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Indian Contract Act 1872 Basics for CA Foundation Business Laws

Updated 1 October 2026 · Fact-checked

A contract is an agreement enforceable by law. An agreement is every promise and every set of promises forming the consideration for each other (S.2(e)). To check validity, test for offer and acceptance, intention to create legal relations, consideration, capacity, free consent, lawful object, certainty, possibility and no express declaration of voidness. Then state your conclusion.

Understand Indian Contract Act 1872 Basics

Start with the idea of a promise. When one person makes a proposal and another accepts it, the accepted proposal becomes a promise (S.2(b)). Every promise and every set of promises forming the consideration for each other is an agreement (S.2(e)). Not every agreement can be taken to court. Dinner plans with a friend are an agreement, but no court will enforce them.

A contract is an agreement that the law will enforce. So every contract is an agreement, but not every agreement is a contract. The Indian Contract Act, 1872 sets the tests an agreement must pass to become a contract. In your answer, always link the facts to these tests.

The tests are: offer and acceptance, intention to create legal relations, lawful consideration, parties competent to contract, free consent, lawful object, agreements not expressly declared void, certainty of meaning, and possibility of performance. Some contracts also need writing, registration or witnesses because another law requires it.

Contracts are classified by validity and enforceability. The Act itself defines only three of these labels: a void agreement (S.2(g)), a voidable contract (S.2(i)) and a void contract (S.2(j)). Together with the valid contract, which meets every test, these are the statutory categories. A void agreement is not enforceable by law at all. A voidable contract is enforceable at the option of one party, usually the one whose consent was not free.

Illegal agreement and unenforceable contract are textbook classifications. The Act does not define them. An illegal agreement is forbidden by law and is void, and it also taints connected transactions. An unenforceable contract is valid in substance but cannot be enforced because of a technical defect, such as missing writing or being time-barred.

A void contract is a contract that was enforceable when made but later becomes void, for example through supervening impossibility or illegality (S.56). Note the difference: an agreement void from the start is a void agreement, while a contract that was valid when made and later becomes void is a void contract. Keep both distinct from an unenforceable contract, which is barred by a technical defect rather than by a change in circumstances.

Key rules to remember

Agreement: Agreement = Offer (proposal) + Acceptance (promise); Every promise and every set of promises forming the consideration for each other is an agreement (S.2(e)).
Contract: Contract = Agreement + Enforceability by law; Every contract is an agreement, but not every agreement is a contract.
Essentials of a valid contract: Offer and acceptance + intention to create legal relations + lawful consideration + capacity + free consent + lawful object + not declared void + certainty + possibility of performance + legal formalities where required; If any one essential is missing, the agreement is not a valid contract.
Void agreement: Void agreement = not enforceable by law from the start; It creates no legal rights for either party (S.2(g)).
Voidable contract: Voidable contract = enforceable at the option of the aggrieved party; It stays valid until that party rejects it. Typical causes are coercion, undue influence, fraud and misrepresentation (S.2(i)).
Void contract: Void contract = enforceable when made, later becomes void; An example is a contract that later becomes impossible to perform or unlawful (S.2(j), S.56).
Unenforceable contract: Unenforceable contract = valid in substance but barred by a technical defect; Examples are missing formalities or a time-barred claim. This is a textbook label, not defined in the Act.

How to solve Indian Contract Act 1872 Basics questions

Use this method for any problem that asks whether an agreement is a valid contract or what type of contract it is.

1Write the issue in one line: is the agreement a valid contract, and of what type?
2State the rule: a contract is an agreement enforceable by law, and list the relevant essentials.
3Pick the essentials the facts actually raise. Check offer and acceptance, intention, consideration, capacity, consent, object and formalities.
4Apply each essential to the facts one by one. Use the names and amounts from the question.
5Find the missing or defective essential. Decide whether it makes the agreement void, voidable, illegal or unenforceable.
6Write the conclusion clearly: valid contract, void agreement, voidable contract and so on, and say who can do what.
7Add the consequence, such as who can sue, who can rescind, or whether any remedy exists.

Quickest way: Provision-facts-conclusion in four lines

When to use it: Use it for short 2 to 5 mark questions or when you are running short of time.

Line 1: state the definition, that a contract is an agreement enforceable by law.
Line 2: name only the essential tested by the facts.
Line 3: apply it in one or two sentences using the facts.
Line 4: conclude with the exact label (valid, void, voidable, illegal or unenforceable) and its effect.
For difference questions, write two to four points in a two-column style: meaning, enforceability, relationship and effect.

Common mistakes in Indian Contract Act 1872 Basics

Saying every agreement is a contract.
The two words are used as the same thing in daily speech.
Fix: Write that every contract is an agreement, but only agreements enforceable by law are contracts. Give a social agreement as an example.
Mixing up void and voidable.
Both sound like defective contracts.
Fix: Void means no legal effect at all. Voidable means valid until the aggrieved party chooses to cancel it.
Forgetting intention to create legal relations.
Students memorise only the consideration and capacity tests.
Fix: For family, social or domestic arrangements, check intention first. It is usually presumed absent there, and usually presumed present in commercial deals.
Treating illegal and void as identical.
Both are not enforceable.
Fix: Say that an illegal agreement is also void, but it goes further. Related collateral transactions can be affected and parties may face penalties.
Listing essentials without applying them to the facts.
Students rely on memory and skip the reasoning.
Fix: After each essential, add a sentence linking it to the question facts. Examiners give marks for application.
Confusing a void agreement with a void contract.
The terms look similar.
Fix: A void agreement is void from the beginning. A void contract is enforceable when made and becomes void later, for example through supervening impossibility.
Treating illegal and unenforceable as statutory types.
Textbooks list them beside the statutory categories.
Fix: Remember that the Act defines only void agreement, voidable contract and void contract. Use illegal and unenforceable as descriptive labels and do not quote a section for them.

Worked examples

Example 1

Distinguish between an agreement and a contract.

Show the solution

Define agreement: every promise and every set of promises forming the consideration for each other (S.2(e)).
Define contract: an agreement enforceable by law.
Compare scope: agreement is the wider term, contract is the narrower term.
Compare enforceability: an agreement may not be enforceable, a contract is enforceable.
Compare legal obligation: an agreement may create no legal obligation, a contract creates legal obligations.

Answer: An agreement is every promise and every set of promises forming the consideration for each other. A promise is an accepted proposal. A contract is an agreement that the law enforces. So all contracts are agreements, but not all agreements are contracts. For instance, a promise to attend a friend's party is an agreement but not a contract, as no legal relations are intended.

Example 2

Rohan agrees to sell his car to Meera for ₹4,00,000. Meera agrees to pay. Rohan was 16 years old at the time. Meera claims the agreement is a valid contract. Examine.

Show the solution

Issue: is the agreement a valid contract?
Rule: a valid contract needs, among other things, that the parties are competent to contract. Under S.11, a person must be of the age of majority to be competent. The age of majority is 18 under the Indian Majority Act, 1875.
Application: there is an offer, acceptance and consideration of ₹4,00,000. But Rohan is 16, so he is a minor and not competent to contract.
Effect: a minor's agreement is void ab initio (Mohori Bibee v. Dharmodas Ghose). It cannot be enforced against Rohan.
Conclusion: the agreement is not a valid contract.

Answer: The agreement is void ab initio, not a valid contract, because Rohan was a minor and lacked capacity under S.11. Meera cannot enforce it.

Exam tips

For a 'distinguish' question, write at least three clear points and finish with an example.
For case-study questions, name the essential that fails before you name the label of the agreement.
Learn the labels (valid, void agreement, voidable, void contract, illegal, unenforceable) with one-line examples. Know that only void agreement, voidable contract and void contract are defined in the Act.
Keep every answer in the order of provision, facts, conclusion. Do not copy long definitions without applying them.
No negative marking in this paper, so always attempt every question and write something relevant.

Practice questions from Indian Regulatory Framework

Indian Contract Act 1872 Basics: frequently asked questions

What is the difference between an agreement and a contract?

An agreement is every promise and every set of promises forming the consideration for each other. A contract is an agreement the law can enforce. So a contract is always an agreement, but an agreement may not be a contract.

What are the essentials of a valid contract?

The main ones are offer and acceptance, intention to create legal relations, lawful consideration, capacity, free consent, lawful object, certainty and possibility of performance. The agreement must also not be declared void by law, and formalities must be met where required.

What is the difference between void and voidable contracts?

A void agreement has no legal effect from the start. A voidable contract is valid until the party whose consent was not free decides to cancel it. Until then, it can be enforced.

What is an unenforceable contract?

It is a contract that is valid in substance but cannot be enforced in court because of a technical defect. Examples are a missing required formality or a claim barred by limitation. The Act does not define it as a separate category.