Contract Law in India: Key Principles, Case Laws, and Practical Tips

Introduction:

Contract law is likely to be one of the easiest approaches to conceptualizing law

in any legal system. The legal system exists to uphold the promises between

parties and to guarantee that when there's a disagreement, the legal system is in

a position to enforce such promises. Contracts pervade everywhere. You notice

them when you engage a business transaction, execute an employment contract,

buy goods and services when you go shopping, or when you register for social

media accounts and accept terms of service. A contract establishes rights, duties,

and stipulated remedies for parties of an agreement, including the possibility of

damages in case a contract is violated. In this blog, we will detail fundamental

principles of contract law, including formation, breach, and enforcement, with

emphasis on practical implications for individuals and businesses.

1. What is a Contract?

Contracts are a legal commitment between two or more parties which

establishes some mutual duty or obligations among the parties that the law

acknowledges and will enforce. In the case that a contract will be valid there are

certain required features:

A. Essential Elements of a Contract

• Offer and Acceptance - a definite offer must be made by one party and

the other party must accept it without terms

• Consideration- must be exchanged (e.g., money, goods, services).

• Intention to Create a Legal Relationship - the parties must have intended

to make a legally binding contract

• Capacity- parties must be legally capable to Contract (e.g. not a minor or

insane)

• Legality – The contract must be regarding a legal subject matter.

• When one or more of the elements of a contract are absent either it is a

void (invalid from the start) or voidable (can be terminated by one of the

parties) contract.

2. Types of Contracts

Contracts may be classified in different ways:

A. According to Formation

•Express Contracts – Terms are clearly set out (oral or written).  

•Implied Contracts – Terms are implied through actions or situations.

B. Enforceability on the basis of Valid contracts - Satisfy legal conditions. 

Void contracts - Not enforceable ab initio (e.g. illegal contracts). 

Voidable contracts - Result in enforceable but can be rescinded by a party, where fraud, undue

influence, or misrepresentation exists. 

Unenforceable contracts - Valid contractswhich are impossible to enforce owing to technicalities in law (e.g. no writing required).

C. On the Performance Executed contracts - All parties have fulfilled their

obligations. 

Executory contracts - There are still some obligations to be

fulfilled.

3. Contract Formation: Offer, Acceptance and Consideration

A. Offer

An offer is a definite promise by a party (offeror) to another party (offeree) to

create a contract on specific terms.

Offer and an Invitation to Treat

Adverts are normally invitations to treat (not offers).

A shop shows a price it ects an invitation to treat only, the offer is made at the

checkout.

B. Acceptance

Acceptance is not an effective acceptance until it is:

Unconditional - Acceptance is required to be without qualification (any

variation of the initial offer is a counteroffer).

Communicated - Acceptance has to be communicated (silence cannot be

acceptance unless there is a previous agreement).

C. Consideration

Consideration consists of valuable things exchanged (money, services,

promises). A contract without consideration is generally unenforceable except

(deeds under seal).

4. Breach and Remedies

A breach of contract happens when one party fails to fulfill its side of the

agreement. There are traditionally two types of breach of contract.

 A. Types of Breaches

• Material Breach - A serious breach which entitles the injured party to

cancel the contract and sue for damages.

• Minor Breach - A partial breach in which the injured party can sue for

damages, yet still continue to perform.

B. Remedies for Breach

• Damages - Monetary compensation for losses, this is the remedy in most

cases.

• Compensatory Damages - Replaces direct losses.

• Consequential Damage - Replaces the indirect losses (if foreseeable).

• Punitive Damages - Occasional in breach of contract cases (usual claim in

tort cases).

• Specific Performance - Court compels breaching party to fulfill their

obligation (applied in special cases, sales of land).

• Rescission - Invalidates the contract and restores both parties to their

initial pre-contract positions.

• Injunction - Court instructs one of the parties not to act (e.g., violate a

non-compete agreement).

5. Common Legal Issues in Contract Law

A. Misrepresentation, and Fraud

Where a party enters into a contract on account of they were persuaded to do so

by permutations of false statements. The contract can be rescinded, which

means a party can leave or cancel the contract.

• Fraudulent Misrepresentation - A false statement that was made with

intent to deceive.

• Negligent Misrepresentation - A false statement that was made

unintentionally.

• Innocent Misrepresentation - A false statement made unaware the

statement was false.

 

B. Duress and Undue Influence 

• Duress - Execution of a contract under duress (economic or physical

pressure).

• Undue Influence - One individual exploits his/her position of control over

another individual (e.g., elderly individual pressured into an unequal

contract).

C. Mistake in Contracts

Unilateral Mistake is where a party is mistaken (ordinarily, that would not be

enough to invalidate the contract unless the other party had knowledge of the

mistake).

Mutual Mistake is where both parties are mistaken regarding a fundamental fact

(the contract can be void).

6. Digital Contracts & E-Signatures

With the rise of e-commerce, digital contracts (clickwrap, browsewrap) are also

standard. Electronic Signatures in Global and National Commerce Act (ESIGN)

and Uniform Electronic Transactions Act (UETA) acknowledges e-signatures,

provided that:

• Facts

• Both parties consent to electronic transactions.

• The signature can be identified.

Conclusion

The law of contracts offers a just and predictable framework for handling

agreements. A well-formulated contract shields parties from exploitation and

violation. If parties are aware of the principles of contract law, individuals and

companies can efficiently.

 

CASE LAWS:

1.Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44

The Indian Contract Act, to the extent it addresses a particular subject,

exhausts it, making it impermissible to import principles from English law.

Decisions of English Courts are merely persuasive in nature.

2. CWT v. Abdul Hussain, (1988) 3 SCC 562

In commercial transactions, there is a presumption that parties intend legal

consequences. The burden lies on the party asserting the absence of legal

consequences. The test of intention is objective rather than subjective.

3. Banwari Lal v. Sukhdarshan Dayal (1973)1 SCC 294

The Supreme Court emphasised that an intention to create legal relations is

essential for the formation of a contract.

4. Carlill v. Carbolic Smoke Ball (1893) 1 QB 256 (CA)

The Supreme Court highlighted the importance of reducing a contract to

writing. Expressing agreements in writing serves to eliminate any ambiguity

and ensures clarity of understanding.

5. State of Uttar Pradesh v. Murari Lal, AIR 1971 SC 2210

The Supreme Court held that the provisions of Article 299(1) are mandatory.

Contracts made in contravention of Article 299 are invalid.

6. SBI v. Radhey Shyam Pandey, (2020) 6 SCC 438

If it is impossible to separate the legal and illegal parts of a covenant, the

contract is entirely void. However, if it is possible to sever the legal from the

illegal parts, the invalid portion may be rejected while upholding the valid

part.

 

Closing Credits

Author: VAISHNAVI

Affiliation: CHRIST UNIVERSITY DELHI NCR

"The views expressed are personal. This article is intended for educational purposes and public discourse. Feedback and constructive criticism are welcome!"