78 Indian Contract Act, 1872
78.1 Background and Scope
The Indian Contract Act, 1872 (ICA) is the foundational law of contract in India — enacted on 25 April 1872 and effective from 1 September 1872. It applies to all of India and codifies the general principles relating to formation, performance and discharge of contracts (kapoor2023?).
Originally the Act covered all aspects of contract law, but several portions have been carved out into separate statutes:
- Sale of Goods Act 1930 — split from sections 76–123.
- Indian Partnership Act 1932 — split from sections 239–266.
What remains in the ICA today is the general law of contract (Sections 1–75) and the law of special contracts — indemnity, guarantee, bailment, pledge, agency (Sections 124–238).
78.2 Definition of Contract
Section 2(h): “An agreement enforceable by law is a contract.”
That is: Contract = Agreement + Enforceability by law.
| Term | Section | Definition |
|---|---|---|
| Promise | 2(b) | Accepted proposal |
| Agreement | 2(e) | Every promise / set of promises forming consideration for each other |
| Contract | 2(h) | Agreement enforceable by law |
So every contract is an agreement, but every agreement is not a contract.
78.3 Essentials of a Valid Contract
Section 10 lays out the essentials. A more elaborate list, drawn from various sections (kapoor2023?):
| Essential | Section | Working content |
|---|---|---|
| Offer and acceptance | 2(a), 2(b) | Lawful proposal accepted in proper manner |
| Intention to create legal relations | — | Not social or domestic agreements |
| Lawful consideration | 2(d), 23 | Something in return that is lawful |
| Capacity of parties | 11 | Major, sound mind, not disqualified |
| Free consent | 13–22 | Not caused by coercion, undue influence, fraud, misrepresentation, mistake |
| Lawful object | 23 | Object not forbidden by law / immoral / against public policy |
| Not expressly declared void | 24–30 | Section 24–30 list void agreements |
| Certainty | 29 | Terms must be certain or capable of being made certain |
| Possibility of performance | 56 | Must be possible to perform |
| Legal formalities | various | Writing / registration where required |
78.4 Classification of Contracts
| Basis | Categories |
|---|---|
| By validity | Valid, Void, Voidable, Illegal, Unenforceable |
| By formation | Express, Implied, Quasi |
| By performance | Executed, Executory; Unilateral, Bilateral |
| By nature | Bilateral, Unilateral; Standard form |
| Type | Definition |
|---|---|
| Valid contract | Satisfies all essentials |
| Void agreement | No legal effect from the start (Sec. 2(g)) |
| Voidable contract | Valid until rescinded by aggrieved party (Sec. 2(i)) |
| Illegal agreement | Forbidden by law; collateral agreements also fail |
| Unenforceable contract | Valid but cannot be enforced due to technical defect |
78.5 Offer (Proposal) — Section 2(a)
An offer is “when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence”.
| Rule | Working content |
|---|---|
| Must be communicated | An offer not communicated cannot be accepted |
| Must be definite | Vague offer cannot be accepted |
| May be express or implied | Words or conduct |
| May be specific or general | To a particular person, or to the world (e.g. Carlill v. Carbolic Smoke Ball) |
| Must be made with intent to create legal relations | Mere statement of price is not an offer |
| Lapses by | Time, death, rejection, counter-offer, revocation, change of law |
78.6 Acceptance — Section 2(b)
Acceptance is when “the person to whom the proposal is made signifies his assent thereto”. Rules:
- Must be absolute and unqualified (Sec. 7).
- Must be expressed in some usual and reasonable manner.
- Must be communicated to the offeror.
- Must be given within reasonable time.
- Cannot precede the offer.
- Mental acceptance is not enough.
The classic postal rule (Adams v. Lindsell, 1818): acceptance is complete when the letter is posted; revocation is effective only on receipt.
78.7 Consideration — Section 2(d)
Consideration — “something in return”. When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something — such act, abstinence or promise is the consideration.
| Rule | Working content |
|---|---|
| Must move at desire of promisor | Not unilateral |
| May move from promisee or any other person | Stranger may furnish (Chinnaya v. Ramayya) |
| May be past, present or future | All recognised in Indian law |
| Must be real and lawful | Not illegal, immoral, opposed to public policy |
| Need not be adequate | Sec. 25 explanation 2 — adequacy not required, but inadequacy may be evidence of fraud |
| Privity of contract | Only parties can sue (with exceptions) |
| Must be something other than legal duty | Performing an existing legal obligation is no consideration |
78.7.1 “No consideration, no contract” — and exceptions
Section 25 makes agreements without consideration void, with five exceptions:
| Exception | Working content |
|---|---|
| Natural love and affection | Written and registered, between near relations |
| Past voluntary services | Promise to compensate for services already rendered |
| Time-barred debt | Written promise to pay debt barred by limitation |
| Completed gift | Gifts already given |
| Agency | No consideration needed to create agency (Sec. 185) |
78.8 Capacity of Parties — Sections 11, 12
Section 11: every person is competent to contract who is:
- Of the age of majority (18 years; or 21 if guardian appointed).
- Of sound mind (Sec. 12).
- Not disqualified by any law (e.g., insolvents, alien enemies, foreign sovereigns, convicts).
A minor’s agreement is void ab initio (Mohori Bibee v. Dharmodas Ghose, 1903 — leading case).
78.9 Free Consent — Sections 13–22
Consent (Sec. 13) — agreement on the same thing in the same sense (consensus ad idem). Consent is free (Sec. 14) when not caused by:
| Factor | Section | Effect |
|---|---|---|
| Coercion | 15 | Voidable at the option of aggrieved party |
| Undue influence | 16 | Voidable at option of aggrieved |
| Fraud | 17 | Voidable; with damages |
| Misrepresentation | 18 | Voidable |
| Mistake | 20–22 | Mutual mistake of fact — void; unilateral mistake — generally not voidable |
78.10 Lawful Object and Consideration — Section 23
Object or consideration is unlawful if it: (i) is forbidden by law; (ii) defeats the provisions of any law; (iii) is fraudulent; (iv) involves injury to person or property; (v) is regarded as immoral or opposed to public policy.
78.11 Void Agreements — Sections 24–30
| Section | Void agreement |
|---|---|
| 24 | Agreement with unlawful consideration in part |
| 25 | Without consideration (subject to exceptions) |
| 26 | In restraint of marriage (other than minor) |
| 27 | In restraint of trade (with limited exception under sale of goodwill) |
| 28 | In restraint of legal proceedings |
| 29 | Uncertain agreements |
| 30 | Wagering agreements |
| 56 | Agreements to do impossible acts |
78.12 Performance, Discharge, Breach
| Mode | Working content |
|---|---|
| Performance | Both parties fulfil obligations |
| Mutual agreement | Novation, alteration, rescission, remission, waiver |
| Lapse of time | Limitation Act |
| Operation of law | Death, insolvency |
| Impossibility / Frustration | Sec. 56 — supervening impossibility |
| Breach | Actual or anticipatory |
78.13 Remedies for Breach
| Remedy | Working content |
|---|---|
| Damages | Compensation for actual loss (Sec. 73) — Hadley v. Baxendale rule |
| Specific performance | Court orders performance — Specific Relief Act 1963 |
| Injunction | Restrains a party from doing something |
| Quantum meruit | Reasonable payment for what has been done |
| Rescission | Cancellation of contract |
78.14 Quasi-Contracts (Sections 68–72)
Quasi-contracts — relations resembling those created by contract, imposed by law to prevent unjust enrichment:
- Sec. 68: Necessaries supplied to incapable person.
- Sec. 69: Payment by interested person.
- Sec. 70: Obligation to pay for non-gratuitous act.
- Sec. 71: Finder of goods.
- Sec. 72: Liability of person to whom money is paid by mistake or under coercion.
78.15 Exam-Pattern MCQs
Q1. “An agreement enforceable by law is a contract.” This is the definition under:
A. Section 2(a) B. Section 2(e) C. Section 2(h) D. Section 10
Answer: C. Section 2(h) defines a contract.
Q2. Match each term with its section:
| Term | Section | ||
|---|---|---|---|
| (i) | Proposal | (a) | 2(d) |
| (ii) | Acceptance | (b) | 2(b) |
| (iii) | Consideration | (c) | 2(a) |
| (iv) | Contract | (d) | 2(h) |
A. (i)-(c), (ii)-(b), (iii)-(a), (iv)-(d) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
Answer: A.
Q3. A minor’s agreement is:
A. Voidable at minor’s option B. Voidable at adult party’s option C. Void ab initio D. Valid
Answer: C. Mohori Bibee v. Dharmodas Ghose (1903) — minor’s agreement is void from the beginning.
Q4. Match each vitiating factor with its section:
| Factor | Section | ||
|---|---|---|---|
| (i) | Coercion | (a) | 17 |
| (ii) | Undue influence | (b) | 18 |
| (iii) | Fraud | (c) | 16 |
| (iv) | Misrepresentation | (d) | 15 |
A. (i)-(d), (ii)-(c), (iii)-(a), (iv)-(b) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) D. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a)
Answer: A.
Q5. Which of the following is not an exception to “no consideration, no contract”?
A. Written and registered agreement out of natural love and affection B. Promise to compensate past voluntary services C. Promise to pay a time-barred debt in writing D. Oral promise of gift to a stranger
Answer: D. An oral promise of gift to a stranger is not a recognised exception.
Q6. Match each Section with the type of agreement it makes void:
| Section | Void agreement | ||
|---|---|---|---|
| (i) | 26 | (a) | Wagering |
| (ii) | 27 | (b) | In restraint of marriage |
| (iii) | 28 | (c) | In restraint of trade |
| (iv) | 30 | (d) | In restraint of legal proceedings |
A. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(b), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
Answer: A.
Q7. Section 56 deals with:
A. Wagering agreements B. Supervening impossibility / frustration C. Restraint of trade D. Capacity of parties
Answer: B. Doctrine of Frustration / Supervening Impossibility under Section 56.
Q8. The leading case on the postal rule of acceptance is:
A. Mohori Bibee v. Dharmodas Ghose B. Carlill v. Carbolic Smoke Ball C. Adams v. Lindsell D. Hadley v. Baxendale
Answer: C. Adams v. Lindsell (1818) — postal acceptance is effective on posting.
- Indian Contract Act 1872: in force from 1 Sept 1872; covers general contract law (Sec. 1–75) + special contracts (124–238).
- Contract (Sec. 2h) = Agreement + Enforceability.
- Ten essentials: offer & acceptance, intention, lawful consideration, capacity, free consent, lawful object, not declared void, certainty, possibility, formalities.
- Categories: valid, void, voidable, illegal, unenforceable.
- Offer Sec. 2(a); rules; lapse — time, death, rejection, counter-offer, revocation.
- Acceptance Sec. 2(b); absolute, unqualified, communicated. Adams v. Lindsell (1818) — postal rule.
- Consideration Sec. 2(d); past/present/future; need not be adequate. Stranger to contract — privity; Chinnaya v. Ramayya — stranger to consideration may sue.
- Section 25 exceptions: natural love, past voluntary, time-barred debt, gifts, agency.
- Capacity (Sec. 11): major, sound mind, not disqualified. Minor’s contract void ab initio — Mohori Bibee (1903).
- Free consent (13–22): coercion (15), undue influence (16), fraud (17), misrepresentation (18), mistake (20–22).
- Void agreements (Sec. 24–30): restraint of marriage, trade, legal proceedings; uncertain; wager.
- Section 56 — supervening impossibility / frustration.
- Remedies: damages (Sec. 73 — Hadley v. Baxendale), specific performance, injunction, quantum meruit, rescission.
- Quasi-contracts: Sec. 68–72.