H.

P NATIONAL LAW UNIVERSITY, SHIMLA

ASSIGNMENT OF LAW OF CONTRACT

TOPIC : Meaning of Contract and Basic Attributes of the

Contractual Relationship

SUBMITTED TO :- SUBMITTED BY:-

Ms. Navditya Tanwar Shashwat Srivastava

B.A.LL.B(2 Sem)

ROLL NO. :-
1020171828

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 Acknowledgement

I am using this opportunity to express my gratitude to everyone who supported me

throughout the course of this assignment. I am thankful for their aspiring guidance,
invaluably constructive criticism and friendly advice during the project work. I am sincerely
grateful to them for sharing their truthful and illuminating views on a number of issues
related to the project.

I would also like to thank my faculty of the subject Ms. Navditya Tanwar and all the people
who provided me with the facilities being required and conductive conditions for my
assignment making.

Thank you,

Shashwat Srivastava

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 TABLE OF CONTENT

 INTRODUCTION
 DEFENITION OF CONTRACT
 MEANING OF CONTRACT
 TYPES OF CONTRACT
 BASIC ATTRIBUTES OF THE CONTRACTUAL RELATIONSHIP
 CONCLUSION

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 Introduction

When the court of Justice for the three presidency towns of Calcutta, Madras and Bombay
were established, the English Common Law and Statute Law relating to Indian conditions
were introduced by charters Application of English Laws to Hindus and Mohammadans led
to many inconveniences.

To remove this difficulty the statute of 1781 empowered the Supreme Court, i.e., Court at
Calcutta and statute of 1781 the Recorders Court, i.e., Court at Madras and Bombay to
determine all matters of contract in case of Mohammadans by the laws governing them and in
case of Hindus by the laws and usages of governing them. The effects of the statute was to
supersede English law so far as regards Hindus and Mohammadans in the case of contracts.
In spite of the changes made by the statutes of 1781 and 1799 the difficulties being faced
could not be solved properly. It was strongly felt that a comprehensive law must be enacted
in respect of contracts. Accordingly, the Indian Contract Bill was introduced in Legislature.1

Definition of Contract

The term “contract” is defined in section 2(h) of the Indian Contract Act, 1872, as follows:
“An agreement enforceable by law is a contract.”2

Sir William Anson defines a contract as “a legally binding agreement made between two or
more persons, by which rights are acquired by one or more to act or forbearances on the part
of the other or others.” In other words, a contract is an agreement between two or more
parties which is intended to have legal consequences.

Meaning of Contract

The definition implies that for the formation of a contract there must be –

 An agreement
 The agreement should be enforceable by law.

Agreement arises out of promises, it is defined in the section 2(e) as “every promise and
every set of promises forming consideration for each other”. And a promise is defined as an

1
The Indian Contract Act 1872, Introduction 1, (2018)
2
The Indian Contract Act 1872, Section 2(h), (2018)

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accepted proposal. Section 2(b) says “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”. Proposal is defined in section 2(a) it says “when one person signifies
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”.3

contract agreement acceptance proposal

An agreement requires al least two persons: one who makes the proposal and the other who
accepts the proposal. Both the parties must agree upon the same thing in the same sense, i.e.,
they must be consensus ad idem. Thus, an agreement is said to be formed between two parties
when their minds are ad idem. An agreement may be oral or in writing or it may be implied
from the conduct of the parties.

Legal obligation to make a contract, an agreement must be enforceable by law. It means that
an agreement must give rise to legal obligation. An agreement which give rise only to social
obligation is not a contract.

There must be intention to make contract. In the case of agreements regulating business
relation it is assumed that the parties intended legal consequences.

Salmond says, “The law of contract is not the whole law of agreement not is it the whole law
of obligations. It is the law of those agreements which creates obligation which have their
source in agreements.”

What agreements are contracts? an agreement that the law will enforce is a contract.
The conditions of enforceability are stated in section 10.

Section 10 says, “All agreements are contracts if they are made by the free consent of the
parties competent to the contract, for lawful consideration and with a lawful object, and are
not hereby expressly declared to be void.”4

3
Avtar Singh, Contract and Specific Relief 2, (Eastern Book Company ed., 2017) (1973)
4
The Indian Contract Act 1872, Section 10, (2018)

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Nothing herein contained shall affect any law in force in [India] and not hereby expressly
repealed, by which any contract is required to be made in writing or in the presence of
witness, or any law relating to the registration of document.

Every contract is an agreement, but every agreement is not a contract. An agreement becomes
a contract when it is made for some consideration, between parties who are competent, with
their free consent and for a lawful object.

Types of Contracts

contracts can be classified on the basis of enforceability, or on the basis of mode of creation,
or on the basis of the extent of execution or on the basis of the form of the contract.

Types on the basis of enforceability

On the basis of enforceability, a contract may be valid or voidable or void or illegal.

Valid Contract: an agreement enforceable by law is a contract. Conditions of enforceability

are laid down in section 10. Thus an agreement which fulfils the essentials of contract is a
valid contract.

Voidable Contract: section 2(i) defines voidable contract, it says, “an agreement which is
enforceable by law at the option of one or more parties thereto, but not at the option of the
other or others, is a voidable contract.” A voidable contract is not a nullity from the
beginning. Until it is rescinded, it is valid and binding.

Void Agreement: according to section 2(g) “an agreement not enforceable by law is said to
be void”. Thus a void agreement is void from the very beginning i.e., void ab-initio.

Void Contract: section 2(j) says, “a contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus in this case, the contract is valid when
originally made but subsequently becomes void due to certain circumstances.

Illegal Agreement: according to section 23, the consideration or object of an agreement is

lawful, unless it is forbidden by law; or is of such a nature that, if permitted, it would defeat
the provision of any law; or is fraudulent; or involves or implies, injury to the person or
property of another; or the court regards it as immoral or opposed to public policy.

Types of contract on the basis of mode of creation

On the basis of mode of creation, the contract may be express or implied.

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Express Contract: according to section 9, “insofar as the proposal or the acceptance of any
promise is made in words, the promise is said to be express”. Therefore, the contracts entered
into between the parties by words, spoken or written, are known as express contracts.

Implied Contract: section 9 further states that “insofar as such proposal or acceptance is
made otherwise than in words, the promise is said to be implied”. Thus, the contracts which
are formed by the act or the conduct of the parties and not by the words are termed as implied
contracts.

Types on the basis of extent of execution

On the basis of the extent of performance or execution the contracts may be classified as
executed contract, executory contract, unilateral contract, bilateral contract.

Executed Contract: a contract is said to be executed when both the parties have comply
performed their respective obligations under the contract.

Executory Contract: an executory contract is one in which both parties are still to perform
their obligations.

Unilateral Contract: in a unilateral contract one party to the contract has performed his part
even at the time of its formation and an obligation is outstanding only against the other.

Bilateral Contract: in a bilateral contract obligation of both the parties are outstanding at the
time of formation of the formation of the contract.

Basic Attributes of the Contractual Relationship

Section 2(h) of Indian Contract Act, 1872 makes a distinction between an agreement and a
contract. The test is “enforceable by law”. The essentials for enforceability of a contact are
stated in section 10.

It has been held that every transaction, to be recognised as a contract, must be in its ultimate
analysis, resolve itself into a proposal and its absolute and unqualified acceptance.5

According to section 2(h) and section 10 the following are basic requirement of a valid
contract.

5
Pollock and Mulla, The Indian Contract and Specific Relief Act 34, (lexis Nexis ed.,15 2017 ) (1905).

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Proposal: Section 2(a) defines the term proposal as follows, “when one person signifies to
another his willingness to od or to abstain from doing anything with a view to obtaining the
assent of that other to such an act or abstinence, he is said to make a proposal”.

The person who makes the proposal or offer is called the promisor or offerer.

For example, a painter’s offer to paint someone’s house for $100 is probably conditioned on
the homeowner’s promise to pay upon completion, while a homeowner’s offer to pay
someone $100 to have his or her house painted is probably conditioned upon the painter’s
successfully performing the job.

Offer can be general as well as specific, An offer may be made to definite person or persons
or to the world at large. When it is made to some specific person or persons it is called a
specific offer. When it is made to the world at large it is called a General offer. A specific
offer can be accepted only by the person to whom the offer has been made and in the manner,
if any specified in the terms of the offer.
But a general offer can be accepted by any persons having notice of the offer by doing what
is required under the offer. The most obvious example of such an offer is where a reward is
publicity offered to any about that object, who will recover a lost object or well give some
information, there the party claiming the reward has not to prove anything more than that he
has performed the conditions on which the reward was offered. It was suggested in the old
case of Weeks v. Tybald, that an offer must be made to a definite person. That case arose out
of the defendant’s affirmation to the public that he would give 100 pounds to him that should
marry his daughter with his consent. The plaintiff alleged that he did so and sued the
defendant. Rejecting the action, court said “it is not averred not declared to whom the words
were spoken”. The difficulty suggested was that if an offer of this kind addressed to several
persons could be accepted, the offerer would found himself bound in innumerable contracts.
This was however, soon overruled. The modern position is that an offer may be made to the
world at large. But the contract is not made with all the world. Contract is made only with
that person who comes forward and perform the conditions of the proposal. The principle is
thus stated in Anson, “an offer need not be made to an ascertain person, but no contract can
arise until has been accepted by an ascertain person”.6

Acceptance: Section 2(b) defines acceptance as, “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”. The person to whom the proposal is made is called the
promise or offeree.

6
Avtar Singh, Contact and Specific Relief 17, (Eastern Book Company ed., 12 2017) (1973)

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Section 7 says that the acceptance must be absolute and unqualified. “in order to convert a
proposal into a promise the acceptance must be absolute and unqualified”. An acceptance
with a variation is no acceptance; it is simply a counter offer, which must be accepted by the
original proposer before a contract is made.

For Example, A offers to sell his house for a sum of Rs. 20,000 B sends his acceptance to
purchase it for a sum of Rs. 19,000. There is no acceptance. It will be taken as a new offer
from B, which may not be accepted by A.

Section 7 also says that acceptance must be in prescribed manner, A proposal must be
accepted according to its terms. If the proposal lays down a mode of acceptance, the
acceptance must be according to the mode prescribed. Therefore, if the proposer choses to
require that the goods shall be delivered at a particular place, he is not bound to accept
delivery at any other place. It is not for the acceptor to say that some other mode of
acceptance which is not according to the terms of the proposal will do as well. If the
acceptance is not given in the made prescribed, the proposer may reject the acceptance and
intimate the offeree within a reasonable time. But if he does not inform the offeree, he is
deemed to have accepted the acceptance.
Where no mode of acceptance is prescribed, acceptance must, “be expressed in some usual
and reasonable manner”.7
For Example,  An offer is made to take shares indicating that the acceptance is to come by a
telegram. If the acceptance is sent by ordinary post then it is not an acceptance according to
the mode prescribed and the offer will be deemed to be not accepted. The offeror need not
inform the offeree that the acceptance is not according to the mode prescribed.

Intention to create Legal Relationship: Section 10 of the act which lays down the essentials
of a valid contract does not specify ‘intention to create legal relationship’ as one of the
ingredients. But it can be inferred from the definition of contract stated in section 2(h), the
agreement should be enforceable by law. And this principle of English law is considered to
be necessary contractual ingredients. The test of contractual intention is, however, objective
not subjective. It means that what a reasonable man would think, in the circumstances of the
cases is the determining factor. Merely because the promisor contends that there was no
intention to create legal obligation would not exempt hi from liability as happened in Carlill
v. Carbolic Smoke Ball Co.,

7
Avatar Singh, Contract and Specific Relief 31, (Eastern Book Company ed., 12 2017) (1973).

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Balfour v. Balfour, (1919) 2 K.B. 571, is the leading case on this point. In this case,
defendant and his wife were enjoying leave in England. When the Defendant was due to
return to Ceylon, where he was employed, his wife was advised by the reason of her health,
to remain in England. The defendant agreed to send her an amount of € 30 a month for the
probable expenses of maintenance. He did send the amount for some time, but differences
afterward arose which resulted in their separation and the allowance fell into arrears. The
wife’s action to recover was dismissed.

This does not however, mean that in family or social matters there cannot be a legally binding
contract, law only requires that parties must intend legal consequences to follow, in
Mcgregor v. Mcgregor (1888), 21 QBD 424, a husband and wife withdrew their complaints
under an agreement by which the husband promised to pay an allowance and the wife to
refrain from pledging his credit, it was held that the agreement was a binding contract.

Consideration:

Section 25 of the Indian Contract Act provides that, ‘An agreement made without
consideration is void”. Thus, consideration is an essential element of a contract. According to
Salmond and Winfield “A promise without consideration is a gift; one made for consideration
is a bargain”.

Consideration has been defined as “some right, interest, profit, or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by
the other”. In other words, consideration is the price of the promise. Sir Fraderick Pollock has
defined consideration “the price for which the promise of the other is bought”. Consideration
means ‘something in return’ or ‘quid pro quo’.

Section 2(d) defines consideration as, “When at the desire of the promisor, the promise or
any other person has done or abstained from doing, does or abstain from doing, or promises
to do or abstains from doing something, such act or abstinence or promise is called a
consideration for the promise.”8

For Example: A landlord and a prospective tenant meet to discuss the rental of a condo. At
the meeting, they go over the terms of the lease, and agree to enter into the lease, which is
signed by both the landlord and the tenant. In this type of contract, the landlord agrees to
provide tenant with housing, and the tenant promises to pay rent in return.
8
The Indian Contract Act 1872, Section 2(d), (2018)

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The following are the essentials for valid consideration:

 At the desire of the promisor/ The doctrine of promissory estoppel

The definition of consideration in section 2(d) provides that act or abstinence which is
to be consideration for the promise must be done or promised to be done at the desire
of the promisor. If the act is not done at the desire of the promisor it will not furnish a
good consideration, as in the case of Durga Prasad v. Baldev, the plaintiff built at
his own expenses certain shop at a place on the order of the collector. The defendants
made a promise to the plaintiff to pay him a commission on the article sold. The
plaintiff’s action to recover the commission was rejected because the plaintiff’s act
was not the result of the defendant’s promise but of the collector’s order.
A mere promise to pay subscription becomes enforceable as soon as any
definite steps are taken in furtherance of the object and on the faith of the promised
subscription. In Kedr Nath v. Gorie Mohamed, the defendant was held liable to pay
the promised subscription of Rs. 100 as on the faith of the promised subscription the
plaintiff entered into a contract with a contract with a contractor for the purpose of
building town hall at Howrah.
 Promisee or any other person
In English Law, as held in Tweddle v. Atkinson, it is necessary that the consideration
must flow from the promise. However, section 2(d) expressly provides that
consideration may move from the promise or any other person. Therefore, the English
principle that a stranger to consideration con not sue has no application in India.

Competency:

It is required that the parties must be competent to contract. Competency to contract is

defined in section 11, it says, “Every person is competent to who is of the age of majority
according to the law to which he is subject, and who is of sound mind and is not disqualified
from contracting by any law to which he is subject”9. Thus, the following persons are
incompetent to contract:

 Minors
Who is minor? According to Section 3 of the Indian Majority Act, 1875, a minor is a
person who has not completed 18 years of his age. In computing the ages of any

9
The Indian Contract Act 1872, Section 11, (2018)

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 person, the day on which he was born is to be included as a whole day and he shall be
deemed to have attained the majority at the beginning of 18 anniversary of that day.
The Indian Contract Act does not expressly say that a minor’s agreement is void.
Section 68 confers quasi-contractual right on the supplier “necessaries” to a ‘person
incapable of entering into a contract, to be reimbursed from the property of such
incapable person’. However, it was authoritatively declared by the Privy Council in
Mohiri bibee v. Dharam Das Ghose, that a minor’s contract is absolutely void.
 Persons of unsound mind
An agreement entered into by a person of unsound mind is on the same footing as an
agreement entered into by a minor. Therefore, an agreement with a person of unsound
mind is absolutely void. Section 12 of the act defines a person of unsound mind for
the purpose of contracting. It provides, “A person is said to be of unsound mind for
the purpose of making a contract if at the time when he makes it, he is capable of
understanding it and of forming a rational judgement as to its effect upon his
interests.”
“A person who is usually of unsound mind, but occasionally of sound mind, may make
a contract when he is of sound mind.”
“A person who is usually of sound mind, but occasionally of unsound mind may not
make a contract when he is of unsound mind”.
The following two illustrations are appended to the section:
(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract
during those intervals.
(b) A sane man, who is delirious from fever or who is so drunk that he can not
understand the terms of a contract or form a rational judgement as to its effect on
his interests, cannot while such delirious or drunkenness lasts.
 Persons disqualified by any law to which they are subject.
The third type of persons who are incompetent to contract as per section 11 are those
who are “disqualified from contracting by any law to which they are subject”. They
are:
(a) Alien Enemy: when government of an alien is at war with the government
of India the alien is called an alien enemy. An alien enemy cannot enter
into a contract with Indian citizens without permission of the government

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 of India as it is against public policy. Contracts entered into by an alien
before the declaration of war are suspended for the duration of the war.
(b) Foreign sovereigns and their accredit agents: Foreign sovereign and their
accredit agents like ambassador enjoy certain immunities under the
international law. They can sue an Indian citizen but Indian citizen cannot
sue them.
(c) Convict: A convict is a person who is found guilty and sentenced. During
the person of his sentenced he is incomplete to make a contract.
(d) Insolvent: An adjudged insolvent before the order of discharge is
incomplete to contract relating to his property.
(e) Joint Stock company and corporations: A joint stock company or a
corporation incorporated under a special Act cannot enter into contracts
which are beyond its powers.

Free Consent:

According to section 10 consensus ad idem or identity of minds of minds is an essential

element of a valid contract. Section 13 defines consent as “Two or more person are said to
consent when they agree upon the same thing in the same sense”.

Thus, if the parties have not agreed upon the same thing in the same sense there is no real
consent and hence no contract is formed. The expression, “the same thing” means “the whole
content of the agreement, whether it consist, wholly or in part, or delivery of material objects,
or payment, or other executed acts or promises”.10

However, in certain cases there is real consent, but one of the parties has given his consent,
not out of his free will but due to factors in the absence of which he might not have given his
consent. Consent so given is said to be not free.

Section 14 provides that consent is said to be free when it is not caused by-

1. Coercion, as defined in section 15,

It is committing, or threatening to commit, any act forbidden by the Indian Penal
Code, or the unlawful detaining or threatening to detain, any property to the prejudice
of any person whatever, with the intention of causing any person to enter into an
agreement. or

10
Pollock and Mulla, The Indian Contact and Specific Relief Act 134, (lexis Nexis ed.,15 2017) (1905)

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 2. Undue Influence, as defined in section 16,
One of the two parties to the contract is in a position to dominate the will and mind of
the other party. This is presumed when the parties to the contract have a real or
apparent authority over the other or one of the parties has got a fiduciary relationship
which puts him in a position to win over the mind of the other party. Such position or
relationship exists in the cases of minor and guardian; trustee and beneficiary; son
and father, wife and husband or vice-versa. or
3. Fraud, as defined in section 17,
“Fraud” means and includes any of the following acts committed by a party to
contract or with his connivance, or by his agent, with intent to deceive another party
thereto of his agent, or to induce him to enter into the contract or
4. Misrepresentation, as defined in section 18,

 Misrepresentations may be of any of the three kinds:-

(1)   It may take the form of an unwarranted positives statement which is not true,
but the party believes it to be true; or

(2)   It may take form of breach of duty on the part of one party which misleads the
other party to his prejudice or to the prejudice of anyone claiming title under him.
This kind of misrepresentation includes such cases which are named as ‘Constructive
Fraud’ by the Courts of equity. The party getting a benefit under the Act even under
an obligation is not making full disclosure of facts but his non-disclosure misleads
the other party.

(3)   It may take the form of causing a party to the contract to make a mistake as to
the subject matter of the contract. For example, if erroneous statement is made as to
the tonnage of a ship, the contract can be avoided on the basis of misrepresentation.

or
5. Mistake, subject to the provisions of sections 20, 21 and 22.
Mistake in contract law is an incorrect understanding by one or more parties to a
contract and may be used as grounds to invalidate the agreement. Common law has
identified three different types of mistake in contract: unilateral mistake, mutual
mistake, and common mistake.

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Consent is said to be so caused when it would not have been given but for the existence of
such coercion, undue influence, fraud, misrepresentation or mistake.

Lawful Object:

For the validity of contract, the consideration and object must be lawful. Section 23 mentions
the circumstances when the consideration or the object of an agreement is not lawful. The
section reads as follows, “the consideration or object of an agreement is lawful, unless it is
forbidden by law; or is of such a nature that, if permitted, it would defeat the provision of any
law; or is fraudulent; or involves or implies, injury to the person or property of another; or
the court regards it as immoral or opposed to public policy”.11

In each of the case, the consideration or the object of an agreement is said to be unlawful.
Every agreement of which the object or consideration is unlawful is void.

Not expressly declared void: The agreement must not have been expressly declared void.
An agreement in restrain of marriage or trade, or in restrain of legal proceeding is void.
Similarly, an agreement the meaning of which is not certain or capable of being made certain,
or an agreement by way of wager, or an agreement to do an impossible act is void.

Section 26 of the act says, “Every agreement in restrain of the marriage of any person, other
than a minor, is void”.12 The agreement is void whether the restrain is general or partial.
Therefore, an agreement agreeing not to marry at all, or a certain person, or a class of
persons, or for a fixed period is void. But there is certain exception in case of a minor. An
agreement restraining the marriage of minor is valid.

Section 27 says, “Every agreement by which any one is restrained from exercising a lawful
profession, trade or business of any kind, is to that extent void”.13

Section 28 says, “Every agreement, by which any party thereto is restricted absolutely from
enforcing his right under or in respect of any contract, by the usual legal proceeding in the
ordinary tribunals, or which he may thus enforce his right, is void to that extent.”14

Section 29 says, “Agreement, the meaning of which is not certain, or capable of being made
certain, are void”.15

11
The Indian Contract Act 1872, Section 23, (2018).
12
The Indian Contract Act 1872, Section 26, (2018).
13
The Indian Contract Act 1872, Section 27, (2018).
14
The Indian Contract Act 1872, Section 28, (2018).
15
The Indian Contract Act 1872, Section 29, (2018).

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Section 30 says, “Agreement by wat of wager are void; and no suit shall be brought for the
recovering anything alleged to be won on any wager, or entrusted to any person to abide the
result of any game or other uncertain event on which any wager is made”.16

Exception is made in favour of certain prize for horse racing.

Legal Formalities: A contract may be oral or in writing according to the Indian Contract
Act. In certain special cases the agreement must be in written. In some cases, like contracts
by companies, selling or buying of shares etc., the contract must be registered. 

Conclusion

Contract law plays an important role in commercial law. It is difficult to carry on any trade,
business or any activity without contract law. It effects not only business men but also
everybody. The aim of the contract law is to ensure that rights and remedies are honoured
which raised by contract. Contract law lays down conditions for parties to enter into contract .
According to section 10, consent is subjective concept but the whole is objective concept.
Agreements cover both offer and acceptance and it is essential for making a contract. All
contracts are agreements but all agreements are not contracts, only those agreements are
contract which fulfills the conditions of section 10. For making a contract consent is an
essential ingredient and it should be free from coercion, fraud, misrepresentation, if it is not
free it is voidable under section 19 and 19 A. But if the consent is obtained by mistake then it
is void under section 20-22. But under English law intention to create legal relationship is
essential.

In English Law, a contract made by a minor, is voidable at the option of the minor. This
means that a minor can, on attaining majority, ratify a contract entered into by him when he
was a minor. Under the Indian Contract Act, however, the position is different. A minor is
absolutely incapable to enter into a contract. This means that the agreement is void ab initio.
Such a contract cannot be ratified. The minor is not bound even after he attains the age of
majority.

16
The Indian Contract Act 1872, Section 30, (2018).

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