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The Indian Contract Act, 1872: Definition and Overview

Definition of a Contract

Section 2(h) of the Indian Contract Act, 1872 defines a contract as:

"An agreement enforceable by law."

This means that a contract is a legally binding agreement between two or more parties, where mutual promises are made and are enforceable under the law.

Key Elements of a Contract

  1. Agreement: An agreement consists of an offer (proposal) made by one party and its acceptance by the other.

    • Agreement = Offer + Acceptance

  2. Enforceability by Law: Not all agreements are contracts. To be a contract, the agreement must create legal obligations and be enforceable in a court of law.

    • Contract = Agreement + Enforceability

Important Definitions Under the Act

  • Agreement (Section 2(e)):

    “Every promise and every set of promises forming consideration for each other is an agreement.”

  • Promise (Section 2(b)):
    When a person offers something to another and the offer is accepted, it becomes a promise.

    “A proposal, when accepted, becomes a promise.”

  • Consideration (Section 2(d)):

    “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 to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”

Essentials of a Valid Contract

To be enforceable under the Indian Contract Act, a contract must have the following essentials:

  1. Offer and Acceptance: Clear and unconditional agreement between the parties.
  2. Intention to Create Legal Obligations: Both parties must intend to enter into a legally binding relationship.
  3. Lawful Consideration: The exchange must have a legal value.
  4. Capacity of Parties: The parties must be competent to contract (e.g., of legal age, sound mind, and not disqualified by law).
  5. Free Consent: Consent must be free from coercion, undue influence, fraud, misrepresentation, or mistake.
  6. Lawful Object: The purpose of the contract must not be illegal, immoral, or against public policy.
  7. Not Declared Void: The agreement must not be one expressly declared void by law.
  8. Certainty and Possibility of Performance: Terms must be clear, definite, and practically possible to perform.
  9. Legal Formalities: Certain contracts may need to be in writing, registered, or follow other formalities.

Scope of the Indian Contract Act, 1872

The Act governs the following:

  1. General Principles of the Law of Contracts (Sections 1–75): Covers basic principles applicable to all contracts.
  2. Special Kinds of Contracts: Includes specific provisions for contracts like:
    • Contract of Indemnity and Guarantee (Sections 124–147)
    • Contract of Bailment and Pledge (Sections 148–181)
    • Contract of Agency (Sections 182–238)

The Indian Contract Act, 1872, forms the cornerstone of business transactions in India by providing a framework for creating legally enforceable agreements.

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