Introduction to Commercial Law and the Indian Contract Act, 1872
Commercial law governs business dealings, and the Indian Contract Act, 1872 supplies the general rules tested in this domain: formation, validity, performance, breach and special contracts.
Formation and core rules
- Sections 2(h) and 10: a contract is an agreement enforceable by law; essentials include offer, acceptance, lawful consideration, capacity, free consent, lawful object and certainty.
- Offer (s2(a)) must be communicated; acceptance (s2(b)) must be absolute, unqualified, in the prescribed mode and communicated. A counter-offer destroys the original offer.
- Communication of offer and acceptance is complete under s4; revocation is possible under s5 before it is complete against the other party.
- Consideration (s2(d)) must be real, not necessarily adequate; it may move from the promisee or a third party. Section 25 preserves exceptions such as written and registered promises made out of natural love and affection between near relatives, past voluntary services and time-barred debts.
- Capacity (s11): a minor's agreement is void ab initio; no ratification on attaining majority. Persons of unsound mind and persons disqualified by law also lack capacity.
- Free consent (ss13–22): coercion, undue influence, fraud, misrepresentation and mistake affect validity; the contract is usually voidable, but mistake as to subject matter may make it void.
- Object and consideration must be lawful (s23).
- Discharge may be by performance, agreement, impossibility (s56) or breach. Section 73 gives damages for natural consequences, subject to remoteness and mitigation; s74 deals with liquidated damages and penalty.
- Special contracts: indemnity (ss124–125), guarantee (ss126–147), bailment (ss148–181), pledge (ss172–179) and agency (ss182–238).
Worked example
A offers to sell a bicycle for ₹5,000. B replies, 'I accept if you add a helmet.' There is no contract: B's reply is a counter-offer, not acceptance. The original offer lapses, and A may accept, reject or make another offer.
Traps
Silence is not acceptance; postal acceptance is complete against the offeror when posted; a minor cannot ratify; inadequacy of consideration is not by itself a ground to avoid a contract; distinguish void, voidable and unenforceable agreements.