts when both of the parties have done their obligations under the contract known as Executed Contracts .

17). Executory contracts – Executory contracts are the contracts which is outstanding by one or more one parties known as “Executory Contracts”. these contracts are of two types ;-

1. Unilateral Contracts

2. Bilateral Contracts

18). Void Agreements – As per the terms of section 2(g) of the Indian Contract Act, 1872 “Void Agreements” is define as ” An agreement not enforceable by law ” becomes void .

19). Offer – As per the Section 2(a) defines offer as “When a person signifies his assent thereto with an view to obtaining the assent of that other of an act or abstinence ” .

20). Acceptance – As per the terms of Section 2(b) of the Indian Contract Act, 1872 defines Acceptance as ” When the person to whom the proposal is made signifies his assent thereto ; the proposal is said to be accepted . it becomes a promise ” .

PART – 2 (DIFFERENCES WITH SECTIONS)

A. Difference between Agreement and Contract ;-

BASIS AGREEMENT CONTRACT
1. meaning definition definition
2. scope wider in scope Narrow in scope
3. legal obligation cannot create legal oblig. Create legal Oblig.
4. Nature All agreements are contracts. But all Contracts are not Agreements.

B. Difference between void contracts and voidable contracts .

BASIS VOID CONTRACTS VOIDABLE CONTRACTS
1. Sections 2(j) 2(j)
2. meaning check above check above
3. performance these contracts cannot be performed Can be performed at the option of one or more parties not at the option of other or other parties .
4. cause caused due to change in law . caused when the consent of the parties is not free .

C. Difference between void agreement vs. Illegal agreements

BASIS VOID AGREEMENTS ILLEGAL AGREEMENTS
1. meaning given check above . given check above .
2. performance can be performed. can be performed.
3. nature void from beginning . unlawful from beginning .
4. punishment no punishment punishment
5. collateral collateral to these agreements can be collateral to these agreements are always void .

void or valid .

D. Differences between offer and invitation

BASIS OFFER INVITATION
1. meaning given check above. check above.
2. willingness party making offer must signifies final willingness. no willingness to take assent only sent invitation for making an offer.
3. test test of final willingness whether to take assent or not. true test applies give the intention of the person to make an offer or only invites so that other can make offer.

PART – 3 ( CHARTS )

1. ObligationWhen a contract form between two parties it must be contractual in nature . However , there are some contracts which are outside the purview of the contract act . An obligation to maintain wife and children , an order of the court of law . these are status obligations which are outside the scope of the contract.

Offer/Proposal – Acceptance – Accepted proposal/Agreement – Enforceability by law.

2. Essential of a Valid Contract

As per section 10 of Indian contract Act , 1872 As per not section 10
1. Agreement two parties
2. capacity of parties parties must intend to create legal obligations.
3. free consent other formalities to be compiled with certain cases.
4. consideration certainty of meaning
5. lawful consideration and lawful object possibility of performance
6. not expressly declared as a void

3 . Types of Contract

ON THE BASIS OF :-

Validity or Enforceability Formation performance
1. Valid contracts Express contracts
Executed contracts
2. Void contracts Implied contracts
Executory contracts
3. Voidable contracts Quasi contracts
executory of two types :-
4. Illegal Agreements E – Contracts

  • unilateral contracts
  • bilateral contracts .

4. CLASSIFICATION OF OFFER : –

1. General offer – which is made to public at large .

2. Specific offer – when offer is made to specific person . another cannot accept it .

3. Cross offer – when both the parties made identical offers to each other . like , both have an idea one of having to sell his bike of red color and another have to purchase his bike of red color . such offers where one of the party has to accept first and another has to accept it . is known as cross offer .

4. Counter offer – where an offer is made and subsequently by changing in its terms another is made known as counter offer . for ex, a person ram has made an offer to rocky to sell his car in 2 lakhs but subsequently rocky made another offer by change in its terms and conditions to buy in 150k . known as counter offer .

5. standing offer – when an offer is stand or stays for a particular period and when the period overs it comes to an end . known as standing offer .like an offer made by coco-cola in every purchase of coco-cola drink charge of Rs. 150 . such offers is known as standing offer .

PART – 4 DIRECT THEORY QUESTIONS

ESSENTIAL OF A VALID CONTRACT : –

1. Two Parties – A person cannot contract with himself . there must be two parties must can offer and other will accept .

2. Parties must intend to create legal obligations – Agreement to form a contract ; there must be legal obligations which means duly enforceable by law .

3. other formalities to be compiled with certain cases – There are some contracts which need special circumstances , which must be signed , by words or by writing eg. contracts of insurance .

4. certain in meaning – the agreements must be certain , not vague or not indefinite .

5. possibility of performance of an agreement – the terms of agreement must be capable of performance .

ESSENTIAL OF A VALID OFFER

1. Offer must be capable of creating legal obligations : to form a valid offer and a acceptance the offer sent/make by the offeror must be capable of creating legal obligations.

2. offer must be certain , not vague , or indefinite : the offer made by offer or must be certain , not vague , or indefinite.

3. offer must be communicated : offer must be communicated to the party to whom it was made ; if not then no acceptance ; no agreement.

5. offer must be conditional : offer must be conditional which is to be accepted by the offeree.

6. offer must be made with an view to obtain the assent of that other , by act or abstinence.

7. offer may be express or implied.

8. offer may be general or implied.

9. offer should not be made non – compliance ; which give effects rise to acceptance.

10. offer is different from a mere statement of intention, invitation to an offer; Advertised and etc.

11. offer is different from an answer to the question.

12. offer is different from a statement of price.

ESSENTIAL OF A VALID ACCEPTANCE

1. Acceptance must be made by the person to whom it is made.

2. Acceptance must be certain (absolute and unqualified). absolute means , proper and unqualified means – without condition .

3. Acceptance must be communicated . (Broadgen v/s metropolitician city)

4. Acceptance by conduct .

5. Acceptance must given in prescribed form .

6. Time

7. Acceptance may be Express or Implied .

8. Mere silence, not amount to acceptance . (Felthouse v Bindley [1862])

RELATIONSHIP BETWEEN OFFER AND ACCEPTANCE

According to Sir William Anson; “Acceptance is to offer what a lighted match is to train of a gun powder “.

1). “The effect of this observation is that once the acceptance triggers it cannot be recalled or undone “.

2). An offer remains an offer until there is no acceptance ; but once it gets into acceptance becomes a contract.

3). Lighted Match – Acceptance.

4). Train of a Gun Powder – Offer.

MODES OF REVOCATION OF OFFER

1). By notice of revocation.

2). By laps of time – Acceptance must be communicated before the time lapse ; if there is no prescribed mode , then acceptance may be given at a reasonable time . in case law of Rams gate pictorial hotel co. vs. Montefiore . where a person applied for the shares in June but is not responsible for the allotment made in November . same decision is applied in Indian cooperative navigation and trading co. ltd VS. Padamsey Premji.

3). By non – fulfillment of condition precedent.

4). By counter offer

5). By the non – Acceptance as per prescribed mode.

6). By death or Insanity.

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I am Rahul Chaudhary living in jodhpur , Rajasthan I am content writer at quora.com with 4.2k monthly viewers . My book on Management Accounting ( important questions and practicals ) is also in a way to be published soon . View Full Profile

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