79  Indian Contract Act, 1872: Elements of a valid contract; Capacity of parties; Free consent; Discharge of a contract; Breach of contract and remedies against breach; Quasi contracts

79.1 Scope and Structure of the Act

The Indian Contract Act, 1872 is the foundational statute of Indian commercial law. It came into force on 1 September 1872 and applies to the whole of India. The Act has 266 sections in two parts — General principles (§§ 1-75) and Specific (special) contracts (§§ 124-238). Sections 76-123 (Sale of Goods) and §§ 239-266 (Partnership) were later moved into the Sale of Goods Act 1930 and the Partnership Act 1932 respectively.

79.2 Section 2 — Key Definitions

Tip§2 — Vital Definitions
  • §2(a) Proposal — when one person signifies to another his willingness to do/abstain.
  • §2(b) Promise — accepted proposal.
  • §2(c) Promisor & Promisee.
  • §2(d) Consideration — at the desire of the promisor.
  • §2(e) Agreement — every promise and every set of promises forming consideration for each other.
  • §2(g) Void agreement — not enforceable by law.
  • §2(h) Contract — agreement enforceable by law.
  • §2(i) Voidable contract — enforceable at option of one party.
  • §2(j) Void contract — becomes unenforceable later.

79.2.1 Contract = Agreement + Enforceability

“All contracts are agreements, but all agreements are not contracts” (§10).

79.3 §10 — Essentials of a Valid Contract

TipEssentials of a Valid Contract (§10)
Essential Section
Offer and Acceptance §§ 2(a), 2(b), 3-9
Intention to create legal relationship (judicial)
Lawful consideration §§ 2(d), 23, 25
Capacity of parties § 11
Free consent §§ 13-22
Lawful object § 23
Not expressly declared void §§ 24-30
Certainty and possibility of performance §§ 29, 56
Legal formalities (writing, registration where required)

79.3.1 Offer and Acceptance

  • Offer (§ 2a) — must be communicated (§ 4), definite, intend to create legal relations.
  • Acceptance (§ 2b) — must be absolute & unqualified (§ 7), in prescribed mode (§ 7), and communicated (§ 4).
  • Communication complete (§ 4): proposal — when it comes to the knowledge of offeree; acceptance — against proposer when posted; against acceptor when received.
  • Revocation (§ 5) — proposal can be revoked any time before acceptance complete; acceptance, before its communication is complete.
  • Counter-offer destroys original offer (Hyde v Wrench 1840).

79.3.2 Consideration

“Something in return” (Pollock). Quid pro quo. Rules:

TipRules of Consideration (§§ 2d, 23-25)
  • At desire of promisor.
  • May move from promisee or any other person (Indian law — Chinnaya v Ramayya 1882; unlike English law’s privity of consideration).
  • May be past / present / future.
  • Need not be adequate, but must be real and lawful.
  • Must be something the promisor is not already bound to do.
  • § 25 Exceptions — agreement without consideration is valid if (i) made on account of natural love and affection, in writing, registered, between near relatives; (ii) compensation for past voluntary service; (iii) promise to pay time-barred debt in writing and signed.

79.4 Capacity of Parties (§ 11)

Tip§11 — Who is Competent?
  • Of age of majority — 18 yrs (21 if guardian appointed by court).
  • Of sound mind (§ 12).
  • Not disqualified by law — alien enemy, insolvent, convict, corporate beyond MoA.

79.4.1 Minor’s Agreements

Void ab initio (Mohori Bibee v Dharmodas Ghose 1903 PC). Key rules: cannot ratify on majority; can be a promisee; partner only with consent (§ 30 Partnership); liable for necessaries (Sec 68 quasi-contract); no specific performance.

79.6 Discharge of Contract

Modes (mnemonic — PALA-IRO):

TipModes of Discharge
  • Performance (§§ 37-39) — actual / attempted (tender).
  • Agreement / consent (§§ 62-67) — novation, rescission, alteration, remission, waiver, accord & satisfaction.
  • Lapse of time — Limitation Act 1963 (usually 3 yrs for contracts).
  • Act of parties (mutual cancellation).
  • Impossibility / Frustration (§ 56) — Doctrine of frustration; Satyabrata Ghose v Mugneeram Bangur 1954 SC.
  • Rescission / Breach (anticipatory / actual).
  • Operation of law — death, insolvency, merger, unauthorised material alteration.

79.7 Breach of Contract

79.7.1 Types

TipTypes of Breach
  • Actual breach — at time of performance.
  • Anticipatory breach (§ 39) — repudiation before performance; aggrieved party may sue immediately (Hochster v De La Tour 1853).

79.7.2 Remedies for Breach

TipRemedies
  • Rescission of contract.
  • Damages (§ 73) — based on Hadley v Baxendale 1854 — direct loss + reasonably foreseeable special damages. Types: Ordinary, Special, Vindictive (rare), Nominal, Liquidated/Penalty (§ 74).
  • Specific performance — by Specific Relief Act 1963 (amended 2018 — now general remedy not exceptional).
  • Injunction — restrain from doing.
  • Quantum meruit — payment for work done so far.

79.8 Quasi-Contracts (§§ 68-72)

Obligations resembling those created by contract though no real contract exists. Based on unjust enrichment principle (nemo debet locupletari ex aliena jactura).

TipQuasi-Contractual Obligations
Section Provision
§ 68 Necessaries supplied to a person incapable of contracting
§ 69 Reimbursement to person paying money due by another
§ 70 Obligation to pay for non-gratuitous act
§ 71 Responsibility of finder of goods
§ 72 Liability for money / thing delivered by mistake or under coercion

79.9 Contingent Contracts (§§ 31-36)

A contingent contract (§31) is a contract to do or not to do something if some event, collateral to such contract, does or does not happen. Examples: insurance, indemnity, guarantee. Wagering agreements are not contingent contracts — they are void (§ 30).

flowchart TB
  C[Indian Contract Act 1872] --> E[§10 Essentials<br/>Offer · Acceptance · Consideration · Capacity · Free consent · Lawful object]
  C --> CO[Consent §§13-22<br/>Coercion · UI · Fraud · MR · Mistake]
  C --> D[Discharge<br/>Performance · Agreement · Breach · §56 Frustration]
  C --> B[Remedies §73<br/>Damages · Specific perf · Injunction · Quantum meruit]
  C --> Q[Quasi §§68-72<br/>Necessaries · Finder · Payment by mistake]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

NoteDistractor warning

PYQ trap: Minor agreement = void ab initio (Mohori Bibee 1903); Damages — Hadley v Baxendale 1854 → §73; Frustration — Satyabrata Ghose 1954 → §56; Quasi-contracts §§ 68-72 (not §73).

79.10 Practice Questions

Q 01DefinitionEasy

A "contract" under § 2(h) is defined as:

  • AAgreement enforceable by law
  • BAny promise
  • CLawful object
  • DAcceptance only
View solution
Correct Option: A
**§ 2(h)** — Contract = Agreement + Enforceability.
Q 02§10Easy

Essentials of a valid contract are listed in:

  • A§ 2
  • B§ 10
  • C§ 23
  • D§ 73
View solution
Correct Option: B
**§ 10**.
Q 03MohoriMedium

Mohori Bibee v Dharmodas Ghose (1903) held:

  • AMinor's agreement is void ab initio
  • BMinor's agreement is voidable
  • CMinor's agreement is valid
  • DMinor liable for damages
View solution
Correct Option: A
**Void ab initio** — Privy Council 1903.
Q 04CoercionMedium

Coercion is defined under section:

  • A§ 15
  • B§ 16
  • C§ 17
  • D§ 18
View solution
Correct Option: A
**§ 15** — coercion; § 16 UI; § 17 fraud; § 18 MR.
Q 05ConsiderationMedium

Consideration may move from:

  • AOnly promisee (English law)
  • BPromisee or any other person (Indian law)
  • COnly promisor
  • DOnly stranger
View solution
Correct Option: B
**Chinnaya v Ramayya 1882** — Indian rule.
Q 06§25Medium

Which is NOT an exception under § 25?

  • ANatural love and affection (near relatives, in writing & registered)
  • BPast voluntary service compensation
  • CTime-barred debt promise (in writing & signed)
  • DPromise based on social custom
View solution
Correct Option: D
Social custom is not a § 25 exception.
Q 07MistakeHard

Bilateral mistake of fact regarding essential matter renders the contract:

  • AVoidable
  • BVoid
  • CValid
  • DIllegal
View solution
Correct Option: B
**§ 20** — void.
Q 08§56Medium

Doctrine of frustration is contained in:

  • A§ 23
  • B§ 56
  • C§ 73
  • D§ 74
View solution
Correct Option: B
**§ 56** — impossibility/frustration.
Q 09DamagesMedium

Compensation for loss / damage in breach is governed by:

  • A§ 73
  • B§ 74
  • C§ 56
  • D§ 23
View solution
Correct Option: A
**§ 73**; § 74 deals with liquidated damages/penalty.
Q 10AnticipatoryHard

Anticipatory breach is found under section:

  • A§ 37
  • B§ 39
  • C§ 56
  • D§ 73
View solution
Correct Option: B
**§ 39** — refusal to perform before due date.
Q 11CapacityEasy

Age of majority for contracts in India:

  • A18 years
  • B21 years
  • C25 years
  • DAs per parties
View solution
Correct Option: A
**18 yrs** (21 if guardian appointed by court).
Q 12QuasiMedium

Quasi-contract provisions are in sections:

  • A§§ 68-72
  • B§§ 73-75
  • C§§ 31-36
  • D§§ 13-22
View solution
Correct Option: A
**§§ 68-72**.
Q 13ContingentMedium

Contingent contracts are dealt with in:

  • A§§ 31-36
  • B§§ 124-147
  • C§§ 68-72
  • D§§ 13-22
View solution
Correct Option: A
**§§ 31-36** — contingent contracts.
Q 14WagerMedium

Wagering agreements are:

  • AVoidable
  • BVoid (§ 30)
  • CIllegal
  • DValid
View solution
Correct Option: B
**§ 30 — void** (not enforceable).
Q 15HadleyHard

Principle of Hadley v Baxendale (1854) underlies:

  • A§ 56
  • B§ 73 — measure of damages
  • C§ 10 — essentials
  • D§ 124 — indemnity
View solution
Correct Option: B
**§ 73** — measure of damages.
Q 16Free consentMedium

Free consent is defined under:

  • A§ 13
  • B§ 14
  • C§ 15
  • D§ 17
View solution
Correct Option: B
**§ 14** — free consent.
Q 17UIMedium

Burden of proof in undue influence cases is on:

  • APlaintiff
  • BCourt
  • CDominant party
  • DDefendant in person
View solution
Correct Option: C
**Dominant party** — § 16(3).
Q 18AcceptanceMedium

Acceptance must be:

  • AConditional
  • BAbsolute and unqualified (§ 7)
  • CPartial
  • DCounter-offer
View solution
Correct Option: B
**§ 7** — absolute and unqualified.
Q 19Specific ReliefHard

Specific performance is governed primarily by:

  • AContract Act 1872
  • BSpecific Relief Act 1963 (amended 2018)
  • CLimitation Act 1963
  • DCPC 1908
View solution
Correct Option: B
**SRA 1963** — now general (post-2018 amendment).
Q 20MatchMedium

Match section with provision:

Section Provision
(i) § 10 (a) Frustration
(ii) § 23 (b) Damages
(iii) § 56 (c) Essentials
(iv) § 73 (d) Lawful object
  • A(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)
  • D(i)-(b), (ii)-(a), (iii)-(d), (iv)-(c)
View solution
Correct Option: A
§10-essentials, §23-lawful object, §56-frustration, §73-damages.

79.11 Quick Recall

ImportantQuick recall
  • Act: came into force 1 Sept 1872; 266 sections in 2 parts.
  • § 2(h): Contract = Agreement + Enforceability.
  • § 10: Essentials — Offer, Acceptance, Consideration, Capacity, Free consent, Lawful object, Not declared void, Certainty, Formalities.
  • Capacity: 18 yrs, sound mind, not disqualified. Minor = void ab initio (Mohori Bibee 1903).
  • Free consent (§14): not by Coercion (§15), Undue influence (§16), Fraud (§17), MR (§18), Mistake (§§20-22).
  • Discharge: PALA-IRO — Performance, Agreement, Lapse, Act, Impossibility (§56 Satyabrata Ghose 1954), Rescission/Breach, Operation of law.
  • Breach remedies: rescission, §73 damages (Hadley v Baxendale 1854), §74 liquidated damages, specific performance (SRA 1963 / 2018), injunction, quantum meruit.
  • Quasi-contracts: §§ 68-72 (necessaries, money paid, non-gratuitous act, finder, mistake/coercion).
  • Contingent contracts: §§ 31-36; §30 wager — void.