‘When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party fo


 We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. When you put a coin in the slot of a weighing machine, you have entered into a contract. You go to a restaurant and take snacks; you have entered into a contract. In such cases, we do not even realize that we are making a contract. In the case of people engaged in trade, commerce and industry, they carry on business by entering into contracts. The law relating to contracts is to be found in the Indian Contract Act, 1872. [1]The law of contracts differs from other branches of law in a very important respect. It does not lay down so many precise rights and duties which the law will protect and enforce; it contains rather a number of limiting principles, subject to which the parties may create rights and duties for themselves and the law will uphold those rights and duties. Thus, we can say that the parties to a contract, in a sense make the law for themselves. So long as they do not transgress some legal prohibition, they can frame any rules they like in regard to the subject matter of their contract and the law will give effect to their contract.[2]

We enter into contracts so many times in a day that ‘contract’ has become an indispensable part of our life. When you purchase milk or newspaper in the morning or go to movie in the evening, you are entering into a contract. Indian Contract Act really codifies the way we enter into a contract, execute a contract, and implement provisions of a contract and effects of breach of a contract. Basically, a person is free to contract on any terms he chooses.[3] The Contract Act consists of limiting factors subject to which contract may be entered into, executed and breach enforced. It only provides a framework of rules and regulations which govern formation and performance of contract. The rights and duties of parties and terms of agreement are decided by the contracting parties themselves. The court of law acts to enforce agreement, in case of non-performance. [4]


 Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable

by law. Section 2(e) defines agreement as “every promise and every set of promises forming consideration for each other.” Section 2(b) defines promise in these words: “When the person

to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.

A proposal when accepted becomes a promise.”

From the above definition of promise, it is obvious that an agreement is an accepted Proposal. The two elements of an agreement are: (i) offer or a proposal; and (ii) an acceptance of that offer or proposal. What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy.

Thus, a contract consists of two elements: (i) an agreement; and (ii) legal obligation, i.e., it should be enforceable at law.

However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts.[5]


 We have seen above that the two elements of a contract are: (1) an agreement; (2) legal

obligation. Section 10 of the Act provides for some more elements which are essential in order

to constitute a valid contract. It reads as follows:

“All agreements are contracts if they are made by free consent of parties, competent to

contract, for a lawful consideration and with a lawful object and are not hereby expressly

declared to be void.”

Thus, the essential elements of a valid contract can be summed up as follows

1. Agreement.

2. Intention to create legal relationship.

3. Free and genuine consent.

4. Parties competent to contract.

5. Lawful consideration.

6. Lawful object.

7. Agreements not declared void or illegal.

8. Certainty of meaning.

9. Possibility of performance.

10. Necessary Legal Formalities.

These essential elements are explained briefly


As already mentioned, to constitute a contract there must be an agreement. An agreement

is composed of two elements—offer and acceptance. The party making the offer is known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there are essentially to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem.

Thus, where ‘A’ who owns 2 cars x and y wishes to sell car ‘x’ for Rs. 30,000. ‘B’, an acquaintance of ‘A’ does not know that ‘A’ owns car ‘x’ also. He thinks that ‘A’ owns only car

‘y’ and is offering to sell the same for the stated price. He gives his acceptance to buy the same.

There is no contract because the contracting parties have not agreed on the same thing at

the same time, ‘A’ offering to sell his car ‘x’ and ‘B’ agreeing to buy car ‘y’. There is no consensus-ad-idem.[6]

 2. Intention to create legal relationship

As already mentioned there should be an intention on the part of the parties to the agreement to create a legal relationship. An agreement of a purely social or domestic nature is not a contract.


A husband agreed to pay £30 to his wife every month while he was abroad. As he failed

to pay the promised amount, his wife sued him for the recovery of the amount.

Held: She could not recover as it was a social agreement and the parties did not intend to create any legal relations[7]

However, even in the case of agreements of purely social or domestic nature, there may be intention of the parties to create legal obligations. In that case, the social agreement is intended to have legal consequences and, therefore, becomes a contract. Whether or not such an agreement is intended to have legal consequences will be determined with reference to the facts of the case. In commercial and business agreements the law will presume that the parties entering into agreement intend those agreements to have legal consequences. However, this presumption may be negative by express terms to the contrary. Similarly, in the case of agreements of purely domestic and social nature, the presumption is that they do not give rise to legal consequences. However, this presumption is rebuttable by giving evidence to the contrary, i.e., by showing that the intention of the parties was to create legal obligations.


(1) There was an agreement between Rose Company and Crompton Company, where

of the former were appointed selling agents in North America for the latter. One

of the clauses included in the agreement was: “This arrangement is not… a formal

or legal agreement and shall not be subject to legal jurisdiction in the law courts”.

Held that: This agreement was not a legally binding contract as the parties intended

not to have legal consequences[8] (2) An agreement contained a clause that it “shall not give rise to any legal relationships, or be legally enforceable, but binding in honor only”.

Held: The agreement did not give rise to legal relations and, therefore, was not

a contract. [9]

(3) An aged couple (C and his wife) held out a promise by correspondence to their niece and her husband (Mrs. and Mr. P.) that C would leave them a portion of his estate in his will, if Mrs. and Mr. P would sell their cottage and come to live with the aged couple and to share the household and other expenses. The young couple sold their cottage and started living with the aged couple. But the two couples subsequently quaralled and the aged couple repudiated the agreement by requiring the young couple to stay somewhere else. The young couple filed a suit against the aged couple for the breach of promise.

Held: That there was intention to create legal relations and the young couple could

recover damages[10]

 3. Free and genuine consent

The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake. If the consent is obtained by any of these flaws, then the contract is not valid.

 4. Parties competent to contract

The parties to a contract should be competent to enter into a contract. According to Section 11, every person is competent to contract if he (i) is of the age of majority, (ii) is of sound mind, and (iii) is not disqualified from contracting by any law to which he is subject. Thus, there may be a flaw in capacity of parties to the contract. The flaw in capacity maybe due to minority, lunacy,

idiocy, drunkenness or status. If a party to a contract suffers from any of these flaws, the contract is unenforceable except in certain exceptional circumstances.

 5. Lawful consideration

The agreement must be supported by consideration on both sides. Each party to the agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be nudum pactum (a bare promise) and is not enforceable at law. Moreover, the consideration must be real and lawful.

 6. Lawful object

The object of the agreement must be lawful and not one which the law disapproves.

7. Agreements not declared illegal or void

There are certain agreements which have been expressly declared illegal or void by the

law. In such cases, even if the agreement possesses all the elements of a valid agreement,

the agreement will not be enforceable at law.

 8. Certainty of meaning

The meaning of the agreement must be certain or capable of being made certain otherwise

the agreement will not be enforceable at law. For instance, A agrees to sell 10 meters of cloth.

There is nothing whatever to show what type of cloth was intended. The agreement is not enforceable for want of certainty of meaning. If, on the other hand, the special description of the cloth is expressly stated, say Terrycot (80 : 20), the agreement would be enforceable as there is no uncertainly as to its meaning. However, an agreement to agree is not a concluded contract [11]

 9. Possibility of performance

The terms of the agreement should be capable of performance. An agreement to do an

act impossible in itself cannot be enforced. For instance, A agrees with B to discover treasure

by magic. The agreement cannot be enforced.

 10. Necessary legal formalities

A contract may be oral or in writing. If, however, a particular type of contract is required by law to be in writing, it must comply with the necessary formalities as to writing, registration and attestation, if necessary. If these legal formalities are not carried out, then the contract is not enforceable at law.[12]

Indian Contract Act 1872

Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended.

It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It applies to the whole of India except the state of Jammu and Kashmir. It is not a complete and exhaustive law on all types of contracts.[13]

 Section- 53 Liability of party preventing event on which the contract is to take effect.

When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract.[14]


A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable at the option of B; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its non-performance.[15]


This is in substance the rule not only of the Common Law, but of all civilized law. No man can complain of another’s failure to do something which he has himself made impossible. The principle is not confined it) acts of direct or forcible prevention, which are neither frequent nor probable, but extends to default or neglect in doing or providing anything which a party ought under the contract to do or provide, and without which the other party cannot perform his part. A man agrees to sell standing wood; the seller is to cut and cord it, and the buyer to take it away and pay for it. The seller cords only a very small part of the wood, and neglects to cord the rest; the buyer may determine the contract and recover back any money he has paid on account.[16]

If the prevention by default goes only to one particular term or condition of the contract, the party so prevented from fulfilling that term or condition is entitled to treat it as fulfilled, and insist on payment or other reciprocal performance accordingly; or if there was an agreed penalty in the contract for non-fulfillment, or an option to rescind the contract, the other party cannot take advantage of it.[17]

A railway contractor ordered a steam excavating machine, to be capable of digging a certain quantity of material in a working day, and it was agreed that he was to be bound to accept it only if it performed this on a fair trial at the place where it was to be used. After a partial trial the contractor said the machine had failed, and refused to accept or pay for it. The maker contended that the contractor had himself failed to provide the conditions for a fair trial. This view of the facts was adopted by the Court, and both the Court below and the House of Lords held, as a consequence in law, that the buyer, having by his own fault prevented the application of the test agreed upon, must accept and pay for the machine as if the test had been satisfied. As to the original duty of the buyer to secure the conditions for a fair trial, Lord Blackburn laid down this general rule:–

“Where in a written contract it appears that both parties have agreed that something shall be done which cannot effectually be clone unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances.[18]

Breach of contract—Damages, assessment of—Defendants, held, were liable to pay to plaintiff the salary for the entire unexpired period which was to be calculated as per terms of contract per month minus average earning of plaintiff—Suit of plaintiff was decreed accordingly.


  1. Bare Act—The Indian Contract Act, 1872, Universal Law Publishing Co. Pvt. Ltd., 2000.
  2. Bare Act—The Indian Evidence Act, 1872, Universal Law Publishing Co. Pvt. Ltd., 2000
  3. BareAct—The Indian Succession Act, 1925, Commercial Law Publishers (India) Pv tLtd., 2000.
  4. Bare Act—The Juvenile Justice Act, 1986 Commercial Law Publishers (India) Pvt. Ltd., 1999.
  5. Bare Act—The Juvenile Justice Act, 1986, Universal Law Publishing Co., Pvt. Ltd., 1999
  6. Dutt, “Conttract :Indian Contract Act ,1872 ,9th ed .Easter law  House ,Calcutta,2000.
  7. Kim lewison ,the interpretation of Contracts , 2nd ed, ,Sweet and Maxwell,London , 1997.
  8. William Reynell Anson, law of contract, 24th ed, Clarendon Press, Oxford , 1975.
  9. Section 54 , Indian Contract Act ,1872.
  10. Kim lewison , the interpretation of contract ,2nd ed, ,Sweet and Maxwell,London , 1997 ,p.337
  11. Avtar Singh , Law of Contract, 7th ed .Easter law  House. Lacknow ,1999, p .310
  12. The celebrated case of Carlill v. Carbolic Smoke Ball Co., (1813) 1 Q.B. 256
  13. Boulton v. Jones (1857) 2H. and N. 564].*

  1. The Indian Contract Act, 1872 web :      http://www.vakilno1.com/bareacts/indiancontractact/s53.html
  2. Indian law and case web: http://www.indianlawcases.com/Act-Indian.Contract.Act,.1872-5212
  3. The Indian Contract Act,  Report Web :http://www.newagepublishers.com/samplechapter/001048.pdf
  4. 17.    INDIAN CONTRACT ACT, 1872:http://www.legalcrystal.com/acts/description/51064
  5. Legal approach Web: http://legalapproach.net/legal.php?nid=40

[1] Boulton v. Jones (1857) 2H. and N. 564].*

[2] Balfour v. Balfour (1919) 2 K.B. 571.

[3] Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. (1953) 1 Q.B. 401

[4] Lalman Shukla v. Gauri Dutt,

II, A.L.J. 489

[5]What is contract web: http://www.newagepublishers.com/samplechapter/001048.pdf

[6] Parker v. South Eastern Rly. Co. (1877) 2 C.P.D. 416].

[7] [Balfour v. Balfour (1919)2 K.B.571].

[8] [Rose and Frank Co. v. J.R. Crompton and Bros. Ltd. (1925) A.C. 445].

[9] Jones v. Vernon’s Pools Ltd. (1938) 2 All E.R. 626].

[10] [Parker v. Clark (1960) 1 W.L.R. 286].

[11] [Punit Beriwala v. SuvaSanyal AIR 1998 Cal. 44].

[12] [12]What is contract web: http://www.newagepublishers.com/samplechapter/001048.pdf

[13] The Juvenile Justice Act, 1986 Commercial Law Publishers (India) Pvt. Ltd., 1999

[14] Section 54, Indian Contract Act ,1872.

[15]  Indian law and case Web: http://www.indianlawcases.com/Act-Indian.Contract.Act,.1872-5212

[16] Thompson v. LM. and L. Rly. (1930)1 KB. 417

[17] Kim lewison ,the interpretation of Contracts , 2nd ed, ,Sweet and Maxwell,London , 1997.

[18] Avtar Singh , Law of Contract, 7th ed .Easter law  House. Lacknow ,1999, p .310