Indian Contract Act: Essentials and Types

Essential Elements of a Contract

• A contract is based on reciprocal acts and considerations that result in rights and liabilities.
• The Indian Contract Act, 1872 is the key act regulating enforceable agreements in India.
• The act is based on English Common Law and is applicable to all states of India.

Basis of Rights and Liabilities

• Rights and liabilities arise from the terms of a transaction created voluntarily between parties by making legally enforceable agreements.
• The Indian Contract Act, 1872 was framed to address difficulties in using English Common Law and personal laws.

Structure of the Indian Contract Act, 1872

• The act is divided into four parts:
  • Law relating to general principles of contract (Sec 1-75)
  • Law relating to sale of goods (Sec. 76-123) - Repealed and replaced by the Sale of Goods Act, 1930
  • Law relating to special contracts (Sec. 124-238)
  • Law relating to Partnership Business - Repealed and replaced by The Partnership Act, 1932

Definition of Contract

• A contract is an agreement between two or more parties enforceable by law (Sec 2(h)).
• An agreement and its enforceability are two essential components of a contract.
• Agreement is defined as "every promise and every set of promises forming consideration for each other" (Sec 2(e)).
• A proposal when accepted becomes a contract (Sec 2(b)).

Meeting of Minds

• The essence of agreement or contract is the meeting of minds of the parties.
• Parties to an agreement must have agreed upon the subject in the same sense and at the same time.
• Unless there is consensus ad idem, there cannot be any contract.

Not All Agreements are Contracts

• An agreement giving rise to a social obligation is not a contract.
• An agreement must give rise to a legal obligation to be a contract.
• The parties must intend legal consequences.

Basics of a Contract

• The essentials to a valid contract are:
  • An offer and acceptance must be made.
  • There should be a lawful consideration.
  • There should be free consent between the parties to a contract.
  • The object of the agreement should be lawful.
  • Parties must be competent to contract.
  • The contract must be enforceable by law.