CONTRACT - I

Introduction to Contract (1.1)

The law of contract in India is contained in the Indian Contract Act, 1872.
Contract is divided into 2 groups:-
1) General Principles of law of contract ( sec 1-75)
2) Specific kinds of contract e.g. Contract of Indemnity and Guarantee,
Bailment and Pledge, Agency
• In Indian Contract Act, the rules are laid down which are useful for
trade and commerce, it also relates to promises, their consideration ,
their formation, performance and its enforceability.
• It is normally like what man has been promised to him shall be
performed.
• The act also contains other different acts in itself e.g. Sales of Goods
Act, negotiable instruments, partnership.
Definition of Contract :- 2(h) of Indian Contract Act
“An agreement enforceable by law is contract.”
“Any agreement which is to create legal obligation is contract.”
➢3 ingredients to be kept in mind for definition of contract:
1. An agreement 2. Legal obligation i.e. a duty enforceable by law

oAgreement – 2(e) Every promise and set of promise forming

consideration for each other is an agreement.
Firstly, the proposal or offer is made to the other party and of the
offer or proposal is accepted by the other party then, agreement
comes into the picture.

Offer + Acceptance = “Agreement”

oLegal Obligation – The agreement done between the parties should
give rise to legal obligation. If it does not give rise to legal obligation
then it is not contract.
example – if a friend invites you for dinner or if a friend invites you
to have a walk at night . Here no legal obligation comes because
parties never intended to create legal relationship.

There are certain situations which are not under the preview of
contract :-
1. Obligation to maintain wife and children
2. Obligation to follow the orders of court
Essential elements of a VALID CONTRACT
1. Offer and acceptance – For forming a contract there should be an offer
and acceptance between the parties and after that only an contract
can arise. The offer and acceptance must satisfy the requirements of
contract act.
2. Intention to create legal relations – There must be an legal intention
between the parties. Without legal intention there can be no contract.
3. Lawful consideration – Consideration means when one party gives
something and gets something, but it should be lawful or legally
enforceable. Something given or obtained is the price of promise and is
called consideration.
4. Capacity to parties – Both the parties should contempt in order they
should be age of majority, sound mind, must not be disqualifies by law.
5. Free Consent – The parties should have agreed upon the same
thing in the same sense. There should be no fraud, mistake, threat
etc while taking or giving the consent to the said object.
6. Lawful Object – It is necessary that parties to an agreement must
agree for a lawful object. If the agreement is done for an object
through unlawful means then contract will be void. Example of an
flat owner.
7. Writing and registration – The contract shall be in oral or writing
only in special cases it can oral.
8. Certainty – Agreements which are not certain and are not capable
of being certain then such contract are not valid.
9. Possibility of performance – It should be capable to perform. If
the act is impossible to perform then it shall be void.
Kinds of Contract from “point of Enforceability”
1. Valid Contract – It is when all the requirements are fulfil of an valid
contract and it is enforceable by law.
2. Voidable Contract (2j) – It is one which is enforceable by law at
the option of one of the parties. Sometimes contract becomes
voidable when the consent is obtained by undue influence, fraud
or misrepresentation.
3. Void Contract – It means not binding in law. Contract which has
no legal effect.
4. Unenforceable contract – Is one which is valid in itself, but not
capable of being enforced in court of law because technical
defect like absence of writing, registration etc. For example time
barred debt
5. Illegal or unlawful contract
Kinds of Contract from “Point view of Mode of Creation”
1. Express C0ntract – When the agreement between the parties are
made in writing is called an express contract.
2. Implied Contract - When the offer and acceptance is not in words
by the acts or conduct of the said party then it is called implied
contract
3. Quasi Contract or Constructive - In this law recognize a contract
under certain circumstances, it means a person shall not allowed
to retain unjust benefit at the expense of another. Example the
finder of lost goods or the person to whom the money is given by
mistake.
Kinds of Contract from “Point view of Extent of Execution”
1. Executed contract – When the parties have completely performed
the contract and nothing is remained undone under the contract.
2. Executory contract – When one of the parties obligation is
outstanding then is executory. When both the parties have still to
perform their share of obligation under the contract
Offer and Acceptance (1.3)
The first and foremost step for entering into contract or creating
contract is offer and acceptance without them contract has no
existence.
Example of a wrist watch.
2(a) of Indian Contract Act tells us about “proposal”
One person signifies another his willingness to do anything, with a
view to obtaining the assent of that other to such act, he said to
make a proposal. Example of a motorcycle
a. Expression of the willingness
b. The expression should be for another person
c. It should contain with object assenting to the other person
Legal rules regarding a Valid Offer
1. An offer may be express or implied.
2. An offer must give rise to legal consequences.
3. The terms of the offer must be definite and certain.
4. An invitation to offer is not an offer.
5. An offer any be specific or general.
6. An offer must be communicated to the offeree.
7. An offer should not contain a term the non-compliance of which
would amount to acceptance.
8. An offer can be made subject to any terms and conditions.
9. Two identical cross-offers do not make a contract.
Lapse or Revocation of offer
1. An offer lapse after an stipulated or reasonable time.
2. An offer lapses by not being accepted in the mode prescribed and
if not then the some usual or reasonable manner.
3. An offer lapses by rejection.
4. An offer lapses by the death or insanity of the offeror or the
offeree before acceptance.
5. An offer lapses by revocation. Example of an auction bid
6. Revocation by non-fulfilment of a condition precedent to
acceptance.
7. An offer lapse if the subject matter lead to destruction or illegality.
Acceptance
2(b) tells us about the term acceptance. When the person to whom the
proposal is made signifies his assent, the proposal is said to be accepted.

Legal Rules regarding Valid Acceptance

1. Acceptance must be given only by the person to whom the offer is
made.
2. Acceptance must be absolute and unqualified.
3. Acceptance much be express in the prescribed manner. (word of
mouth, post, conduct)
4. Acceptance must be communicated by the acceptor.
5. Acceptance must be given within a reasonable time and before the
offer lapses.
6. Acceptance must succeed the offer.
7. Rejected offers can be accepted only , if renewed.
Communication of an offer is complete when it comes to the
knowledge of the person to whom it is made i.e., when the letter
containing the offer reaches the offeree.

Communication of an acceptance has 2 aspects;-

1. The communication is completed against the proposer, when it is
put in a course of transmission to him, so as to be out of power of
the acceptor.
2. As against the acceptor, when it comes to the knowledge of the
proposer i.e., when the letter of acceptance is received by the
proposer.
Communication of a revocation has 2 aspects;-
1. The communication against the person who makes it is complete
when it is put into a course of transmission to the person to the
person against whom it is made, so as to be out of the power of
the person revoking i.e., when the letter of revocation is posted.
2. As against the person whom it is made, when it comes to his
knowledge i.e., when the letter is received by him.

• A proposal may be revoked at any time before the communication

of acceptance is completed against proposer, but not afterwards.
• An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the
acceptor but not afterwards.
Consideration (1.4)
Consideration is one of the essential elements of an valid contract.
2(d) tell us about the term Consideration.
a. The act or promise which forms the consideration for the promise,
must be done at the desire of the promisor.
b. It must be done by the promisor or any other person.
c. It may have already executed or is in the process of being done or
may be still executory.
d. It must be something to which the law attaches value.

Example of an Selling house.

Nudum pactum

Nudum pactum is a Latin term that translates as "naked agreement." In

law, it is an agreement in which there is no consideration. This means the
agreement is not legally enforceable by law because it is not "dressed"
with consideration, as legally required. As a nudum pactum is not legally
binding or enforceable, it's best to be avoided.
What Is a Nudum Pactum?
❑A nudum pactum may be in verbal or written form. These agreements
may not result in legal action, since they are naked contracts. This means
that the agreements do not fall within the specific categories of
agreements that can provoke legal action. However, an agreement may
create a modification of or exception to an obligation already in effect.
❑However, if the contract is under seal, it is considered valid. In addition,
some contracts exist, which, as a result of their forms, carry a
consideration, including bills of exchange, sealed instruments, and
promissory notes. These are considered valid even though no official
consideration exists within them.
Examples of Nudum Pactum
To be effective, a contract must be based upon a consideration.

• If Alice were to show a house to a party that is interested in renting

from the owner, an agreement made by the owner to pay Alice for
her service lacks consideration if made after the fact. If a broker had
agreed to conduct an exchange of property and had earned
commission through a previously made valid contract, any
agreement made afterward (for example, a claim that the broker
was not entitled to a commission) is without consideration.
However, a broker cannot claim entitlement to commission in the
same situation if the broker actually did not perform any services,
and cannot prove that he or she was excused from providing such
service.
• As another example, if an agent agrees to reduce commissions
through a misstatement, it is considered to be lacking
consideration. An agreement made under a mistaken belief to pay a
commission also lacks consideration, as no service had been
conducted, and thus the broker's recovery is not valid.
Privity of Contract
It means a contract is between the parties only no third person can
sue it.
It is taken from English Common Law, that a stranger cannot sue it.
Exceptions:-
1. Trust or charge
2. Marriage settlement or other family arrangements
3. Acknowledgement
4. Agency
5. Covenants running with land
Past Consideration – When something is done or suffered before the
date of an agreement, at the desire of promisor is called past
consideration.

Present Consideration – Consideration which moves simultaneously

with the promise, is called “present or executed consideration.

Future Consideration – When the consideration on both sides is to

move at future date, it is called “future consideration or executory
consideration”
Essential Elements
1. Consideration must move at the desire of promisor.
2. Consideration may move from the promisee or any other person.
3. Consideration may be past, present or future
4. Consideration must be “something of value”