Contract Act – Study Notes (CMA Intermediate, Business Law & Taxation)
Indian Contract Act, 1872 is the primary legislation governing the law of contracts in India.
It defines what a contract is, how it is formed, the parties’ duties, and the remedies available when a contract is breached.
1. Simple Explanation
| Term | Definition |
|---|---|
| Contract | An agreement enforceable by law. |
| Agreement | A meeting of minds (consent) between two or more persons. |
| Consent | Will of the parties to enter into the agreement. |
| Consideration | Something of value exchanged, required for a contract to be valid. |
| Capacity | Legal ability (e.g., age, mental soundness) to contract. |
| Legality | The subject matter must be lawful; otherwise void. |
| Free Consent | Consent that is not obtained by coercion, undue influence, fraud, or misrepresentation. |
| Void Contract | Lacks one of the essential elements; cannot be enforced. |
| Voidable Contract | Valid but may be rescinded by a party (e.g., due to misrepresentation). |
| Enforceable Contract | Valid and cannot be rescinded unless it becomes void. |
2. Key Points
2.1. Elements of a Valid Contract
| Element | What It Means | Relevant Section |
|---|---|---|
| Proposal & Acceptance | One party proposes; the other accepts. | Sec. 2, 12 |
| Free Consent | No coercion, undue influence, fraud, or misrepresentation. | Sec. 10 |
| Consideration | Something of value given by each party. | Sec. 2 |
| Capacity | Parties must have legal capacity. | Sec. 12, 13 |
| Legality of Object | Contract must not be for illegal purpose. | Sec. 13 |
| Causation | Consent must be due to the consideration. | Sec. 12 |
| Form | Certain contracts must be in writing (e.g., sale of immovable property). | Sec. 73-76 |
2.2. Types of Contracts
| Type | Description | Example |
|---|---|---|
| Bilateral | Both parties promise to do something. | Sale of goods. |
| Unilateral | One party promises upon performance of the other’s act. | Reward contract. |
| Express | Terms stated explicitly. | Written contract. |
| Implied | Terms inferred from conduct. | Delivery of goods. |
| Executed | Both parties have performed. | Completed sale. |
| Executory | Performance pending. | Future delivery of goods. |
| Void | Lacks essential element. | Contract for a crime. |
| Voidable | Can be rescinded. | Contract by a minor. |
| Unenforceable | No remedy available. | Contract in contempt of court. |
2.3. Performance & Breach
| Concept | Explanation | Remedy |
|---|---|---|
| Performance | Fulfilment of contractual duties. | None needed. |
| Breach | Failure to perform as promised. | Damages, specific performance, rescission. |
| Anticipatory Breach | Party indicates intention to breach before due date. | Rescission or damages. |
| Material Breach | Breach that defeats the contract’s purpose. | Rescission. |
| Non‑Material Breach | Minor breach. | Damages. |
| Excusable Breach | Due to force majeure, impossibility, or mistake. | Rescission or abatement. |
2.4. Remedies for Breach
| Remedy | When Appropriate | Key Sections |
|---|---|---|
| Damages | To compensate for loss. | Sec. 73 |