CLAT PG Exam > CLAT PG Notes > Law of Contracts > Cheat Sheet: Introduction to Indian Contract Act, 1872
Cheat Sheet: Introduction to Indian Contract Act, 1872
1. Statutory Framework
1.1 Basic Information
| Feature | Details |
|---|---|
| Enactment Date | 25th April 1872 |
| Commencement Date | 1st September 1872 |
| Extent | Whole of India (except Jammu & Kashmir - special provisions apply) |
| Number of Sections | Section 1 to Section 238 (originally); Sections 1-75 deal with general principles of contract |
| Chapters | Divided into chapters covering contracts, sale of goods, partnership, agency, bailment, pledge, indemnity, guarantee |
| Based On | English Common Law principles; Amended by various Acts including the Contract Act Amendment Act, 2013 |
1.2 Structure of the Act
- Sections 1-75: General principles of contracts
- Sections 76-123: Sale of Goods Act (repealed and replaced by Sale of Goods Act, 1930)
- Sections 124-147: Indemnity and Guarantee
- Sections 148-181: Bailment and Pledge
- Sections 182-238: Agency
2. Definition and Nature of Contract
2.1 Key Definitions under Section 2
| Term [Section] | Definition |
|---|---|
| Contract [2(h)] | Agreement enforceable by law |
| Agreement [2(e)] | Every promise or set of promises forming consideration for each other |
| Promise [2(b)] | Proposal when accepted becomes a promise; signifies acceptance of proposal |
| Promisor & Promisee [2(c)] | Person making proposal/promise is promisor; person accepting is promisee |
| Consideration [2(d)] | When promisee does or abstains from doing something, or promises to do or abstain, at desire of promisor, such act/abstinence/promise is consideration |
| Void Agreement [2(g)] | Agreement not enforceable by law |
| Voidable Contract [2(i)] | Agreement enforceable at the option of one party but not at option of other |
| Void Contract [2(j)] | Contract which ceases to be enforceable by law |
2.2 Essential Elements of Valid Contract
| Element | Description & Section Reference |
|---|---|
| 1. Offer and Acceptance | Valid proposal [Sec 2(a)] and its acceptance [Sec 2(b)] creating agreement |
| 2. Intention to Create Legal Relations | Parties must intend to create legal obligations |
| 3. Lawful Consideration | Must have lawful consideration [Sec 2(d), Sec 25]; need not be adequate but must be real |
| 4. Capacity to Contract | Parties must be competent to contract [Sec 11]: age of majority, sound mind, not disqualified by law |
| 5. Free Consent | Consent must be free from coercion, undue influence, fraud, misrepresentation, mistake [Sec 13, 14] |
| 6. Lawful Object | Object of agreement must be lawful [Sec 23] |
| 7. Not Expressly Void | Agreement must not be declared void under the Act [Sec 24-30, 56] |
| 8. Legal Formalities | Writing, registration, attestation if required by law |
| 9. Certainty and Possibility | Terms must be certain [Sec 29]; performance must be possible [Sec 56] |
3. Proposal/Offer (Section 2(a))
3.1 Definition and Essentials
| Aspect | Details |
|---|---|
| Definition [Sec 2(a)] | When one person signifies to another his willingness to do or abstain from doing something to obtain assent of other |
| Offeror/Proposer | Person making the offer |
| Offeree | Person to whom offer is made |
3.2 Types of Offer
| Type | Description |
|---|---|
| Express Offer | Offer made by words spoken or written |
| Implied Offer | Offer inferred from conduct or circumstances |
| Specific Offer | Made to definite person or group of persons |
| General Offer | Made to world at large; accepted by anyone who performs conditions (Carlill v. Carbolic Smoke Ball Co.) |
| Cross Offers | Two parties make identical offers to each other in ignorance of each other's offer; does not constitute acceptance |
| Counter Offer | Acceptance with modification; destroys original offer (Hyde v. Wrench) |
3.3 Communication, Revocation and Lapse of Offer (Sections 3-6)
| Provision | Details |
|---|---|
| Communication [Sec 3] | Complete when it comes to knowledge of person to whom it is made |
| Revocation [Sec 5] | Offer may be revoked any time before acceptance is complete against proposer |
| Lapse [Sec 6] | (i) By prescribed/reasonable time; (ii) Non-fulfillment of condition precedent; (iii) Death/insanity of offeror before acceptance; (iv) Non-acceptance in mode prescribed; (v) Rejection by offeree |
4. Acceptance (Section 2(b))
4.1 Definition and Essentials
| Aspect | Requirement |
|---|---|
| Definition [Sec 2(b)] | When person to whom proposal is made signifies his assent thereto, proposal is said to be accepted |
| Absolute and Unqualified [Sec 7] | Must be absolute and unconditional; conditional acceptance is counter-offer |
| Mode [Sec 7] | Must be in prescribed or reasonable mode; if not, proposer may insist on prescribed mode or accept it |
| Communication [Sec 4] | Must be communicated to offeror; mental acceptance insufficient |
| By Authorized Person | Only person to whom offer made or authorized agent can accept |
| Within Time | Must be within prescribed time or reasonable time |
| Before Revocation | Must be before offer is revoked |
4.2 Communication and Revocation of Acceptance (Sections 4, 5)
| Stage | When Complete |
|---|---|
| Communication of Acceptance - Against Proposer [Sec 4] | When put in course of transmission so as to be out of power of acceptor |
| Communication of Acceptance - Against Acceptor [Sec 4] | When it comes to knowledge of proposer |
| Revocation of Acceptance [Sec 5] | May be revoked before acceptance complete against acceptor but not afterwards |
5. Consideration (Sections 2(d), 25)
5.1 Definition and Essentials
| Aspect | Details |
|---|---|
| Definition [Sec 2(d)] | Act, abstinence, or promise done/forborne or promised at desire of promisor by promisee or other person |
| At Desire of Promisor | Must be at request of promisor; voluntary act without request not consideration |
| By Promisee or Other | May move from promisee or any other person (stranger to consideration is valid) |
| Need Not Be Adequate | Courts do not assess adequacy; must be real and lawful |
| Must Be Real | Not illusory, vague, or impossible |
| Must Be Lawful | Not forbidden by law, immoral, or against public policy |
5.2 Types of Consideration
| Type | Description |
|---|---|
| Executed | Act or forbearance completed; consideration already performed |
| Executory | Promise to do or abstain in future; consideration yet to be performed |
| Past | Act done before promise made; valid in India [Sec 25 Explanation 2] if done at promisor's desire |
5.3 Agreements Without Consideration (Section 25)
General Rule: Agreement without consideration is void [Sec 25]
Exceptions (Valid without consideration):
| Exception [Sec 25] | Conditions |
|---|---|
| (1) Natural Love & Affection | Agreement in writing, registered, made on account of natural love and affection between parties standing in near relation |
| (2) Past Voluntary Service | Promise to compensate for act done voluntarily, which promisor was legally bound to do |
| (3) Time-Barred Debt | Written promise to pay time-barred debt |
| Completed Gift [Sec 25] | No consideration needed for completed gift |
| Agency [Sec 185] | No consideration required to create agency |
5.4 Privity of Contract and Consideration
- Stranger to contract cannot sue: Only parties to contract can enforce it (Privity of Contract)
- Stranger to consideration can sue: Consideration may move from any person (Indian rule differs from English law)
6. Capacity to Contract (Sections 10, 11, 12)
6.1 Competency to Contract [Section 11]
Competent persons: Those who (i) are of age of majority; (ii) are of sound mind; (iii) are not disqualified by law
| Category | Rules |
|---|---|
| Minor [Sec 11] | Agreement with minor void ab initio (Mohori Bibee v. Dharmodas Ghose); no ratification after majority; minor's property not liable; minor can be beneficiary; no estoppel against minor |
| Person of Unsound Mind [Sec 12] | Incapable of understanding contract and forming rational judgment; burden of proof on person alleging unsoundness; lucid intervals: contract valid if made during lucid interval |
| Persons Disqualified by Law | Alien enemies, foreign sovereigns/ambassadors, insolvents, convicts, corporate bodies (ultra vires acts) |
6.2 Minor's Position
- No liability for necessaries supplied; but supplier entitled to reimbursement from minor's estate [Sec 68]
- Can be agent but not principal
- Can be partner for benefits only (not liable for losses)
- Can be beneficiary under contract
- Cannot execute promissory note or be adjudicated insolvent
7. Free Consent (Sections 13-22)
7.1 Definition of Consent [Sections 13, 14]
| Term | Definition |
|---|---|
| Consent [Sec 13] | When two or more persons agree upon same thing in same sense (consensus ad idem) |
| Free Consent [Sec 14] | Consent not caused by: (1) Coercion [Sec 15]; (2) Undue Influence [Sec 16]; (3) Fraud [Sec 17]; (4) Misrepresentation [Sec 18]; (5) Mistake [Sec 20, 21, 22] |
7.2 Coercion (Section 15)
| Element | Details |
|---|---|
| Definition | Committing or threatening to commit act forbidden by IPC; unlawfully detaining or threatening to detain property to prejudice of person; forcing to enter agreement |
| Key Features | Need not proceed from party; need not be directed at promisee; criminal in nature; forbidden by IPC |
| Effect [Sec 19] | Contract voidable at option of party whose consent caused by coercion; burden of proof on party alleging coercion |
| Remedies | Rescind contract; or affirm and claim damages; benefits restored if rescinded [Sec 64, 65] |
7.3 Undue Influence (Section 16)
| Element | Details |
|---|---|
| Definition [Sec 16(1)] | Contract induced when relation between parties such that one can dominate will of other and uses position to obtain unfair advantage |
| When Exists [Sec 16(2)] | (a) Real/apparent authority over other; (b) Fiduciary relation; (c) Contract with person of unsound mind/temporarily infirm/aged/distressed |
| Burden of Proof [Sec 16(3)] | Where dominant position exists, burden on dominant party to prove no undue influence |
| Effect [Sec 19A] | Voidable at option of party whose consent obtained; court may set aside or enforce on terms |
| Distinguished from Coercion | Moral pressure vs. physical; involves relationship; not criminal; need not be forbidden by IPC |
7.4 Fraud (Section 17)
| Element | Details |
|---|---|
| Definition [Sec 17] | Act committed with intent to deceive or induce contract: (1) suggestion of fact not true by one not believing it; (2) active concealment; (3) promise without intention to perform; (4) any deceptive act; (5) act/omission by law declared fraudulent |
| Essentials | False representation of fact; knowledge of falsehood or recklessness; intention to deceive; inducement to contract; actual deception of other party |
| Silence as Fraud [Sec 17] | Mere silence not fraud unless duty to speak; silence with half-truth is fraud |
| Effect [Sec 19] | Voidable at option of party defrauded; may insist contract performed and claim damages for fraud [Sec 19] |
| Burden of Proof | On party alleging fraud |
7.5 Misrepresentation (Section 18)
| Element | Details |
|---|---|
| Definition [Sec 18] | (1) Positive assertion in manner not warranted by information, believing it true; (2) Breach of duty giving misleading advantage without intent to deceive; (3) Innocent mistake by party to fact material to contract |
| Distinguished from Fraud | No intent to deceive; made innocently believing it true; person making it believes statement true |
| Effect [Sec 19] | Voidable at option of party misled; may insist performance but no damages (unlike fraud) |
7.6 Mistake (Sections 20-22)
| Type | Effect |
|---|---|
| Bilateral Mistake of Fact [Sec 20] | Agreement void if both parties mistaken as to matter of fact essential to agreement |
| Unilateral Mistake of Fact [Sec 22] | Contract not voidable; exception: mistake as to identity of person contracted with or nature of contract |
| Mistake of Law [Sec 21] | Mistake of Indian law: no relief (ignorantia juris non excusat); Mistake of foreign law: treated as mistake of fact |
| Mistake as to Subject Matter | Existence, identity, quality, quantity, title, or price - if bilateral and material, void |
8. Lawful Object and Consideration (Sections 23-24)
8.1 Unlawful Object/Consideration [Section 23]
Agreement void if consideration/object is:
| Ground | Description |
|---|---|
| Forbidden by Law | Prohibited by statute, rule, regulation, or order having force of law |
| Defeats Provision of Law | Intended to circumvent or evade legal requirement |
| Fraudulent | Designed to defraud others |
| Involves Injury to Person/Property | Causes harm to person or property of another |
| Immoral | Opposed to public morality (e.g., agreement for prostitution, illicit cohabitation) |
| Against Public Policy | Trading with enemy, champerty/maintenance, marriage brokerage, interference with justice, trafficking in public offices |
8.2 Agreements Expressly Declared Void [Section 24]
| Provision | Type of Agreement |
|---|---|
| Section 24 | Agreement with unlawful consideration/object; if part unlawful and severable, valid part enforceable |
| Section 26 | Agreement in restraint of marriage (except minor) |
| Section 27 | Agreement in restraint of trade; exception: sale of goodwill [Sec 27 proviso] |
| Section 28 | Agreement in restraint of legal proceedings; exceptions: arbitration, period limitation, liquidated damages |
| Section 29 | Agreement by way of wager (betting/gambling); exception: horse racing in some states |
| Section 30 | Agreement contingent on impossible event |
9. Contingent Contracts (Sections 31-36)
9.1 Definition and Rules
| Aspect | Details |
|---|---|
| Definition [Sec 31] | Contract to do or not do something if some event collateral to contract does or does not happen |
| Contingent Event | Must be collateral; not merely party's will; uncertain event |
| Distinguished from Wagering | Contingent contract: real interest in subject matter; Wager: no interest except winning/losing |
9.2 Rules for Enforcement [Sections 32-36]
| Section | Rule |
|---|---|
| 32 | Contingent on happening of future uncertain event: enforceable when event happens |
| 33 | Contingent on non-happening of future uncertain event: enforceable when event becomes impossible |
| 34 | Contingent on future conduct of living person: enforceable when person acts in specified manner or becomes impossible |
| 35 | Contingent on specified uncertain event within fixed time: void if event does not happen or becomes impossible before time expires |
| 36 | Contingent on impossible event: void whether fact known to parties or not |
10. Performance of Contracts (Sections 37-67)
10.1 General Principles
| Provision | Rule |
|---|---|
| Sec 37 | Parties must perform or offer to perform promises unless dispensed with or excused by law |
| Sec 38 | Effect of refusal by one party: other party need not perform |
| Sec 40 | Person accepting performance from third party cannot afterwards enforce it against promisor |
| Sec 41 | Promisee may dispense with or remit performance wholly or in part; may extend time; may accept other satisfaction |
10.2 By Whom Contracts Must Be Performed
| Section | Rule |
|---|---|
| Sec 40 | By promisor himself if contract requires personal skill/ability or shows intention |
| Sec 37(2) | By promisor or agent if performance does not require personal skill |
| Sec 39 | By third person if promisee accepts performance from third party |
| Sec 37(3) | By legal representatives after death unless contract personal in nature |
10.3 Time and Place of Performance
| Section | Rule |
|---|---|
| Sec 46 | Time fixed: perform at/before specified time; time not fixed: reasonable time |
| Sec 47 | Time not essential unless contract says so; delay may entitle damages but not avoid contract |
| Sec 49 | Place not mentioned: promisee should apply to promisor for reasonable place |
| Sec 50 | If promisor to apply to promisee: performance at place agreed or reasonable place |
10.4 Performance of Reciprocal Promises (Sections 51-58)
| Section | Type of Reciprocal Promise |
|---|---|
| Sec 51 | Simultaneous performance: promisors need not perform unless other ready to perform |
| Sec 52 | Sequential performance: one after another in order prescribed |
| Sec 53 | One party prevents other: contract voidable at option of prevented party; entitled to compensation |
| Sec 54 | Legal consequences prevent performance: excused |
11. Discharge of Contract
11.1 Modes of Discharge
| Mode | Description |
|---|---|
| Performance [Sec 37] | Actual performance or tender of performance (attempted performance) |
| Agreement/Consent | Novation, rescission, alteration, waiver, remission [Sec 62, 63] |
| Impossibility [Sec 56] | Supervening impossibility after contract made; initial impossibility makes agreement void |
| Lapse of Time | Limitation period expires under Limitation Act, 1963 |
| Operation of Law | Merger, insolvency, death (if personal contract), unauthorized material alteration |
| Breach | Actual breach or anticipatory breach; aggrieved party may treat contract as discharged |
11.2 Discharge by Agreement [Sections 62-63]
| Method | Explanation |
|---|---|
| Novation [Sec 62] | Substitution of new contract for old; requires consent of all parties; new contract valid and enforceable |
| Rescission [Sec 62] | Mutual agreement to cancel contract; both parties discharged |
| Alteration [Sec 62] | Material alteration of terms by mutual consent |
| Remission [Sec 63] | Acceptance of lesser performance/consideration than contracted |
| Waiver [Sec 63] | Intentional relinquishment of right |
| Accord and Satisfaction | Agreement to accept different performance and its execution |
12. Impossibility of Performance (Section 56)
12.1 Doctrine of Frustration [Section 56]
| Type | Effect |
|---|---|
| Initial Impossibility [Sec 56] | Agreement void ab initio if impossible at time of agreement |
| Supervening Impossibility [Sec 56] | Contract becomes void if performance impossible/unlawful after contract made due to event beyond control |
| Self-Induced Impossibility | Not excused; party liable for breach |
| Commercial Impossibility | Mere difficulty or commercial hardship not impossibility; contract not frustrated |
12.2 Grounds for Supervening Impossibility
- Destruction of subject matter (Taylor v. Caldwell principle)
- Non-existence/non-occurrence of particular state of things
- Death or personal incapacity (for personal contracts)
- Change of law making performance illegal
- Outbreak of war (if parties become alien enemies)
- Failure of third party/event essential to performance
12.3 When Performance Not Excused
- Difficulty or hardship in performance
- Commercial impossibility or unprofitability
- Strikes, lockouts (unless force majeure clause)
- Rise in prices or costs
- Self-induced impossibility
13. Breach of Contract and Remedies
13.1 Types of Breach
| Type | Description |
|---|---|
| Actual Breach | Failure to perform at time performance due; non-performance on due date |
| Anticipatory Breach [Sec 39] | Party repudiates before performance due; promisee may treat contract repudiated and sue immediately or wait till due date |
13.2 Remedies for Breach [Sections 73-75]
| Remedy | Details |
|---|---|
| Damages [Sec 73] | Compensation for loss/damage naturally arising or in contemplation of parties; remote damages not recoverable; must be proved |
| Liquidated Damages [Sec 74] | Sum named in contract as compensation for breach; court awards reasonable compensation not exceeding stated amount; penalty not enforceable |
| Damages for Breach of Contract to Marry [Sec 73] | Compensation allowed for breach of promise to marry |
| Compensation for Loss Through Non-Performance [Sec 73] | When contract broken, party suffering entitled to receive compensation from defaulting party |
| Injunction [Sec 38, 42, Specific Relief Act] | Preventive relief; restrains breach of negative covenant |
| Specific Performance [Specific Relief Act, 1963] | Court orders actual performance; discretionary; granted when damages inadequate |
| Quantum Meruit | Payment for work done; available when contract divisible or when one party abandons/prevents performance |
| Rescission [Sec 64, 65] | Cancellation of contract; parties restored to original position; benefits received must be restored |
13.3 Measure of Damages
- General rule: Put injured party in position as if contract performed [Sec 73]
- Ordinary damages: Natural and probable consequence of breach
- Special damages: Losses in contemplation of parties at time of contract
- Remote damages: Not recoverable
- Duty to mitigate: Plaintiff must take reasonable steps to minimize loss
- Nominal damages: Token amount when breach proved but no actual loss
14. Quasi-Contracts (Sections 68-72)
14.1 Nature
- Not contracts in true sense; obligations imposed by law
- Based on equity principle: no person enriched unjustly at expense of another
- Prevent unjust enrichment
- Remedy: quantum meruit (as much as earned)
14.2 Types of Quasi-Contracts
| Section | Quasi-Contract |
|---|---|
| Sec 68 | Necessaries supplied to person incapable of contracting: Person supplying entitled to reimbursement from property of incapable person |
| Sec 69 | Payment by interested person: Person paying money which another bound to pay, entitled to reimbursement |
| Sec 70 | Non-gratuitous acts: Person enjoying benefit of non-gratuitous act must compensate or restore benefit |
| Sec 71 | Finder of goods: Finder has rights/responsibilities of bailee; may retain till compensation for trouble and expense |
| Sec 72 | Money paid by mistake or under coercion: Must be repaid; person receiving by mistake/coercion must return |
15. Important Sections Summary
15.1 Key Statutory Provisions
| Sections | Subject Matter |
|---|---|
| 1-2 | Preliminary: Title, extent, definitions |
| 2(a)-2(j) | Key definitions: proposal, promise, promisor, promisee, consideration, agreement, contract, void, voidable |
| 3-9 | Communication, acceptance, and revocation of proposals |
| 10 | Essential elements of valid contract |
| 11-12 | Capacity to contract |
| 13-22 | Free consent: coercion, undue influence, fraud, misrepresentation, mistake |
| 23-30 | Lawful consideration/object; void agreements |
| 31-36 | Contingent contracts |
| 37-67 | Performance of contracts |
| 56 | Impossibility of performance (frustration) |
| 62-63 | Discharge by agreement (novation, rescission, alteration, remission, waiver) |
| 64-65 | Consequences of rescission |
| 68-72 | Quasi-contracts |
| 73-75 | Consequences of breach: damages, compensation, penalties |
15.2 Critical Case Laws (Illustrative)
- Mohori Bibee v. Dharmodas Ghose: Minor's agreement void ab initio
- Carlill v. Carbolic Smoke Ball Co.: General offer and its acceptance
- Balfour v. Balfour: Intention to create legal relations
- Taylor v. Caldwell: Supervening impossibility/frustration
- Hadley v. Baxendale: Remote and proximate damages
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