The Indian Contract Act, 1872, serves as the cornerstone of contract law in India, delineating the framework for the formation, execution, and enforcement of contracts. It establishes the legal principles governing agreements and ensures that obligations arising from contracts are honored and legally binding.

MEANING, DEFINITION & EXPLANATION

A contract, as defined under Section 2(h) of the Indian Contract Act, 1872, is “an agreement enforceable by law.” This definition underscores two fundamental components:

1. Agreement: Per Section 2(e), an agreement is “every promise and every set of promises, forming the consideration for each other.” In essence, an agreement arises when one party makes a proposal or offer, and the other accepts it.

2. Enforceability by Law: Not all agreements qualify as contracts. Only those agreements that the law recognizes as enforceable become contracts. This enforceability distinguishes social or moral agreements from legal contracts.

HISTORICAL BACKGROUND / EVOLUTION

The Indian Contract Act was enacted on April 25, 1872, and came into force on September 1, 1872. It was primarily based on English common law principles, tailored to suit Indian conditions. Initially, the Act comprised 266 sections, covering general principles and specific contracts like the Sale of Goods and Partnership. Over time, sections related to the Sale of Goods and Partnership were repealed and re-enacted as separate legislations:

• The Sale of Goods Act, 1930, and
• The Indian Partnership Act, 1932.

ESSENTIALS OF A VALID CONTRACT

For an agreement to be enforceable as a contract, it must fulfill certain essential elements:

1. Offer and Acceptance: There must be a lawful offer by one party and a lawful acceptance by the other, resulting in an agreement.

2. Intention to Create Legal Relations: The parties must intend to enter into a legally binding agreement. Social or domestic agreements typically lack this intention.

3. Lawful Consideration: As per Section 2(d), consideration is “something in return,” which can be an act, abstinence, or promise. The consideration must be lawful.

4. Capacity of Parties: Section 11 specifies that parties must be competent to contract, meaning they should be:

   • Of legal age,
   • Of sound mind, and
   • Not disqualified by law.

5. Free Consent: Consent of the parties must be free and not obtained through coercion, undue influence, fraud, misrepresentation, or mistake, as detailed in Sections 13 to 22.

6. Lawful Object: The object of the agreement must be lawful and not forbidden by law, immoral, or opposed to public policy.

7. Certainty and Possibility of Performance: The terms of the agreement must be clear, and the performance must be possible.

8. Not Declared Void: The agreement must not be one that the law declares void.

LEGAL PROVISIONS / PROCEDURE / SPECIFICATIONS / CRITERIA

The Act is divided into two parts:

1. General Principles of Law of Contract (Sections 1-75): This part deals with the foundational principles applicable to all contracts, including formation, performance, and breach.

2. Special Kinds of Contracts (Sections 124-238): This segment addresses specific contracts such as:

   • Indemnity and Guarantee (Sections 124-147),
   • Bailment and Pledge (Sections 148-181), and
   • Agency (Sections 182-238).

DOCTRINES / THEORIES

Several key doctrines underpin the Indian Contract Act:

1. Doctrine of Privity of Contract: This doctrine posits that only parties to a contract are bound by it and can enforce its terms. In Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd., [1915] AC 847, the House of Lords held that a third party cannot sue on a contract to which he is not a party.

2. Doctrine of Consideration: As per Section 2(d), consideration is essential for a valid contract. However, Section 25 lists exceptions where an agreement without consideration is valid, such as agreements made on account of natural love and affection between parties standing in a near relation.

3. Doctrine of Free Consent: Sections 13 and 14 emphasize that consent must be free. If consent is obtained through coercion, undue influence, fraud, misrepresentation, or mistake, the contract becomes voidable at the option of the aggrieved party.

4. Doctrine of Frustration: Under Section 56, a contract becomes void if an act becomes impossible after the contract is made, or by reason of some event which the promisor could not prevent. In Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44, the Supreme Court held that the doctrine of frustration applies when the performance of the contract becomes impossible due to unforeseen circumstances.

CASE LAWS / PRECEDENTS

1. Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256: This English case established the principle that a general offer can be accepted by anyone who performs the conditions stipulated in the offer.

2. Balfour v. Balfour, [1919] 2 KB 571: The court held that agreements between spouses are generally not contracts because the parties do not intend them to be legally binding.

3. Mohori Bibee v. Dharmodas Ghose, (1903) ILR 30 Cal 539 (PC): The Privy Council held that a contract with a minor is void ab initio, emphasizing the incapacity of minors to contract.

4. Lalman Shukla v. Gauri Dutt, [1913] 11 All LJ 489: The court ruled that an offer must be communicated to the offeree, and…