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THE INDIAN CONTRACT ACT, 1872
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ARRANGEMENT OF SECTIONS
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SECTIONS
PREAMBLE
PRELIMINARY
CHAPTER I
OF THE COMMUNICATION, ACCEPTANCE AND
REVOCATION OF PROPOSALS
CHAPTER II
OF CONTRACTS, VOIDABLE CONTRACTS AND VOID
AGREEMENTS
19A. Power to set aside contract induced by undue influence.
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SECTIONS
Void agreements
Saving of agreement not to carry on business of which good-will is sold.
Saving of contract to refer to arbitration dispute that may arise. Saving of contract to refer questions that have already arisen. Saving of a guarantee agreement of a bank or a financial institution.
Exception in favour of certain prizes for horse-racing. Section 294A of the Indian Penal Code not affected.
CHAPTER III
OF CONTINGENT CONTRACTS
When contracts may be enforced, which are contingent on specified event not happening within fixed time.
CHAPTER IV
OF THE PERFORMANCE OF CONTRACTS
Contracts which must be performed
By whom contracts must be performed
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SECTIONS
Sharing of loss by default in contribution.
Time and place for performance
Performance of reciprocal promises
Effect of acceptance of performance at time other than that agreed upon.
Contract to do an act afterwards becoming impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or unlawful.
Appropriation of payments
Contracts which need not be performed
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CHAPTER V
OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT
SECTIONS
CHAPTER VI
OF THE CONSEQUENCES OF BREACH OF CONTRACT
Compensation for failure to discharge obligation resembling those created by contract.
[CHAPTER VII SALE OF GOODS.] [Repealed.].
[DELIVERY.] [Repealed.].
[SELLER’S LIEN.] [Repealed.].
[STOPPAGE IN TRANSIT.] [Repealed.].
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SECTIONS
[RESALE.] [Repealed.].
[TITLE.] [Repealed.].
[WARRANTY.] Repealed.].
[MISCELLANEOUS.] [Repealed.].
CHAPTERVIII
OF INDEMNITY AND GUARANTEE
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SECTIONS
CHAPTER IX
OF BAILMENT
May sue for specific reward offered.
Bailments of pledges
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SECTIONS
178A. Pledge by person in possession under voidable contract.
Suits by bailees or bailors against wrong-doers
CHAPTER X
AGENCY
Appointment and authority of agents
Sub-agents
Agent?s responsibility for sub-agent. Sub-agent?s responsibility.
Ratification
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Revocation of authority
SECTIONS
Agent’s duty to principal
Principal’s duty to agent
Effect of agency on contracts with third persons
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SECTIONS
CHAPTER XI
OF PARTNERSHIP
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THE INDIAN CONTRACT ACT, 1872
ACT NO. 9 OF 18721
[25th April, 1872.]
Preamble—WHEREAS it is expedient to define and amend certain parts of the law relating to contracts;
It is hereby enacted as follows:—
PRELIMINARY
Extent, Commencement.—It extends to the whole of India 2[except the State of Jammu and Kashmir]; and it shall come into force on the first day of September, 1872.
Saving—3*** Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act.
(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
The Chapters and sections of the Transfer of Property Act, 1882 (4 of 1882), which relate to contracts are, in places in which that Act is in force, to be taken as part of this Act—see Act 4 of 1882, a. 4.
This Act has been extended to Berar by the Berar Laws Act, 1941 (4 of 1941) to Dadra and Nagar Haveli by Reg. 6 of 1963, s. 2 and Sch. I to Goa, Daman and Diu by Reg. 11 of 1963, s. 3 and Sch., to Laccadive, Minicoy and Amindivi Islands by Reg. 8 of 1965, s. 3 and Sch., to Pondicherry by Act 26 of 1968, s. 3 and Sch. and has been declared to be in force in—
the Sonthal Parganas—see Sonthal Parganas Settlement Regulation, 1872 (3 of 1872), s. 3, as amended by the Sonthal Parganas Justice and Laws Regulation, 1899 (3 of 1899), s. 3.
Panth Piploda—see the Panth Piploda Law Regulation, 1929 (1 of 1929), s. 2.
It has been declared, by notification under s. 3(a) of the Scheduled Districts Act, 1874 (14 of 1874), to be in force in—
the Tarai of the Province of Agra—see Gazette of India, 1876, Pt. I, p. 505;
the Districts of Hazaribagh, Lohardaga and Manbhum, and Pargana Dhalbhum and the Kolhan in the District of Singhbhum— see Gazette of India, 1881, pt. I, p. 504.—The District of Lohardaga included at this time the present District of Palamau which was separated in 1894. The District of Lohardaga is now called the Ranchi District—see Calcutta Gazette, 1899, pt. I, p. 44.
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(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;
(c) The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”;
(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;
(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;
(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;
(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
CHAPTER I
OF THE COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS
The communication of an acceptance is complete,—
as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.
The communication of a revocation is complete,—
as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.
Illustrations
(a) A proposes, by letter, to sell a house to B at a certain price.
The communication of the proposal is complete when B receives the letter.
(b) B accepts A?s proposal by a letter sent by post.
The communication of the acceptance is complete,
as against A when the letter is post;
as against B, when the letter is received by A.
(c) A revokes his proposal by telegram.
The revocation is complete as against A when the telegram is despatched. It is complete as against B when B receives it.
B revokes his acceptance by telegram. B?s revocation is complete as against B when the telegram is despatched, and as against A when it reaches him.
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An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
Illustrations
A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.
(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
(1) be absolute and unqualified;
(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.
CHAPTER II
OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS
Nothing herein contained shall affect any law in force in 1[India] and not hereby expressly repealed
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by which any contract is required to be made in writing1 or in the presence of witnesses, or any law relating to the registration of documents.
A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
Illustrations
(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.
(b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.
Explanation.—It is immaterial whether the Indian Penal Code (45 of 1860) is or is not in force in the place where the coercion is employed.
Illustration
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. (45 of 1860).
A afterwards sues B for breach of contract at Calcutta.
A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Indian Penal Code (45 of 1860) was not in force at the time when or place where the act was done.
3[16. “Undue influence” defined.—(1) A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
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(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another—
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.
(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.
Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).
Illustrations
(a) A having advanced money to his son, B, during his minority, upon B?s coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
(b) A, a man enfeebled by disease or age, is induced, by B?s influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services, B employs undue influence.
(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.]
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation.—Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak2, or unless his silence is, in itself, equivalent to speech.
Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse?s unsoundness. This is not fraud in A.
(b) B is A?s daughter and has just come of age. Here, the relation between the parties would make it A?s duty to tell B if the horse is unsound.
(c) B says to A—“If you do not deny it, I shall assume that the horse is sound.” A says nothing. Here, A?s silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B?s willingness to proceed with the contract. A is not bound to inform B.
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(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.
A party to a contract whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.
Exception.—If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
Explanation.—A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable.
Illustrations
(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A?s factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.
(b) A, by a misrepresentation, leads B erroneously to believe that, five hundred maunds of indigo are made annually at A?s factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A?s misrepresentation.
(c) A fraudulently informs B that A?s estate is free from incumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage debt redeemed.
(d) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal, the existence of the ore from A. Through A?s ignorance B is enabled to buy the estate at an under-value. The contract is voidable at the option of A.
(e) A is entitled to succeed to an estate at the death of B, B dies: C, having received intelligence of B?s death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate. The sale is voidable at the option of A.
2[19A. Power to set aside contract induced by undue influence.—When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just.
Illustrations
(a) A?s son has forged B?s name to a promissory note. B under threat of prosecuting A?s son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside.
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(b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and, by undue influence, induces B to execute a bond for Rs. 200 with interest at 6 per cent. per month. The Court may set the bond aside, ordering B to repay the Rs. 100 with such interest as may seem just.]
Explanation.—An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement, is not to be deemed a mistake as to a matter of fact.
Illustrations
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the these facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void.
(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.
2* * * * *
Illustration
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.
3* * * * *
it is forbidden by law4; or
is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent ; or
involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
Illustrations
(a) A agrees to sell his house to B for 10,000 rupees. Here B?s promise to pay the sum of 10,000 rupees is the consideration for A?s promise to sell the house, and A?s promise to sell the house is the consideration for B?s promise to pay the 10,000 rupees. These are lawful considerations.
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(b) A promises to pay B 1,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here, the promise of each party is the consideration for the promise of the other party, and they are lawful considerations.
(c) A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is wrecked on a certain voyage. Here, A?s promise is the consideration for B?s payment and B?s payment is the consideration for A?s promise, and these are lawful considerations.
(d) A promises to maintain B?s child, and B promises to pay A 1,000 rupees yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party. They are lawful considerations.
(e) A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud.
The agreement is void, as its object is unlawful.
(f) A promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for it is unlawful.
(g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void. as it implies a fraud by concealment, by A, on his principal.
(h) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.
(i) A?s estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price which B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by the defaulter, and would so defeat the object of the law.
(j) A, who is B?s mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860).
Void agreements
Illustration
A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A?s promise, and the consideration for B?s promise, being in part unlawful.
(1) it is expressed in writing and registered under the law for the time being in force for the registration of 1[documents], and is made on account of natural love and affection between parties standing in a near relation to each other ; or unless
(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless;
(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
Explanation 1.—Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.
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Explanation 2.—An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.
Illustrations
(a) A promises, for no consideration, to give to B Rs. 1,000. This is a void agreement.
(b) A, for natural lo
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