EHAPTER

ICA, 1872:NATURE,
MEANING, ESSENTIALS
AND KINDSOF CONTRACT
1.1 INTRODUCTION

The Indian Contract Act occupie_ the mostinportant place in the commercial
law. Without Contract Act, it would havë been difficult to carry on trade. It
is not only the business community which is concerned with the Contract
Act, but it affects everybody.
The objective of the Act is to ensure that rights and obligations arising out
of Dhe contract are honoured and that legal remedies are made available to
an aggrieved party against the party failing to honour his part of agreement
(guilty party). The Indian Contract Act makesit obligatory that this is done
and compels the defaulters to honour their commitments. According toSir
William Anson - "The objective of the law is to maintain order because only
in astate of order can'a man feelsate and secure".

1.2 EXTENT AND COMMENCEMENT

The Indian Contract Act came- into force with effectfrom Ist
September,
1872.TheAct is, extended to the whole of India except the State of Janmu
and Kashmir. The Act is divisible into the
following tvwo parts:
Part I(Sections 1-75) deals with the general principals of the lawof
contract and
Part IL(Sections I 24-238)dealswith ceitain spëciai
e.g, Contract of Indemnity and Guarantee, Bailment kindsofcontract
and Pledge and
Agency etc.
3
i'ara 1.3 UNITI INDLAN CONTRACT ACT, IS72

Note:Abil forJamnuandKashmir Reorganisation Act, 2019wasintroduced

and passed in the Rajya Sabha on 5th August, 2019. It was passed by
the Lok Sabha on6th ugust, 2019 and received the President assent
on 9th August, 2019. By vitue ofJanu& Kashmir Reorganisation
Act, 2019(w.e.f 31st Oetober, 2019) the hdiaun Contract Act is applicable
to the whole of Inlia. Prior to this the Indian Contract Act was applicabie
to the whole of India ' Except the State of Jammu & Kashmir'.

1.3 LIMTATIONS OR NATURE

The Indian Contract Act has the follNng limitations:
contracts
1. Làoes not Dealwíh alBranches of Contract. Some of the
not dealt with by thecontract are those relating to partnership, saBe
insolvency
ot soods, negotiable instruments, insurance, bill of lading,
contracts.
etc. There are separate Acts vhich deal with these
rem.
2. The law of Contract Creates ius in Personamand not jus in
a right
Anghtin rem' is available against the whole world, where as per
of
in personam' is available against a particular peson or set
against
sons. The Contract Act deals with rights in personam(rights
(ights against the
the particular person) andnot with rights in rem
goods).
EXAMPLES
X only. This
1. Xowes Y 10,000. Y has right to recOver this money from
right of Yis known as right in personam.
the flat
2. P owns a Aat in Delhi. He has a right to have !uiet possession of
against every member of thesociety. Similarly every menberofsociety is 1inder
the obligation not to disturb his quiet possession. This right of P is knovi
as right in rem'.

3. It does not have Retrospective Effect.TheIndian Contract Act came

intóoperation witheffect from Ist September,;1872. The various pro
visions of the Act do not apply to contracts entered into belore ii came
into operation.
4. It does not lay down the Rights and Obligations of the Parties. It
does not lay down à number of rights and obligations which the law:
willenforce, it consists iather,auumber of limiting irincipls subjec
to which the parties may create rights and obligations for theiselves
which the law will uphold. The partiesto a contract,in asense, make
the law for themselves.
 Para 1.
ETC.
: NATURE. MEANING,
5 CH. 1- ICA, 1872

CONTRACT
1.4 DEFINITION OF
What is a Contract ? follows :
experts have defined the çontract as binding
Various law "Contract is a'legally
n the words of Sir William
Anson
persons by which rights are
or noe
agreement made between two
acts or forbearances (abstaining trom
to
acquired by one or more others,"
doingsomething) on the part of at
"Every agreement and promise enforceabBe
According to Pollock
law is a contract."
Salmond"Contract is an agreement creatingand dehn1ng
" According to
obligations between the parties."
of ICA, 1872 "Contract is an agreemerntwhich
According to Sec. 2(h)
is enforceable by law."
the contract reveals that a contract must
Analvsis of the above definitions of
have following ivo elements :
!. Agreement, and.,
law
2. Enforceability/Enforceable by
under
We can summarize it as
Enforceability/Enforceable by law.
Contract = Agreement +
the terms.
Nowit is necessary to define both
What is an agreement?
"Every promise and every set
According toSection 2(e) of the ICA, 1872
for each other is an agreement."
of prornises forming the consideration
the promise.
Now it become_ necessary to define
proposal when accepted, be
According to Sec. 2(b) of the ICA, 1872, "A
Comes a promise."
under:
We can summarize it.as
(Proposal)
Agreement - Offer (Proposal) + Acceptance of offer
offer and acceptance.
Thus an agreement is the sum total of wo terms,
EXAMPLE
Xoffer's to sell laptop: to Y for 0,000. Y. accepts this offer. This ofer af.
ter acceptance becomes promise and this PrÍmise is known as agréenent.
between XandY.
 1872. 6
Para1.3 UNIT I - INDIAN CONTRACT ACT,
?
What is an Enforceability of an Agreement
if it gives rise to legal
An agreement is said to be enforceable by law presurmed that the
obligation. In commercial or business agreenents it is sociaB/domestic
parties intend to create legal relations. Whreas in case of
intend to
arrangernents, the usual presumption is that the parties do not
create legal relations:
Agreement + legal obligation contract

Agreement + social obligation >contract

EXAMPLES .

1. Apromises to sell his car to Bfor 10,000 received by hin as the price
of the car. This agreementgives rise to an obligation on the part of A to
deliver the car to B. This agreement is a contract.
2. :1father proniises to pay his son 1000every monthas pocket m0ney.
Later l:e refuses to pay. In this case the ugreenment is not a contract as social
obligaticn is involved.

1.5 ALL CONTRACTS ARE AGREEMENTS BUT ALL AGREE

MENTS ARE NOT CONTRACTS
Essentials of a Valid Contract
It is a valid and true staterment. Before we can critically examine the state
ment, it is necessary to understand the meaning of two terns, agreerment
and contract. Both the terms have been explained in the earlier Section in
this chapter.
This staterment implies the following two parts:
I. AllContracts are Agreements.
The first essential element for a contract to be valid is an agreement :without
an agreement, there can be no contract. As the saying goes, "where there is
smoke, there is fire; for without fire ther can be no smoke."
Similarly we can say, that "Where there i_. contract, there is agreement;
without an agreement there can be no çontract. Just as afire gives birth to
smoke, in the same way, an agreement gives birth to a contract".
Another essential element of a contràct is the legal obligation forthe partits
to. the contYact, there are many agreenents whichdonot cYeaee any legal
obligations. As such these agreements can never b termed as contracts.
 Para 1.6
7 CH. I-ICA, IS72:NATURE, ME.ANING, ETC.

Note: Example regarding legal obligation has been given in th» earlier
sectionin this chapter.
II. AlAgreements are not Contracts
Ån agreenent is ternmed as contract ondy when it is enforceable by law. AlI
agreements are not necessarily legally enforceable. It can rightly be said
that an agreement has a much wider scope than a contract. For example,
that agreements which are not legally binding are an invitation to birthday
paty or going for a morming walk and its acceptance.These are agreements
and not contracts.

1.6 ESSENTIALS OF AVALIDCONTRACT

All those agreements are contracts which possess the following essential
elements as per Section 10of theIndian Contract Act:
1. Offer and Acceptance. There must be a lawful offer' and a lawful
acceptance'of the offer, thus resulting in an agreement. The adjective
'lawful' implies that the offer aDd acceptance must satisfy the require
mentsof the Contract Act in relation thereto.
Explanation. The terms offer and acceptance have been explained
yithexamples in the chapter 2.
2. Intention to Create Legal Relations. There must be an intention
among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreements of a social or
domestic nature do not contemplate legal relations and 'as such they
donot give rise to a contract.
EXAMPLE
An agreement to dine at afriends house is not an agreenent giving
rise to
-- Coniract.

In conrmercial and business agreements the law presumes that the

parties
enteringinto agreemnentintend those agreements to havelegal consequences.
Agreementsbetween husband andwife also lack the intention to create legal
relationship andthus do not result in contracts. Thisprovision wil be clear
from the following case law :
EASE LAW:*Balfour v. Balfour (1919)
Facts: Ahusband promised to pay his wife ahouschold allowance of 30
pound cvery month. Later the partie_ separated and the husband failed to
 1372
Para !.3 UNIT I INDAN CONTRACT ACT

What is an Enforceability of an Agreement ?

agreement is said to be enforceable by law if it gives rise to legal
An agreements it is presumed that the
obligation. In commercial or business
Whereas in caseof socialldomestic
parties intend tocreate legal. relations:
parties do not intend to
arangements, the usual presumption is that the
create legal relations:
Contract
Agreement +legalobligation
Contract
Agreement social obligation
EXAMPLES
1. Apromises to sell lhis car to B for 10,000 received by him as the price
of the car. This agreennent gives rise to an obligation on the part of Ato
deliver the car to B. This agreement is a contract.!
2. Afather promises to pay his son 1000 every month as pocket money.
Later he refuaes to pay. In this case the agreement is nota contract as Social
obligation is ivolved.

1.5 ALL'CONTRACTS ARE AGREEMENTS BUT ALL AGREE

MENTS ARE NOT CONTRACTS
Essentials of a Valid Contract
It isa valid and true statement. Before we can critically examine the state
ment, it is necessary to understand the, neaning of two terms, agreement
and contract. Both the terms have been explained in the earlier
Section in
this chapter.
This staternent implies the following two parts.:
I. All Contracts are Agreements,
The first essential elemettfor a
contract.to be valid is an agreement:without
an agreernent, there can be no contract. As the
SImoke, there is fire; for without fire there çan saying goes, "where there is
be no smoke."
we
Similarly can sáy, that. "Where there is contract, there is
ivithouf an agreenent thcre can be no
contract. Just as a
agreement;
SInoke, in thesarne way, anagreemeit gives birth to a fre gives birth to
Another essential elementof a contract is the legal contract".
to the,coutract, thore are
nany agrecnnents obligation for the parties.
which
oblipations. As such these agreeinents caIn never be not create any legal.
do
termed as contracts.
 MEANING, ETC.
Para l.6
7 CH. I- ICA, 1372 : NATURE,
given in the earlier
Note: Example regarding legal obligation has been
section in this chapter
II. AlAgreements are not Contracts
enforceable by law. AU
An agreement is termed as contract only whèn it is rightly be said
agreements are not necessarily lgally enforceable. It can
that an agreement has a much wider scope than acontract. For example,
that agreements which are not legally binding are an invitation to birthday
party or going for a morning walk and its acceptance. These areagreements
and not contracts.

1.6 ESSENTIALS OF A VALID CONTRACT

All those agreements are contracts which possess the following essenial
elements as per Section l0 of the Indian Contract Act:
1. Offer and Acceptance. There must be alawful offer and a lawful
acceptance' of the offer, thus resulting in an agreement. The adjective
lawful' implies that the offer and acceptnce must satisfy the require
ments of the Contract Act in relation thereto.
Explanation. The terms offer and acceptance have been explained
with examples in the chapter 2.
2. Intention to Create Legal Relations. There must be an intention
among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreements of a social or
domestic naturedo not contemplate legal relations and as such they
donot give rise to a contract.
EXAMPLE
An agreement to dine at a friends house is not an agreement giving rise to
Contract.

Incommercial and business agreements the law presumes that the parties
entering into agreement intend those agreeménts to have legal consequences.
Agreements between husband and wife also Jack the intention tocreate legal
relationship and thus do not result in contracts. This provision will be clear
fron the following case lay:
CASE LAiBalfour v, B£lfour (1919)
Facts: Ahusband promised to pay his wife a household allowance of 30
pound every mouth. I.ater the parties separated and the husband failed to
 8
Para 1.6 UNIT I - INDIAN CONTRACT ACT, 1372

pav the promised amount. Held, the wife will not succeed as thev did not
intend to create any legal relations or obligations.

3. Consensusad idem. Consensus ad iden (alsoreferred to as mutual

agreement,muual assent or ineeting of mind) isa phrase in contract
law used to describe the intentions of the parties forming the con
tract. Inparticular, it refers to the situation where thereis a common
understanding in the formation of the contract:This condition or
element is ottenconsidered a necessary requirement tothe fornation
of a contract.

EXAMPLE
Xis the ouner of hwo cars (i) Honda cit÷ and (ii) Santro. He does not specify
1which of thero cars he wants tosell to Y.Y inteDds tobuy Santro car. There
is no identilv of nind in this case therefore in the absence of consent there is
n0agreenENt.

4. Lawful Consideration. Another essential elements of a

valid contract.
is the presence of consideration. An'agreement made in the absence
of consideration is void. Consideration is the price
for the prômise of the other party.An agreement
paid by one party
islegally
onlywhen each of the parties to it givessomethingand getsenforceable
something.
This something in return (quid pro quo) is known as
But only those consideration. are valid which are consideration.
lawful.
5. Competence of Parties to
Contract. Parties entering into an agree
ment must be compétent and capabie of
entering into contract.
EXAMPLE
If X agrees to sell agovt.
property' to Y and Yagrees to buy that property, it
could not be treated as a valid
property.
agreement as Xis not autharized owner of. the
If any of the parties is not
competent or capable of entering into an
agreernent, the agreement cannot be treated as a valid contract. Ac
cording to Sec. 11 of ICA, 1872,every person is competent to
if he : contraçt
() is of the age of
majority
(ii) is of sound mind and
(iüi) is not disqualified from
subject. contracting by any law to which he is
 CH. I- ICA, I872 : NATURE, MEANING, ETC. Para 1.6

So it is clear from the above that the party must be of sound mind
and of age to enter intó a valid agreement.
6. Free Consent. According to Section 14,.consent is said to be ftce
when it is not caused bv:
(i) coercion
(ii) undue influence
(ii) fraud
(i") misrepresentation and
() mistake
If the contract is affected by any of the above four reasons then the
contract becomes voidable. If the consent is inducd by mistake then
the agreement would stand void, valid or voidable depending upon
the type of mistake. An agreement can be treated as valid, when the
consent of the parties are free and not under any undue influence,
tear or pressure etc. The consent of the parties must be genuine and
free.
7. Legality of Object. The objective of the agreement must be legal or
lawfül. Any Act prohibited by law will not be valid and such agree
ments cannot be.treated as a valid contract.
EXAMPLE
Xrents out his flat for buusiness of prostitution or making bomb, the acts
performing these are unlaivful and cannot be treated as a valid contract.
Therefore the consideration as weil as the object of the,agreement
should be legal or lawful.
8. Certainty of Meaning in an Agreement. Wording of an
must be clear and not uncertain or vague.
agrcement

EXAMPLES
1.Jagrees to sel! 500tones of.oil to. M. But, hat kind of oilis 2ot mentioned
clearly. So on the ground ofuricertainty, this agreement 'stands void.:
If the méaning of the agreenient can be made certain by the circu1nstances. It
could be treated as a valid contract.
2. If J is exclusive 'dealer of coconiut oil, the meaning of the agreeinent ca:
be made certain by the circumistanc and in that case, tlhe agreenent ca be.
treated as a valid contract.
 10
Para l.7 UNIT I - INDLAN CONTRACT ACT, 1872

Section 29 of the lCA, 1872 provides that agreernentsthe meaning o!

made certain, are void.
which is not certain or capable of being
According to Sec. 56, if the act is
9. Possibility of Performance. agreement cannot
impossible of performance, physicallvorlegally, the at
beentorced by law. Impossible agreements like one claims torun
not
speed ot 1000 km/h or jump to a height of 100 feet etc. vould
a ivhich are not capable ot being
Create a valid agreement, Allsuch acts
and cannot be treated as
pertormed would not create a valid contract must be there
possibility of perfornance
a valhdcontract. In essence,
to create a valid contract.

Agreement not Expressly Declared Void. An agreement in order to

10. been dclared as void. Sections
be a valid contract 'should not have
which have been expressly
24-30 specify certain types of agreemnts in restraint of mar
deciared as void. Some' of these are agreements
agreement in restraint of legal
nage, agreements in restraint of trade,
proceedings and wagering agreements.
notinsistthat th¹ agreement
11. Legal Formalities. The Contract Act does
some cases the law strictly
must be in writing, itcould be oral. But in
agreement to sell
insist that the agreemnt must be in, writing like registeredunder
immovable property must bewriting and should be
are valid only
the Transfer of Property Act, 1882. These agreements
when they fulfil the formalitieslike writing, registration and signing
by both the parties etc. In absence of these formalities the agreement
cannot take the shape of a valid contract
Thus abovementioned are the most important elements of avalid contract.
In the absence of any of them, agreement shall not be treatedas a valid
contract. At the end, we can say thát all contracts are agreements but oniy
those agreements are contracts which possess-the above stated essential
elerments of a valid contract as per Section 10..

1:7THE AW. OF:CONTRACT IS. NOT THE WHOLE LAW OF

AGREEMENTS NOR (SIT THE WVHOLE LAW OF COBLIGATIONS
This statement will be discussed under the following tivo parts :
i. TheLaw of Contract is not the whole Law of Agreements
ÀccordingtoSec. 2th) of the Act, " contract is an agreement enforceable
ai.law": An. agrcenent to be enforcenble at laiv should-haveall essentials
of valid contract speciied under section 10. According tÏ, this section for
 Para1.7
NATURE. EANING, ETC.
11 CH. T lCA, IS72: parties,
between competent
raliditv of the contract, "an agreement must bemade with free consent ofthe
for alawful consideratjon, foralavwfulebject, finally should not have been
parties, in writig attested and registered andContract Act:
Cxpresslv declared as void under the lnian earlier section
in detail inthe
Note. AlI these essentials have bcen discuSsedl
of this chapter obligations
social
Thus according to Sec. 10 of the Act agreements vith
absence of free consent,
(Baltour vs, Balfour), incompetent parties, declared as void under
unlawhul object, unlawful consideration, expressly "agreement"is wider
the law etc. caniot be,.termed as contract. The term
as compared to me tern"contract":
that it does not deal
One of the limitations of the Indian Contract Act is
of goods, negotiable
with certain agreements such as partnership, saleThese are regulated by
instruments and transfer of immovable properties.
the following Acts :
Partnership Agreements. The Partnership Act, 1932
Sale of Goods Agreenents. The Sale of Goods Act, 1930
Negotiable Instruments Agreements.The Negotiable Instruments Act,
1381
TYansfer of Ininovable Property.The Transfer of Property'Act, 1382
Thus we may conclude that the law of contract. is not the whole law of
agreements and the abovementioned agreements are beyond its scope.
-II. The law of Contract is not the whole law of Obligations
According to Salmond "A contract is an agreement creating and defining
obligations between the parties'". Every contract gives rise to. obligation and
thatobligation is enforceable at law. The obligationswhich have their source.
in contract are studied under the Indian Contract Act. But there are, certain
obligations which do not arise from a contract. These are :
-(i) Obligations Arising from Torts or Civil Wrong.Where aperson
commits an áct of tort against someone e.g., causing accident due
to negligene, he is under obligation to reimbürse the loss caused to
him. Such an obligation is cast upon the iwrong doer under the law
of torts.
(ii) Qbligations arising from Status e'g.,rustee anc beDtficiary..
(ii) Obligations arising from Quasi Contracts (Secs. 63-72); These
obligations do nÍt ariseout of an agreement but are imposed by the
 Para 1.3 UNIT I- INDIAN CONTRACT ACT, I872 12

law e.g., responsibilities of finder of goods and responsibilities of a

person enjoying benefits of non-gratuitous acts etc.
(iv) Obligations arising from Judgments of Courts. These obligations
do not originate from an agreement but are imposed by the courts
upon the parties by their verdict.
Thus the aforesaid discussion leads us to conclude that law of contract is
not the whole law of obligations.
Sir Johm Salmond, therefore has rightly observed:
"The law of contract is not the whole law of agreements nor is it the
whole law of obligations, it is the law of those agreements whiclh create
obligations, and those obligations which originate from a contract."
1.8 KINDS OF CONTRACTS (Classification of Contracts)
Contract can be classified according to their:
Creation/Formation
" Extent of Execution/Performance
" Validity/Enforceability
Contractsentered into by the parties can be classified on various basis under
following heads:
CLASSIFICATION OF CONTRACTS,
I Based on Creation/Formation

Express contract Implied contract Constructive/

Quasi contract.
E-contact
I1:
Based on Execution/Performance

Executed Executory
C¡ntract
Partly executed &Partly Bilateral
Contra t
II.
executarý/Unilateral contract Contract
Based on validity/Enforceability

Valid .Voi'
contract
Voidable Illegal. Unenforceable
contract Contract Contract contract

FIGURE I
13 CH. I- ICA, 1872: NATURE, ME:ANING, ETC. Para 1.3
i. Ciassificationof Contracts based on Creation or Fornation
On thisbasis the contracts may be placed into folloving categories :
(a) Express Contract. Express contract is one which is made by vods
spöken or written
Express contráct = Express offer +Express acceptance
(6) Implied Contract. An implied contráct is one which is made other
wise by vords spoken or written. It is inferred from the conduct of
the parties or the circumstances of the particular case
Impliedcontract =Implied offer + Implied acceptance
Note. The terms express + Implied offer and acceptance vill be dis
cussed in the Chapter 2.
:EXAMPLES
There is an innplied contract ivhen A:
(i) gets into a public bus
- (ii) takes a cup of coffee in a restairant.
(ii) obtains a ticket from automatic weighing machine.
(iv) wihdraws noney from ATM.

CASE LAW*Uptron Rural District Council vs.

Powell (l942)
Facts : Afire broke out in Powell's farm. He called
put out the fire which the latter did. Now upon the fire brigade to
Powell's farn did not come under
service zone although he believd it to be so. Held, he was
the services rendered as the services were liable to pay for
on an inpiied promise to pay. rendered by uptron fire brigade
(c) Constructive or Quasi Contracts. It is a contract in
no intention on the part ofeither party to make which there is
lawimposes a contract upon the acontract, but the
parties.Thus under Quasi contracts
the obligations are imposed by the laws.
EXAMPLE
X delivers abirthday gift to a
either to pay for it or return it towrong
X.
addressee Y. Y is under an obligation
"Quasi contracts are known. as
constructive .contractsundèr the:
English Làw. Secs. 68-72 of ICA, 1872
si-contractual obligations. dealwith various types of Qua-.
Para i.8 UNIT I-INDIAN CONTRACTACT, 1872

(d) E-contract. E-Contract is any kind of contract formed in the course

usjng
of e-commerce by the interaction of two o more jndividuals
with
electronicmeans, such as e-mail, the interaction of an individual
an electronicagent, such as a computer program or the interàciion ot
at least two electronic agents thatare programmed to recognize the
existence of a contract. The uniform computer information transac
tions Act provides rules regarding formation, governance and basic
termsofe-Contract. Traditional contract principles and remedies also
apply to e-Contrácts. This is also known as electronic contract.
E-contracts are the contracts executed by ElectronicData Interchange
EDI. EDI means the electronic transfer from computer to computer
information.
of information using an agreed standard to structure the
I. Contract based on Execution Performance.
Such contracts may be placed into the following categories :
(a) Executed Contract. Executed contract is one where bÍth the parties
to the contract have fulflled their respective obligations under the
.Contract. -

EXAMPLE
X offers to sell his bike to Yfor 80,000, Yaccepts the offer Both the partiës
to the contract perform their respectiveobligations. It is an executed contract.

(6) Executory Contract, A contract is said to be executory. where both

the parties to the contract have still to perform their respective obli
gations.
EXAMPLE
Xoffers to sell his bike to Yfor 90,000 'Y accepts the offer. IfX has not delivered
the bike io Yand Yhas also nt paid the price to X. It is an executory contract.

(c) Partly Executed and Partly Executory Contract. Acontract where

one party to the contract has already performedhis promiseand the.
other party has yet to execute his promise is known as partly executed
and partly executory contract. It is also known as unilateral or one
sided contract.
EXAMPE
Xsells his tglphone to Y. X delivers the cellphone but X hds' yet to
pay, he
price. For X it is an excuted contract, where as it is exeçutory contract for ¥
as the price has yet to be paid. "
 Para I.8
ETC.
ICA, 1872:NATURE, MENING,
CH. 1- known as
contract is
Contract). A their
(d) Bilateral Contract (Reciprocal the contract have to pertorm the
bilateral vhere both the parties to as
two-sided contract
as
respective obligations. It is also knownbothparties. Bilateral contract
part of
obligation is outstanding onthe tr¡nsactions is a type:
; asale of goods
are commonly used in business
of bilateral contract.
EXAMPLE
at a certain price at a certain date. Here
Xagrees 1with Y to sellhis certain flat
the obligations of both ihe parties are
af the iime of fonation of contract
Outstanding therefore, the contract is bilateral.
III.Classification based on Validity/Enforceability.
On this basis contracts can be placed into following categories :
(a) Valid Contract. A contract which satisfies all the essentials contained
under Sec. 10 of ICA, 1872, is a valid contract..
not
Void Agreement. According to Section 2(g) an agreement
enforceable by law is said to bevoid. Such agreements are void ab
their
initio wvhich means that they are void or unenforceable since
inception. Some time vÏid agreement is not void from the very
beginning but it is discovered to be voidlater on.
(b) Void Contract. As per sec. 2() of ICA, 1872, "A contract which
ceases to be enforceable by law becomes void when it ceases to be
enforceable." In other words, a void contract is a contract which is
valid when entered into but which subsequently becomes void due to
impossibility of performance, e.g., death of a person, change of law,
Out break of war or Some other reason.

EXAMPEES
1. Acontracts to import goods from a foreign couniry may subsequently be
cOme void when war breaks out between the twO counties.
-* 2.X offers to marry Y, Yaccepts the offer. Later on Ydies in an acident, this
contract was valid at the timewhen itwasformed but becameyvoid when Ydied.
(c) Voidable Contract. As definedunder section 2(i) of 1CA, 1872 "void
able contract isone which isenforceable by lavw at the option of one
or more of the parties thereto but notat the optiog of oher or others":
In other words, voidable ontract is one in which consent of the othet
partyis not free i.e., it is induced by coercion, fraud, undçe infl:uende
Para l.8 UNIT I-INDLAN CONTRACTACT, 1872 16

or misrepresentation. In such acontract the aggrieved party has two

optionsto exercise:affirmation or cancellation/avoidance of contract.
EXAMPLE
Xat the gunpoint threatens to kill Yif he does not sell his flat for 5 lakh to X.
Ysells tlhe flat to X and obtains'payment. Here Y's consent has been indced
by coercion and the contract becones voidable at lhis option.

( ) Illegal contract.. An illegal agreement is one the objective of which

is unlawful. Such an agreement is unenforceable by law. Thus illegal
agreements are always void ab initio (i.e., void from the very begin
ning).
Illegal Contract. An agreement is illegal and void if its obËect or
-consideration:
(a) is forbidden by law; or
(6) is of such a nature that, if permitted, it would
sions of law ; or
defeat the provi
(c) is fraudulent ; or
(d) involves or implies injury tothe person or
Or
property of another;
(e) the court regards it as immoral or opposed-to public policy'
(Section 23).
Thus smuggling of goods, kidnapping of near and dear,
bomb etc. are the common examples of illegal plarnting of
agreement.
EXAMPLE
X lets out his house for gambling
pturpose to Y. Y
cannot recover this rent amount from him throughdoes not pay the rent.. X.
the coyt because the
agreement betweern Xand Yis illegaland also its object is unlawful. . i
All illegal agreementsare void but all void
sarily illegal. agreements are not neces
Note : Instead of illegal contract the termillegal
used because due to the features under agreement' has been
can never attain the status of contract.
section 23, an illegal agreement
(e) Unenforcable contract. It is acontract which ia actuaty vaid but
cannot be enforced bécause of presence of some technical defect (such
as not in writing, under stamped). Such contracts can be entorced
 MIEANING, ETC. Para l.9
17 CH. I - ICA, 1372: NATURE,
breach of such
after the removal of technicaldefect in them. In case of
legal remedies.
contract, the aggrieved party willnot be entitled to the
1.9 SOMEDISTÌNCTIONS
1.9.1 Distinction between Agreement and Contract
Agreement Contract
Basis
1. leaning Agreement = Offer + Contract = Agreement +
Acceptance Enforceability
Al agrcements, are not All contracts are
Scope
necessarily contracts agreements

3 Creation of An agreement may create A contract always creates

legal social obligation, domestic a legalobligation
obligation obligation or legal
obligation.
4. Validity & An agr ementmay or may Acontract is always en:
Enforceability not be enforceable forceable by law.
5. Right of Parties do not acquíire any Parties do acquire rights in
right in case of an case of a contract.
parties
agreement

1.9.2 Distinctionbethween Void Agreement and Void Contract

Basis Void Agreement Void Contract
1. Mearing An agreement notenforceable byA contract which ceases
law is said to be yoid [Sec. 2(g)] to be enforccable by law
becomes void contract
(Sec. 2)]
2. Essentialfeatures Void agreements do not have They have all essential
ofa valid contract essential features of a yalid. fcatures but they become
contract void subsequently.
3. Void ab initio Void agreement is void ab initio|Void contract cannot be
void ab initio
Examples Agreemnents with.the minor;() Contingent contract
agreement without -çonsider- becomingvoid on the hap
iation; agreement with bilateral. pening or non-happening
mistake; wagering agreements of an event.
etc. (ü) Voidable contrat be
comingvoid in .case. of
woidance of the contract.
5
Principle of resti-Principle of. restitution/resto- It is applicable in:case of
tåtion (Sec. 65) ration is not applicable in case void contract i.e., benefits
of void agreement Can be restored back to
the party.
Para L.9 UNUL NDEAN CONTEAL 7
I9,3 Distinction beween Vold Agreement anl Vodable Conttad
Basis Void Agreement Volilabl Contract
Meaning Ayteement not entorceable by An agreenent whichh is
law is votdagreenen(Sec. 2(g||entorceable at te option
of one or more of the par
ties is a voable cottrHCt
(Sec. 2)}
Cause Agreemnent beeomes yoid be Agreement becones yoid
causc it lacks oe of essentials able where the consent of
of a valid contrc. the patyhadnotbeenhee.
Time Void agreement is vojd since íts Voidable conttactbecomes
inception void whcn an agurieved
party decides to rescind it.
Right to claim Right to conipensation is not In voidable otract if the
compensation available to the party in case partyhassufferedany dam:
he has sulfered any loss in nn geor lssdue tofraudthen
ajrccnncnt. he has the, right to claim
from the other party
Enforcealble It cannot be cnforced by any It can becoforced by the
party. party in cac ofafirnation
Rights of third| Third party does not ,acquire |A third party who pur
party any riht. chased yoods in yood faith
and for value before the
avoidance of the cortract,
acquires soodtitletothose
toods.
Effect of lapse ofThere is no effect of lape of | Onthe cxpiryofreasonable
reasonable time reasonable tine because thetime the aggrieved party's
agreement Can never becone a rightto avoidthe contract
valid contract is lost.
1.9.4Distinction between Void Agreement and illegal Agreement
Basis Void Agreement IlMegalAyreement
Meaning An agreement which is not en-An agreerment with the
forceable by law is void aree-illeyal objecive or comsíd
Inent(Sec. 2(2)). eration is illegal 'or to do
soTm act which is illepal or
inmoral or apainst public
policy (Sec. 23).
Suope A! void areenent are not|AII illegal
agreements are
necessaýy ilegal |void,
 ETC.
IS72:NATURE. AMEANING,
9 CH. I-ICA,
Illegal Agreenent
loid Agreement void
Basis void | Illegal agreementsare
Ihough void agreement is valid ab initio.
sometimes,
ab initio, void sub
contract may become
aequently:. agreement. if
not exposed topun- Inan illegal
Parties are act
agree- .the partvhas done some
oisment/
ishment in case of void
e a lliabilir which is illegal, immoral
or against publicpolicy, he
men.

may be punished.
Collateral transactions in
Eject on collat- ln case of void agrecment col-
eral transactions lateral transactiòns may not be case of illegal agreements
valid. For erample, -wagering ar tainted with illegality
agreement. In case of wagering and therefore illegal and
agreements. collateral· transac- void. For example, murder.
tion is alid. lncase of murder the col
lateral transaction is also
illegal.
TEST QUESTIONS

I. What is a coairact? Expiain the essential elements of a valid

contract. (Ret.
Paras I., l.6)
2."Alconracts are agreements, b!t ail agreements are not
(Ref. PuaH.5) contract". Expiain.
3.T}e iaw of contract is' notthe whole law ol
Iawof obligations; Critically agreements nor is ii the whoie
cxamine the statement giving suitable
(2007}(Ref. Para L.7) exampies.
4. Distinguish between:
(a) Agreement aud contract (Ref. Para i.9}
(b) Void and illegal agreenents (Ref. Para i.9)
(2007))
(c) Void agreenent and void
contract (Ref: Para i.9)
(d) Void agreement and voidable
contracts (Ref. Pura l.9)
(e) Executed and executory coutracts (Ref. Parë
I.9)
3. Write short notes on:
(a) Impliedcontràt. (b) Bilateral
(c) Agreetnents discovered to bé void (d) contract (Ref: Para I.8}
Unenforceable contracts