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Introduction to Contract Law: What You Need to Know

By upGrad

Updated on Jun 25, 2025 | 12 min read | 9.46K+ views

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Did you know? A contract doesn’t always have to be in writing—oral contracts can also be legally binding if certain conditions are met.

Contract law is all about the rules that make agreements between people or businesses legally binding. It tells you what your rights and responsibilities are when you sign a deal—whether it’s a job offer, a freelance gig, or a business partnership. For example, if a company hires a freelancer, both are bound by a contract, and if either fails to deliver, the law decides what happens next.

In this blog, we’ll break down the Indian Contract Act, 1872, in simple terms, covering basics like what a contract is, how offers and acceptances work, what makes an agreement valid, and types of contracts like indemnity, bailment, and agency.

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Keep reading to learn all about the Indian Contract Act.

What is a contract?

contract is a legally enforceable agreement between two or more parties—individuals, companies, or businesses. It can be made verbally, in writing, or through actions, as long as it involves a valid offer, acceptance, and the intent to create legal obligations.

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As per Section 2(h) of the Indian Contract Act, 1872, a contract is “an agreement enforceable by law.” Social, moral, or religious agreements don’t count—only those meant to create legal rights and duties do.

Simply put, every contract is an agreement, but not every agreement is a contract.

Types of Contracts

Contracts come in various forms, depending on how they’re created, how enforceable they are, the type of obligations involved, and their stage of completion. 

Let’s explore them with simple explanations and examples.

1. Based on Formation

  • Express Contract
    An express contract is formed when the terms are clearly stated by both parties—either verbally or in writing.
     Example: A signed agreement between a landlord and tenant.
     
  • Implied Contract
    This contract is not written or spoken but understood through the actions or conduct of the parties.
     Example: Paying for food at a restaurant after eating.
     
  • Quasi-Contract
    Not an actual contract, but the law imposes an obligation to prevent unfair gain by one party at the expense of another.
     Example: Receiving and using goods delivered to you by mistake.
     
  • E-Contract
    Formed digitally via email, apps, or websites, these contracts are common in online transactions.
     Example: Clicking "I Agree" to terms while booking a hotel online.
     

2. Based on Validity / Enforceability

  • Valid Contract
    A valid contract meets all legal requirements—offer, acceptance, consideration, and intention to create legal relations.
     Example: An employment contract with all agreed terms signed by both parties.
     
  • Void Contract
    This contract was never legally valid or enforceable, often due to illegality or impossibility.
     Example: A contract to sell land without ownership rights.
     
  • Voidable Contract
    Initially valid, but one party can cancel it if the agreement was made under pressure, fraud, or misrepresentation.
     Example: A contract signed under threat or undue influence.
     
  • Unenforceable Contract
    Looks valid but can't be enforced in court due to missing legal requirements like a written format where needed.
     Example: A verbal agreement for property sale, which legally needs to be in writing.
     
  • Illegal Agreement
    Contains unlawful terms or objectives and is not recognized by law.
     Example: A contract for distributing banned substances.
     

3. Based on Nature of Obligation

  • Unilateral Contract
    In this type, only one party makes a promise that is fulfilled when the other party completes a task.
     Example: A reward announced for returning a lost pet.
     
  • Bilateral Contract
    Both parties make mutual promises, creating responsibilities on both sides.
     Example: A vendor promises to deliver goods, and the buyer agrees to pay.
     
  • Unconscionable Contract
    Extremely unfair to one party, usually due to unequal bargaining power; may be rejected by courts.
     Example: A loan with 100% interest forced on a poor borrower.
     
  • Adhesion Contract
    A standardized “take-it-or-leave-it” contract where one party sets all terms and the other must accept as-is.
     Example: Mobile app user agreements or insurance policies.
     

4. Based on Execution

  • Executed Contract
    All parties have fulfilled their obligations; the contract is fully completed.
     Example: A payment made for an item, and the item delivered immediately.
     
  • Executory Contract
    The agreement is in process; one or both parties still have obligations to complete.
     Example: Paying for a subscription service that starts next month.

Also Read: Types of Contract in Business Law

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Fundamentals of a Valid Contract

For any contract to be legally valid and enforceable, it must meet certain key requirements. These essentials ensure that all parties involved are entering the agreement with clarity, consent, and a lawful purpose. Without these elements, a contract may be considered void or voidable in the eyes of the law.

Here are the fundamental elements of a valid contract under the Indian Contract Act, 1872:

  • Offer and Acceptance
    One party must make a clear offer, and the other must accept it without any changes. This forms the foundation of mutual agreement.
    Example: A seller offers to sell a bike for ₹20,000, and the buyer agrees.
     
  • Intention to Create Legal Relations
    Both parties must intend for the agreement to have legal consequences. Social or casual promises don’t count.
     Example: Promising a friend to meet for coffee isn't legally binding.
     
  • Lawful Consideration
    Something of value must be exchanged—this could be money, goods, services, or a promise. It must be legal and not against public policy.
     Example: Paying ₹5,000 for a painting is valid consideration.
     
  • Capacity of Parties
    Parties must be competent to contract, meaning they should be of legal age, sound mind, and not disqualified by any law.
    Example: A minor cannot enter into a valid contract.
     
  • Free Consent
    The agreement must be made without coercion, fraud, misrepresentation, undue influence, or mistake.
    Example: Signing a contract under pressure may render it voidable.
     
  • Lawful Object
    The purpose of the contract must be legal. If the object is illegal (e.g., smuggling), the contract is void.
    Example: A contract for supplying banned items is not valid.
     
  • Certainty and Possibility of Performance
    The terms of the contract must be clear, and the performance must be possible.
    Example: A contract to fly to the moon without technology is not enforceable.
     
  • Not Declared Void
    The contract must not be of a type that the law specifically declares void (like agreements in restraint of marriage or trade).

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Section 10 of the Indian Contract Act, 1872

Section 10 of the Indian Contract Act, 1872, lays down the essential conditions that must be fulfilled for an agreement to be considered a valid contract in the eyes of the law. If any of these elements are missing, the contract may not be enforceable.

Here are the key essentials under Section 10:

  •  Lawful Offer and Acceptance
    There must be a clear offer by one party and an unconditional acceptance by the other. Both should agree to the same thing in the same sense.
     
  •  Intention to Create Legal Relations
    The parties must intend for their agreement to have legal consequences. Agreements made casually or socially are not considered contracts.
     
  •  Lawful Consideration and Object
    The purpose of the contract and the consideration (what each party gives or promises) must be legal and not go against public policy or the law.
     
  •  Free Consent of Parties
    Consent must be genuine and voluntary—free from coercion, fraud, misrepresentation, undue influence, or mistake.
     
  •  Not Declared Void
    The agreement should not fall under any category of contracts specifically declared void by law, such as contracts involving illegal acts or restraint of trade.

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What is an Offer or Proposal in Contract Law?

Under Section 2(a) of the Indian Contract Act, 1872, an offer (or proposal) is defined as follows:

A person is said to make a proposal when they express their willingness to do or not do something, with the intention of obtaining the other party’s acceptance.

In simple terms, an offer is the starting point of a contract—it shows one party’s readiness to enter into a legal agreement.

  • The person who makes the offer is called the offeror (or promisor).
  • The person to whom the offer is made is known as the offeree (or promisee).

Essential Conditions of a Valid Offer

To be legally valid, an offer must meet these key conditions:

  •  It must be made with the intention to create legal obligations.
  •  The offer can be expressed in words or implied through conduct.
  •  The terms of the offer should be clear and certain, not vague.
  •  Silence does not count as acceptance unless previously agreed.
  •  The offer must clearly express readiness to do or not do something.
  •  Communication of the offer must reach the offeree to be effective.
  •  If both parties make similar offers unaware of each other’s, it's called a cross offer, and no contract is formed.
  •  Any special terms and conditions must be clearly communicated to the offeree to be enforceable.

Types of Offers

There are two primary types of offers under contract law:

  • Specific Offer
    Made to a particular person or group, and can be accepted only by them.
     Example: Offering to sell your car to a friend at a fixed price.
  • General Offer
    Made to the public at large and can be accepted by anyone who meets the conditions.
     Example: A company offering a reward for finding a lost item.

What is Acceptance in Contract Law?

Under Section 2(b) of the Indian Contract Act, 1872, acceptance is defined as:

“When the person to whom the proposal is made signifies their assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”

In simpler terms, acceptance is when the person receiving the offer agrees to it in the manner intended. Once accepted, the offer turns into a binding promise, leading to the formation of a contract.

Key Essentials of a Valid Acceptance

To be legally valid and binding, an acceptance must meet the following conditions:

  •  Clear Approval by the Offeree
    The person receiving the offer must show clear agreement to its terms.
     
  •  Expressed or Implied
    Acceptance can be given in writing, spoken words, or through actions, depending on the nature of the contract.
     
  • Proper Communication
    Acceptance must be communicated directly to the offeror or their authorized agent. Silent approval isn’t enough.
     
  •  The Right Person Must Accept
    Only the person to whom the offer was made (or their legal representative) can accept it.
     
  •  Prescribed Mode of Acceptance
    If the offeror specifies a method for accepting the offer (e.g., in writing or via email), it must be followed.
     
  •  Unqualified and Absolute
    Acceptance must be complete and unconditional. If any conditions are added, it's considered a counteroffer, not an acceptance.

What is Consideration in Contract Law?

Consideration is one of the core elements that make a contract legally valid. Without it, an agreement is usually not enforceable.

As per Section 2(d) of the Indian Contract Act, 1872,

“When, at the desire of the promisor, the promisee or any other person does or abstains from doing something, or has done or abstained from doing something, such act or abstinence or promise is called a consideration for the promise.”

In simpler terms, consideration is what each party brings to the table—be it money, services, a promise, or even refraining from an action. It’s the "give and get" of any contract.

Key Features of Consideration

  •  It must be done at the desire of the promisor
  •  It can be past, present, or future
  •  It may come from the promisee or any third party
  •  It must hold some value in the eyes of the law

Exceptions: When a Contract Without Consideration Is Still Valid

Normally, a contract without consideration is void under Indian law. However, Section 25 of the Indian Contract Act, 1872 outlines some important exceptions where an agreement can still be legally valid, even if no consideration is involved:

  • Natural Love and Affection: An agreement made out of genuine love between close relatives can be valid if it's written and registered.
    Example: A father gifting property to his daughter in writing.
  •  Past Voluntary Services:  If someone voluntarily did something for you in the past, and you later promised to compensate them, it can still be enforced.
    Example: You help someone fix their shop, and they later promise payment.
  •  Promise to Pay a Time-Barred Debt: A written and signed promise to repay a debt—even if it’s no longer legally recoverable due to time limits—remains valid.
    Example: A written promise to repay an old loan after the limitation period has passed.
  •  Gifts: Consideration is not required to make a gift legally valid—once delivered, it is binding.
    Example: Gifting a car to a friend without expecting anything in return.
  •  Creation of the Agency: You can appoint someone as your agent without any exchange of consideration.
     Example: Giving someone the authority to act on your behalf in business dealings.

Read: Top 10 Career Opportunities in Law in India: Salary, Skills [2025]

What is the Privity of Contract?

The Doctrine of Privity of Contract means that only the parties involved in a contract have the right to sue or be sued under it. In simpler terms, a contract creates rights and obligations only between the people who signed it, not third parties.

So, if you're not a party to the agreement, you generally can’t enforce or challenge it in court.

Exceptions to the Privity of Contract Rule

While this rule is strict, there are a few important exceptions where a third party can have legal rights or obligations under a contract:

  •  Beneficiaries under a Trust or Charge
    A third-party beneficiary named in a trust arrangement has the legal right to enforce the trust terms.
     
  •  Marriage and Family Arrangements
    Contracts involving marriage settlements or family arrangements may grant enforceable rights to non-signing members.
     
  •  Acknowledgment or Estoppel
    If a party acknowledges a third party’s rights or is legally stopped (estopped) from denying those rights, the third party may sue.
     
  •  Agency Relationships
    A principal can sue or be sued by a third party through their legally appointed agent.
     
  •  Assignee of an Insurance Policy
    An assignee (the person to whom rights have been transferred) has the legal right to enforce the contract between the insurer and the original policyholder.
     

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What Happens When a Contract Is Breached?

When a contract is breached, it means one or more parties have failed to meet their legal obligations under the agreement. This breach can be minor (partial) or major (complete), and it can disrupt the entire purpose of the contract.

In such cases, the non-breaching party has the legal right to seek remedies to recover their losses or enforce the terms of the contract. These remedies may include:

  • Damages – Financial compensation for the loss suffered due to the breach.
  • Specific Performance – A legal order requiring the breaching party to fulfill their part of the contract.
  • Injunction – A court order preventing a party from doing something that breaches the contract.
  • Rescission – Cancellation of the contract, with both parties restored to their original position.

The type of remedy awarded depends on the nature and impact of the breach. In India, these are governed under the Indian Contract Act, 1872, and related legal provisions.

Example : Suppose a company hires a freelancer to design a website, agreeing to pay ₹50,000 on delivery. The freelancer delivers only half the project and stops responding. Here, the company can sue for breach of contract and seek either compensation (damages) or a refund, or request the court to order the freelancer to complete the job (specific performance), depending on the situation.

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Conclusion

The Indian Contract Law plays a vital role in shaping legally binding relationships and resolving disputes fairly. It not only enforces agreements but also protects the rights of individuals and businesses, making it a cornerstone of India’s legal system.

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Frequently Asked Questions (FAQs)

1. Is a handwritten agreement legally valid in India?

2. What makes a contract void in India?

3. Can an email be considered a valid contract?

4. What is a unilateral contract?

5. How long is a contract legally enforceable in India?

6. What is the difference between indemnity and guarantee?

7. Can a contract be changed after it is signed?

8. What is a standard form contract?

9. What is meant by free consent in contract law?

10. What is the difference between a contract and a memorandum of understanding (MoU)?

11. What is specific performance in a contract?

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