Decoding Section 2 of the Indian Contract Act, 1872-Quick Summary

The Indian Contract Act, 1872, is the cornerstone of contract law in India. Section 2 of the Act is particularly significant as it defines the key terms and concepts essential to understanding the provisions of the Act. This article delves into the detailed provisions of Section 2, its key ingredients, examples, and case laws to illustrate its application.

Key Definitions Under Section 2 of the Indian Contract Act, 1872

1.Proposal (Section 2(a))

A proposal, or offer, is made when one person signifies to another their willingness to do or abstain from doing something with a view to obtaining the other’s assent. This is the first step in forming a contract.

Key Ingredients:

• Expression of willingness.
• Intention to create a legal relationship.
• Communication to the offeree.

Example: A offers to sell his car to B for ₹5 lakh. This signifies A’s willingness to contract, making it a proposal.

Case Law:

• Carlill v. Carbolic Smoke Ball Co. (1893): The company’s advertisement promising compensation for contracting influenza was held as a valid offer due to its clear intention to create legal obligations.

2.Acceptance (Section 2(b))

When the person to whom the proposal is made signifies their assent, the proposal becomes a promise.

Key Ingredients:

• Acceptance must be absolute and unqualified.
• It must be communicated to the offeror.
• Acceptance must be in the manner prescribed, if any.

Example: B accepts A’s offer to buy the car for ₹5 lakh. This turns the proposal into a promise.

Case Law:

• Felthouse v. Bindley (1862): Silence cannot amount to acceptance unless explicitly agreed upon by the parties.

3.Promisor and Promisee (Section 2(c))

• The person making the proposal is called the promisor.
• The person accepting the proposal is called the promisee.

Example: In the agreement between A and B, A (who offers to sell the car) is the promisor, and B (who accepts the offer) is the promisee.

Case Law:

• Durga Prasad v. Baldeo (1881): Clarified the roles of promisor and promisee in determining obligations.

4.Consideration (Section 2(d))

Consideration refers to something of value exchanged between the parties to make a promise enforceable. It is a fundamental requirement for a valid contract.

Key Ingredients:

• Must move at the desire of the promisor.
• Can be past, present, or future.
• Must be lawful.

Lawful Consideration: For consideration to be lawful, it must not:

1. Be illegal.
2. Be immoral.
3. Oppose public policy.

Example: A promises to sell his car to B for ₹5 lakh. Here, the car is A’s consideration, and the money is B’s consideration.

Case Law:

• Chinnaya v. Ramayya (1882): Even indirect consideration can be valid if it moves at the desire of the promisor.
  1. Agreement (Section 2(e))

An agreement is defined as “every promise and every set of promises forming consideration for each other.”

Key Ingredients:

• Offer and acceptance.
• Reciprocal promises.
• Lawful consideration.

Example: A agrees to sell his car to B, and B agrees to pay ₹5 lakh. This mutual exchange of promises forms an agreement.

Case Law:

• Balfour v. Balfour (1919): Highlighted the importance of intention to create legal obligations in agreements.

6.Reciprocal Promises (Section 2(f))

Reciprocal promises are promises that form consideration or part of the consideration for each other.

Example: A promises to deliver goods to B, and B promises to pay on delivery. These promises are reciprocal.

Case Law:

• Anson v. Butterfield (1923): Reciprocal promises create mutual obligations, and failure by one party can discharge the other.

1. Void Agreement (Section 2(g))

A void agreement is an agreement that is not enforceable by law.

Key Ingredients:

• Absence of essential elements of a valid contract.
• Illegal or immoral object or consideration.

Example: A agrees to pay B to smuggle goods. This agreement is void due to its unlawful object.

Case Law:

• Mohori Bibee v. Dharmodas Ghose (1903): A minor’s agreement is void ab initio.

8.Contract (Section 2(h))

A contract is an agreement enforceable by law.

Key Ingredients:

• Offer and acceptance.
• Lawful consideration.
• Intention to create legal relations.
• Competence of parties.

Example: A agrees to sell his house to B for ₹10 lakh, and both parties sign a written agreement. This is a valid contract if it satisfies all legal requirements.

Case Law:

• Lalman Shukla v. Gauri Dutt (1913): For a valid contract, the acceptance must be communicated.

9.Voidable Contract (Section 2(i))

A voidable contract is enforceable by law at the option of one of the parties but is void if rescinded by the aggrieved party.

Key Ingredients:

• Lack of free consent (e.g., coercion, undue influence).
• Option for the aggrieved party to void the contract.

Example: A coerces B into signing a contract to sell property. B can choose to void the contract.

Case Law:

• Ranganayakamma v. Alwar Setti (1889): A contract signed under duress was held voidable.

10.Void Contract (Section 2(j))

A contract that was initially valid but ceases to be enforceable due to changes in circumstances.

Example: A contracts with B to transport goods, but a new law prohibits the transport. The contract becomes void.

Case Law:

• Taylor v. Caldwell (1863): A contract became void when the subject matter was destroyed by fire.

Difference Between Void and Voidable Contracts

Case Laws:

• Void Contract: Mohori Bibee v. Dharmodas Ghose (1903).
• Voidable Contract: Ranganayakamma v. Alwar Setti (1889).

Conclusion

Section 2 of the Indian Contract Act, 1872, provides the foundational definitions necessary for understanding and applying the principles of contract law. From defining terms like proposal, acceptance, and consideration to distinguishing void and voidable contracts, it ensures clarity and consistency in interpreting contractual obligations. A comprehensive understanding of these provisions, supported by relevant case laws, is essential for legal practitioners and anyone dealing with contractual matters.