Indian Contract Act 1872, Meaning, Provisions And Remedies In Case Of Breach Of Contract | UGC NET Commerce Preparation Course PDF Download

Indian Contract Act 1872

The Indian Contract Act of 1872 is a crucial legislation governing contracts and agreements in India, providing a structured framework for legal transactions. It outlines rules and regulations for entering into contracts and specifies remedies in case of breaches.

The Key Provisions Of The Indian Contract Act Of 1872

• There must be at least two parties, out of which one makes the offer and the other accepts.
• The person who makes an offer is called the promiser. The person who accepts the offer is called the promisee.

Intention to Create a Legal Relationship:

• The contract between the parties must be able to create a legal relationship between them.
• A contract that does not create a legal relationship is considered invalid.
• The contract should be legally binding and enforceable by law.

Free Consent: 

• The parties to the contract must agree to the same thing in the same sense.
• Consent should not be obtained under coercion, fraud, or misrepresentation of facts.
• If consent is not freely given, the contract is voidable.

Capacity of the Parties: 

• Indian Contract Act 1872 specifies that a person who has reached the age of majority, is of sound mind, and is not prohibited by law can enter into a contract.
• A contract with a minor is void ab initio.
• A person with an unsound mind or a minor cannot enter into a contract.

Indian Contract Act 1872 Sections 

Definitions:

• Section 2: This section elucidates key terms like contract, agreement, promise, and consideration.

Communication, Acceptance, and Revocation of Proposals:

• Section 3: It covers the process of proposing, accepting, and revoking proposals.

Communication When Complete:

• Section 4:  This section delineates when communication is deemed complete in a contract.

Revocation of Proposals and Acceptances:

• Section 5: It outlines the scenarios under which proposals or acceptances can be revoked.

Acceptance Guidelines:

• Section 6: Revocation how made - This section details the proper procedure for revoking a proposal or acceptance.
• Section 7: Acceptance must be absolute - It emphasizes that acceptance needs to be unequivocal for a contract to be valid.
• Section 8: Acceptance by performing conditions, or receiving consideration - This section explains how acceptance can occur through fulfilling conditions or receiving consideration.

Promises and Agreements:

• Section 9: Promises, express, and implied - It distinguishes between explicit and implicit promises.

Contract Formation:

• Section 10: What agreements are contracts - This section specifies the prerequisites for an agreement to transform into a contract.

Capacity and Competency:

• Section 11: Who are competent to contract - It addresses the eligibility of individuals to engage in contracts.
• Section 12: What is a sound mind for the purpose of contracting - It clarifies the mental capacity required for valid contract formation.

Consent and Free Will:

• Section 13: "Consent" defined - This section defines the term "consent" and its significance in contract formation.
• Section 14: "Free consent" defined - It explains "free consent" and the conditions for consent to be considered free.

Coercion and Influence:

• Section 15: "Coercion" defined - It describes "coercion" and when a contract is deemed to be induced by coercion.
• Section 16: "Undue influence" defined - This section explains "undue influence" and when it can make a contract voidable.

Fraud and Misrepresentation:

• Section 17: "Fraud" defined - It outlines the concept of "fraud" and its implications in contractual contexts.
• Section 18: "Misrepresentation" defined - It defines "misrepresentation" and its consequences in agreements.

Voidability and Mistakes:

• Section 19: Voidability of agreements without free consent - It discusses the voidability of agreements lacking free consent.
• Section 20: Agreement void where both parties are under a mistake - It addresses scenarios where both parties are mistaken in a contract.
• Section 21: Effect of mistakes as to law - This section explains the impact of mistakes concerning the law in a contract.

Essentials of Indian Contract Act 1872

• An offer is a proposal made by one party to another with the intention to create legal relations if accepted.
• Acceptance is the unqualified willingness to agree to the terms of the offer.

Intention to Create Legal Relations:

• Both parties must intend their agreement to have legal consequences and be legally binding.

Lawful Consideration:

• Consideration means something in return. It can be a promise to do something, or refrain from doing something.
• The consideration must be lawful and not something impossible, unlawful, or something that the promisor is already bound to do

Consideration: 

• A valid contract must include consideration, which refers to something of value exchanged between the parties. This can be money, goods, services, or a commitment to either perform or abstain from an action. Consideration is crucial for a contract to be enforceable. 

Capacity to Contract:

• Both parties must be of the age of majority, of sound mind, and not disqualified by law to enter into a contract.

Free Consent:

• Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake.

Lawful Object:

• The object of the agreement must be lawful, not illegal, immoral, or opposed to public policy.

Certainty and Possibility of Performance:

• The terms of the contract must be clear, certain, and capable of performance.

Legal Formalities: 

• Certain contracts may need to adhere to specific legal requirements, such as being written, registered, or witnessed, as mandated by law.

Not Expressly Declared Void:

• The contract must not be one that has been expressly declared void under the Indian Contract Act, 1872.

Agreements Not Declared Void: 

• The contract must not be classified as void by the Act. For instance, agreements lacking consideration or those involving betting are typically considered void.

Possibility of Performance: 

• The contract must be capable of being executed. If it becomes impossible to perform the contract due to circumstances beyond the parties' control, it may be terminated.

Consideration 

Consideration Must Proceed At The Instance Of The Promisor: 
Doing or not doing something should only be done if the promisor desires the same thing. If the act is done voluntarily or at the instance of a third party, then the consideration is not valid.

Consideration Must Proceed From The Promisee Or Any Other Person:
As long as the contract involves lawful consideration, it does not matter who provided it. If the promisor does not object, the consideration can be given by someone other than the promisee.

Consideration May Be Past, Present, Or Future:

• Considerations in a contract are of three types. The consideration in a contract can be the act which has already been performed. The consideration can be an act which will be performed in the future. We will be discussing the types of consideration briefly below.
• Voluntary action has already been performed in the past. This action in the past will enable the party to enter into the contract to do or not to do something. This is referred to as past consideration.
• Present consideration is also known as executed consideration. Present consideration means an act that has been performed in response to a positive promise.

Key Points

• Consideration must be at the instance of the promisor to be valid.
• Consideration can come from the promisee or any other person as long as it is lawful.
• Consideration can be past, present, or future in nature.

This response provides a detailed explanation of consideration in contracts, emphasizing essential elements and types of consideration, while presenting key points in a structured bullet format.

Future Consideration (Executory Consideration)

Consideration Must Be Real:
In a contract, the consideration must be both physically and legally possible. If the consideration is uncertain, it becomes impossible to carry out the contract. If the consideration is physically and legally impossible, it renders the contract void in the eyes of the law.

Consideration Must Be Lawful:
For a contract to be valid, it must have lawful consideration. Unlawful consideration includes situations where it is legally prohibited, harms another individual or their property, goes against public policy, or breaches the contract.

• Legally Prohibited Consideration
• Consideration Causing Harm to Others
• Consideration Contrary to Public Policy
• Remedies Available in Case of Breach of Contract

Remedies In Case of Breach of Contract

There are certain rules and regulations provided by the Indian Contract Act 1872 to follow while entering into a contract. However, breaches of contracts do occur. Here are the remedies that can be pursued in case of a breach of contract:

• Damages: The aggrieved party can claim compensation for the losses incurred due to the breach. The party at fault is responsible for paying these damages.
• Injunction: This remedy allows the aggrieved party to seek a court order directing the other party to either perform or refrain from specific actions as agreed upon in the contract.
• Arbitration: When parties are unable to resolve a dispute amicably, they can opt for arbitration. An arbitrator listens to both sides and makes a decision that benefits both parties.
• Specific Performance: The aggrieved party can request the court to compel the breaching party to fulfill specific obligations outlined in the contract.
• Rescission: This remedy involves the complete cancellation of the contract, enabling the return of any money or goods exchanged between the parties.

Conclusion

The Indian Contract Act of 1872 outlines the conditions for entering into a contract, aiming to safeguard the involved parties and prevent unfair practices during contract formation. It offers mechanisms to address breaches and resolve disputes, with applicability across India. The act has undergone multiple amendments to align with evolving economic requirements.