The Indian Contract Act, 1872 is the basic law that governs contracts in India. It explains how contracts are formed, when they become enforceable, and when they can be cancelled.
Name, Extent and Commencement
This law is officially called the Indian Contract Act, 1872.
- Extent: It extends to the whole of India.
- Commencement: It came into force on 1st September 1872.
Even today, this Act forms the backbone of contract law in India.
Saving Clause – What the Act Does Not Affect
This Act does not cancel:
- Any existing statute, Act or regulation not expressly repealed
- Trade customs or business usage
- Contract terms that are not inconsistent with this Act
This means older laws and valid customs continue unless they conflict with this Act.
Section 2 – Important Definitions (Interpretation Clause)
Section 2 defines the most important terms used in contract law.
1. Proposal
When one person shows willingness to do or not do something to get another person’s approval, it is called a proposal.
Example: A offers to sell his bike to B for ₹50,000.
2. Acceptance
When the person receiving the proposal agrees to it, the proposal becomes an acceptance.
Once accepted, the proposal becomes a promise.
3. Promisor and Promisee
- Promisor: Person who makes the proposal
- Promisee: Person who accepts the proposal
4. Consideration
Consideration is something given or promised in return for a promise.
It can be:
- An act (doing something)
- An abstinence (not doing something)
- A promise
Example: Money paid for goods.
5. Agreement
Every promise and set of promises forming consideration for each other is an agreement.
6. Reciprocal Promises
When promises form consideration for each other, they are called reciprocal promises.
7. Void Agreement
An agreement that is not enforceable by law is called a void agreement.
8. Contract
An agreement that is enforceable by law is a contract.
9. Voidable Contract
A contract enforceable at the option of one party but not the other is a voidable contract.
Example: Contract formed by coercion.
10. Void Contract
A valid contract becomes void when it stops being enforceable by law.
Section 3 – Communication of Proposal, Acceptance and Revocation
Communication can be made by:
- An act
- An omission
As long as it shows intention to communicate, it is legally valid.
Section 4 – When Communication is Complete
Proposal
Communication of a proposal is complete when it comes to the knowledge of the other person.
Acceptance
- Against proposer: When acceptance is posted
- Against acceptor: When acceptance reaches proposer
Revocation
- Against sender: When revocation is sent
- Against receiver: When revocation is received
Section 5 – Revocation of Proposal and Acceptance
Revocation of Proposal
A proposal can be revoked before acceptance is complete against the proposer.
Revocation of Acceptance
An acceptance can be revoked before it reaches the proposer.
Illustration (Postal Rule)
- A sends proposal by post
- B accepts by post
- A can revoke before B posts acceptance
- B can revoke before acceptance reaches A
State Amendment – Uttar Pradesh (Section 5)
Uttar Pradesh added an important explanation to Section 5.
If an invitation to proposal says the offer must remain open for a specific time, and the proposal is made accepting that condition:
The proposal cannot be revoked during that time.
This protects genuine business offers and prevents unfair withdrawal.
Why the Indian Contract Act, 1872 Is Important
- Governs business and personal agreements
- Provides legal certainty
- Protects parties from unfair practices
- Forms the base of commercial law in India
Quick Summary
- Proposal + Acceptance + Consideration = Contract
- Communication rules decide timing
- Revocation has strict legal limits
- UP amendment strengthens offer validity
