CMA Intermediate · Business Laws and Ethics
Indian Contracts Act, 1872 for CMA Intermediate
The Indian Contract Act, 1872 sets out when an agreement becomes a legally enforceable contract, how it is formed, performed, discharged and remedied if broken. To score, learn each section's exact conditions, then apply them to short fact situations using rule, application and conclusion.
What this chapter covers
This chapter is the base of Paper 5, Business Laws and Ethics. It starts with what makes an agreement a contract. Section 10 says 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 expressly declared void. Almost every other topic in the chapter explains one part of that sentence.
From there the chapter follows the life of a contract. You learn how a proposal is made, accepted and revoked, what consideration and capacity mean, and how free consent can be lost through coercion, undue influence, fraud, misrepresentation or mistake. Then come special types such as contingent and quasi contracts, followed by performance, discharge and remedies for breach.
The ideas here return across the paper. Other laws you study build on contract basics such as offer, acceptance, consideration and consent. If you are clear on this chapter, the later chapters feel like applications of familiar rules rather than new material.
This chapter is a core part of Business Laws and Ethics, and its rules are tested in both parts of the paper. In Section A, the 2-mark MCQs are often short fact situations where one condition decides the answer. In the descriptive part, you are asked to state a rule and apply it to a case. Because the sections are short and precise, careful preparation gives reliable marks. Its concepts also help you in other legal topics, so the effort pays off more than once.
Indian Contracts Act, 1872: topics in the order to study them
- 1Nature and Essentials of a Valid ContractSection 10 is the map of the whole chapter, so read it first and note each essential it names.
- 2Offer, Acceptance and Revocation of ProposalsA contract starts with a proposal and its acceptance, including when each can be revoked under Sections 3, 5 and 8.
- 3Consideration and Capacity to ContractThese are the next two essentials from Section 10: lawful consideration and parties competent to contract.
- 4Free Consent and Legality of ObjectSection 14 defines free consent and lists what spoils it; legality of object completes the essentials.
- 5Contingent and Quasi ContractsThese are special contracts you can study only after the basic rules are firm, starting with Sections 31 to 35.
- 6Performance and Discharge of ContractsOnce a valid contract exists, you learn how it is performed, including offers of performance under Section 38, and how it ends.
- 7Remedies for Breach of ContractRemedies come last because they depend on everything before, including Section 74 on compensation where a sum or penalty is named.
How to prepare Indian Contracts Act, 1872
Treat this chapter as a set of short rules, each with conditions, and practise applying them to facts. Reading alone is not enough.
- Read Section 10 until you can list the essentials of a valid contract from memory, then keep that list as the frame for every later topic.
- For each section you study, write the rule in one or two lines in your own words, and note the exact conditions, such as who must do what and by when.
- Learn the official illustrations. Many short fact questions are close to them, for example the posted letter in Section 5 or the ship examples in Sections 32, 33 and 35.
- For every topic, solve a few fact-based MCQs. Underline the one fact that decides the answer and say why the other options fail.
- Practise written answers in a fixed format: state the rule, apply it to the facts given, and end with a clear conclusion. This earns step marks.
- Revise by comparing similar rules side by side, such as contingent contracts that depend on an event happening versus not happening, and offer of performance versus actual performance.
- In the last week, redo wrong answers from your practice and read only your short rule notes.
Common mistakes in Indian Contracts Act, 1872
Treating every agreement as a contract.
Fix: For every fact question, run through the Section 10 list one by one before concluding.
Mixing up when a proposal and an acceptance can be revoked.
Fix: Remember that the proposal can be revoked until the acceptance is complete as against the proposer, and the acceptance until it is complete as against the acceptor. Use the posted-letter illustration to anchor this.
Confusing contingent contracts that depend on an event happening with those that depend on it not happening.
Fix: Make a small two-column note. Mark when each type can be enforced and when it becomes void, with the ship illustration for each.
Writing the rule without applying it to the facts.
Fix: Always write rule, application and conclusion. Use the names and amounts given in the question.
Assuming a penalty clause is recoverable in full.
Fix: Remember Section 74: the court awards reasonable compensation not exceeding the named amount or penalty, whether or not actual loss is proved.
Quoting section numbers or case names from memory when unsure.
Fix: Quote only sections you have checked in the Act. If unsure, state the rule in plain words, which still earns marks.
Last-day revision: Indian Contracts Act, 1872
- Section 10: agreements are contracts if made by free consent of competent parties, for lawful consideration and lawful object, and not expressly declared void.
- Section 10 also preserves laws requiring writing, witnesses or registration for certain contracts.
- A proposal can be revoked before communication of its acceptance is complete as against the proposer, but not afterwards (Section 5).
- An acceptance can be revoked before its communication is complete as against the acceptor, but not afterwards (Section 5).
- Performing the conditions of a proposal, or accepting consideration for a reciprocal promise offered with it, is acceptance (Section 8).
- Consent is free when not caused by coercion, undue influence, fraud, misrepresentation or mistake (Section 14).
- A contingent contract depends on an event collateral to the contract happening or not happening (Section 31).
- A contract contingent on an event happening cannot be enforced until that event happens, and becomes void if the event becomes impossible (Section 32).
- A contract contingent on an event not happening can be enforced when that event becomes impossible, and not before (Section 33).
- A valid offer of performance must be unconditional, made at a proper time and place, and give a reasonable chance to check the thing offered (Section 38).
- A surety is discharged if the creditor releases the principal debtor by contract, or by an act or omission that discharges the debtor (Section 134).
- Where a sum or penalty is named for breach, the injured party gets reasonable compensation not exceeding that amount, whether or not actual loss is proved (Section 74).
Indian Contracts Act, 1872 practice questions
- Which of the following correctly states a consequence of Section 10 regarding formalities for contracts?
- Ravi, a village money-lender, lends Sunil, who owes him earlier dues, a fresh sum on terms that appear unconscionable. Sunil later challenge…
- Under the Indian Contract Act, 1872, an agreement becomes a contract when it is made with certain features. Which of the following is NOT re…
- Mehta agrees to buy Nair's horse if Kapoor, to whom the horse was first offered, refuses to buy it. Kapoor has not yet decided. Which statem…
- Mohan, an elderly man weakened by illness, is persuaded by his doctor Dr. Rao, who treats him, to agree to pay an unreasonably large sum for…
- Karan misrepresents to Divya that his factory produces 500 units monthly. Before buying, Divya examines the factory accounts, which show onl…
- Anil pays Rs 5,000 to Bhaskar under an agreement which is later discovered to be void. Under the Act, what is the position of Bhaskar, who r…
- Gupta promises to pay Rao Rs 50,000 if a certain ship does not return within one year. Before the year ends, the ship is burnt at sea. What …
Indian Contracts Act, 1872 in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Indian Contracts Act, 1872: frequently asked questions
How should I study the Indian Contract Act for CMA Inter?
Follow the order of a contract's life: essentials, offer and acceptance, consideration and capacity, free consent, special contracts, performance and discharge, then remedies. Learn each section's conditions and practise applying them to short facts. Finish each topic with a few MCQs and one written answer.
Do I need to memorise section numbers?
Know the key ones such as Sections 10, 14 and 74, since they help you cite the rule. But the rule in plain words and its correct application matter most. If you are not sure of a number, state the rule without it.
How are MCQs from this chapter usually framed?
They are mostly short fact situations with four options, where one detail decides the answer. Read the facts for timing, communication and conditions. There is no negative marking, so attempt every question.
How do I write a case-based answer to earn full marks?
State the relevant rule first, then apply it to the facts using the names and amounts in the question, and end with a clear conclusion. Keep each step on its own line so the examiner can award marks for each.