THE INDIAN CONTRACT ACT,1872 ACT No. 9 OF 1872 1* [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 1. Short title. 1.Short title.-This Act may be called the Indian Contract Act, 1872. Extent, Commencements.-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1872. 3* Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act. 2. Interpretation-clause. 2.Interpretation-clause. In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context :- (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: (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 It promisee ": (d) When, at the desire of the promisor, the promisee or any other person has clone 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 : --------------------------------------------------------------------- 1 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. It has been amended in C.P. by C.P. Act 1 of 1915 and in C.P. and Berar by C.P. and Berar Act 15 of 1938. 2 Subs. by Act 3 of 1951, s. 3 and Sch., for " except Part B States 3 The words " The enactments mentioned in the schedule hereto are repealed to the extent specified in the third column thereof but " were rep. by Act 10 of 1914. This Act shall come into force in the State of Sikkim on 1-9-1984 vide Notifn. No. s.o. 641 (E), dated 24.8.1984 Gaz. of India, Exty. Pt.II, See. 3 (ii). Extended to and brought into force in Dadra and Nagar Haveli (w.e.f. 1-7-65) by Reg. 6 of 1963, s.2 & Sch. I. Extended to Goa, Daman and Diu by Reg. 11 of 1963, s.3 & Sch. Extended to the Union territory of pondicherry by Act 26 of 1968, s.3 and Schedule. Extended to Laccadive, Minicoy and Amindivi Islands (w.e.f. 1-10- 1967):vide Reg. 8 of 1965, s.3 & Sch. --------------------------------------------------------------------- 20 (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 CHAPTER I OF THE COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS 3. Communication, acceptance and revocation of proposals. 3.Communication, acceptance and revocation of proposals.-The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of_ the party proposing, accepting or revoking by which he intends to communicate such pro- posal acceptance or revocation, or which., has the effect of communicating it. 4. Communication when complete. 4.Communication when complete.-The, communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. 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. 21 (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 posted 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. 5. Revocation of proposals and acceptances. 5.Revocation of proposals and acceptances.-A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. 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. 6. Revocation how made. 6.Revocation how made.-A proposal is revoked- (1) by the communication of notice of revocation by the pro poser 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. 7. Acceptance must be absolute. 7.Acceptance must be absolute.-In order to convert a proposal into a promise, the acceptance must- (1) be absolute and unqualified; 22 (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. 8. Acceptance by performing conditions, or receiving consideration. 8.Acceptance by performing conditions, or receiving consideration.-Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal. 9. Promises, express and implied. 9.Promises, express and implied.-In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. CHAPTER II OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS CHAPTER II OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS 10. What agreements are contracts. 10.What agreements are contracts.-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. Nothing herein contained shall affect any law in force in 1*[India] and not hereby expressly repealed by which any contract is required to be made in writing2* or in the presence of witnesses, or any law relating to the registration of documents. 11. Who are competent to contract. 11. Who are competent to contract.-Every person is competent to contract who is of the age of majority according to the law to which he is subject, 3*and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. --------------------------------------------------------------------- 1 Subs. by Act 3 of 1951, for " Part A States and Part C States". 2 See e.g., s. 25, infra; the Indian Copyright Act, 1914 (3 of 1914), s. 5 of the First Schedule; the Apprentices Act, 1850 (19 of 1850), s. 8 ; the Conveyance of Land Act, 1854 (31 of 1854), ss. 14 and 18 ; the Carriers Act, 1865 (3 of 1865), ss. 6 and 7 ; the Merchant Shipping Act, 1894 (57 and 58 Vict., c. 60), s. 24 (poll. Stat., Vol. II). 3 See the Indian Majority Act, 1875 (9 of 1875). --------------------------------------------------------------------- 23 12. What is a sound mind for the purposes of contracting. 12.What is a sound mind for the purposes of contracting.-A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. 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 un- sound 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. 13. "Consent" defined. 13."Consent" defined.-Two or more persons are said to consent when they agree upon the same thing in the same sense. 14. "Free consent" defined. 14."Free consent" defined.-Consent is said to be free when it is not caused by- (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. 15. "Coercion"defined. 15. "Coercion" defined.-"Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. (45 of 1860.) Explanation.-It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed. (45 of 1860.) 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. 24 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 was not in force at the time when or place where the act was done.(45 of 1860.) 16. "Undue influence" defined. 1*[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. (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 Ill 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.] 17. "Fraud" defined. 17."Fraud" defined.-"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent,2* --------------------------------------------------------------------- 1 Subs. by Act 6 of 1899, s. 2, for the original s. 16.