Indian Contract Act – Definition, Elements, Types


Indian Contract Act, 1872 came in force on 1st September 1872. It is one of those laws which are given by Britishers long back but still serve purpose and deals with almost all the aspects related to any contract.

Contract is an agreement enforceable by law. It is an agreement between two or more parties. The parties are bound by such agreement. When two or more persons agree to do the same thing in the same sense, it is called an agreement.

Essentials of A Valid Contract

1) Minimum Two Parties: There must be at least two parties to a contract. They are: promisor and promisee. They are also called the offeror and offeree.
2) Agreement: There must be an agreement to do same thing in the same sense. Offer by one party and acceptance by the other party makes an agreement. Therefore, to put it simply, Agreement = Offer + Acceptance.
3) Offer and Acceptance: There must be a lawful offer and a lawful acceptance, A person making an offer is called offeror or proposer and the person wha accepts the offer is called offeree or acceptor.
4) Consensus-ad-idem: It means ‘identity of minds’. Both parties must have clear understanding about the subject matter of their contract at the same time and in the same sense. Therefore, Consensus ad-idem = Offer + Acceptance.
5) Capacity to Contract (Sections 11 and 12): Every person has capacity to enter into contract if he is a major and with sound mind. Minors and persons with mental disorder (insane persons or persons of unsound mind) have no capacity to enter into contract.
6) Free consent: (Section 13): There must be free consent. It means both parties must enter into an agreement without any force, fraud, coercion, misrepresentation, mistake or undue influence.
7) Lawful consideration (Section 2 (d)): There must be a consideration in every contract. It must be lawful. Consideration means ‘something in return’. Price is called consideration. A contract without consideration is void (i.e. no contract).
8) Legal relationship: Parties must have intention to create legal relationship between them, e.g. A agrees to sell his car to B for Rs.95,000/-. Such agreement creates legal relationship.
9) Lawful object (Section 23): The object of the contract must be lawful. It must not be immoral or illegal or opposed to public policy. An agreement with lawful object is valid but an agreement with unlawful object is not valid, e.g. An agreement to supply rice to a student hostel is lawful, but an agreement to supply rice to terrorist’s organization is unlawful, because the object of terrorists is illegal.
10) Certainty of Terms: The terms of contract must be clear. They must not be vague or uncertain. e.g. A agrees to sell B a ‘hundred tons of oil ‘. The terms are not clear because which kind of oil is not mentioned.
11) Possibility of Performance: An agreement must be possible to perform. Law never compel anybody to do an impossible act. e. g. Agreement to transfer of the Sun or the Moon is impossible act.
12) Lawful Agreement: The agreement must not have been expressly declared void or illegal by any law in force in India, e.g. Agreement in restraint of trade, or agreement in restraint of marriage, or agreement in restraint of legal proceedings or wager agreements (Betting agreements).
13) Legal Formalities: Agreement may be oral or written. Where the agreement is to be in writing, it must fulfill the necessary legal formalities such as writing, registration and attestation, e.g. Sale, lease, gift and mortgage are required to be in writing.

Types of Contract

On the basis of formation

Express Contract: Offer and acceptance are made in express manner.
Implied contract: Offer and acceptance are made using conduct.
Quasi Contract: Parties have not entered into a contract but by the virtue of law they are obliged as if they have entered into a contract with each other.

On the basis of performance

Executed Contract: Both the parties have done their parts.
Executory Contract: One or both the parties are under obligation to do their parts.

On the basis of obligation

Unilateral Contract: Only one party has obligation at the time of its formation.
Bilateral Contract: Both the parties have obligation to perform at the time of formation.

On the basis of validity

Valid Contract: An agreement that fulfills all essentials mentioned under section 10 of the Indian Contract Act, 1872.
Voidable Contract: An agreement which is enforceable at the one or more parties to it but not at the option of other or all other parties.
Illegal Contract: Agreement whose object or consideration is unlawful or illegal.
Void Contract: A contract unenforceable by the law.
Unenforceable Contract: Contract which is valid in all respect but because of technical formalities cannot be enforced.

Breach of contract

  • When there is no timely fulfillment of the contractual obligation it amounts to the breach of a contract. It is one of the types of discharge of a contract.
  • Actual breach happens when party does not perform its duty when the performance is due And Anticipatory Breach takes place when a party repudiates his obligation before the time of performance.
  • Compensation or damages for breach of contract can be in the form of –ordinary damages, special damages, vindictive damages, nominal damages, real damages, etc.
  • Remedies available for breach of contract are; suit for recission, suit for damages, suit for quantum merit, suit for specific performance, and suit for injunction.