Every single day, we enter into contracts — knowingly or unknowingly. From clicking “I Agree” on an app to renting a flat, buying a laptop, or accepting a job offer — all these are contracts.

But imagine a world without contract law —

No accountability for breach of promise.
No remedy if someone refuses to pay for goods delivered.
No enforceable rules for business or employment.

That’s exactly why the Indian Contract Act, 1872 (hereafter “ICA”) is called the backbone of commercial and civil law in India.

It provides a legal framework for promises, transactions, and relationships — ensuring that people and businesses act with fairness, consent, and responsibility.

In simple words:

“The Indian Contract Act is the law that makes promises enforceable and protects both sides of an agreement.”

Historical Background & Enactment

Before 1872, India followed English common law through the British courts established in Calcutta, Madras, and Bombay.

There was no uniform statute governing contracts across the country.
This caused confusion — as different regions applied different rules of equity, custom, and morality.

The Birth of the Indian Contract Act

To bring uniformity and legal certainty, the Law Commission of India (1866) drafted a bill on contracts.
It was introduced to the Legislative Council of India, and after several revisions, it became law on:

1st September 1872(as Act No. 9 of 1872)

Initially, the Act included:

General Principles of Contracts
Contract Relating to Sale of Goods
Contract Relating to Partnership

Later, the Sale of Goods Act, 1930, and Indian Partnership Act, 1932, were enacted separately, leaving only the **General

Enactment and Structure of the Act

Short Title: The Indian Contract Act, 1872
Act No.: 9 of 1872
Commencement: 1st September 1872
Extent: Applicable to the whole of India (except Jammu & Kashmir before 2019, now extended)
Governing Principle: Based on English Contract Law (adapted for Indian context)

Original Coverage

When originally enacted, the Act contained 266 sections, divided into three broad categories:

General principles of the law of contract (Sections 1–75)
Contracts relating to sale of goods (Sections 76–123)
Contracts relating to partnership (Sections 239–266)

Later, these portions were separated into independent laws:

Sale of Goods Act, 1930
Indian Partnership Act, 1932

Hence, the Indian Contract Act today primarily deals with:

General principles of contracts (Sections 1–75)
Special contracts – Indemnity, Guarantee, Bailment, Pledge & Agency (Sections 124–238)

Scope and Extent (Section 1)

Section 1 lays down the foundation of applicability:

“This Act may be called the Indian Contract Act, 1872, and it shall extend to the whole of India.”

Key Points:

The Act extends to the entire territory of India, including Jammu & Kashmir (post–J&K Reorganisation Act 2019).
It governs all civil and commercial agreements, whether written, oral, or implied.
It does not apply to certain special relationships governed by other statutes — like employment laws, company laws, or consumer protection laws — though contractual principles still apply within those contexts.

Simplified Understanding

Aspect	Explanation
Name	Indian Contract Act, 1872
Effective Date	1 September 1872
Geographical Extent	Whole of India
Purpose	To define, regulate and enforce lawful agreements
Type of Law	Civil & Commercial Law
Legal Nature	Substantive law – defines rights and obligations

Meaning and Basic Definitions (Section 2)

Section 2 of the Act is the heart of contract terminology — it defines the building blocks used throughout the law.

Here’s how to remember them easily

Term (Section 2)	Definition (Simplified)	Example / Explanation
(a)Proposal/ Offer	When one person signifies willingness to do or abstain from doing something with a view to obtaining assent.	A offers to sell his car to B for ₹5 lakh.
(b) Promise	When the person to whom the proposal is made signifies assent, the proposal becomes a promise.	B accepts A’s offer — now it’s a promise.
(c)Promisor / Promisee	The person making the promise is the promisor, the person accepting is the promisee.	A = Promisor, B = Promisee.
(d) Consideration	Something in return (quid pro quo).	Money for goods, service for payment, etc.
(e) Agreement	Every promise or set of promises forming consideration for each other.	A promises to deliver goods; B promises to pay.
(f)Reciprocal Promises	Promises forming consideration for each other.	Both parties perform obligations mutually.
(g)Void Agreement	Not enforceable by law.	Contract to commit crime = void.
(h) Contract	Agreement enforceable by law.	Valid agreement + legal enforceability = Contract.
(i)Voidable Contract	Enforceable by one party, voidable at option of other.	Contract under undue influence.
(j) Void Contract	Ceases to be enforceable.	Contract becomes impossible to perform.

Memory Trick for Students:

“Every Contract = Agreement + Enforceability by Law.”

But every agreement is not a contract — only those which meet legal conditions.

Importance of Section 2 Definitions

The entire Contract Act revolves around Section 2.
Every subsequent section (from offer to breach) depends on these definitions.
Courts interpret contracts by first identifying offer, acceptance, consideration, and intention as per these clauses.

Example:

If a company issues a job offer and the candidate accepts via email, it becomes a promise (Sec 2b).
When the candidate joins and starts working for salary (consideration), it becomes a contract (Sec 2h).

Thus, the Act transforms social promises into legal obligations only when conditions under Section 10 (valid contract essentials) are met.

Evolution & Amendments Over Time (Brief Overview)

Though enacted in 1872, the Act has evolved through judicial interpretations and minor amendments.
Its language has been retained due to its universality and flexibility, but several provisions have been clarified by courts and later statutes.

Year / Period	Change / Development	Effect on Law
1899	Removal of Sale of Goods provisions	Formed the basis of the Sale of Goods Act, 1930
1932	Removal of Partnership provisions	Led to Indian Partnership Act, 1932
1950–2000	Judicial updates – e.g., Mohori Bibee, Chinnaya v. Ramaya, Hadley v. Baxendale applied	Strengthened case-law foundation
2000	Recognition of e-contracts via Information Technology Act, 2000	Legalized digital offers & acceptances
2015–2024	Court rulings on electronic consent, WhatsApp communications, and arbitration clauses	Adapted contract law for digital India

Purpose and Scope of the Indian Contract Act

The purpose of the Indian Contract Act (ICA) is simple yet powerful —
to ensure fairness, accountability, and enforceability in every lawful promise made between two or more persons.

In Essence:

It defines the rights and duties of parties.
It protects honest performance and penalizes breaches.
It promotes economic confidence and commercial growth.

Example:

When you book a flight online —

You offer to pay.
The airline accepts and confirms.
Both perform their part.

If one side fails (say, no ticket issued or refund denied), the Contract Act provides the legal remedy — either specific performance or compensation.

Key Amendments and Legislative Evolution

The Indian Contract Act has stood the test of time — over 150 years old yet constantly relevant.
Although the Act itself has not undergone frequent textual amendments, its scope and interpretation evolved through judicial reforms, separate legislations, and technology-driven updates.

Year / Act / Development	Nature of Change	Impact on Contract Law
1930	Sale of Goods Act separated (Sections 76-123 repealed)	Created independent law for goods transactions
1932	Indian Partnership Act enacted (Sections 239-266 removed)	Distinct statute for partnership contracts
1950-1990	Supreme Court interpretations on consent, coercion, frustration	Refined concepts like free consent, impossibility
2000	Information Technology Act 10-A added	Legal recognition of e-contracts, digital signatures
2015 onwards	Judicial acceptance of online evidence (emails, WhatsApp chats)	Electronic communication = valid offer/acceptance
2021-2024	Cases under Arbitration & Conciliation Act 1996 interpreting contract clauses	Reinforced freedom of contract, arbitration validity

Today, the Indian Contract Act is a hybrid of classic principles + digital interpretation.

Relevance of the Contract Act in Modern India

Even in 2025, the ICA continues to be the backbone of every civil and commercial transaction in India.

It governs not only paper agreements but also electronic, implied, and business-to-consumer contracts.

Why It Still Matters:

Legal foundation for trade, employment, and finance.
Protection for consumers and professionals alike.
Confidence for investors and startups (especially in tech & fintech).
Compatibility with global models (like UNIDROIT & English Law).

Real-World Applications:

Everyday Scenario	Type of Contract	Relevant Sections
Renting a flat	Lease = agreement + consideration	Sec 10, 23, 73
Hiring a freelancer	Service contract	Sec 2(d), 73
Online purchase	E-contract via IT Act 10-A	Sec 2(a), 2(b)
Taking insurance	Indemnity contract	Sec 124-125
Bank loan with guarantor	Guarantee contract	Sec 126-147

Relationship with Other Laws

The Indian Contract Act forms the base upon which many other civil and commercial statutes are built.

Connected Law	How It Relates to ICA
Sale of Goods Act, 1930	Applies ICA’s principles to sale transactions
Partnership Act, 1932	Applies contract principles to partnership agreements
Specific Relief Act, 1963	Provides remedies like specific performance & injunction
Arbitration and Conciliation Act, 1996	Enforces arbitration clauses in contracts
IT Act, 2000	Recognises digital contracts & signatures
Consumer Protection Act, 2019	Deals with unfair contract terms in consumer agreements

Thus, the ICA is not isolated — it is the root law that connects and influences every branch of private law.

Essence of Contract Law – In Simple Terms

All contracts are agreements, but not all agreements are contracts.

To become a valid contract, an agreement must fulfil these essentials (as per Section 10):

Offer and Acceptance – must be lawful and complete.
Free Consent – no coercion, fraud, undue influence, or mistake.
Lawful Consideration and Object.
Capacity to Contract – major, sound mind, competent.
Intention to Create Legal Relation.
Not Expressly Declared Void.

Element	Meaning in Simple Words	Example
Offer	A’s intention to do something for B	A offers to sell a bike
Acceptance	B’s agreement to A’s offer	B accepts and pays
Consideration	Something in return	Money for bike
Capacity	Legal ability to contract	Minor cannot sign
Consent	Must be free & voluntary	Signing without pressure
Object	Must be lawful	Cannot sell smuggled goods

India’s Shift to Digital Contracts (2020–2025)

The rise of fintech, e-commerce, and AI-driven services has transformed contract execution.
Key updates relevant to students and professionals:

E-Contracts Valid: Recognised under IT Act 2000, Section 10-A.
Digital Signatures: Legal authentication through Certifying Authorities.
Electronic Records: Valid evidence under Indian Evidence Act Section 65-B.
WhatsApp and Email Offers: Courts accept digital communications as binding (Trimex v. Vedanta, 2010; SCC Online 2022 rulings).
Smart Contracts (2024 onwards): Legally recognised as self-executing agreements, though still evolving under Information Technology Rules 2023.

Note: For CS, CA and Legal Practitioners, this means every board resolution, MoU or vendor agreement can be validly executed digitally — provided the intention and consent are clear.

Importance of the Indian Contract Act in Legal Education

For students (CS, CA, CMA, LLB, AIBE), this Act is foundation-level law.

It forms the base for:

Corporate Laws (Companies Act 2013 – contracts by company)
Tax Laws (contractual liability & consideration rules)
Insolvency Law (contractual rights under IBC)
Intellectual Property Law (licensing agreements)

Understanding this Act builds:

Legal reasoning skills
Drafting and negotiation abilities
Awareness of rights and liabilities in everyday transactions

Summary Table : Overview

Topic	Section Reference	Key Takeaway (2025 Update)
Extent & Commencement	Sec 1	Applies to entire India post 2019
Key Definitions	Sec 2 (a-j)	Core concepts: Offer, Acceptance, Contract etc.
Essentials of Valid Contract	Sec 10	Offer + Acceptance + Consent + Lawful Object
Digital Contracts	IT Act 2000 10-A	Electronic communication = valid contract
Separation of Special Acts	1930, 1932	Sale & Partnership Acts derived from ICA
Judicial Evolution	1950–2024 cases	Adapted for modern business & tech context

Essence of a Valid Contract – Section 10

Section 10 of the Act defines what makes an agreement a contract:

“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

Key Elements under Section 10

Essential	Meaning	Example
Offer & Acceptance	Lawful proposal accepted lawfully	A offers car for ₹5 L → B accepts
Competent Parties	Major, sound mind, not disqualified	Minor’s agreement = void
Free Consent	Consent without coercion, fraud, etc.	Signing under threat = voidable
Lawful Consideration	Something in return (quid pro quo)	Payment for service
Lawful Object	Not immoral or opposed to public policy	Smuggling contract = void
Not Void	Must not fall under prohibited agreements	Wagering = void in India

NOTE: A contract = Agreement + Enforceability by law.

If even one essential is missing, it’s only an agreement, not a contract.

Offer / Proposal – Sections 2(a) & 3–9

An offer (proposal) is the starting point of a contract.

Definition – Section 2(a):

“When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other, he is said to make a proposal.”

Types of Offers

Type	Meaning	Example
Specific Offer	Made to a particular person	A offers job to B → only B can accept
General Offer	Made to the public	Carlill v. Carbolic Smoke Ball Co.
Express Offer	Written / spoken words	Verbal offer to sell house
Implied Offer	Through conduct / act	Boarding a bus → offer to pay fare
Cross Offer	Two identical offers cross each other	A offers to sell / B offers to buy same time → no contract
Counter Offer	Varying the terms of offer → new offer	A offers ₹10 L → B says ₹9 L = counter-offer

Rules of a Valid Offer

Must show clear intention to create legal relationship.
Must be definite and certain.
Must be communicated to the offeree.
Can be revoked before acceptance (Sec 5).
Cannot be accepted by silence (Sec 7).

Case Law: Carlill v. Carbolic Smoke Ball Co. (1893)

A company advertised £100 reward to anyone using their medicine and still catching flu.
Mrs Carlill used it, got flu, claimed reward.
Court held: Offer to world → valid when acted upon.

Note: General offers can be accepted by conduct if terms are clear.

Communication of Offer – Sections 3 to 9

Communication plays a vital role in deciding when a contract begins and when it ends.

Provision	Meaning	Example
Section 3	Offer, acceptance, and revocation must be communicated.	Letter or email must reach addressee.
Section 4	Offer is complete when it comes to knowledge of offeree.	Offer valid once email delivered.
Section 5	Offer can be revoked anytime before acceptance is complete.	Revocation before reply = valid.
Section 6	Offer lapses by revocation, death, or expiry.	Offer withdrawn / time expired = no contract.
Section 7	Acceptance must be absolute and unqualified.	Counter-offer = rejection.

Example: A sends offer by post on 1 June; B receives on 3 June.
A can revoke anytime before 3 June — after that, offer stands.

Acceptance – Section 2(b)

“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.”

When accepted, proposal becomes a promise.

Essentials of Valid Acceptance

Must be given by the person to whom offer was made.
Must be absolute, unconditional, and in prescribed mode.
Must be communicated properly.
Must be within time limit or reasonable time.
Once accepted, cannot be revoked (Sec 5).

Aspect	Example
Absolute acceptance	A offers ₹10 L → B accepts ₹10 L = valid
Conditional acceptance	B accepts “if bank loan approved” = counter-offer
Silent acceptance	“If you don’t reply, I assume acceptance” = invalid
Mode	If offer specifies email, acceptance by WhatsApp may be invalid unless accepted by conduct

Case Law – Felthouse v. Bindley (1862)

Silence does not amount to acceptance.

You cannot bind someone merely because they didn’t refuse.

Timing of Communication

Stage	Offeror	Offeree
Communication of acceptance	Complete when acceptance posted	Complete when acceptance received

This distinction is vital in postal or digital contracts.

Revocation of Offer and Acceptance

Stage	When Valid	Reference
Offer revocation	Anytime before acceptance reaches offeror	Sec 5
Acceptance revocation	Anytime before it reaches offeror	Sec 5 & 6

Practical Example

A offers job via email on 10 June.

B accepts via post on 12 June but sends revocation email on 13 June before letter reaches A.
→ Acceptance revoked = No contract.

Consideration – Sections 2(d) & 25

Definition (Sec 2(d))

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or does or promises to do so, such act is called consideration.”

In simple words: “Something in return.”

Rules Regarding Consideration

Must move at the desire of promisor.
Can move from promisee or any other person.
Can be past, present, or future.
Need not be adequate – only lawful.
Must be real and possible.
Must not be unlawful or immoral.

Type	Meaning	Example
Past	Already done before promise	B repairs A’s car → A promises ₹500 later
Present (executed)	At same time as promise	Cash payment for delivery
Future (executory)	To be done later	Advance order for supply

Case Law – Chinnaya v. Ramaya (1882)

Consideration can move from a third person; still valid.

Agreements Without Consideration – Section 25

General rule: “No consideration, no contract.”

But Section 25 provides three exceptions.

Exception	Meaning	Example
Natural love & affection	Written & registered agreement between close relatives	Father promising gift to son in writing
Past voluntary services	Promise to compensate voluntary act	Rewarding someone who saved your property
Promise to pay time-barred debt	Must be in writing & signed	A promises to repay old loan after limitation period

NOTE: Consideration distinguishes legal contracts from moral promises.

Doctrine of Privity of Contract

Only parties to a contract can sue or be sued under it.
Third parties cannot claim rights unless expressly provided.

Case Law – Dunlop v. Selfridge (1915)

Manufacturer couldn’t sue retailer because no direct contractual relationship existed.

Modern Exception:

Beneficiary clauses, trust arrangements, or insurance contracts may allow third-party claims.

Free Consent – Sections 13 to 19 (Preview)

Consent means “meeting of minds” — parties must agree on the same thing in the same sense (consensus ad idem).

Section 13 – Defines consent.

Section 14 – Defines free consent.

Consent is not free if caused by:

Coercion (Sec 15)
Undue Influence (Sec 16)
Fraud (Sec 17)
Misrepresentation (Sec 18)
Mistake (Sec 20–22)

Summary Table

Concept	Section	Core Idea	Case Law / Example
Essentials of Valid Contract	10	6 elements of enforceability	—
Offer / Proposal	2(a), 3-9	Expression of willingness	Carlill v. Carbolic Smoke Ball Co.
Acceptance	2(b), 7	Assent to proposal	Felthouse v. Bindley
Consideration	2(d), 25	Something in return	Chinnaya v. Ramaya
Communication & Revocation	3-6	Offer/acceptance timing	Practical digital examples
Privity of Contract	Common Law	Only parties can sue	Dunlop v. Selfridge

Free Consent — Sections 13 to 22

Section 13 — Consent:

“Two or more persons are said to consent when they agree upon the same thing in the same sense.”
(Consensus ad idem = Meeting of minds)

Section 14 — Free Consent:

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

If Consent is Not Free → Contract is Voidable

It remains valid until the aggrieved party cancels it (Sec 19).

Factor vitiating consent	Meaning (simplified)	Section	Effect on Contract	Example / Case Law
Coercion	Use or threat of force to obtain consent	Sec 15	Voidable at option of party coerced	Threat to sign loan papers → Ranganayakamma v. Alwar Setti (1889)
Undue Influence	Dominating will of weaker party for unfair advantage	Sec 16	Voidable	Spiritual guru taking property → Inche Noriah v. Shaikh Allie (1929)
Fraud	Intentional deception to induce agreement	Sec 17	Voidable + damages	Concealing material facts → Derry v. Peek (1889)
Misrepresentation	False statement believed true by party	Sec 18	Voidable (no damages)	A sells damaged car thinking it fine
Mistake of Fact	Both parties mistaken about essential fact	Sec 20–22	Void (ab initio)	Sale of non-existent goods

Note: If consent is obtained by fraud or coercion → voidable.
If no consent at all (mistake of identity etc.) → void contract.

Competency to Contract — Sections 11 & 12

A valid contract requires parties competent to contract.

Section 11 states:

“Every person is competent to contract who is of the age of majority, of sound mind, and not disqualified by any law.”

Competency Condition	Meaning	Effect if Absent	Leading Case
Age of Majority	18 years (21 if guardian appointed)	Minor’s contract = void ab initio	Mohori Bibee v. Dharmodas Ghose (1903)
Sound Mind	Able to understand & judge contract	Contract void if unsound at time of agreement	Sec 12
Not Disqualified	E.g., Alien enemy, insolvent, convict cannot contract	Void agreement	—

Key Rules for Minors

Minor = cannot ratify contract after majority.
Minor can be beneficiary (e.g., insurance).
Minor’s guardian may enter valid contracts for necessaries (Sec 68).

Example:

A 16-year-old signs car purchase agreement → Void ab initio.
Dealer cannot sue minor for price, but can recover car under necessaries principle.

Lawful Object and Consideration — Sections 23 & 24

Even if consent is free and parties competent, the object and consideration must be lawful.

Section 23 — When Consideration or Object is Unlawful

An agreement is unlawful if its object or consideration is:

Forbidden by law,
Defeats the provisions of any law,
Fraudulent,
Involves or implies injury to person or property, or
Immoral or opposed to public policy.

Ground	Illustration (Simplified)	Legal Status
Forbidden by law	Contract to sell smuggled gold	Void
Defeats law	Agreement to evade tax	Void
Fraudulent	Agreement to hide assets from creditors	Void
Injury	Agreement to injure third party	Void
Immoral	Contract for illicit cohabitation	Void
Opposed to public policy	Restraint of marriage / trade	Void

Section 24 — Partial Illegality

If any part of consideration or object is unlawful, the whole agreement is void, unless the illegal portion can be severed.

Case Law — Pearce v. Brooks (1866):

Contract to supply carriage to a prostitute for immoral use = void.

Note: Motive ≠ Object — Motive may be bad but not always illegal.
Object must itself be lawful under Sec 23.

Void and Voidable Agreements — Sections 25 to 30

Meaning Recap

Type	Definition	Legal Status
Void Agreement (Sec 2g)	Not enforceable by law	No legal effect from start
Voidable Contract (Sec 2i)	Enforceable by one party only	Valid until rescinded
Void Contract (Sec 2j)	Was valid once but ceased to be enforceable	Becomes void after impossibility or expiry

Void Agreements — Specific Instances

Section	Provision	Illustration
25	Agreement without consideration (except 3 exceptions)	Promise to gift money without writing = void
26	Restraint of Marriage	A promises B not to marry = void
27	Restraint of Trade	Employee barred for life from competing = void (except partnership cases)
28	Restraint of Legal Proceedings	No court clause = void, arbitration clause = valid
29	Uncertain Agreements	A promises to sell goods “when he feels like it” = void
30	Wagering Agreements	Bet on match = void (but not illegal in Maharashtra etc.)

Case Law — Nordenfelt v. Maxim Nordenfelt Guns Co. (1894):

Partial restraint of trade reasonable in scope → valid.
Indian law (Section 27) is stricter — only limited exceptions allowed.

Difference Between Void and Voidable Contracts

Basis	Void Contract	Voidable Contract
Enforceability	Never enforceable	Enforceable by one party till rescinded
Origin	Invalid from beginning	Valid till defect found
Cause	Lack of essential element	Defect in consent (coercion etc.)
Example	Minor’s agreement	Contract under undue influence

Contingent and Uncertain Agreements (Preview)

Section 31 defines contingent contracts — to be performed only when a certain event happens or not happens.
(e.g., Insurance, Lotteries, Performance Bonds)
Detailed analysis comes under Part C.

Summary Table

Concept	Section(s)	Key Idea	Leading Case
Free Consent	13–22	Consent must be free from defects	Derry v. Peek
Competency to Contract	11–12	Major + sound mind + not disqualified	Mohori Bibee
Lawful Object & Consideration	23–24	Must not be illegal or immoral	Pearce v. Brooks
Void Agreements	25–30	Agreements declared void by Act	Nordenfelt v. Maxim Co.

Types of Contracts & Performance

Introduction – Why “Type of Contract” Matters

Every legal transaction cannot be measured with the same yardstick. Some contracts are valid and enforceable, others void or uncertain. Some are performed instantly, while others depend on a future event.

That’s why the Indian Contract Act (ICA) classifies contracts in multiple ways —
based on validity, formation, and performance.

Understanding these categories helps both:

Students (for exam & conceptual clarity), and
Professionals (for practical legal drafting and enforcement).

Classification of Contracts – The Three Bases

A. Based on Validity

Type	Meaning (Simplified)	Example
Valid Contract	Legally enforceable agreement fulfilling all essentials of Sec 10	A agrees to sell his car to B for ₹5 Lakh
Void Contract	Becomes unenforceable due to supervening impossibility or illegality	A agrees to export to Country X → war declared → void
Voidable Contract	Valid until avoided by one party (due to lack of free consent)	A coerces B to sign contract → B can rescind
Illegal Contract	Forbidden by law, criminal or immoral	Drug supply contract
Unenforceable Contract	Otherwise valid but cannot be enforced due to technical defect	Oral contract requiring written proof

Note:All illegal contracts are void, but all void contracts are not necessarily illegal.

B. Based on Formation

Type	Meaning	Example
Express Contract	Terms are expressed in words, spoken or written	Employment offer letter
Implied Contract	Arises from conduct or circumstances	Passenger taking a bus
Tacit Contract	Inferred from behavior without direct expression	ATM withdrawal – implied consent
E-contract / Digital Contract	Concluded electronically (emails, apps, portals)	Online shopping on Amazon
Quasi-Contract	Obligation imposed by law (Sections 68–72)	Payment for necessaries to minor

C. Based on Performance

Type	Meaning	Example
Executed Contract	Both parties have performed obligations	Cash sale of goods
Executory Contract	Yet to be performed by one or both parties	Future delivery order
Unilateral Contract	Only one party bound; other party’s act completes it	Reward for finding lost pet
Bilateral Contract	Both parties have reciprocal obligations	Sale of property with future payment

Modern Example:

Clicking “I Agree” on an app = E-contract.
Freelancer completing work for upfront pay = Executed Contract.
Insurance claim dependent on accident = Contingent Contract.

Contingent Contracts – Sections 31 to 36

These are among the most practical and exam-relevant provisions in contract law.

Section 31 – Definition

“A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.”

In Simple Words:

A contingent contract depends on a future uncertain event that is not part of the contract itself but connected to it.

Example:

A promises to pay B ₹50,000 if B’s house is destroyed by fire.
→ Fire = contingent event.

→ Payment = performance dependent on that event.

Features of a Contingent Contract

Feature	Explanation
Future event	Performance depends on future occurrence/non-occurrence
Uncertain event	Event may or may not happen
Collateral event	Event is independent of the contract itself
Enforceability	Becomes enforceable only when the event occurs
Void if impossible	If event becomes impossible, contract void

Rules Governing Contingent Contracts (Sections 32–36)

Section	Rule	Meaning / Illustration
Section 32	Enforcement contingent on happening of event	A agrees to pay if ship arrives safely → enforceable when ship arrives
Section 33	Enforcement contingent on non-happening of event	A promises to pay if ship does not return → enforceable when ship lost
Section 34	Future conduct of living person	A promises to pay if C marries D → if C dies unmarried → contract void
Section 35	Event happening within fixed time	A promises to pay if B returns within a month → void after month passes
Section 36	Impossible events	Promise conditional on impossible event → void ab initio

Example Set (for Students)

Scenario	Nature	Outcome
Insurance against fire	Contingent	Payable only if fire occurs
Bet on cricket match	Wagering, not contingent	Void under Sec 30
Sale “if loan approved”	Contingent on bank approval	Enforceable if loan sanctioned
Promise “if the sun rises from west”	Impossible event	Void ab initio

Case Law – N.P. Alagiri v. A. Munusamy (Madras HC, 2012)

Agreement dependent on sanction of bank loan.
Court held: Valid contingent contract, enforceable upon loan approval.

Difference:

Contingent contracts = lawful uncertainty
Wagering contracts = pure chance / speculation (Sec 30 – void).

Difference Between Contingent and Wagering Agreements

Basis	Contingent Contract	Wagering Agreement
Event	Future event collateral to contract	Purely uncertain event (chance)
Interest	Both parties have real interest in event	No real interest — only stake
Legality	Valid and enforceable	Void under Section 30
Example	Insurance contract	Betting on IPL match

Note:

The easiest way to differentiate:
Insurance = Contingent (for protection)
Bet = Wagering (for profit)

Contingent Contracts in Modern Context (2025)

With digital transactions, many business agreements now rely on contingent clauses:

Loan approvals, shipment delivery, project milestones, weather events, etc.
All these are contingent obligations.

Examples in Real Life

Scenario	Nature of Contingency	Contract Enforceable When
Amazon refund policy	Contingent on non-delivery	Order not delivered
Insurance payout	Contingent on accident/fire	Event occurs
Real estate deal	Contingent on RERA approval	Permission granted
Startup funding	Contingent on investor due diligence	Diligence report passed

Legal View (2025):

Indian courts increasingly recognize digital contingencies — such as automated performance triggers in smart contracts (e.g., payment release after milestone completion).

Case Law Analysis – Contingent & Wagering

Case Name	Principle Laid Down	Year / Citation
Babulal Agarwala v. Bharat Insurance Co.	Insurance contract is valid contingent contract	AIR 1954 Cal 379
Gherulal Parekh v. Mahadeodas Maiya	Wagering contracts void but not illegal	AIR 1959 SC 781
N.P. Alagiri v. A. Munusamy	Contingent on bank sanction → valid	2012 Mad HC
Ralli Brothers v. Cia Naviera	Contingent contract cannot be enforced when event impossible	AIR 1920 PC 140

Summary Table

Concept	Sections	Core Rule	Example / Case Law
Types of Contracts	—	Classified by validity, formation, performance	—
Contingent Contract	31	Dependent on uncertain event	Insurance
Rules	32–36	Event must be collateral, not chance	Shipping contract
Wagering Agreement	30	Void; no real interest	Betting
Case Laws	Multiple	Clarified enforceability	Gherulal Parekh, Alagiri v. Munusamy

Types of Contracts & Performance

Performance of Contracts – Sections 37 to 67

Once a contract is made, the next legal step is performance — actually doing what was promised.

Section 37:

“Parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under this Act.”

Types of Performance

Type	Meaning	Example
Actual Performance	Promisor fulfills his promise	A delivers goods, B pays price
Attempted Performance (Tender)	Offer to perform made but not accepted	A offers delivery; B refuses → A discharged

Tender of Performance – Section 38

Tender = offer to perform. If properly made and refused, the promisor is discharged from liability.

Condition for Valid Tender	Explanation
Must be unconditional	No conditions attached to offer
Must be at proper time & place	As per terms or reasonable timing
Must allow opportunity to inspect goods	Especially in sales contracts
Must be to proper person	Only promisee or authorized agent

Example:

A agrees to deliver goods to B on 1st May.
A reaches with goods; B refuses.
→ A has performed valid tender → contract discharged.

By Whom Contracts Must Be Performed – Sections 40 to 45

Section	Provision	Meaning / Example
40	Who must perform	Promisor, agent, or legal representative
41	Effect of accepting performance from third party	Acceptance = discharge of promisor
42	Devolution of joint liabilities	Joint promisors share liability equally
43	Joint promisors may compel contribution	One paying can recover share from others
45	Devolution of joint rights	Joint promisees must act together

Case Law – Madan Lal v. State of Punjab (1967):

Government accepted partial performance → discharged remaining parties.

Joint Promisors – Section 42 to 45 (Simplified Table)

Stage	Right / Obligation	Example
Joint liability	All promisors jointly liable	A, B, C borrow ₹30,000 → each liable for full
Contribution	One pays all → can recover proportionate	A pays full ₹30,000 → recovers ₹10,000 from B & C
Joint promisees	All must accept performance together	Payment valid only if all accept

Time, Place and Manner of Performance – Sections 46–50

Aspect	Section	Rule / Illustration
Time for performance (no fixed date)	46	Must perform within a reasonable time
When day fixed but no time mentioned	47	Performance during business hours
Place of performance	48	As agreed or as customary
Manner of performance	50	As specified or accepted manner

Note:

Time is not automatically “of the essence” unless expressly stated or implied by circumstances (e.g., perishable goods, tenders).

Performance of Reciprocal Promises – Sections 51–54

Reciprocal promises = mutual obligations by both sides.

Types

Type	Meaning	Example
Mutual & Dependent	One promise depends on other	Payment after delivery
Mutual & Independent	Each party bound separately	Two unrelated promises
Mutual & Concurrent	Simultaneous performance	Cash on delivery

Rules

One party can refuse to perform until the other performs his promise.
If one side prevents the other → contract voidable & compensation payable.

Case – K. N. Bhattacharjee v. State of Tripura (2001):

Government’s failure to provide land = prevented performance → voidable.

Contracts Which Need Not Be Performed – Sections 62–67

Certain contracts are discharged without actual performance.
This is called Discharge of Contract.

Section 62 – Novation, Rescission, Alteration

Mode	Meaning	Example
Novation	New contract replaces old	A owes B ₹10,000 → parties agree A will give laptop instead
Rescission	Mutual cancellation	Both parties agree to end contract
Alteration	Change in terms by mutual consent	Delivery date extended by agreement

Section 63 – Promisee May Dispense or Remit

Promisee can waive or accept lesser performance.

Example	Explanation
B owes A ₹5,000. A agrees to accept ₹3,000 in full satisfaction.	Valid – no new consideration required.

**Case Law – Ganga Saran v. Ram Charan (1952):**

Acceptance of part payment in full satisfaction valid under Sec 63.

Discharge of Contract – Overview

A contract is said to be discharged when the obligations come to an end.

Mode of Discharge	How It Happens	Illustration
By Performance	Promises fulfilled	Sale completed
By Agreement / Novation	Mutual cancellation / new contract	Changed terms
By Impossibility / Frustration	Performance becomes impossible	Natural disaster
By Operation of Law	Insolvency, death, merger	Death in personal skill contract
By Breach	One party refuses / fails	Refusal to deliver goods

Doctrine of Impossibility / Frustration – Section 56

One of the most important doctrines in Indian contract law.

Section 56:

“A contract to do an act which is impossible in itself is void.
A contract to do an act which becomes impossible, or unlawful, after it was made, becomes void when the act becomes impossible or unlawful.”

A. Initial Impossibility

If the act was impossible from the beginning, the contract is void ab initio.
e.g., Contract to discover treasure in a lake that doesn’t exist.

B. Supervening Impossibility (Frustration)

If performance becomes impossible after formation, it is discharged automatically.

Cause of Impossibility	Illustration
Destruction of subject matter	Music hall burns before event (Taylor v. Caldwell)
Death or incapacity	Personal skill contract (painter dies)
Change of law	Export becomes prohibited
War / Political restriction	Trade with enemy country forbidden
Act of God / Natural event	Flood destroys farmland contract

Case Law Highlights

Case	Principle
Taylor v. Caldwell (1863)	Destruction = frustration
Satyabrata Ghose v. Mugneeram Bangur & Co. (1954)	India’s leading case – frustration = impracticability, not just impossibility
Alopi Parshad v. Union of India (1960)	Mere hardship or delay ≠ frustration
Energy Watchdog v. CERC (2017, SC)	Price rise ≠ frustration; must be truly impossible

Note:

Section 56 doesn’t apply if event was foreseeable or self-created.

Effect of Frustration (Section 65)

When contract becomes void under Sec 56,
the party who received any benefit must restore or refund it.

Illustration	Result
A pays advance ₹1 Lakh for show → hall burns	A entitled to refund under Sec 65

Contracts Void Due to Impossibility – Quick Chart

Scenario	Section	Result
Act impossible at outset	56 (1)	Void ab initio
Act becomes impossible later	56 (2)	Void when event occurs
Self-induced impossibility	56 (3)	Not protected
Benefit received before voidness	65	Refund / restoration due

Modern Developments (2020–2025)

Indian courts have extended doctrine of frustration to cover:

COVID-19 lockdown contracts (2020–2022)
Force majeure clauses in e-agreements
Government contract extensions (NHAI, PSU)

Delhi HC (Halliburton Offshore v. Vedanta Ltd., 2020):

Held that force majeure ≠ automatic frustration — only where performance truly impossible.

E-Contracts and Frustration

Even in digital contracts, impossibility may arise (e.g., server breakdown, regulatory ban).
Such clauses are now commonly built into online agreements.

Summary Table

Concept	Section(s)	Meaning	Case / Example
Performance of Contract	37–45	Fulfillment of promises	—
Tender (Offer to perform)	38	Valid tender = discharge	A offers goods, B refuses
Reciprocal Promises	51–54	Mutual obligations	K.N. Bhattacharjee v. Tripura
Discharge by Agreement	62–67	Novation, rescission, alteration	Ganga Saran v. Ram Charan
Frustration	56	Contract void on impossibility	Taylor v. Caldwell, Satyabrata Ghose
Refund after voidness	65	Benefits restored	Advance refund after event

Quick Recap:

Performance is the soul of a contract — without it, no obligation fulfilled.
Tender discharges liability even if refused.
Discharge can occur by performance, consent, impossibility, or law.
Frustration applies only to truly unforeseeable impossibility, not inconvenience.
Section 65 ensures fairness — no one profits from a void contract.

Breach of Contract & Remedies

Meaning of Breach of Contract

Simple Definition:

When a party fails, refuses, or neglects to perform a promise according to the terms of a contract, it is called a breach of contract.

In law, breach means breaking the promise that the Act (Sec 37) requires to be performed.

Type of Breach	Explanation	Example
Actual Breach	Occurs when performance is due and a party fails to perform or performs defectively.	A agrees to deliver goods on 1 June, fails to deliver.
Anticipatory Breach	Occurs when a party clearly declares before due date that they will not perform.	A informs B before 1 June he won’t deliver goods.

Note:

Actual = When time comes.
Anticipatory = Before time comes.

Legal Consequences of Breach – Sections 73 to 75

These three sections (the last in Chapter VI) are the foundation of contractual remedies in India.

Section	Provision	Core Idea
73	Compensation for loss or damage caused by breach	“Injury must be foreseeable & direct.”
74	Compensation for breach where penalty stipulated	Liquidated damages & penalty governed by same principle of reasonableness.
75	Right to compensation for party rightfully rescinding	If you cancel validly, you can still claim loss.

Section 73 – Compensation for Loss or Damage Caused by Breach

Text Summary:

The party suffering from breach is entitled to receive, from the defaulting party, compensation for loss or damage caused, which naturally arose in the usual course of things from such breach, or which the parties knew was likely to result.

Key Principles

Direct loss only compensated.
Remote or indirect loss not compensated.
Duty to mitigate loss (injured party must minimize damage).
No punishment – only compensation.

Case Law – Hadley v. Baxendale (1854)

The most influential case under Section 73.

Facts	Held / Principle
Mill shaft sent for repair was delayed; plaintiff lost profits.	Damages recoverable only for loss that naturally arises or was contemplated by both parties.

Note:
This case is the root of the “foreseeability test.”
Loss must be natural and foreseeable at the time of contract, not after.

Illustration Table

Situation	Type of Loss	Compensation Allowed?
Goods not delivered → price difference in market	Direct loss	Yes
Loss of future contracts with third party	Remote loss	No
Delay in construction → rent loss clearly known to both	Contemplated loss	Yes

Doctrine of Mitigation of Damages

Even when breach occurs, the injured party must try to reduce his loss.
If he sits idle and lets loss grow, he cannot claim that part.

Case – British Westinghouse v. Underground Electric (1912)

Replacement of defective machinery reduced loss; plaintiff could claim only actual loss after mitigation.

Section 74 – Compensation Where Penalty Stipulated in Contract

Many contracts mention a fixed sum as penalty or liquidated damages for breach.

Section 74:

“When a sum is named in the contract as the amount to be paid in case of breach, the party complaining is entitled to reasonable compensation not exceeding the amount so named, whether or not actual loss is proved.”

Key Distinction: Penalty vs Liquidated Damages

Basis	Liquidated Damages	Penalty
Intention	Genuine pre-estimate of loss	Punitive to compel performance
Proof of Loss	Not mandatory if reasonable	May be reduced by court
Court’s Power	Can award up to stipulated sum if reasonable	Cannot enforce excessive sum
Example	1% per day delay charge	₹1 crore fine for 1-day delay

Note: Indian law under Sec 74 does not differentiate strictly between penalty and liquidated damages — both subject to reasonableness test.

Landmark Case – Fateh Chand v. Balkishan Das (1963, SC)

Facts	Held
Buyer forfeited advance after breach; seller claimed penalty.	Supreme Court held – Court may grant only reasonable compensation, not entire sum fixed in contract.

Case – ONGC v. Saw Pipes Ltd. (2003, SC)

Recognized that if contract specifies liquidated damages as genuine pre-estimate of loss, no need to prove actual damage.
Broadened scope of Sec 74 for commercial contracts.

Note:

Section 74 protects against both unfair penalties and unjust enrichment.
Compensation = what is reasonable and proportionate to actual harm.

Section 75 – Compensation to Party Rightfully Rescinding

When a party rightfully rescinds a contract under the Act (e.g., due to breach by other party), he is entitled to compensation for any damage sustained.

Example	Result
A agrees to supply goods; B refuses to pay advance. A rescinds contract.	A can recover loss of profit or expenses from B.

Practical View: Sec 75 balances fairness — you can end a contract lawfully and still recover damages.

Quantum Meruit – (As Much As Earned)

Though not in Sec 73–75 directly, courts often apply this principle for fairness.

Meaning:

When a party has performed part of a contract and is prevented from completing it, he can claim payment for the work already done.

Scenario	Example
Partial performance accepted by other party	Contractor finishes half project before termination → entitled to reasonable payment
Breach by employer before completion	Work done till date must be paid for

Case – Planche v. Colburn (1831) – Author hired to write book; publisher cancelled series → Author entitled to payment for work done.

Summary Table

Concept	Section(s)	Essence	Leading Case Law
Actual & Anticipatory Breach	Common Law	Non-performance / Refusal before due date	—
Compensation for Breach	73	Direct & foreseeable loss only	Hadley v. Baxendale
Penalty / Liquidated Damages	74	Reasonable compensation ≤ stipulated sum	Fateh Chand, ONGC v. Saw Pipes
Rescission Compensation	75	Party lawfully terminating can claim loss	Practical right
Quantum Meruit	Judicial Doctrine	Fair payment for partial work	Planche v. Colburn

Quick Recap

Sections 73–75 = foundation of damages in Indian law.
Loss must be real, direct, and foreseeable.
Penalty clauses cannot be used for profit.
Rightful rescission still allows compensation.
Quantum meruit ensures no one is unjustly enriched.

Breach of Contract & Remedies

Anticipatory Breach of Contract

Meaning

An anticipatory breach occurs when before the time for performance, one party:

Refuses, or
Disables himself from performing the contract.

Simple Rule:

“A party announces or acts in such a way that he will not perform his promise when the time comes.”

Type	Meaning / Illustration
Express Repudiation	Direct refusal before due date. Example: A tells B before 1 June, “I won’t deliver your goods.”
Implied Repudiation	By conduct making performance impossible. Example: A sells goods to third party after agreeing to sell to B.

Legal Options for the Aggrieved Party

When anticipatory breach occurs, the other party has two choices under Section 39:

Option	Effect	Illustration
Treat contract as rescinded immediately	Sue for damages right away	B files case as soon as A refuses
Keep contract alive till due date	Wait to see if party changes mind; risk is if event occurs making performance impossible	B waits till 1 June — but if event frustrates, no damages

Case – Hochster v. De La Tour (1853):

A tour guide’s contract cancelled before start date.
Held: He could sue immediately for anticipatory breach.

Practical Example (2025 Edition):

Freelance agreement: Client emails on 15 March cancelling project due on 1 April.
→ Developer may immediately treat it as breach and sue for loss of profit.
E-commerce pre-order: Seller refuses to dispatch on release date — buyer may rescind & claim refund.

Remedies Available for Breach of Contract

Remedies = Legal tools available to the injured party to enforce rights or recover losses.

Under Indian law, remedies arise from:

The Indian Contract Act (Secs 73–75)
The Specific Relief Act, 1963 (as amended in 2018)

A. Damages (Already Covered in Secs 73–75 Recap)

Compensatory, not punitive.
Must be direct, certain, and foreseeable.
Can be nominal, liquidated, or exemplary depending on case.

B. Specific Performance (Specific Relief Act, 1963, Secs 10 & 14)

Meaning:
A court order compelling the defaulting party to perform the contract exactly as promised, rather than pay damages.

When Granted (Post-2018 Amendment)	When Refused
– No monetary substitute adequate	– Personal service contracts
– Subject matter unique (e.g., land, art)	– Continuous supervision needed
– Public interest served	– Impossible performance

Case – Adhunik Steels Ltd. v. Orissa Manganese (2007)

Specific performance not granted when damages suffice.

Case – K. Narendra v. Riviera Apartments (1999)

Court grants specific performance when contract is clear, lawful, and equitable.

Note:
After 2018 amendment, specific performance is now the rule; damages are secondary in many commercial contracts.

C. Injunction (Specific Relief Act, 1963, Secs 36–42)

Meaning:
An injunction is a court order preventing a party from doing something that violates contractual terms.

Type	Purpose / Illustration
Prohibitory Injunction	Stops breach before it happens. Example: Court stops ex-employee from sharing trade secrets.
Mandatory Injunction	Compels reversal of wrongful act. Example: Order to return confidential documents.
Interim / Temporary Injunction	Granted during litigation to maintain status quo.

Case – American Cyanamid Co. v. Ethicon Ltd. (1975)

Set guidelines for granting temporary injunctions — balance of convenience, irreparable harm, prima facie case.

Note:

In contracts involving intellectual property, trade secrets, and non-disclosure, injunctions are more effective than damages.

Rescission (Under Sec 75 of ICA & Sec 27 of Specific Relief Act)

Meaning:
Cancellation of contract and restoration of parties to their original position.

When Allowed	Effect
Consent obtained by coercion, fraud, mistake	Contract voidable; injured party can rescind
Anticipatory breach	Aggrieved party may rescind & claim loss

Case – Ouseph Poulo v. Catholic Union Bank (1965)

Court held that rescission restores status quo ante — no party gains unfair advantage.

Restitution (Section 65 of ICA)

Meaning:
When a contract becomes void or is rescinded, the party who received any benefit must return it or compensate.

Example	Result
Advance payment returned after contract cancelled	Benefit restored
Deposit retained without cause	Refund ordered under Sec 65

Insight:

Restitution = Fairness principle → “No one should profit from a void or broken contract.”

Modern Remedies – Digital & Business Context (2020–2025)

The rise of e-contracts and cross-border digital deals brought new challenges.
Indian courts and arbitral tribunals have adapted traditional principles to modern realities.

Scenario	Type of Remedy Applied	Legal Basis
Cloud-service provider fails to deliver uptime	Damages for loss of business	Sec 73 + IT Act 10-A
Startup NDA violated by ex-employee	Injunction for confidentiality breach	Specific Relief 38
Online vendor cancels pre-order	Refund + compensation	Sec 75 + Consumer Protection Act 2019
Pandemic supply chain disruption	Force Majeure / Frustration	Sec 56 + contract clause

Case – Halliburton Offshore v. Vedanta Ltd. (Delhi HC 2020)

COVID-19 lockdown justified extension, but not automatic waiver.
Court insisted on evidence of “impossibility, not mere inconvenience.”

Comparative Table – Remedies at a Glance

Remedy	Nature	Law / Section	Purpose	Example / Case
Damages	Monetary	ICA 73–75	Compensate loss	Hadley v. Baxendale
Specific Performance	Equitable	SRA 10	Enforce exact act	K. Narendra v. Riviera
Injunction	Preventive	SRA 36–42	Stop or compel act	American Cyanamid
Rescission	Restorative	ICA 75 / SRA 27	Cancel & restore	Ouseph Poulo
Restitution	Restorative	ICA 65	Return benefits	Advance refund
Quantum Meruit	Equitable	Judicial	Payment for partial work	Planche v. Colburn

Key Differences – Damages vs Specific Performance

Basis	Damages	Specific Performance
Nature	Monetary	Equitable / Order to act
Purpose	Compensate for loss	Enforce promise
When preferred	Where money can cover loss	Where subject unique
Court’s Discretion	Mandatory if loss proved	Discretionary, equitable
Example	Breach of service contract	Sale of immovable property

Case Box – Top Indian Rulings (Damages & Remedies)

Case	Year	Principle Laid Down
Fateh Chand v. Balkishan Das	1963 SC	Court must award only reasonable compensation.
ONGC v. Saw Pipes Ltd.	2003 SC	Genuine pre-estimate = enforceable liquidated damages.
Kailash Nath Associates v. DDA	2015 SC	Forfeiture clause subject to proof of loss.
Energy Watchdog v. CERC	2017 SC	Frustration doctrine not easily invoked.
Halliburton v. Vedanta	2020 Delhi HC	Force majeure must show impossibility.

Summary – Remedies in Indian Contract Law

Category	Core Principle
Damages (Sec 73–75)	Compensate actual foreseeable loss
Specific Performance	Perform what was promised
Injunction	Prevent further breach
Rescission & Restitution	Undo unfair advantage
Quantum Meruit	Pay for work done
Force Majeure / Frustration	Excuse performance if truly impossible

Quick Recap:

Breach ≠ end of justice — law ensures fair remedy for loss.
Sections 73–75 = base; Specific Relief Act = machinery.
Courts focus on fairness + foreseeability + mitigation.
Digital contracts and AI-based agreements are governed by the same timeless principles — only the mode of proof has evolved.

Special Contracts

Meaning of Special Contracts

After defining general principles (Secs 1-75), the Act moves to specific types of contracts that occur frequently in business.

These include

Indemnity (Secs 124–125)
Guarantee (Secs 126–147)
Bailment & Pledge (Secs 148–181)
Agency (Secs 182–238)

They are called “special contracts” because they are special applications of the general principles of offer, acceptance, and consideration.

Note:
“All special contracts are contracts — but all contracts are not special contracts.”

Contract of Indemnity – Sections 124 – 125

Section 124 – Definition

“A contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.”

In simple words

Indemnity = Promise to protect from loss.

Parties Involved	Role / Meaning
Indemnifier	The person who promises to compensate loss (e.g., insurance company)
Indemnified / Indemnity Holder	The person protected from loss (e.g., policy holder)

Essentials of a Valid Contract of Indemnity

There must be a promise to compensate loss.
Loss must arise from conduct of promisor or another person.
It must satisfy Sec 10 (offer, acceptance, consent etc.).
Indemnity may be express (written / spoken) or implied (by conduct).
It covers loss from human acts (not natural calamities unless agreed).

When Right to Indemnity Arises (Section 125)

The indemnity-holder may recover from indemnifier –

Clause	Right to Recover	Example
(a)	All damages he is compelled to pay in a suit	Agent sued for actions done for principal
(b)	All costs reasonably incurred in defending the suit	Lawyer fees reimbursed if authorized
(c)	All sums paid under any compromise (if prudent and authorized)	Settlement amount paid by agent recovered from principal

Important Case Laws

Case	Principle Laid Down
Gajanan Moreswar v. Moreshwar Madan (1942 Bom)	Indemnity-holder can compel indemnifier to pay even before actual loss if liability certain.
Osman Jamall v. Gopal Purshotam (1928 Bom)	Indemnity includes implied contracts.
United India Insurance v. Lehru (2003 SC)	Insurance = contract of indemnity; company liable within policy terms.

Modern Examples (2025 Context)

Situation	Who is Indemnifier	Who is Indemnified
Corporate insurance policy	Insurance company	Business owner
Bank guarantee to supplier	Bank	Supplier receiving payment
Indemnity clause in Share Purchase Agreement	Seller	Buyer against past tax liabilities
Online platform protecting users against fraud	Platform	Buyer or seller on website

Insight:
Every insurance (except life insurance) is an indemnity contract — compensation only for actual loss, not profit.

Contract of Guarantee – Sections 126 – 147

Section 126 – Definition

“A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default.”

In simple language

Guarantee = A promise to pay or perform if another person fails.

Parties to a Contract of Guarantee

Party	Role	Example
Surety	Person who gives guarantee	C (the guarantor in bank loan)
Principal Debtor	Person whose default is guaranteed	A (the borrower)
Creditor	Person to whom guarantee is given	Bank or lender

Mnemonic: C for Creditor, P for Principal Debtor, S for Surety.

Essentials of a Valid Guarantee

Three parties & three agreements (Creditor–Principal, Creditor–Surety, Surety–Principal).
Consideration must exist – even benefit to principal debtor is enough.
Consent must be free (Secs 13-19).
Writing not mandatory but preferable.
Principal debt must be valid & enforceable.
Surety’s liability secondary – arises on default of debtor.

Section 127 – Consideration for Guarantee

“Anything done or any promise made for the benefit of the principal debtor is sufficient consideration to the surety.”

Illustration	Result
A borrows ₹1 lakh from bank; B guarantees repayment. Benefit to A = sufficient consideration for B.	Guarantee valid under Sec 127.

Kinds of Guarantees

Type	Meaning	Example
Specific Guarantee	For single transaction	Guarantee for one loan
Continuing Guarantee	Extends to series of transactions (Sec 129)	Guarantee covering revolving credit account
Retrospective Guarantee	For existing debt	Guarantee for past loan
Prospective Guarantee	For future transactions	Bank guarantee for next orders

Case Law – Bank of Bihar v. Damodar Prasad (1969 SC)

Creditor not bound to first exhaust remedies against principal debtor.
Surety’s liability is immediate and co-extensive with that of debtor (Sec 128).

Formula:
Surety’s liability = Principal Debtor’s liability (unless contract says otherwise).

Rights of Surety (Sections 140 – 145)

Right Type	Section	Meaning / Scope	Example
Right of Subrogation	Sec 140	After payment, surety gets same rights as creditor against debtor.	C pays loan → can recover from A.
Right of Indemnity	Sec 145	Surety can recover from principal debtor whatever he rightfully paid.	B guarantor pays ₹50k → recovers ₹50k from A.
Right to Securities	Sec 141	Surety entitled to benefit of all securities held by creditor.	Creditor must hand over collateral.
Right of Contribution	Sec 146	Co-sureties share burden equally.	Two guarantors → equal liability.
Right to Benefit of Credit Arrangements	—	Surety entitled to discharge if creditor varies terms without consent (Sec 133).	Bank extends loan period without surety’s approval → surety discharged.

Important Judgments

Case	Principle Laid Down
State Bank of India v. Yamuna Bai (2009)	Surety cannot escape liability once default occurs.
Punjab National Bank v. Sri Durga Jewelers (2010 Del HC)	Variation in terms without surety’s consent = discharge.
Industrial Finance Corp v. Cannanore Spinning (2002 SC)	Co-sureties share equally even if amounts differ.

Discharge of Surety (Sections 130 – 139)

Surety is freed from liability when any of the following occurs:

Mode of Discharge	Section	Illustration
By Revocation of Continuing Guarantee	Sec 130	Surety withdraws future liability by notice.
By Death of Surety	Sec 131	Automatically revokes future liability.
By Variance in Contract Terms	Sec 133	Change in loan terms without consent = discharge.
By Release of Principal Debtor	Sec 134	Surety also released.
By Creditor’s Act or Omission	Sec 139	Impairing surety’s remedy = discharge.

Case – State Bank of India v. Sakthi Textiles (2014 Mad HC):

Bank extended loan period without surety’s written consent → surety discharged under Sec 133.

Insight (2025):

In modern corporate loans, banks include non-revocation clauses in guarantees to prevent surety withdrawal.
Digital signing of guarantee documents (e-sign under IT Act § 10-A) is now legally valid.
AI-based lending platforms still require explicit surety consent — consent by click alone is not enough unless authenticated.

Comparison Table – Indemnity vs Guarantee

Basis	Indemnity	Guarantee
Number of Parties	2 (Indemnifier & Indemnified)	3 (Surety, Debtor, Creditor)
Purpose	To protect from loss	To assure performance / payment
Nature of Liability	Primary liability	Secondary liability
Number of Contracts	Single contract	Three interconnected contracts
Existence of Debt	May or may not exist	Must be existing or future debt
Example	Insurance policy	Bank loan guarantee

Memory Aid:

“Indemnity saves, Guarantee pays.”

Contract of Bailment – Sections 148 to 171

Section 148 – Definition

“A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.”

Party	Meaning	Example (2025 context)
Bailor	Person delivering goods	Car-owner leaving car at a garage
Bailee	Person receiving goods	Garage mechanic keeping car for repair

Simple Meaning: Temporary transfer of possession — not ownership.

Essentials of Valid Bailment

Delivery of movable goods only (not money unless treated as goods).
Purpose must exist (repair, safe-keeping, transport).
Return or disposal of goods after purpose fulfilled.
Contract (express / implied) must exist.
Ownership remains with bailor.

Duties of Bailee (Secs 151–156)

Duty	Explanation	Illustration
Take reasonable care (Sec 151)	Same care as of his own goods	Bank locker – bank must take proper safety measures
Not use goods without consent (Sec 154)	Unauthorized use → liable for damages	Using customer’s car for personal drive
Return goods after purpose (Sec 160)	Must return after job done	Dry-cleaner returns suit after cleaning
Return with accretion / profit (Sec 163)	Any increase must go to bailor	Cow delivered for milking → calf also returned

Case – Coggs v. Bernard (1703):

Bailee liable for negligence even if unpaid.

Rights of Bailee (Secs 170–171)

Right	Section	Meaning / Example
Lien – particular lien	170	Right to retain goods till paid for services on them (Example: Tailor keeps clothes till bill paid)
Lien – general lien	171	Available to bankers, factors, attorneys, etc. (Example: Bank keeps securities till all dues cleared)

Note:

Lien = “Right to retain,” not “Right to sell.”

Modern Examples (2025)

Scenario	Nature of Bailment
Ola Cab parking service keeping cars overnight	Bailment for custody
Dry-cleaning company handling garments	Bailment for repair
Courier company holding parcels	Bailment for transport
Data-storage company (physical servers)	Implied bailment of physical medium

Contract of Pledge – Sections 172 to 181

Section 172 – Definition

“The bailment of goods as security for payment of a debt or performance of a promise is called a pledge.”

Party	Name	Example
Pledger / Pawnor	One who pledges goods	Customer pledging gold to bank
Pledgee / Pawnee	One to whom goods pledged	Bank holding gold till loan repaid

Essentials of a Pledge

Delivery of possession (actual or constructive).
Goods pledged as security.
Ownership remains with pawnor.
Return after debt repaid.

Rights of Pawnee (Secs 173–176)

Right	Meaning	Illustration
Right to retain goods	Till payment of debt + interest + expenses	Bank keeps pledged gold
Right to recover debt	May sue pawnor personally	Lender sues for unpaid loan
Right to sell on default (Sec 176)	Must give reasonable notice before sale	Bank sells gold if borrower defaults

Case – Lallan Prasad v. Rahmat Ali (1967 SC):

Pawnee must return goods if debt not proved; cannot keep and sue simultaneously.

Duties of Pawnor

Repay debt with interest.
Compensate for expenses.
Receive goods after repayment.

Modern Examples

Scenario	Type of Pledge
Gold-loan by NBFC (Muthoot / Manappuram)	Traditional pledge
Demat shares pledged to bank	Electronic pledge under Depositories Act
Warehouse receipts pledged	Constructive pledge
Crypto assets pledged (under SEBI sandbox 2024)	New-age digital pledge

Contract of Agency – Sections 182 to 238

Section 182 – Definition

“An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done is called the principal.”

Party	Role	Example
Principal	Person authorizing	Company
Agent	Person representing	Sales manager
Third Party	Person dealing with agent	Customer

Essence: Principal acts through agent → “he who acts through another acts himself.”

Creation of Agency (Secs 183–191)

Mode	Explanation	Example
Express	Oral / written appointment	Power of Attorney
Implied	By conduct / circumstance	Shop manager regularly ordering goods
Agency by necessity	When emergency requires	Ship captain selling perishables to prevent loss
Agency by ratification	Principal approves unauthorized act	Owner accepts sale done without permission
Agency by estoppel	Principal’s conduct creates impression of authority	Company allows agent to act publicly → bound by acts

Authority of Agent (Secs 186–189)

Type of Authority	Meaning	Example
Actual authority	Express or implied by principal	Written authorization to sign contracts
Apparent / Ostensible	Third party reasonably believes agent has authority	Sales executive regularly negotiates price
Emergency authority (Sec 189)	Power to protect principal’s interest in urgent cases	Ship captain selling goods to avoid damage

Case – Freeman & Lockyer v. Buckhurst Park Properties (1964):

Company bound by acts of managing director acting within apparent authority.

Duties of Agent (Secs 211–218)

Duty	Explanation	Example
Follow instructions	Deviate only if urgent	Agent must adhere to contract terms
Show skill & diligence	Reasonable care expected	Broker must act prudently
Render accounts (Sec 213)	Must account for money received	Advertising agent keeps records
Not make secret profit	Must disclose extra commission	Real estate broker cannot keep hidden margin
Remit sums received	Must send funds to principal	Collection agent transfers payments promptly

Case – Panorama Developments v. Fidelis Furnishing (1971):

Company liable for acts of secretary within apparent authority.

Rights of Agent (Secs 219–225)

Right	Meaning / Scope	Example
Right to remuneration (Sec 219)	Commission or salary for lawful acts	Travel agent’s fee
Right of lien (Sec 221)	Retain goods till dues paid	Consignment agent keeps goods
Right to indemnity (Sec 222–223)	Principal must compensate for lawful acts done in good faith	Custom agent pays fine for client mistake
Right to compensation (Sec 225)	For injury caused by principal’s neglect	Agent injured while handling goods due to principal’s fault

Termination of Agency (Secs 201–210)

Mode of Termination	Meaning / Example
By act of parties	Mutual agreement / revocation
By completion of business	Purpose fulfilled
By lapse of time	Fixed term expired
By death or insanity	Either party dies or unsound mind
By insolvency of principal	Assets under court control
By revocation by principal (Sec 203)	With reasonable notice
By renunciation by agent (Sec 206)	Agent may quit with notice

Case – Pannalal Jivandas v. State Bank of India (1968 Bom HC):

Revocation without notice made principal liable for agent’s loss.

Digital-Era Examples (2025)

Scenario	Legal Nature
Food-delivery app courier	Agent of platform for delivery but independent for liability
E-commerce seller portal	Platform acts as agent for payment collection
Stock broker / mutual fund distributor	Registered agent of principal company under SEBI rules
Influencer marketing contract	Influencer acts as agent for brand representation

Comparison Table – Bailment vs Pledge vs Agency

Feature	Bailment	Pledge	Agency
Purpose	Safe-keeping / service	Security for debt	Representation
Ownership	With bailor	With pawnor	With principal
Possession	Temporary transfer	Security transfer	Acts done on behalf
Right to Sell	None	After default only	As per authority
Number of Parties	2	2	3
Example	Parking garage	Gold loan	Sales agent contract

Recap

Bailment = Temporary possession with duty of care.
Pledge = Security interest with right of sale on default.
Agency = Legal representation of principal in transactions.
These special contracts govern 90% of commercial relations in modern India.
The Act is still fully relevant for digital commerce, AI-based agents and blockchain pledges.

Modern Developments in Indian Contract Law

Evolution – From Paper Contracts to Digital Ecosystems

The Indian Contract Act, 1872, though Victorian in origin, remains astonishingly adaptable.
Every transaction—digital payments, app subscriptions, cloud services—still rests on offer + acceptance + consideration + intention to create legal relations.

Thought:
“The mode of contracting changed—from ink to clicks—but the principles never did.”

Why Modernization Became Essential

Old Scenario (1872-1990s)	Modern Reality (2020-2025)
Physical signature	Digital / e-signature
Postal offers	Instant electronic offers
Human agents	AI-based automated agents
Cash contracts	Crypto, e-wallet & UPI payments
Local trade	Global cross-border e-commerce

To meet this reality, India amended related laws—IT Act 2000, Specific Relief Act 2018, and introduced Digital Personal Data Protection Act 2023 (DPDPA)—without rewriting the Contract Act.

E-Contracts – The New Normal (IT Act 2000, Sec 10-A)

Legal Recognition

“Contracts formed through electronic means are valid, enforceable, and cannot be denied solely because they are electronic.”

Thus, an online click on “I Agree” or a DocuSign e-signature creates a binding contract if:

Offer + acceptance + consideration exist,
Consent is free, and
Terms are clear and accessible.

Types of E-Contracts

Type	Meaning	Example (2025 Context)
Click-wrap	User clicks “I Agree” to terms	App installation, OTT subscription
Browse-wrap	Terms available via link	“By using this site, you agree…”
Shrink-wrap	Packaged-software licence accepted on opening	Antivirus software CD
Smart Contract	Self-executing digital code	Crypto-based escrow, NFT sales

Leading Indian Cases

Case	Principle Laid Down
Trimex International v. Vedanta Aluminium Ltd. (2010 SC)	Email negotiations constitute valid contract.
RBI v. Secure Kredit Ltd. (2023 Del HC)	E-signatures via Aadhaar-KYC = legally valid under IT Act §10-A.

Tip:
Digital contracts are governed by the same six essentials under Section 10—only the medium differs.

Practical Examples (2025)

Scenario	Contract Type	Governing Law
Swiggy/Zomato T&C acceptance	Click-wrap	IT Act §10-A + ICA §10
UPI merchant agreement	E-contract	RBI Guidelines 2024
Freelance platform contract	Smart contract	ICA + Blockchain sandbox policy
Netflix subscription	E-contract	Consumer Protection Act 2019 + ICA §10

Artificial Intelligence & Agency (ICA 1872 Read with IT Act)

AI now performs tasks once done by human agents—like auto-pricing, credit scoring, or contract drafting.

Can an AI System Be an “Agent”?

Traditional view: Only natural or juristic persons can be agents.
Current Indian position (2025):
- AI can act as an electronic agent,
- but liability remains with the principal (human / company).

Illustration:
A chatbot executes a purchase order on behalf of XYZ Ltd. → binding contract between XYZ Ltd. and buyer, not between AI and buyer.

Judicial & Policy Trends

Year / Body	Development
2022 – NITI Aayog AI Ethics Framework	Recognized AI agents as “autonomous decision tools.”
2023 – MeitY Draft Digital India Bill	Proposed rules for “automated contractual consent.”
2024 – Delhi HC in Vistara Airlines v. Passenger X	Held: Chatbot-generated ticket terms are binding if user consented.

Insight:
AI cannot yet “consent” → it acts through implied or programmed authorization of its human principal.

Smart Contracts & Blockchain Validation

Meaning

A smart contract is a self-executing program where terms are written in computer code and automatically enforced once conditions are met.

Example:
“If payment = received → auto-transfer NFT to buyer.”

How It Works

Terms encoded on a blockchain.
Trigger (event or payment) activates execution.
Record stored immutably → no manual intervention.

Feature	Traditional Contract	Smart Contract
Form	Written / electronic document	Programmed code
Execution	Manual / judicial	Automated / conditional
Record	Mutable	Immutable (blockchain)
Verification	Witness / signature	Cryptographic hash

Legal Status in India (2025)

Recognized as valid under IT Act , provided:
1. Offer, acceptance, and consent exist.
2. Parties identifiable (KYC / digital signatures).
3. Transaction not forbidden by law.
SEBI Sandbox (2024) and RBI Digital Asset Pilot treat smart contracts as “self-executing agreements,” but human accountability remains.

Real-World Examples (2025)

Sector	Use of Smart Contracts	Illustration
Insurance	Automatic claim release	Parametric crop insurance triggered by rainfall data
Logistics	IoT + blockchain for delivery	Payment auto-released when GPS confirms delivery
Real Estate	Tokenized property sale	Ownership NFT transferred on registry confirmation
Finance	DeFi loans & escrow	Collateral locked and released via code

Perspective:
Smart contracts ≠ “lawless” contracts → they must still satisfy the Indian Contract Act’s core requirements.

Digital Signatures & Electronic Authentication

IT Act 2000 – Sections 3 & 5

Digital signatures and e-signatures authenticated by Certifying Authorities (CAs) have the same legal force as handwritten signatures.

Type of E-Signature	Technology	Common Use
Digital Signature Certificate (DSC)	Asymmetric cryptography + CA validation	MCA / Income-Tax filings
Aadhaar e-Sign	OTP + biometric + UIDAI auth	Bank agreements, NBFC loans
Click-wrap Consent	Electronic affirmation of T&C	E-commerce transactions

Case – Govt of India v. Aadhaar User Forum (2023 SC):

Confirmed that Aadhaar e-Sign fulfils Section 3 IT Act and is valid for commercial contracts.

Cross-Border E-Commerce Contracts

Digital commerce erased borders.

An Indian consumer can order from a Singapore store, a U.S. developer can freelance for an Indian firm — all through online contracts.

Legal Recognition

Under Private International Law, a contract remains valid if it satisfies:

Consent, offer, acceptance under Indian Contract Act,
Compliance with IT Act § 10-A,
Not prohibited by domestic law or public policy.

Choice-of-Law & Jurisdiction Clauses

Clause Type	Purpose	Example (2025)
Governing Law Clause	Specifies which country’s law governs	“This Agreement shall be governed by Indian law.”
Jurisdiction Clause	Determines forum for disputes	“Disputes subject to Delhi courts only.”
Arbitration Clause	Allows private resolution	“Seat of arbitration – Singapore.”

Tip: If you omit these clauses, courts decide jurisdiction based on place of performance or acceptance — risky for global transactions.

Practical Examples (2025)

Scenario	Governing Law	Comment
Amazon Global Seller Program	U.S. law + Singapore arbitration	E-contracts valid if accepted online from India
Freelance Developer Contract (Upwork)	Indian law if Indian client	Platform terms apply first
International crypto exchange T&C	Hybrid law + arbitration	Indian users protected by Consumer Act 2019

Case – Inox Wind v. Thermax Ltd. (2018 SC):

Indian Supreme Court upheld foreign arbitration clause even when performance was in India — affirmed freedom to choose jurisdiction.

Data Protection & Consent Contracts (2023 onwards)

Legal Base: Digital Personal Data Protection Act, 2023 (DPDPA)

Every business collecting personal data must obtain free, specific, informed consent.
Consent clauses are now contractually binding under the Indian Contract Act + DPDPA.

Clause Type	Purpose	Example
Consent Clause	Explicit approval for data use	“User agrees to collection of email for billing.”
Withdrawal Clause	User may withdraw consent	“User may delete data any time from settings.”
Data-Processor Obligation	Restricts sharing of data	Vendor must not transfer without permission.

WhatsApp LLC v. Union of India (2022 Del HC):

Court held privacy policies = binding contracts between app and user.

Insight: Consent under DPDPA is not mere formality — it’s a contractual term enforceable under Sec 10 ICA.

Online Dispute Resolution (ODR)

The pandemic era (2020–2022) shifted contractual disputes online.
ODR platforms blend arbitration + conciliation + AI-based case management.

Legal Framework

Supported by Arbitration & Conciliation Act, 1996 and IT Act, 2000.
Recognized by NITI Aayog’s ODR Policy 2023.
Awards enforceable as civil decrees under Sec 36 of Arbitration Act.

Platform (India 2025)	Type	Special Feature
Sama ODR	Mediation & arbitration online	Used by ICICI & HDFC
Presolv360	Arbitration as a Service	Instant e-filing
Centre for ODR – CCI	Institutional ODR platform	Smart contracts integration

Case – Amazon v. Future Retail Ltd. (2021 SC):

Supreme Court validated foreign seated online arbitration award – boost to ODR credibility.

Take: Future of commercial contract disputes = digital, paperless, time-bound.

AI Liability and Algorithmic Contracts

Emerging Question

Who is liable when an AI system breaches a contract or makes a wrong decision?

Possible Approach	Liable Party	Rationale
Vicarious Liability Model	Human controller / company	AI = agent, principal liable
Product Liability Model	Developer or manufacturer	Fault in AI design / training
Hybrid Accountability Model	Shared responsibility	User + developer + employer

Policy Note – NITI Aayog AI Liability Report (2024):

Suggested AI should be treated as “non-human agent” whose acts bind the deploying entity under Sec 182–188 of ICA.

Example:
An AI-powered trading bot executes wrong order → Brokerage firm liable, not bot.

Future Reforms and Contract Law 2025

Reform Area	Expected Change / Proposal	Impact
Uniform Civil Code (Contractual Uniformity)	Likely codification of digital contract principles	Clarity in online commerce
Digital India Bill (2025 draft)	Unified framework for AI contracts and automated consent	Legal status for AI agents
Blockchain Evidence Amendment	Admissibility of smart-contract ledger data	Faster proof of execution
Consumer Protection E-Commerce Rules 2024	Mandatory refund clauses & fair-contract tests	Strengthens buyer rights
Smart Court Pilot Program	AI-assisted contract dispute resolution	Quicker justice delivery

Summary Table – Modern Contract Law (2020 to 2025)

Area	Key Law / Amendment	Practical Effect	Example / Case
E-Contracts	IT Act § 10-A	Valid digital agreements	Trimex v. Vedanta (2010)
Digital Signatures	IT Act § 3	Legal authentication	MCA & ITR filings
Smart Contracts	SEBI Sandbox 2024	Auto-executing code	DeFi escrow
Data Protection	DPDPA 2023	Consent = contractual term	WhatsApp v. India (2022)
Online Arbitration / ODR	NITI Aayog 2023 Policy	Virtual justice system	Amazon v. Future Retail (2021)
AI Liability	NITI AI Report 2024	Human principal responsible	AI chatbot contracts

Recap

Indian Contract Act remains timeless: Offer + Acceptance + Consent + Consideration apply even to AI and blockchain.
IT Act gives digital validity; DPDPA 2023 adds data-consent layer.
Smart contracts automate trust; ODR automates justice.
AI liability rules evolving — but human intent and accountability remain central.
2025 marks the start of “Digital Contract India 2.0” — law meeting code on equal terms.

Landmark Case Laws & Judicial Interpretations

Carlill v. Carbolic Smoke Ball Co. (1893) – Offer to the Public

Facts:
The company advertised that anyone who used its “smoke ball” medicine and still caught influenza would receive £100.

Mrs. Carlill used it, fell ill, and claimed the reward. The company refused to pay.

Held:
The Court held it was a valid offer to the public, accepted by conduct (using the product).
Deposit of £1000 in bank showed intention to create legal relations.

Principle:
A general offer can be accepted by anyone who performs the conditions.

Key Concept	Offer and Acceptance (Sec 2a & 2b)
Type of Offer	General / to public
Acceptance Mode	By conduct
Legal Impact	Binding contract created

Learning:
“Silence isn’t acceptance, but action can be.”

Harvey v. Facey (1893) – Mere Statement of Price ≠ Offer

Facts:
Harvey asked Facey: “Will you sell us Bumper Hall Pen? What’s the lowest price?”
Facey replied: “Lowest price £900.” Harvey accepted £900.
Facey refused to sell.

Held:
There was no offer, only a statement of price.

Principle:
An invitation to offer or mere statement does not equal an offer.

Key Concept	Offer (Sec 2a)
Legal Point	Quote ≠ offer
Status	No enforceable contract

Insight:
“Price quotation is not promise — it’s just negotiation.”

Felthouse v. Bindley (1862) – Silence is Not Acceptance

Facts:
Uncle offered to buy nephew’s horse. Said, “If I hear no more, I consider horse mine.”
Nephew remained silent. Auctioneer sold horse accidentally.

Held:
No acceptance → no contract.

Silence cannot be taken as consent.

Principle:
Acceptance must be communicated (Sec 7).

| Learning Point | Acceptance must be expressed or inferred, never presumed. |

Tip:
“Silence may mean peace, but not promise.”

Lalman Shukla v. Gauri Dutt (1913) – Knowledge of Offer Required

Facts:
Servant found his master’s missing boy, unaware of reward. Later claimed the reward.

Held:
Not entitled — as he didn’t know about the offer at the time of performance.

Principle:
To form a contract, offer must be known before acceptance.

Concept	Communication of Offer (Sec 3–5)
Lesson	No knowledge → no assent → no contract

Learning:
“You can’t accept what you don’t know.”

Balfour v. Balfour (1919) – No Intention, No Contract

Facts:
Husband promised monthly allowance to wife while abroad. Later stopped payments.
Wife sued.

Held:
Domestic arrangements = no legal intention → not enforceable.

Principle:
Contracts require intention to create legal relationship.

Core Idea	Section 10 – Essentials of Valid Contract
Rule	Social/moral agreements ≠ contracts

Insight:
“Love and law don’t always align.”

Chinnaya v. Ramaya (1882) – Consideration Can Move from a Third Party

Facts:
A gave property to daughter (B) with condition to pay annuity to A’s brother (C).
C sued when B stopped paying.

Held:
C entitled to enforce — consideration moved from A, not C, still valid.

Principle:
Under Sec 2(d), consideration may move from promisee or any other person.

Concept	Consideration
Rule	Consideration need not move from promisee only.

Thought:
“Who gives consideration matters less than who receives benefit.”

Currie v. Misa (1875) – Classic Definition of Consideration

“A valuable consideration may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other.”

Applied In India As	Definition under Section 2(d)
Core Principle	Benefit to one or detriment to other = valid consideration.

Tip:
“Something in return is the heart of every promise.”

Mohori Bibee v. Dharmodas Ghose (1903) – Minor’s Contract Void

Facts:
Minor mortgaged property to moneylender. Later sued to cancel mortgage.

Held:
Minor’s agreement = void ab initio.
No estoppel, no restitution against minor.

Principle:
Under Sec 11, only a major, sound-minded, and competent person can contract.

Concept	Competency to Contract
Rule	Minor cannot be bound by contract.

Learning:
“A minor’s promise carries no legal weight — only moral sympathy.”

Ranganayakamma v. Alwar Setti (1889) – Consent by Coercion

Facts:
Widow forced to adopt a boy as a condition for performing her husband’s funeral rites.

Held:
Adoption voidable — consent obtained under coercion (Sec 15).

Core Principle Consent must be free and voluntary.

Thought:
“Consent under pressure is compliance, not agreement.”

Derry v. Peek (1889) – Fraud vs Misrepresentation

Facts:
Company issued prospectus claiming tramway had govt. approval — it didn’t.
Investors sued for fraud.

Held:
False statement honestly believed = misrepresentation, not fraud.
Fraud requires intent to deceive.

Concept	Fraud (Sec 17) vs Misrepresentation (Sec 18)
Rule	Intention differentiates fraud from mere mistake.

Learning:
“Deception with intent = fraud; error without intent = misrepresentation.”

Gherulal Parikh v. Mahadeodas Maiya (1959 SC) – Wagering Contracts Void but Not Illegal

Facts:
Parties engaged in forward transactions (speculative betting on cotton prices).
Question – Are wagering contracts illegal?

Held:
Wagering = void under Section 30, but not illegal unless law expressly says so.

Core Concept	Wagering vs Lawful Contingent Contract
Impact	Related collateral agreements remain valid.

Insight:
“Void ≠ criminal. You lose only enforceability, not legality.”

Taylor v. Caldwell (1863) – Doctrine of Frustration

Facts:
Music hall rented for concert burned down before event.

Held:
Performance became impossible → contract discharged.

Principle:
Foundation for Section 56 of ICA — Impossibility / Frustration.

Concept	Impossibility of Performance
Rule	Destruction or supervening impossibility = contract void.

Example:
Online event server crashes permanently → frustration in digital form.

Satyabrata Ghose v. Mugneeram Bangur & Co. (1954 SC) – Indian Law on Frustration

Facts:
Land development delayed due to WWII. Plaintiff sought refund.

Held:
Mere delay ≠ impossibility. Only when purpose becomes impossible = frustration.

Principle:
Indian law treats impracticability = impossibility under Sec 56.

| Learning Point | Frustration applies only if no fault by either party. |

Thought:
“Hardship doesn’t frustrate; impossibility does.”

Alopi Parshad v. Union of India (1960 SC) – No Frustration for Hardship

Facts:
Govt supply contractor sought higher rate during wartime inflation.

Held:
Mere difficulty or loss ≠ frustration; contract stands.

Principle:
Economic hardship does not discharge performance under Sec 56

Learning:
“Rise in cost ≠ rise in excuse.”

Hadley v. Baxendale (1854) – Measure of Damages

Facts:
Delay in delivering mill shaft caused production loss.

Held:
Only direct and foreseeable losses recoverable.

Principle:
Foundation for Section 73 – Compensation for breach.

| Learning Point | Remote loss not compensated. |.

Tip:
“Law compensates actual harm, not imagination.”

Fateh Chand v. Balkishan Das (1963 SC) – Penalty vs. Reasonable Compensation

Facts:
Buyer defaulted on an agreement to purchase property. Seller forfeited ₹25,000 as per clause.

Held:
Court held – Even if contract specifies a penalty, only reasonable compensation may be awarded under Section 74.

Principle:
Court cannot enforce excessive penalty; damages must be proportionate to actual loss.

Concept	Section 74 – Reasonable Compensation
Rule	Penalty clause doesn’t allow profit
Learning	Proof of loss not mandatory, but compensation must be fair

Thought:
“The law won’t punish — only balance.”

ONGC v. Saw Pipes Ltd. (2003 SC) – Liquidated Damages Enforceable

Facts:
ONGC deducted liquidated damages for delay. Contractor argued no actual loss.

Held:
Supreme Court held:

If sum fixed is genuine pre-estimate, no need to prove actual loss.

Principle:
Reasonable liquidated damages are enforceable; penalty is not.

| Learning Point | Clarified the difference between penalty and fair estimate. |

Insight:
“What’s reasonable stays, what’s excessive fades.”

Kailash Nath Associates v. DDA (2015 SC) – No Loss, No Forfeiture

Facts:
DDA forfeited earnest money though no loss was proven.

Held:
No compensation allowed without proof of actual loss.

Principle:
Section 74 requires existence of loss — even if amount pre-fixed.

Tip:
“Liquidated ≠ limitless.”

Lallan Prasad v. Rahmat Ali (1967 SC) – Rights in Pledge

Facts:
Creditor sued to recover loan and retain pledged goods.

Held:
Pawnee cannot keep pledged goods and sue for recovery simultaneously. Must choose one.

Principle:
Right to retain goods or sell on default — not both.

Concept	Section 176 – Rights of Pawnee
Rule	Pawnee must return goods if debt not proved.

Example:
Bank must auction pledged gold only after giving notice.

Coggs v. Bernard (1703) – Standard of Care in Bailment

Facts:
Bailee volunteered to move wine casks, broke them by negligence.

Held:
Bailee liable even if unpaid — must take reasonable care.

Principle:
Foundation for Sections 151–152 – Care by Bailee.

| Learning | Bailee must treat goods as his own.

Thought:
“Free service doesn’t mean free from care.”

State Bank of India v. Smt. Yamuna Bai (2009 SC) – Surety’s Liability

Facts:
Borrower defaulted; bank sued surety directly.

Held:
Surety’s liability is co-extensive with principal debtor (Sec 128).
Bank need not first proceed against borrower.

Principle:
Surety = equally liable from moment of default.

Concept	Section 128 – Co-extensive Liability
Rule	Surety bound immediately on default.

Tip:
“To guarantee means to stand equally guilty if default happens.”

Punjab National Bank v. Sri Durga Jewelers (2010 Del HC) – Discharge of Surety

Facts:
Bank extended loan without surety’s consent.

Held:
Variation in terms without consent = surety discharged (Sec 133).

Concept	Section 133 – Discharge of Surety
Rule	Change of contract without consent releases surety.

Insight:
“A changed deal is a new deal — and surety need not follow.”

Freeman & Lockyer v. Buckhurst Park Properties (1964) – Apparent Authority of Agent

Facts:
Managing Director signed contracts without board approval.

Held:
Company bound since it allowed him to appear as authorized.

Principle:
Principal liable for acts done under apparent / ostensible authority.

Concept	Section 237 – Authority of Agent
Rule	Third party protected if belief reasonable.

Learning:
“If you let someone act for you, you act through them.”

Panorama Developments v. Fidelis Furnishing (1971)

Facts:
Company secretary hired cars for personal use but signed as company officer.

Held:
Company bound — secretary acted within apparent authority.

Principle:
Principal liable if agent appears to act within office authority.

Concept	Section 237
Rule	Corporate principal responsible for authorized employee acts.

Thought:
“Authority shown = authority owned.”

Pannalal Jivandas v. State Bank of India (1968 Bom HC) – Termination of Agency

Facts:
Principal revoked agency without notice, causing loss.

Held:
Principal liable — termination without reasonable notice violates Sec 206.

Principle:
Agent entitled to damages if contract revoked abruptly.

Concept	Section 206 – Revocation by Principal
Rule	Reasonable notice mandatory.

Insight:
“You can end agency, not obligation to be fair.”

Planche v. Colburn (1831) – Quantum Meruit

Facts:
Author contracted to write a book. Publisher cancelled before completion.

Held:
Author entitled to payment for work done.

Principle:
When contract terminated, performing party can claim reasonable value of work.

Concept	Doctrine of Quantum Meruit
Rule	Fair compensation for partial performance.

Example:
Freelancer gets paid for completed portion even if project cancelled.

K. Narendra v. Riviera Apartments Pvt. Ltd. (1999 SC) – Specific Performance

Facts:
Buyer sought specific performance of real estate contract.

Held:
Granted — contract clear, equitable, and not unfair.

Principle:
Specific performance = enforce promise literally when damages inadequate.

Concept	Specific Relief Act § 10
Rule	Unique property → specific performance proper remedy.

Thought:
“Where money fails, fairness prevails.”

Adhunik Steels Ltd. v. Orissa Manganese (2007 SC) – Specific Performance vs. Damages

Facts:
Contract for supply of raw material — supplier defaulted.
Buyer sought specific performance.

Held:
Court refused; damages adequate.

Principle:
Specific performance only when monetary compensation insufficient.

Insight:
“Equity doesn’t force — it fills the gap where money can’t.”

Amazon.com NV Investment v. Future Retail Ltd. (2021 SC) – Digital Arbitration Valid

Facts:
Emergency arbitration conducted online in Singapore; Indian party challenged validity.

Held:
Supreme Court upheld foreign-seated online arbitration — enforceable in India.

Principle:
Digital arbitration = legally binding under Arbitration Act & IT Act.

Concept	Modern E-contract & Arbitration Enforcement
Rule	ODR / foreign awards fully enforceable.

Note:
“Virtual awards hold real value.”

Halliburton Offshore v. Vedanta Ltd. (2020 Del HC) – Force Majeure during COVID-19

Facts:
Contract delayed due to pandemic lockdown; contractor sought exemption.

Held:
Force majeure valid only if event truly made performance impossible, not inconvenient.

Principle:
Section 56 (Frustration) applies only when event completely prevents performance.

Insight:
“Pandemic paused contracts, not responsibility.”

Summary Table – Landmark Cases

Topic	Key Case	Section / Principle
Offer to Public	Carlill v. Carbolic Smoke Ball Co.	2(a), 10
Silence ≠ Acceptance	Felthouse v. Bindley	7
Consideration	Chinnaya v. Ramaya	2(d)
Minor’s Contract	Mohori Bibee	11
Free Consent	Ranganayakamma	13–19
Lawful Object	Gherulal Parikh	23
Frustration	Taylor v. Caldwell, Satyabrata Ghose	56
Damages	Hadley v. Baxendale	73
Penalty	Fateh Chand, ONGC v. Saw Pipes	74
Pledge & Bailment	Lallan Prasad, Coggs v. Bernard	148–181
Agency	Freeman & Lockyer	182–238
Quantum Meruit	Planche v. Colburn	Common Law
Specific Performance	K. Narendra, Adhunik Steels	SRA 1963
Modern Arbitration	Amazon v. Future Retail	Arbitration + IT Act
Force Majeure	Halliburton v. Vedanta	56

Learning Recap :

Every judgment evolves the Act — from Carlill to Halliburton, principles stay timeless.
Indian Contract Law = “flexible skeleton” — fits from paper deals to AI-smart contracts.
Courts balance fairness + foreseeability + freedom of contract.
The foundation remains: consent, intention, consideration, and accountability.

Comprehensive Summary & Revision Notes

Overview – What the Indian Contract Act Covers

Part / Chapter	Sections Covered	Subject	Status (2025)
Chapter I	1–75	General Principles (Offer, Acceptance, Breach, etc.)	In force
Chapter II	124–147	Indemnity & Guarantee	In force
Chapter III	148–181	Bailment & Pledge	In force
Chapter IV	182–238	Agency	In force
—	—	(Sale of Goods & Partnership now in separate Acts)	—

Summary:
The Act began as one law for all contracts — today, it stands as the core foundation for all commercial dealings in India.

Nature & Scope of the Act

Aspect	Explanation
Date of Enforcement	1st September 1872
Extent	Whole of India (except J&K from 2019 onwards)
Based on	English Common Law Principles
Purpose	To ensure enforceability of promises made with free consent and lawful object
Nature	General law of obligations and commercial dealings

Insight:
“Every transaction with consent and purpose becomes a contract — provided the law sees it fair.”

Core Building Blocks – The Six Essentials (Sec 10)

Essential Element	Description	Example (2025)
Offer & Acceptance	One party makes a proposal, another accepts	Clicking “I Agree” on an app T&C
Free Consent	Consent must be free from coercion, fraud, or undue influence	Customer agrees without pressure
Lawful Consideration	There must be something of value in return	Payment for a subscription service
Competent Parties	Must be major, sound mind, not disqualified	Adults with legal capacity
Lawful Object	Purpose not forbidden by law	Selling laptops = valid; selling drugs = void
Certainty & Possibility	Terms clear and performance possible	Contract to supply goods, not “anything nice”

Reminder:
“Offer + Acceptance + Consideration = Contract; but only when law blesses it.”

Offer & Acceptance – The Heart of Every Contract

Concept	Section	Rule / Definition	Example
Offer	Sec 2(a)	Proposal to do / abstain from act	“I’ll sell you my car for ₹5 lakh.”
Acceptance	Sec 2(b)	Assent to offer terms	“I agree.”
Communication of Offer	Sec 3	By act or omission intended to communicate	Email / digital click
Revocation of Offer	Sec 5	Before acceptance is complete	Offer withdrawn via WhatsApp before reply
Revocation of Acceptance	Sec 5	Before it reaches offeror	Email recalled before delivery

Case to Remember: Carlill v. Carbolic Smoke Ball Co. – Offer to public is valid when accepted by conduct.

Quick Tip:

Offer is proposal → Acceptance is promise → Together they make contract.

Consideration (Sections 2d, 25)

Concept	Rule	Example
Definition	“Something in return” — benefit to one or detriment to other	Buyer pays for service
Need Not Be Adequate	Even small amount valid if agreed	₹10 for a book worth ₹1000
May Move from Third Party	Chinnaya v. Ramaya (1882)	Gift deed with obligation on daughter
Exceptions (Sec 25)	Natural love, past voluntary act, time-barred debt	Son maintaining father, payment of old debt

Insight:
“Law doesn’t measure the price — only checks if something of value exists.”

Capacity to Contract (Sec 11–12)

Category	Eligible / Not Eligible	Example
Minor	Not eligible; contract void	Mohori Bibee v. Dharmodas Ghose
Unsound Mind	No capacity	Person insane at time of agreement
Disqualified by Law	No capacity	Alien enemy, insolvent, foreign diplomat

Reminder:
“A minor can benefit, not bind himself.”

Free Consent (Sec 13–19)

Defect	Meaning	Effect	Example
Coercion	Threat / unlawful pressure	Voidable	Threat to sign contract
Undue Influence	Dominant position misused	Voidable	Doctor influencing patient
Fraud	Intentional deception	Voidable	Selling fake goods knowingly
Misrepresentation	Innocent false statement	Voidable	Mistaken product claim
Mistake	Wrong belief about fact/law	Void / Voidable	Buying wrong item by confusion

Tip:
“Consent under threat is like a contract under fire — it burns both parties.”

Lawful Object & Consideration (Sec 23–24)

Forbidden By Law	Effect	Example
If consideration or object illegal, immoral, or against public policy	Void	Smuggling, gambling, bribes
Partial illegality invalidates whole contract	—	Loan for legal + illegal purpose

Case Law: Gherulal Parikh v. Mahadeodas Maiya – Wagering contracts void, not illegal.

Thought:
“Moral wrongs never make legal rights.”

Performance of Contracts (Sec 37–67)

Concept	Section	Meaning / Rule	Example
Obligation of Parties	37	Must perform unless excused	Deliver goods as agreed
Performance by Third Party	41	Valid if accepted	Delivery by authorized agent
Joint Promises	42–45	Joint liability applies	Two sellers jointly liable
Time & Place	46–50	As agreed / reasonable time	10-day delivery period
Reciprocal Promises	51–54	Must perform sequentially	Payment on delivery basis
Assignment	37–40	Rights transferable unless personal	Lease transferable, employment not

Learning:
“Performance is the life of a promise — delay kills trust, not just time.”

Discharge of Contract (Sec 62–67)

Mode	Meaning	Example
By Performance	Both sides fulfilled	Delivery & payment completed
By Agreement	Novation / alteration / remission	Substituting new contract
By Impossibility (Sec 56)	Performance becomes impossible	Venue destroyed by flood
By Operation of Law	Insolvency / merger	Debtor becomes creditor
By Breach	Failure to perform	Supplier refuses to deliver

Case Law: Taylor v. Caldwell (1863) – Contract discharged when subject destroyed.

Breach of Contract & Remedies (Sections 73–75)

Meaning of Breach

When a party fails or refuses to perform their contractual promise, it is called a breach.

Type of Breach	Meaning	Example
Actual Breach	Failure on the due date of performance	Supplier fails to deliver goods on agreed date
Anticipatory Breach	Refusal before the due date	Seller informs buyer a week early that delivery won’t happen

Insight:
“A broken promise isn’t the end — law ensures fairness through remedies.”

Remedies for Breach of Contract

Remedy Type	Law / Section	Purpose / Meaning	Example
Damages	Secs 73–75 (ICA)	Monetary compensation for loss caused by breach	Buyer sues seller for delayed shipment
Specific Performance	Sec 10 (Specific Relief Act, 1963)	Compel actual performance instead of damages	Sale of land enforced by court
Injunction	Secs 36–42 (Specific Relief Act)	Order to prevent violation	Stop ex-employee sharing trade secrets
Rescission	Sec 75 (ICA)	Cancel contract, restore parties to original position	Cancel service contract with refund
Restitution	Sec 65 (ICA)	Return benefit if contract void / rescinded	Refund advance payment
Quantum Meruit	Common Law	Payment for work done before cancellation	Freelancer paid for partial work
Penalty / Liquidated Damages	Sec 74 (ICA)	Reasonable compensation if pre-fixed	₹10,000 per day late delivery clause

Landmark Cases

Case	Principle
Hadley v. Baxendale (1854)	Only foreseeable damages recoverable
Fateh Chand v. Balkishan Das (1963 SC)	Penalty ≠ enforceable; only reasonable compensation
ONGC v. Saw Pipes (2003 SC)	Genuine pre-estimate enforceable
Halliburton v. Vedanta (2020 Del HC)	Force majeure valid only for true impossibility

Learning:
“Damages repair; equity restores.”

Special Contracts at a Glance (Sections 124–238)

The Indian Contract Act defines five major special contracts — each with unique rules but built upon the same foundation: offer, acceptance, and consideration.

(A) Contract of Indemnity – Sections 124–125

Feature	Description	Example
Definition	Promise to protect from loss caused by promisor or another person	Insurance policy covering damages
Parties	Indemnifier & Indemnified	Company & insured person
Rights	Indemnified can recover loss, cost, and damages	Legal fees reimbursed
Key Case	Gajanan Moreswar v. Moreshwar Madan (1942) – Right arises before actual loss

Tip:
“Indemnity saves you from loss — not gives you profit from loss.”

(B) Contract of Guarantee – Sections 126–147

Feature	Description	Example
Definition	Promise to discharge liability of third person in case of default	Bank loan guarantee
Parties	Surety, Principal Debtor, Creditor	Bank, Borrower, Guarantor
Surety’s Liability	Co-extensive with debtor (Sec 128)	Bank can sue surety directly
Discharge of Surety	By variation, release, death, etc.	Loan terms changed without consent
Key Case	Bank of Bihar v. Damodar Prasad (1969) – Surety’s liability immediate

Learning:
“Guarantee is a backup promise — as strong as the main one.”

(C) Contract of Bailment – Sections 148–171

Feature	Description	Example
Definition	Transfer of possession for specific purpose	Dry cleaner holding clothes
Parties	Bailor & Bailee	Owner & custodian
Duties of Bailee	Take care (Sec 151), return goods (Sec 160)	Garage must protect vehicle
Rights of Bailee	Lien – retain goods till payment (Sec 170–171)	Tailor keeps suit till paid
Key Case	Coggs v. Bernard (1703) – Standard of care established

Insight:
“Ownership stays — possession moves.”

(D) Contract of Pledge – Sections 172–181

Feature	Description	Example
Definition	Bailment as security for payment of debt	Gold loan to bank
Parties	Pawnor (pledgor) & Pawnee (pledgee)	Customer & bank
Rights of Pawnee	Retain, recover, sell after notice (Sec 176)	Bank sells gold after default
Key Case	Lallan Prasad v. Rahmat Ali (1967) – Must return goods if debt not proved

Tip:
“Pledge = Bailment + Security.”

Contract of Agency – Sections 182–238

Feature	Description	Example
Definition	Agent represents principal in dealings	Company appointing sales agent
Creation	Express / implied / ratification / necessity	Power of attorney or regular dealings
Authority	Actual / apparent / emergency (Sec 189)	Manager acts in good faith
Duties	Obey instructions, act skillfully, render accounts	Agent reports sales data
Termination	By notice, completion, death, insanity, insolvency (Sec 201–210)	Sales agency ends after project
Key Case	Freeman & Lockyer v. Buckhurst Park Properties (1964) – Apparent authority binding

Insight:
“He who acts through another — acts himself.”

Comparative Summary Table – Special Contracts

Contract Type	No. of Parties	Purpose	Nature of Liability	Key Section	Example
Indemnity	2	Protection from loss	Primary	124–125	Insurance
Guarantee	3	Security for debt	Secondary	126–147	Bank guarantee
Bailment	2	Temporary possession	Conditional	148–171	Repair contract
Pledge	2	Security for loan	Conditional	172–181	Gold loan
Agency	3	Representation	Derived	182–238	Power of attorney

Reminder:
“Each special contract adds depth to the skeleton of Section 10.”

Smart Revision Notes – Key Doctrines

Doctrine / Rule	Meaning	Section / Case
Doctrine of Frustration	Performance impossible → contract void	Sec 56 (Taylor v. Caldwell)
Quantum Meruit	Pay for work done if contract ends early	Planche v. Colburn
Privity of Contract	Only parties can sue, except beneficiaries	Chinnaya v. Ramaya
Free Consent Rule	Consent by coercion/fraud → voidable	Sec 13–19
Doctrine of Restitution	Benefit under void contract must be returned	Sec 65
Doctrine of Mitigation	Injured party must reduce loss	Sec 73
Force Majeure Clause	Unforeseeable event → excuse from performance	Halliburton v. Vedanta (2020)

Learning:
“The doctrines are not dead words — they breathe life into fairness.”

Frequently Asked Questions (General Concepts)

Q1. What is a contract in simple words?

A contract is a legally enforceable promise between two or more persons to do (or not to do) something in exchange for something of value.

Example: Hiring a freelancer to design a logo — you pay money, they deliver design — both have rights and duties.

Q2. What is the difference between an agreement and a contract?

Basis	Agreement	Contract
Definition	Promise between parties	Agreement enforceable by law
Legal Status	May be moral / social	Always legal
Section	Sec 2(e)	Sec 2(h)
Example	“Let’s go for dinner”	Employment offer letter

Tip:
“Every contract is an agreement, but not every agreement is a contract.”

Q3. What is the difference between void, voidable, and illegal contracts?

Type	Meaning	Example	Effect
Void	Not enforceable by law	Contract with minor	No legal effect
Voidable	Valid until avoided by one party	Contract under coercion	One party may cancel
Illegal	Forbidden by law	Drug trade	Punishable + void

Learning:
“Void = no contract; Voidable = one-sided option; Illegal = criminal.”

Q4. What are the essentials of a valid contract under Section 10?

Six Pillars of a Valid Contract:

Offer and acceptance
Free consent
Competent parties
Lawful consideration
Lawful object
Certainty and possibility

Q5. Can a contract be formed orally or must it be in writing?

Yes, oral contracts are valid under the Indian Contract Act unless a law specifically requires writing (like sale of immovable property or negotiable instruments).

Example: A verbal promise to pay for delivered goods is binding.

Q6. What happens if consent is not free?

If consent is caused by coercion, undue influence, fraud, or misrepresentation, the contract becomes voidable at the option of the aggrieved party (Sec 19).

Example: Doctor forces patient to sign a contract — patient can cancel later.

Q7. What is the difference between fraud and misrepresentation?

Basis	Fraud	Misrepresentation
Intention	Deceptive intent	Innocent error
Effect	Voidable	Voidable
Compensation	Liable for damages	Liable if negligence proven
Example	Selling fake gold knowingly	Selling gold believing it’s real

Insight:
“Fraud hides truth, misrepresentation misses it.”

Q8. What is a contingent contract?

A contingent contract (Sec 31) depends on the happening or non-happening of a future uncertain event.

Example: “I’ll pay ₹10,000 if it rains tomorrow.”

Type	Condition	Example
Positive Contingency	Event must happen	“Pay ₹5,000 if India wins match.”
Negative Contingency	Event must not happen	“Pay ₹5,000 if India doesn’t lose.”

Key Case: Nathulal v. Phoolchand (1969 SC) – Performance dependent on uncertain event = contingent contract.

Q9. Can a contract exist without consideration?

Normally no (Sec 25), except in three special cases:

Natural love and affection (written & registered)
Compensation for past voluntary act
Promise to pay time-barred debt

Example: Father gifts property to son out of affection — valid without consideration.

Q10. What is meant by ‘Performance’ under the Act?

It means fulfilling obligations under the contract (Sec 37).

Example: Delivering ordered goods, making payment, providing services.

Who Performs	Section	Example
Promisor himself	37	A personally delivers goods
Agent / Representative	40	B’s agent delivers goods
Third party (accepted)	41	C performs, A accepts

Q11. What is the difference between offer and invitation to offer?

Basis	Offer	Invitation to Offer
Meaning	Willingness to be bound	Intention to invite offers
Example	“I’ll sell you my phone for ₹10,000.”	Displaying goods in store
Legal Effect	Creates legal obligation when accepted	Only preliminary step

Case: Pharmaceutical Society v. Boots Cash Chemists (1953) – Display = invitation, not offer.

Q12. What are reciprocal promises?

Mutual promises where the performance of one depends on the other (Secs 51–54).

Example: Buyer pays when seller delivers; both depend on each other.

Type	Meaning	Example
Mutual & Independent	Each must perform separately	Two deliveries on different dates
Conditional	One depends on the other	Payment only after completion
Concurrent	Both performed simultaneously	Cash-on-delivery sale

Reminder:
“When one waits, the other can’t delay without reason.”

Real-Life Case Examples (2025 Context)

Modern Scenario	Legal Principle Involved	Section / Case
A clicks “Accept Terms” on Swiggy app	Offer + Acceptance	Sec 2(a), 2(b), 10
Netflix auto-renewal subscription	Implied contract by conduct	Sec 9
AI chatbot accepting service terms	Agency by automation (Principal = Company)	Sec 182–189
UPI payment failure refund	Breach + Restitution	Sec 65, 73
E-commerce seller delay	Anticipatory breach	Sec 39
Employer firing employee without notice	Wrongful rescission	Sec 75
Delivery delay due to lockdown	Frustration / Impossibility	Sec 56
Software contract termination mid-project	Quantum Meruit	Planche v. Colburn (1831)
Online influencer promotion contract	Agency relationship	Sec 182
NFT sale through blockchain	Smart contract	IT Act 2000 10-A + ICA 10

Learning:
“Every click, transfer, or message in today’s world carries a promise — and a potential legal duty.”

FAQs on Special Contracts (Indemnity, Guarantee, Bailment, Pledge, Agency)

Q13. What is the difference between Indemnity and Guarantee?

Basis	Indemnity	Guarantee
Parties	Two (Indemnifier & Indemnified)	Three (Creditor, Debtor, Surety)
Purpose	Protect from loss	Assure payment/performance
Liability	Primary	Secondary
Existence of Debt	Not necessary	Necessary
Example	Insurance policy	Bank loan surety

Tip:
“Indemnity saves from loss; Guarantee steps in for loss.”

Q14. Can a contract of indemnity be implied?

Yes. An implied indemnity arises from conduct or relationship.

Example: An agent acting on behalf of principal is entitled to indemnity for lawful acts (Sec 222).

Q15. What are the rights of a surety under a guarantee?

Right	Section	Meaning
Subrogation	Sec 140	After payment, surety steps into creditor’s shoes
Indemnity	Sec 145	Recover amount paid from debtor
Contribution	Sec 146	Co-sureties share burden equally
Benefit of Securities	Sec 141	Surety entitled to creditor’s securities

Case: SBI v. Yamuna Bai (2009 SC) – Surety’s liability arises immediately on default.

Q16. How is Bailment different from Sale?

Basis	Bailment	Sale
Ownership	Remains with bailor	Transfers to buyer
Possession	Temporary	Permanent
Consideration	Not essential	Essential
Return of Goods	Mandatory	Not applicable
Example	Parking car in garage	Selling the car

Insight:
“Bailment gives temporary trust — sale gives permanent title.”

Q17. What are the rights of a bailee?

Right to claim expenses (Sec 158)
Right of particular lien (Sec 170)
Right of general lien (Sec 171 for bankers, factors, etc.)

Example: A tailor can retain the suit until payment is made.

Q18. What is a Pledge?

A pledge is the bailment of goods as security for repayment of debt (Sec 172).

Example: Gold loan — customer pledges jewelry with bank.

Rights of Pawnee:

Retain goods until payment (Sec 173)
Sue for debt (Sec 176)
Sell goods after reasonable notice (Sec 176)

Q19. How does an agency relationship arise?

Mode of Creation	Meaning / Example
Express	Power of Attorney / Written appointment
Implied	Regular conduct (shop manager ordering goods)
By Ratification	Approval of unauthorized act
By Necessity	Emergency action (ship captain selling goods)
By Estoppel	Principal allows third party to believe agent’s authority

Thought:
“Agency is created by trust and sustained by authority.”

Q20. Can an agent delegate authority?

As a general rule, no — delegatus non potest delegare (an agent cannot delegate).
Exception: Routine tasks, trade customs, or with principal’s consent (Sec 190).

Q21. How is agency terminated?

Mode	Section	Example
By revocation	203	Principal withdraws authority
By renunciation	206	Agent quits with notice
By completion	201	Work done
By death / insanity	209	Agency ends automatically
By insolvency	210	Principal becomes insolvent

Case: Pannalal Jivandas v. SBI (1968) – Termination without notice → compensation payable.

FAQs on Remedies and Enforcement

Q22. What is Quantum Meruit?

A claim for reasonable payment for work done, when contract ends prematurely.

Example: Freelancer completes half project — entitled to pay for completed part.
Planche v. Colburn (1831) – Author paid for unfinished book.

Q23. When is Specific Performance granted?

When Granted	When Refused
Monetary damages inadequate	Personal service contracts
Unique subject matter	Impracticable supervision
Land, rare art, shares	Illegal / uncertain agreement

K. Narendra v. Riviera Apartments (1999 SC) – Specific performance when fair and equitable.

Q24. What is the difference between Damages and Penalty?

Basis	Damages	Penalty
Meaning	Compensation for loss	Punishment for breach
Purpose	Restore balance	Deter breach
Proof	Loss must be shown (unless genuine estimate)	Excessive sum not enforceable
Law	Sec 73–75	Sec 74
Case	ONGC v. Saw Pipes (2003)	Fateh Chand v. Balkishan Das (1963)

Summary:
“Damages compensate, penalty punishes.”

Q25. What is Force Majeure?

Unforeseeable events that make performance impossible (natural disasters, war, pandemic).

Halliburton v. Vedanta (2020) – COVID-19 lockdown validly delayed performance, not automatic termination

Sources & Legal References (Amended till 2025)

Source / Law	Relevance	Latest Update
The Indian Contract Act, 1872	Core legislation	Act No. 9 of 1872 (current)
Specific Relief (Amendment) Act, 2018	Modernized remedies	Enforced 1 Oct 2018
Information Technology Act, 2000 (Sec 10-A)	Digital & e-contracts	Still in force
Digital Personal Data Protection Act, 2023	Data-consent contracts	Effective 2023
NITI Aayog AI Ethics Report 2024	AI as agent / liability guidance	2024
Consumer Protection (E-Commerce) Rules, 2024	Online contracts & returns	2024

Conclusion:

The Indian Contract Act, 1872 remains one of the most enduring and dynamic pieces of legislation in India’s legal system.

Though enacted more than 150 years ago, its principles continue to guide modern business, digital commerce, and daily human interactions. From traditional paper-based agreements to AI-driven smart contracts, the Act’s spirit of free consent, lawful object, and fairness still forms the foundation of every enforceable promise.

The strength of the Act lies in its simplicity and adaptability — it speaks to the shopkeeper, the multinational, the freelancer, and the government alike. It ensures that every agreement built on honesty and mutual intent is protected by law.

Even as India embraces digital contracts, online arbitration, and data-driven consent, the essence of Section 10 remains unchanged — a valid contract is one born from trust, clarity, and consent.

Ultimately, the Act is more than a legal document; it is the moral code of commerce. It converts human trust into legal certainty and ensures that every promise made in good faith has the power of law behind it.

Written by Mahboob Gaddi and Farman Ahmad | Founders, Lawgical Search