The Indian Contract Act, 1872
2. Interpretation -clause
In this Act the following words and expressions are used in the following senses, unless contrary intention appears from the context:
(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
(b) When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when a accepted, becomes a promise;
(c) The person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,
(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;
(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;
(f) Promises which form the consideration or part of the consideration for each other, are called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;
(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
At the desire of the promisor
Suit would lie for the recovery of a promised subscription where on the faith of the promisee, the promiser entered into a contract with a contractor; Kedarnath Bhattacharji v. Gorie Mohomed, (1886) ILR 14 Cal 64.
Consideration and motive
A promise founded on motive of generosity, prudence and natural duty is a promise without consideration; Abdul Aziz v. Masum Ali, (1914) ALJR 36 All 268.
A contract comes into existence only when all the terms and conditions have been finalised. If the facts of a particular case show that execution of a written contract was a condition precedent for coming into force of the contract between the parties, then it cannot be said that any concluded contract in absence of a written contract being executed has come into force between the parties; J.K. Industries Ltd. v. Mohan Investments and Properties Pvt. Ltd., AIR 1992 Del 305.
Proposal: Offer and statement of intention
The proposal when accepted gives rise to an agreement. It is at this stage that the agreement is reduced into writing and a formal document is executed on which parties affix their signature or thumb impression so as to be bound by the terms of the agreement set out in that document. Such an agreement has to be lawful; Tarsem Singh v. Sukhmider Singh, AIR 1998 SC 1400.
The consideration should be something which not only the parties regard but the law can also regard as having some value. It must be real and not illusory, whether adequate or not; Chidambara v. P.S. Renga, AIR 1965 SC 193: (1966) 1 SCR 168.
When Strangers may not sue – the gene
A person not a party to a contract can sue on it; Venkata Chinnaya Rau Garu v. Venkataramaya Garu, 1881 ILR 4 Mad 137.
Creating legal relations
If there being no agreement, there was no breach of contract committed by the respondent and also that since there was no breach of contract, the petitioner cannot retain or forfeit the earnest money deposited by the respondent by way of penalty; State of Tripura v. Bhowmik & Co., AIR 2004 Gau 21.