Indian Contract Act 1872 - Meaning and Types

The Indian Contract Act 1872 is the legal framework overseeing contracts in India, having been enacted on September 1, 1872. The Act's preamble outlines its purpose as defining and modifying specific aspects of contract law.

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What is Indian Contract Act 1872?

2. As for the meaning of “agreement,” according to the Indian Contract Act, 1872 Section 2(e), it “includes every promise and every set of promises for the consideration of each other". In order to understand what "agreement" is, one has to understand what "promise" is, and the previous Indian Contract Act, 1872, Section 2.

1. With regard to enforceability under law, an agreement cannot become a contract unless it brings with it legal obligations.

Difference Between Agreement and Contract

Essentials of a Contract

I. Offer and Acceptance or Agreement:

• An agreement constitutes the primary element of a valid contract.
• Section 2(e) of the Indian Contract Act of 1872 defines an agreement as "Every promise and every set of promises, forming consideration for each other."
• Additionally, Section 2(b) of the Indian Contract Act 1872 states that "A proposal, when accepted, becomes a promise."
• Therefore, an agreement results from the mutual exchange of offers and acceptances.

II. Free Consent:

• Consent is achieved when two or more parties agree on the same terms, indicating a consensus and idem or identity of minds.
• This consent must be free from coercion, undue influence, fraud, misrepresentation, or mistake.

III. Capacity of the Parties:

• Capacity to contract refers to the legal ability of an individual to enter into a valid contract.
• Section 11 of the Indian Contract Act specifies that a person must be of the age of majority, of sound mind, and not disqualified by any applicable law.

IV. Consideration:

• Consideration, often described as 'quid pro quo' or 'something in return,' is crucial.
• It can involve a right, interest, profit, benefit, forbearance, detriment, loss, or responsibility.

V. Lawful Consideration and Object:

• The agreement's consideration and objective must be lawful.
• Section 23 stipulates that it becomes unlawful if it is prohibited by law, fraudulent, involves injury to others, or is deemed immoral or against public policy by the court.

VI. Not Expressly Declared to be Void:

• The agreement must not be expressly declared illegal or void by law.
• An illegal agreement is one explicitly or implicitly prohibited by law, while a void agreement has no legal effects.

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Proposal in Indian Contract Act 1872

• The individual making the proposal or offer is termed the 'promisor' or 'offeror.'
• The recipient of the offer is referred to as the 'offeree,' and the one accepting the offer is the 'promisee' or 'acceptor.'
• For a valid offer, the offering party must explicitly express their willingness 'to do' or 'not to do' a certain action.
• The willingness to act or abstain must be communicated with the intent to secure the agreement of the other involved party.
• Offers can take both positive and negative forms.
• "Doing" constitutes a positive act, while "not doing" or "abstinence" represents a negative act. Importantly, both types of acts hold the same legal significance.

Types of Contract

1. Based on the validity.
2. Based on the formation of a contract.

I. Based on the Validity

II. Based on the Formation of Contract

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III. Based on the Performance of the Contract