Contract vs.

Agreement under the Indian Contract Act, 1872

Agreement:

Defined in Section 2(e) as "every promise and every set of

promises forming consideration for each other."

It is a broader term that refers to any understanding or

arrangement between two or more parties.

Key Features:

Involves an offer and acceptance.

May or may not be legally enforceable.

Examples: Social agreements like a promise to meet a friend.

Contract:

Defined in Section 2(h) as "an agreement enforceable by law."

A contract is a specific type of agreement that meets legal

criteria and can be enforced in a court of law.

Key Features:
Legally binding.

Includes essential elements like offer, acceptance, lawful

consideration, lawful object, and free consent.
Examples: Business contracts, employment agreements.
Elements of a Valid Contract (Indian Contract Act, 1872)

For an agreement to become a valid contract, it must fulfill the

following essential elements as per Section 10 of the Act:

1. Offer and Acceptance

There must be a clear and definite offer by one party and
acceptance of the offer by the other party.

Acceptance must be unconditional and communicated properly.

2. Intention to Create Legal Relationship

Parties must intend to enter into a contract that can be enforced

by law.
Agreements of a social or domestic nature, like promises within
families, are not contracts.

3. Lawful Consideration
There must be something of value exchanged between the
parties (e.g., money, services, goods).

The consideration must be lawful, real, and not illegal, immoral,

or opposed to public policy.

4. Capacity of Parties
Both parties must be legally capable of entering into a contract.
This includes:

Age: Must be of the age of majority (18 years or above).

Sound Mind: Must be mentally sound.

Not Disqualified by Law: Must not be disqualified by laws

governing contracts.

5. Free Consent
Consent of the parties must be given freely, without:

Coercion: Forcing someone to act against their will.

Undue Influence: Using one’s position to dominate the other

party.

Fraud: Deception to gain consent.

Misrepresentation: Giving false information.

Mistake: A misunderstanding about a fact essential to the

agreement.

6. Lawful Object
The purpose of the contract must be legal.

Contracts with illegal, immoral, or unethical objectives (e.g.,

smuggling) are void.

7. Certainty of Terms
The terms and conditions of the contract must be clear and
certain.

Vague or ambiguous terms make the contract void.

8. Possibility of Performance
The agreement must be capable of being performed.

If performance is impossible, the contract is void (e.g., agreeing

to do an act that is illegal or physically impossible).

9. Not Expressly Declared Void

The agreement should not fall under categories expressly
declared void by the Act (e.g., wagering contracts, agreements
restraining marriage or trade).

Offer and Acceptance: Rules and Revocation

The concepts of offer and acceptance are fundamental to forming

a valid contract under the Indian Contract Act, 1872.

 Offer

Definition: An offer (or proposal) is defined in Section 2(a) as

when one person expresses their willingness to do or not to do
something to obtain the other party's assent.

Key Features:
1. Must be clear and definite.
2. Must be communicated to the offeree.
3. Can be general (to the public) or specific (to a particular
person).
4. Must indicate the intention to create a legal obligation.

 Acceptance

Definition: Acceptance is defined in Section 2(b) as when the

person to whom the offer is made signifies their assent to the
offer.

Key Features:
1. Must be absolute and unconditional.
2. Should be in the mode prescribed (if any) or in a reasonable
manner.
3. Must be communicated to the offeror.
4. Acceptance must be made while the offer is still open.
Rules Regarding Revocation of Offer

1. Time of Revocation:
As per Section 5, an offer can be revoked at any time before it is
accepted, but not after.

2. Communication of Revocation:
Revocation must be communicated to the offeree. It becomes
effective only when it reaches the offeree.

3. By Lapse of Time:
An offer is revoked if the time prescribed for acceptance has
expired or if no time is prescribed, after a reasonable time.

4. By Failure of Conditions:
If any condition attached to the offer is not fulfilled, the offer can
be revoked.

5. Death or Insanity:
If the offeror dies or becomes insane before acceptance, and the
offeree has knowledge of it, the offer is revoked.

Rules Regarding Revocation of Acceptance

1. Revocation Before Communication:

As per Section 5, an acceptance can be revoked before it is
communicated to the offeror.

2. No Revocation After Communication:

Once the acceptance is communicated and reaches the offeror, it
cannot be revoked.

Important Points to Note

Communication Timing:
The revocation of an offer or acceptance is effective only when it
is communicated to the other party.

Postal Rules:
For letters, an acceptance is complete when the letter is posted.
However, revocation is complete only when the letter of
revocation reaches the other party.

Standard Form Contract: A New Innovation to Suit the Needs

A standard form contract is a pre-drafted contract where one
party sets the terms and conditions, and the other party has little
to no ability to negotiate. It is designed for efficiency and
uniformity in transactions.

What is a Standard Form Contract?

It is also known as a “boilerplate contract” or “adhesion

contract.”

The terms are prepared in advance by one party, usually the

stronger party, such as a business or corporation.
The other party, often the consumer, can either accept or reject
the contract but cannot negotiate the terms.

Examples of Standard Form Contracts

1. Insurance policies.

2. Ticket purchases (e.g., airline or movie tickets).

3. Mobile phone service agreements.

4. Online terms and conditions (e.g., e-commerce platforms).

Features of Standard Form Contracts

1. Efficiency:
Saves time and effort by using a single template for multiple
transactions.

2. Uniformity:
Ensures consistent terms for all customers or users.

3. Mass Use:
Suitable for contracts involving large numbers of people, like
customers or employees.

Advantages

1. Convenience:
Simplifies complex transactions and reduces negotiation time.

2. Cost-Effective:
Reduces legal and administrative costs for businesses.
 3. Consistency:
Offers the same terms to all parties, promoting fairness in
standard cases.

Challenges

1. Imbalance of Power:
Consumers often lack bargaining power and must accept
unfavorable terms.

2. Unfair Terms:
Businesses may include clauses that favor them excessively, such
as exclusion of liability or limited consumer rights.

3. Lack of Awareness:
Consumers may not fully read or understand the terms.

Legal Protections
Courts often scrutinize unfair terms in standard form contracts,
especially when they exploit the weaker party.

Unfair Contract Terms Act and Consumer Protection Laws provide

safeguards against misuse of such contracts.

Modern Innovations in Standard Form Contracts

1. Digital Contracts:
Online platforms now include simplified terms and digital
signatures for convenience.

2. Transparency:
Many businesses provide easy-to-understand summaries to make
terms clearer for users.

3. Regulatory Oversight:
Governments and consumer protection agencies monitor unfair
practices in standard form contracts.

Consideration and Its Essential Elements

Under the Indian Contract Act, 1872, consideration is a key

element for a valid contract. It refers to something of value
exchanged between the parties to support the promise made in
the agreement.
Definition of Consideration

Section 2(d): “When at the desire of the promisor, the promisee

or any other person has done or abstained from doing, or
promises to do or abstain from doing, something, such act,
abstinence, or promise is called consideration.”

In simple terms, consideration is "something in return."

Essential Elements of Consideration

1. Must Be at the Desire of the Promisor:

Consideration must be provided at the request or desire of the
promisor, not voluntarily or out of goodwill.

Example: If A paints B’s house without being asked, B is not

bound to pay A.

2. May Move from the Promisee or Any Other Person:

Consideration can be given by the promisee or any third party.

Example: If A pays money to B for C's benefit, it is valid

consideration.

3. Can Be Past, Present, or Future:

Past Consideration: An act done before the promise is made
(valid in India).

Present Consideration: An act done at the time of the promise.

Future Consideration: A promise to do something in the future.

4. Must Be of Some Value in the Eyes of Law:

Consideration must have some value, though it does not need to
be adequate.

Courts do not interfere in the adequacy of consideration as long

as it is lawful.

5. Must Be Lawful:
As per Section 23, consideration cannot be illegal, immoral, or
opposed to public policy.

Example: Payment for smuggling goods is not lawful

consideration.
6. Need Not Be Adequate:
The law does not require consideration to be equal or
proportionate to the promise made.

Example: Selling a car worth ₹2,00,000 for ₹10,000 is valid if

consent is free.

7. Performance Must Be Possible:

The act or abstinence promised must be capable of being
performed.

Example: Promising to bring a star from the sky is not valid

consideration.

8. Consideration Must Be Real:

It must not be illusory or impossible.

Example: A promise based on false claims is not valid.

9. Should Not Be Already a Legal Obligation:

If a person is already legally bound to do something, it cannot be
treated as consideration.

Exceptions to the Rule of Consideration

1. Natural Love and Affection:

Agreements made out of love or affection between close relatives
may be valid even without consideration.

2. Voluntary Services:
If someone performs a voluntary service, later acknowledged by
the recipient through a promise, it can be enforced.

3. Promise to Pay a Time-Barred Debt:

A written and signed promise to pay a debt barred by the
Limitation Act is valid.

Exceptions to the Rule “No Consideration, No Contract” & Privity

of Contract and Consideration

Under Section 25 of the Indian Contract Act, 1872, the general

rule states that “an agreement without consideration is void.”
However, there are certain exceptions where a contract is valid
even without consideration.
  Exceptions to the Rule “No Consideration, No Contract”

1. Natural Love and Affection (Section 25(1))

A contract made out of natural love and affection is valid even
without consideration if:

It is made between close relatives (e.g., father and son).

It is in writing and registered under the law.

Example: A father promises to give property to his son through a

registered document. This promise is valid.

2. Voluntary Compensation for Past Services (Section 25(2))

If a person voluntarily does something for another, and the other
later promises to compensate them, the promise is enforceable.

Example: A rescues B from drowning. Later, B promises to reward

A. This promise is valid.

3. Promise to Pay a Time-Barred Debt (Section 25(3))

If a person promises to pay a debt that is barred by the
Limitation Act, the promise is enforceable if:

It is in writing and signed by the debtor.

Example: A owes B ₹10,000, but the debt is time-barred. A later

gives a written and signed promise to pay. This is enforceable.

4. Contract of Agency (Section 185, Indian Contract Act)

In a contract of agency, no consideration is required.

Example: A appoints B as his agent without giving anything in

return. The contract is still valid.

5. Gift Actually Given

If a gift is given voluntarily and completely, it is valid without
consideration.

Example: A gives B a car as a gift and registers it in B’s name.

This transfer is valid.

6. Charity with a Condition

If a person promises to contribute to charity and the charity acts
upon it, the promise becomes enforceable.
Example: A promises to donate ₹50,000 to a hospital, and the
hospital starts construction based on this promise. A must pay.

 Privity of Contract and Consideration

1. Meaning of Privity of Contract

The doctrine of privity of contract means that only the parties to
a contract can enforce it.

A third party who is not part of the contract cannot sue or be

sued under it.

2. Exceptions to Privity of Contract

1. Beneficiary Under a Contract
If a contract is made for the benefit of a third person, they can
enforce it.

Example: A makes a contract with B to pay ₹1 lakh to C. C can

enforce it.

2. Trust or Family Settlement

If a contract creates a trust or family arrangement, a third party
beneficiary can sue.

Example: A family settlement gives property to a relative. The

relative can enforce the agreement.

3. Contracts Affecting Land or Property

If a contract relates to land or property, a person acquiring rights
over it can enforce terms even if they were not a party.

4. Agency Contracts
A principal can enforce a contract made by an agent on their
behalf.

5. Assignment of Contracts
If contractual rights are legally assigned to a third party, they
can enforce the contract.

Capacity to Contract & Free Consent (Coercion, Undue Influence,

Misrepresentation, Fraud)
 1. Capacity to Contract (Section 11, Indian Contract Act, 1872)
Capacity to contract refers to the legal ability of a person to
enter into a contract. A contract is valid only if the parties
involved are legally competent.

Who Can Enter Into a Contract?

 Major (18 years or above)

A person must be of the age of majority (18 years or 21 if under a
guardian).

A contract with a minor is void ab initio (invalid from the

beginning).

 Person of Sound Mind

A person must be mentally capable of understanding the contract
and its consequences.

A contract with an unsound mind person is void.

 Not Disqualified by Law

Certain persons are disqualified from contracting, such as:

Convicts serving a sentence.

Foreign enemies during war.

Insolvent persons.

Effects of Incapacity
A contract with a minor or an unsound person is void and cannot
be enforced.

A minor’s contract cannot be ratified after attaining majority.

2. Free Consent (Section 14, Indian Contract Act, 1872)

A contract must be based on free consent. Consent is said to be
free when it is not influenced by:

 Coercion
 Undue Influence
 Misrepresentation
 Fraud
 Mistake
If consent is not free, the contract is voidable, meaning the
affected party can either enforce or cancel it.

3. Coercion (Section 15)

Meaning: Coercion means forcing someone to enter into a
contract through threats or unlawful acts.

Key Features:
Threats to commit an illegal act (e.g., harming someone).

Unlawful detainment (e.g., holding property or a person against

their will).

Fear or pressure is used to obtain consent.

Effect on Contract:
The contract is voidable at the option of the party subjected to
coercion.

Example:
A threatens to kill B if he does not sell his house. B sells it under
fear. This contract is voidable.

4. Undue Influence (Section 16)

Meaning: Undue influence occurs when one party uses their
position of power over another to gain an unfair advantage.

Key Features:
One party dominates the other due to a relationship of trust.

The weaker party is not free to make an independent decision.

Common Examples:
 Doctor and patient
 Teacher and student
 Employer and employee

Effect on Contract:
The contract is voidable at the option of the weaker party.

Example:
A teacher forces a student to transfer property in their name by
manipulating their trust. The contract is voidable.

5. Misrepresentation (Section 18)

Meaning: Misrepresentation occurs when a party gives false
information without intending to deceive, but it influences the
other party’s decision.

Types of Misrepresentation:

1. Innocent Misrepresentation: A person unknowingly provides

false information.

2. Negligent Misrepresentation: False information is given

carelessly.

3. Failure to Disclose Facts (in cases where disclosure is

required).

Effect on Contract:
The contract is voidable at the option of the misled party.

Example:
A seller unknowingly sells a car, claiming it was used only for one
year, but in reality, it was used for three years. The buyer can
cancel the contract.

6. Fraud (Section 17)

Meaning: Fraud is intentional deception to cheat someone into
entering a contract.

Key Features:
False statements made knowingly.

Concealment of important facts.

A promise made without the intention of fulfilling it.

Effect on Contract:
The contract is voidable at the option of the defrauded party.

The party guilty of fraud may be liable for damages.

Example:

A sells a painting claiming it is an original, knowing it is fake. The

buyer can cancel the contract and claim damages.

Mistake in Contract Law

A mistake in a contract occurs when one or both parties have a
wrong belief about an important fact related to the agreement.
Mistakes can make a contract void or voidable, depending on the
type of mistake.

Types of Mistake

1. Mistake as to Identity
Happens when one party is mistaken about the identity of the
other party.

This usually occurs in contracts where identity is a key factor,

such as fraud cases.

Effects:
If identity is essential to the contract, it is void (invalid from the
beginning).

If identity is not essential, the contract remains valid.

Example:
A intends to contract with a famous businessman, but a fraudster
pretends to be that businessman and signs the contract. This
contract is void due to mistaken identity.

2. Mistake as to Subject Matter

Happens when both parties misunderstand an important fact
about the contract’s subject matter.

Can be related to quality, quantity, or existence of the subject

matter.

Types & Effects:

I. Mistake about Existence – If the subject matter does not
exist, the contract is void.

Example: A sells a ship to B, but the ship has already sunk.

The contract is void.

II. Mistake about Identity of Subject Matter – If both parties

refer to different things unknowingly, the contract is void.

Example: A agrees to buy one “antique vase” from B,

thinking it is a different vase.

III. Mistake about Quality – If both parties wrongly believe an

item has a certain quality, the contract may be voidable.
Example: A buys a painting from B, believing it is an original, but
both were unaware it is fake.

3. Mistake as to the Nature of Promise

Happens when one party misunderstands what they are agreeing
to.

Often occurs due to misinterpretation of contract terms or fraud.

Effects:

If the mistake is due to fraud or misrepresentation, the contract

is voidable by the affected party.

If it is due to negligence, the contract is usually binding.

Example:

A signs a legal document thinking it is just a receipt, but it is

actually a loan agreement. If A was misled, the contract is
voidable.