The Indian Contract Act, 1872 for CA Foundation
When an agreement becomes legally binding: offer, acceptance, consideration, capacity and free consent, with the leading cases examiners love.
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Practise The Indian Contract Act, 1872 free
What you'll learn
- What makes a valid contract
List the essentials of a valid contract under Section 10. - Offer, acceptance and consideration
Apply the rules on offer, acceptance, communication and consideration.
Concepts explained
Agreement, contract, void and voidable
A contract is an agreement enforceable by law (s.2(h)). An agreement not enforceable is void; a contract enforceable at one party's option is voidable.
What it means
- Agreement = offer + acceptance (every promise or set of promises forming consideration for each other).
- Contract = agreement + enforceability by law.
- Void agreement (s.2(g)): not enforceable from the start, e.g. agreement with a minor, wager.
- Voidable contract (s.2(i)): enforceable at the option of one party, e.g. consent caused by coercion or fraud.
- Illegal agreement: forbidden by law; collateral agreements are also void.
- A 17-year-old mortgages his house for a loan
Answer: Void ab initio (Mohori Bibee v. Dharmodas Ghose)
- Consent obtained by threat
Answer: Voidable at the option of the coerced party (s.19)
Related terms
- Valid contract: has all the essentials of s.10
- Unenforceable contract: valid but can't be enforced for a technical reason, e.g. lack of stamp
Exam tip: All contracts are agreements, but not all agreements are contracts.
Offer, invitation to offer and acceptance
An offer shows willingness to be bound; an invitation to offer only invites offers. Acceptance must be absolute and unqualified and communicated.
What it means
- Invitations to offer: goods displayed with prices, catalogues, auctions, tenders, price quotations (Harvey v. Facey).
- General offer: made to the public and accepted by performing its conditions (Carlill v. Carbolic Smoke Ball Co.).
- Acceptance must be absolute (s.7); a conditional 'yes' is a counter-offer that ends the original offer.
- Communication (s.4): complete against the proposer when the acceptance is posted; against the acceptor when it reaches the proposer.
- Customer picks up a priced item
Answer: Customer makes the offer; the cashier accepts
- 'I accept if you cut the price'
- Seller refuses; buyer then accepts the original price
Answer: No contract: the original offer had ended
Related terms
- Cross offers: identical offers made in ignorance of each other: no contract
- Standing offer: an offer to supply as and when ordered
Exam tip: Quote the case name: examiners award marks for Carlill, Harvey v. Facey and Boots in the right place.
Consideration
Consideration is the price for a promise: something given, done or promised at the desire of the promisor (s.2(d)).
What it means
- It must move at the desire of the promisor.
- It may move from the promisee or any other person (Chinnaya v. Ramayya).
- It may be past, present or future, and need not be adequate, but must be real and lawful.
- No consideration, no contract (s.25), except: natural love and affection (written and registered, near relatives), past voluntary services, written promise to pay a time-barred debt.
- A gifts property to her daughter on condition that she pays her uncle an annuity
- Uncle sues the daughter
Answer: Uncle can recover (Chinnaya v. Ramayya)
Related terms
- Privity of contract: only parties can sue, with exceptions
- Inadequate consideration: valid if consent was free
Exam tip: Indian law is wider than English law: consideration can come from a stranger.
Free consent
Consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake (s.14).
What it means
- Coercion (s.15) and undue influence (s.16): contract voidable.
- Fraud (s.17) and misrepresentation (s.18): contract voidable.
- Bilateral mistake of fact (s.20): agreement void. Mistake of Indian law doesn't excuse.
- A spiritual guru persuades a follower to gift property
Answer: Voidable at the follower's option
Related terms
- Silence: not fraud, unless there is a duty to speak
Exam tip: Voidable for the first four; void for bilateral mistake of fact.
Memory tricks
Section 10 plus the other essentials; list them in this order in descriptive answers.
Sections 15–22. The first four make a contract voidable; a bilateral mistake of fact makes it void.
An agreement without consideration is void except in these three cases.
Try 3 CA Foundation-style questions
Q1. A husband's promise to pay his wife a monthly allowance, in an ordinary domestic arrangement, is generally not a contract because
- there is no intention to create legal relations
- there is no offer
- the wife is not competent to contract
- the object is unlawful
Show answer
Answer: (1) there is no intention to create legal relations
In Balfour v. Balfour, a domestic arrangement between spouses was held not enforceable, as the parties did not intend legal consequences.
Q2. A person who finds goods belonging to another and takes them into custody has the responsibilities of a bailee. This is an example of
- a contingent contract
- a wagering agreement
- a void agreement
- a quasi-contract
Show answer
Answer: (4) a quasi-contract
Section 71 imposes bailee-like duties on a finder of goods. Quasi-contracts (ss.68–72) are obligations the law imposes to prevent unjust enrichment.
Q3. Under Section 2(h) of the Indian Contract Act, 1872, a contract is
- an agreement enforceable by law
- any promise made between two persons
- an agreement not enforceable by law
- a social or domestic arrangement
Show answer
Answer: (1) an agreement enforceable by law
Section 2(h): an agreement enforceable by law is a contract. So all contracts are agreements, but not all agreements are contracts.
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