AIBE 2026 – Indian Contract Act, 1872 Revision Guide

Indian Contract Act, 1872

A Comprehensive, Bare Act-Based Revision Guide for AIBE 2026

Visual Revision Tools

1. Study Roadmap for AIBE 2026

Step 1: Understand Basics (Sec 1-9) - Proposals & Acceptances

Step 2: Contract Formation (Sec 10-30) - Competency, Consent, Object

Step 3: Performance & Discharge (Sec 37-67) - Fulfilling obligations

Step 4: Breach & Remedies (Sec 73-75) - Damages & Compensation

Step 5: Special Contracts (Sec 124-238) - Indemnity, Guarantee, Bailment, Agency

2. Contract Formation Flowchart

Proposal (Offer) + Acceptance

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Promise + Consideration

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Agreement (Sec 2(e))

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Enforceable by Law (Sec 10)

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Valid Contract (Sec 2(h))

3. Mind Map: Essentials of a Valid Contract (Sec 10)

Valid Contract

Free Consent (Sec 13-22)

Competent Parties (Sec 11-12)

Lawful Consideration (Sec 23)

Lawful Object (Sec 23)

Not Expressly Void (Sec 26-30)

Important Legal Tables

Table 1: Key Definitions (Section 2)

Term	Section	Simple Meaning
Proposal	2(a)	Signifying willingness to do or abstain from doing something to obtain assent.
Promise	2(b)	A proposal that has been accepted.
Consideration	2(d)	Something done or abstained from at the desire of the promisor.
Agreement	2(e)	Every promise and every set of promises, forming consideration for each other.
Void Agreement	2(g)	An agreement not enforceable by law.
Contract	2(h)	An agreement enforceable by law.
Voidable Contract	2(i)	Enforceable at the option of one or more parties, but not the other.

Table 2: Key Distinctions

Concept 1	Concept 2	Core Difference
Void Agreement (Sec 2(g))	Voidable Contract (Sec 2(i))	Void is dead from the start (void ab initio). Voidable is valid until canceled by the aggrieved party.
Coercion (Sec 15)	Undue Influence (Sec 16)	Coercion involves physical threat/IPC offenses. Undue influence involves moral pressure/dominating will.
Fraud (Sec 17)	Misrepresentation (Sec 18)	Fraud involves an intentional lie to deceive. Misrepresentation is an innocent false statement.
Indemnity (Sec 124)	Guarantee (Sec 126)	Indemnity has 2 parties (protect from loss). Guarantee has 3 parties (surety for another's default).
Bailment (Sec 148)	Pledge (Sec 172)	Bailment is delivery of goods for any purpose. Pledge is bailment specifically as security for a debt.
Contingent (Sec 31)	Wagering (Sec 30)	Contingent is a valid contract based on an uncertain event. Wager is a void bet based on chance.

Table 3: Remedies for Breach Summary

Remedy	Section	When Applicable
Ordinary Damages	73	Direct loss naturally arising from the breach.
Special Damages	73	Loss from special circumstances known to parties at the time of contract.
Liquidated Damages/Penalty	74	Pre-estimated amount written in the contract. Court allows reasonable compensation up to this amount.
Rescission	75	Rightful cancellation allows claiming compensation for damage sustained through non-fulfillment.

Chapter-wise Study Material

1. Introduction to the Act (Sections 1-2)

Purpose & Applicability: Enacted to define and amend parts of the law relating to contracts. It applies to the whole of India.
Structure: Originally contained General Principles and Special Contracts, plus Sale of Goods and Partnership (which were later separated into their own Acts).
Key Definitions (Sec 2):
- Proposal [2(a)]: Offering to do something to get another's assent.
- Acceptance [2(b)]: Assenting to the proposal turns it into a promise.
- Consideration [2(d)]: The "price" paid for the promise.
- Agreement [2(e)]: Promises forming consideration for each other.
- Contract [2(h)]: An agreement enforceable by law.

Example: A offers to sell his car to B for ₹1 Lakh. A makes a proposal. B accepts. The ₹1 Lakh and the car are considerations. This is an agreement. Since it has lawful parts, it is a Contract.

2. Communication, Acceptance and Revocation (Sections 3-9)

Communication of Proposal (Sec 4): Complete when it comes to the knowledge of the person to whom it is made.
Communication of Acceptance (Sec 4):
- Against the Proposer: When put in a course of transmission to him (out of acceptor's power).
- Against the Acceptor: When it comes to the knowledge of the proposer.
Revocation (Sec 5): A proposal may be revoked at any time *before* the communication of its acceptance is complete against the proposer. An acceptance can be revoked *before* it is complete against the acceptor.

AIBE Trap Point: If an acceptance letter is posted, the offeror is bound the moment it is posted. The acceptor is only bound when the offeror receives it.

3. Essentials of a Valid Contract (Section 10)

Section 10 Rule: 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 to be void.
Intention to Create Legal Obligation: (Derives from Common Law, e.g., Balfour v. Balfour). Domestic or social agreements are not contracts.
Certainty (Sec 29): The meaning must be certain or capable of being made certain.

4. Competency to Contract (Sections 11-12)

Who is competent (Sec 11): Age of majority, sound mind, and not disqualified by law.
Minority: Agreements by a minor are void ab initio (Mohori Bibee v. Dharmodas Ghose).
Sound Mind (Sec 12): A person is of sound mind if they are capable of understanding the contract and forming a rational judgment as to its effect on their interests. A usually insane person can contract during lucid intervals.

5. Free Consent (Sections 13-22)

Consent (Sec 13): Two or more persons agree upon the same thing in the same sense (Consensus ad idem).
Free Consent (Sec 14): Consent is free when NOT caused by:
- Coercion (Sec 15): Threatening to commit an act forbidden by the IPC.
- Undue Influence (Sec 16): Dominating the will of another to obtain an unfair advantage.
- Fraud (Sec 17): Intentional deception, active concealment, or a promise without intent to perform.
- Misrepresentation (Sec 18): Innocent false statements without intent to deceive.
- Mistake (Sec 20-22): Bilateral mistake of fact makes it void. Unilateral mistake does not invalidate the contract. Mistake of Indian law is not an excuse.

Exam Takeaway: Coercion, Undue Influence, Fraud, and Misrepresentation make the contract Voidable (Sec 19/19A). Bilateral mistake of fact makes it Void (Sec 20).

6. Lawful Consideration & Object (Sections 23-24)

Section 23: Consideration/Object is lawful UNLESS it is:
- Forbidden by law.
- Of such nature that it would defeat the provisions of any law.
- Fraudulent.
- Involves injury to the person or property of another.
- Court regards it as immoral or opposed to public policy.
Section 24: If any part of a single consideration for one or more objects, or any one or any part of several considerations for a single object, is unlawful, the entire agreement is void.

7. Expressly Void Agreements (Sections 26-30)

Restraint of Marriage (Sec 26): Void (except for minors).
Restraint of Trade (Sec 27): Void. Exception: Sale of goodwill with reasonable limits.
Restraint of Legal Proceedings (Sec 28): Void. Agreements restricting someone from enforcing their rights in ordinary tribunals. Exception: Arbitration clauses.
Uncertain Agreements (Sec 29): Void if meaning cannot be made certain.
Wagering Agreements (Sec 30): Void. Betting on uncertain future events. Exception: Horse racing prizes over ₹500.

8. Contingent Contracts (Sections 31-36)

Meaning (Sec 31): A contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
Enforceability:
- Event happening (Sec 32): Enforceable when the event happens. Void if event becomes impossible.
- Event NOT happening (Sec 33): Enforceable when the event becomes impossible.
Impossible Event (Sec 36): Contingent agreements based on impossible events are void.

Example: Insurance contracts are valid contingent contracts.

9. Performance of Contracts (Sections 37-67)

Obligation (Sec 37): Parties must either perform or offer to perform their promises.
Who must perform (Sec 40): The promisor personally (if personal skill is involved), or their representatives/agents.
Time and Place (Sec 46-50): Must be performed within a reasonable time if no time is specified.
Reciprocal Promises (Sec 51-54): Promises forming consideration for each other must be performed simultaneously or in the order fixed by the contract.
Appropriation of Payments (Sec 59-61):
- Debtor indicates (Sec 59).
- Creditor chooses if debtor doesn't (Sec 60).
- Time order applies if neither chooses (Sec 61).

10. Quasi-Contracts (Sections 68-72)

Concept: Not actual contracts, but obligations created by law to prevent unjust enrichment.
Supply of Necessaries (Sec 68): Supplier can recover from the property of an incompetent person.
Payment by Interested Person (Sec 69): Person paying money on behalf of another bound by law to pay, is entitled to reimbursement.
Non-Gratuitous Acts (Sec 70): If one person lawfully does something for another not intending to do so gratuitously, and the other enjoys the benefit, compensation is owed.
Finder of Goods (Sec 71): Same responsibility as a bailee.
Money Paid by Mistake/Coercion (Sec 72): Must be repaid or returned.

11. Breach of Contract & Remedies (Sections 73-75)

Anticipatory Breach (Sec 39): Refusing to perform before the due date. The injured party can cancel the contract immediately or wait until the due date.
Damages (Sec 73): Compensation for loss naturally arising in the usual course of things. No compensation for remote or indirect loss.
Liquidated Damages & Penalty (Sec 74): If a sum is named in the contract as the amount to be paid in case of breach, the court grants reasonable compensation not exceeding that named amount (penalty is not enforceable strictly).
Rescission (Sec 75): A person rightfully rescinding a contract is entitled to compensation for any damage sustained.

12. Indemnity and Guarantee (Sections 124-147)

Indemnity (Sec 124): A promise to save the other from loss caused by the promisor or a third party. (2 Parties: Indemnifier, Indemnity-holder).
Guarantee (Sec 126): A contract to perform the promise, or discharge the liability, of a third person in case of default. (3 Parties: Surety, Principal Debtor, Creditor).
Continuing Guarantee (Sec 129): Extends to a series of transactions. Can be revoked for future transactions by notice (Sec 130) or by surety's death (Sec 131).
Discharge of Surety: By variance in terms without consent (Sec 133), release of principal debtor (Sec 134), or compounding with the debtor (Sec 135).

13. Bailment and Pledge (Sections 148-181)

Bailment (Sec 148): Delivery of goods by one person to another for some purpose, upon a contract that they shall be returned or disposed of when the purpose is accomplished. (Bailor and Bailee).
Duties of Bailee: Take reasonable care (Sec 151), not make unauthorized use (Sec 154), return the goods (Sec 160).
Lien (Sec 170/171): Right to retain goods until charges are paid (Particular lien for specific work, General lien for bankers/factors).
Pledge (Sec 172): Bailment of goods as security for payment of a debt or performance of a promise. (Pawnor and Pawnee). Pawnee can sell the goods on default after notice (Sec 176).

14. Agency (Sections 182-238)

Agent & Principal (Sec 182): Agent is employed to do any act for another or represent another in dealings with third persons. The employer is the Principal.
Who can employ/be an agent (Sec 183-184): Anyone of majority age and sound mind can employ. Even a minor can be an agent (but without personal liability). No consideration is necessary to create an agency (Sec 185).
Sub-Agent (Sec 191): Employed by and acting under the control of the original agent.
Ratification (Sec 196): Principal can adopt acts done by a person on their behalf without their authority.
Termination (Sec 201): By revocation, renunciation, completion of business, or death/unsoundness of mind of either party.

15. Important Section-Based AIBE Revision

Sec 2(d): Consideration. Remember "at the desire of the promisor".
Sec 10: Essentials of valid contract. The heart of the Act.
Sec 25: Agreement without consideration is VOID. Exceptions: Natural love and affection (registered), past voluntary service, time-barred debt in writing.
Sec 27: Restraint of trade is void.
Sec 56: Doctrine of Frustration (Impossibility).
Sec 73: Hadley v. Baxendale rule (Ordinary damages).
Sec 74: Liquidated damages limit.
Sec 124 vs 126: Indemnity vs Guarantee.

Multiple Choice Questions (25 AIBE-Style MCQs)

An agreement enforceable by law is a: (a) Promise (b) Void agreement (c) Contract (d) Proposal
Under Section 2(b), when a proposal is accepted, it becomes a: (a) Contract (b) Promise (c) Consideration (d) Agreement
Communication of a proposal is complete when: (a) It is posted (b) It is written (c) It comes to the knowledge of the person to whom it is made (d) It is delivered to a post office
An agreement made by a minor is: (a) Valid (b) Voidable (c) Void ab initio (d) Illegal
Consent is said to be free when it is NOT caused by: (a) Coercion (b) Fraud (c) Mistake (d) All of the above
Coercion is defined in which section? (a) 15 (b) 16 (c) 17 (d) 18
If consent is caused by undue influence, the agreement is: (a) Void (b) Voidable at the option of the party whose consent was so caused (c) Valid (d) Unlawful
Active concealment of a fact is known as: (a) Misrepresentation (b) Mistake (c) Fraud (d) Coercion
Bilateral mistake of fact makes an agreement: (a) Void (b) Voidable (c) Valid (d) Contingent
An agreement without consideration is: (a) Voidable (b) Valid (c) Void (d) Voidable at option of promisor
Agreement in restraint of marriage of any person other than a minor is: (a) Void (b) Valid (c) Voidable (d) Contingent
Wagering agreements are: (a) Voidable (b) Valid (c) Void (d) Illegal
A contract to do something if some event, collateral to such contract, does or does not happen is a: (a) Quasi contract (b) Contingent contract (c) Wagering contract (d) Illegal contract
When the promisor refuses to perform his promise wholly before the due date, it is called: (a) Actual breach (b) Anticipatory breach (c) Mutual mistake (d) Frustration
Compensation for loss naturally arising from a breach of contract is dealt with under: (a) Sec 73 (b) Sec 74 (c) Sec 75 (d) Sec 76
Liquidated damages are discussed under which section? (a) Sec 73 (b) Sec 74 (c) Sec 75 (d) Sec 68
Reimbursement of person paying money due by another, in payment of which he is interested, is covered under: (a) Sec 68 (b) Sec 69 (c) Sec 70 (d) Sec 71
A contract of indemnity involves how many parties? (a) 2 (b) 3 (c) 4 (d) 5
In a contract of guarantee, the person in respect of whose default the guarantee is given is the: (a) Surety (b) Creditor (c) Principal Debtor (d) Indemnifier
The delivery of goods by one person to another for some purpose is: (a) Pledge (b) Bailment (c) Guarantee (d) Agency
Bailment of goods as security for payment of a debt is called: (a) Pledge (b) Lien (c) Mortgage (d) Hypothecation
Consideration is necessary to create an agency. (a) True (b) False (c) True only for special agents (d) Discretion of court
A person employed to do any act for another or to represent another in dealings with third persons is an: (a) Employee (b) Servant (c) Agent (d) Sub-contractor
Which section deals with the effect of a mistake of law? (a) 20 (b) 21 (c) 22 (d) 23
An agreement to do an impossible act is: (a) Voidable (b) Valid (c) Void (d) Void ab initio under Sec 56

15 Short Answer Questions (Descriptive & Concept Based)

Define "Consideration" as per Section 2(d).
What is the difference between Void Agreement and Voidable Contract?
When is the communication of acceptance complete as against the proposer?
Explain the legal status of an agreement with a minor.
What constitutes "Coercion" under Section 15?
How does Fraud differ from Misrepresentation?
What are the exceptions to the rule "Agreement without consideration is void"?
Explain the concept of "Restraint of Trade".
What is a Contingent Contract? Give an example.
What happens to a contingent contract if the uncertain future event becomes impossible?
Explain the doctrine of "Anticipatory Breach of Contract".
What are Quasi-Contracts?
What is the responsibility of a finder of goods?
Distinguish between Indemnity and Guarantee.
What is a Pledge? Who are the parties involved?

8 Descriptive / Long Answer Questions

Critically analyze the essential elements of a valid contract under Section 10 of the Indian Contract Act, 1872.
"All contracts are agreements, but all agreements are not contracts." Discuss this statement with the help of the Bare Act and examples.
Discuss the various modes by which a proposal can be revoked under Section 6 of the Act.
Explain the concept of "Free Consent". Discuss in detail the provisions related to Undue Influence and how it affects the validity of a contract.
Examine the provisions related to agreements opposed to public policy under Section 23 of the Act. Provide suitable examples.
What are the rules regarding the assessment of damages for breach of contract as laid down in Section 73? Explain the concept of remote and indirect loss.
Define Bailment. What are the respective rights and duties of a Bailor and a Bailee under the Act?
Discuss the creation and termination of an Agency under the Indian Contract Act, 1872. Can an agency be created without consideration?

MCQ Answer Key

1. (c) - Contract [Sec 2(h)]
2. (b) - Promise [Sec 2(b)]
3. (c) - Knowledge of person [Sec 4]
4. (c) - Void ab initio (Competency Sec 11)
5. (d) - All of the above [Sec 14]
6. (a) - 15
7. (b) - Voidable [Sec 19A]
8. (c) - Fraud [Sec 17]
9. (a) - Void [Sec 20]
10. (c) - Void [Sec 25]
11. (a) - Void [Sec 26]
12. (c) - Void [Sec 30]
13. (b) - Contingent contract [Sec 31]
14. (b) - Anticipatory breach [Sec 39]
15. (a) - Sec 73
16. (b) - Sec 74
17. (b) - Sec 69
18. (a) - 2 (Indemnifier and Indemnity holder)
19. (c) - Principal Debtor
20. (b) - Bailment [Sec 148]
21. (a) - Pledge [Sec 172]
22. (b) - False [Sec 185 states no consideration is necessary]
23. (c) - Agent [Sec 182]
24. (b) - 21 (Mistake of law does not render contract voidable)
25. (d) - Void ab initio under Sec 56

Short & Long Answer Guidelines

Note for AIBE Aspirants: For short and long answers, always structure your response: (1) Relevant Section Number, (2) Bare Act Definition/Rule, (3) Illustration/Example, (4) Conclusion. Refer to the specific tabs in the Study Material section above to draft your complete answers.

The Indian Contract Act, 1872