INDIAN CONTRACT ACT, 1872

SECTION 2— Interpretation-Clause

2(a) When one person communicates to another his willingness to do so or abstain from doing
anything, with the view of obtaining the consent of that other person, then he is said to make a
proposal.

2(b) When the person to whom the proposal is made accepts that proposal. Then that proposal
becomes a promise.

2(c) The person making the proposal is called the Promisor. And the person accepting the proposal is
called the Promisee.

2(d) When at the desire of the promisor, the promisee or any other person has done or abstained
from doing something. Then that act is known as the consideration for the promise.

2(e) Every promise and every set of promises forming the consideration for each other is known as
an agreement.

2(f) Promises which form or a part of the consideration for each other, are known as reciprocal
promise

2(g) An agreement which is not enforceable by law is known to be void.

2(h) An agreement enforceable by law is known as a contract.

2(i) An agreement which is enforceable by law at the option of one party but not at the option of the
other. Then it is known as voidable contract. (i.e. the contact can still continue if the other party
decides to go for it. If not then it will be declared void)

2(j) A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable.

SECTION 3— Communication, Acceptance, Revocation

COMMUNICATION OF ACCEPTANCE —

An offer is accepted when the acceptance is communicated. The communication must be made to
the offerer and a communication of acceptance made to a third person creates no contract.

Exposure of goods: offer or not— The exposure of goods by a shopkeeper does not amount to an
offer to sell. On picking the goods, it is an offer by the customer to buy and the sale is not affected
until the buyer’s offered price is accepted by the shopkeeper.
SECTION 4— Communication when complete
The communication of a proposal is complete when it comes to the knowledge of the person to
whom it is made.

It is complete when—

 As against the proposer, when it is put in a course of transmission to him so as to be out of

the power of the acceptor.
 As against the acceptor, when it comes to the knowledge of the proposer.

COMMUNICATION OF REVOCATION IS COMPLETE WHEN—

 As against the person who makes it, when it is put into a course of transmission to the
person whom it is made.
 As against the person whom it is made, when it comes to his knowledge.

ILLUSTRATION
 A proposes by letter to a sell a house to B at a certain price.

The communication of the proposal is complete when B receives the letter.

 B accepts A’s proposal by a letter sent by post.

THE COMMUNICATION OF THE ACCEPTANCE IS COMPLETE,

As against A, when the letter is posted

As against B, when the letter is received by A

 A revokes his proposal by telegram.

It is complete when

Against A when the telegram is dispatched.

Against B when B receives it.

And the opposite happens when B sends his revocation through telegram.

SECTION 5— Revocation of Proposal and Acceptance

A proposal may be revoked at any time before the communication of its acceptance is complete as
against the proposer but not afterwards. (i.e. when the acceptance is put in a course of transmission
and is out of control of the acceptor)
An acceptance may be revoked at any time before the communication of acceptance is complete as
against the acceptor but not afterwards. (i.e. when the acceptance comes to the knowledge of the
proposer)

ILLUSTRATION
A proposes by letter sent by post to sell his house to B.

B accepts the proposal sent by post.

A may revoke his proposal at any time before or the moment when B post his letter acceptance but
not after that.

B may revoke his acceptance at any time before or at the moment when the letter communicating
it reaches A, but not afterwards.

SECTION 6— Revocation How Made

A proposal is revoked when—

 By the communication of the notice of revocation by the proposer to the party.

 By the passing of time which is mentioned in the proposal (or if time is no mentioned it will
be revoked after a reasonable time, without any communication for acceptance.)
 By the failure of the acceptor to fulfil a condition.
 By the death or insanity of the proposer.(if it comes to the knowledge of the acceptor
before acceptance)

SECTION 7— Acceptance must be Absolute

To make a proposal into a promise the acceptance must be—

 Be absolute and unqualified.

 Be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted.

SECTION 8— Acceptance by Performing

conditions or receiving consideration.

Performance of the conditions of a proposal or the acceptance of any consideration for a reciprocal
promise which may be offered with a proposal is an acceptance of the proposal.
SECTION 9— Promises, Express and Implied.

The proposal or acceptance of any promise which is made in words, then that is known as expressed
promise.

Whereas those made otherwise than in words are known as implied.

NOTE— The court will refuse to read an implied term into a contract which is silent on the point or
did not clearly indicate the terms. A contract which is implied requires meeting of minds.

SECTION 10— What Agreements are Contract.

All agreements are contracts if they are made by—

 Free consent of the parties.

 With a lawful consideration.
 Must contain a lawful object.

If these above criteria are not met that contract will be deemed void.

NOTE— LETTER OF INTENT— A letter of intent merely indicates a party’s intention to enter into a
contract with other party in future. It is prelude to contract.

SECTION 11— Who are Competent to Contract.

Every person is competent to contract.—

 Who is in the age of majority.

 Who is of sound mind.

ANY PERSON WHO IS A MINOR OR IS OF UNSOUND OR INSANE MIND IS NOT COMPETENT TO

CONTRACT. THAT CONTRACT WILL BE DEEMED VOID.

SECTION 12— what is Sound Mind for

Contracting Purpose.

A person is said to be sound mind when he/she fully understands the contract all the terms and
conditions are to his/her knowledge may make a contract. Otherwise the contract will be deemed
void.

A sane man, drunken man, patient in a lunatic asylum who cannot understand the contract of form a
rational