CHAPTER

1
Formation of A Contract
HISTORICAL BACKGROUND OF INDIAN CONTRACT ACT
When the Courts of Justice for the three presidency towns of Calcutta, Madras and Bombay
were established there was no codified law governing contracts in India. The law relating to
contracts was dealt with the charter granted in 1726 by King George I to the East India company.
Thereafter in the year 1781, the Act of Settlement was passed by the British Government. The Act
of Settlement authorized the Supreme Court of India to deal with all the matters of contract
between the parties. But the matters relating to contract were determined in case of Hindus by
the laws governing Hindus and in case of Muslims by the laws governing Muslims. In cases
where parties to a contract belonged to different persuasions, then the Law of the Defendant was
applied. For outside the Presidency Towns, the matters relating to contract was mainly dealt
with through the English Contract Laws (based on the principles of justice, equity and good
conscience).
Inspite of the changes made by the Statutes, there were number of complications relating to
the laws concerning contracts resulting into a strong need for a comprehensive law governing
contracts. Therefore in the year 1861, the Third Law Commission of British India under the
chairmanship of Sir John Romilly presented the report on Contract Law for India. The Law
Commission submitted a draft on 28 th July, 1866. The Draft Contract Law after several
amendments was then enacted as The Act 9 of 1872 on 25th April 1872 and the INDIAN
CONTRACT ACT, 1872 came into force with effect from 1st September, 1872.
The Indian Contract Bill, passed by the legislature, received its assent on 25th April, 1872
and came on the Statute Book as THE INDIAN CONTRACT ACT, 1872 (9 of 1872)

NEED OR OBJECTIVE OF THE LAW OF CONTRACT

Sir Frederick Pollock says, “The Law of Contract represents the constant endeavour of the public
authority, viz., the state to establish a positive sanction for the expectation of good faith which has grown up
in the mutual dealing of men.”
I–4 Formation of a Contract

The fundamentals of the Law of Contract have been in existence since the times of ancient
India and infact they were well recognized under the Hindu Law. In ancient times, the Law of
Contract was based on the principles of truth. It was the religious belief of the people that if a
person died without paying his debts, he would go to horrid hell. It was considered to be the
duty of the King to ensure that the persons performed the agreements entered into by them.
In a way, it has always been the effort of mankind to ensure that the promises made by men
are fulfilled. Keeping this as the base, the objective of the Law of Contract is precisely to ensure
that the promises made are fulfilled. Law of Contract determines the circumstances and
situations which ascertain the intention of the parties to the contract so as to make both the
parties legally answerable to each other. In other words, the primary objective of law of
contract is to identify the circumstances where promises made by parties to a contract become
legally binding on them.
In nutshell, the objective of Law of Contract is :
 To identify the true intention of the parties to contract,
 So as to define promises made by them,
 And make such promises legally binding on both.

THE INDIAN CONTRACT ACT, 1872

SHORT TITLE : This Act may be called the Indian Contract Act, 1872.
COMMENCEMENT : The Indian Contract Act shall come into force on the first day of
September, 1872.
EXTENT : The Act extends to the whole of India except the State of Jammu and Kashmir.
SCOPE : The law relating to contracts is contained in the Indian Contract Act, 1872. The Act
has been divided into two parts :
 The General Principles of the Law of Contract (Section 1 to 75)
 The Specific Contracts (Section 124 to 238)
The Indian Contract Act, 1872 deals with a particular aspect of the contract, but it does not
deal with every aspect of the law of contract. Hence, there are several other laws relating to
contract, which are not a part of this Act. Some of the other statutes relating to law of contract
are :
(i) The Indian Partnership Act, 1932
(ii) The Indian Companies Act, 1956
(iii) The Sale of Goods Act, 1930
(iv) The Specific Relief Act, 1963
(v) The Negotiable Instruments Act, 1881
(vi) The Indian Insurance Act, 1938
(vii) The Indian Trusts Act, 1882
NATURE : The law of contract does not enforce certain rights and duties of the parties to the
Formation of a Contract I–5

contract, instead it specifies certain limits within which the parties can create their own terms
and conditions for the contract and respective rights and duties for themselves. The Law of
Contract shall then upheld such rights and duties. Therefore, the parties to the contract can
create their rules of the contract provided they do not infringe some legal prohibition.
Another distinctive trait of the Law of Contract is that it creates Rights in Personam and
not Rights in Rem
Jus in rem or Rights in Rem means a right of a person that exists against the whole world.
Whereas, a Jus in Personam Or Rights in Personam means a right of a person that exists against a
specific person. The law of contract creates Rights in Personam i.e. the Law of Contract can
enable a person to create a right against one person. Let us understand the distinction between
Right in Rem and Right in Personam with the help of examples :

 Joy enjoys the Rights in Personam as against Lucky to receive the payment for sale of
house.
 Lucky enjoys the Rights in Rem as against the whole world so as to the possession of the
house. In other words, no one in the world can disturb Lucky so as to have the quiet
possession of his house once he has purchased it and paid for it too.

FORMATION OF A CONTRACT
The Indian Contract Act, 1872 is divided into two parts, section 1 to section 75 of the Act
deals with the General Principles of the Law of Contract that explain the procedure of formation
of a contract and Section 124 to Section 238 deals with Special Kinds of Contract such as
indemnity, guarantee, pledge, bailment and agency. This book shall deal with all these sections
so that the students can comprehend in detail the nuances of the Indian Contract Law. To begin
with, we need to understand what is a contract and how is it formed ?
“A CONTRACT IS AN AGREEMENT,
AN AGREEMENT IS A PROMISE,
A PROMISE IS AN ACCEPTED PROPOSAL.”
The statement given above has created a link between three important terms, contract,
agreement and promise. Therefore, we would understand the definition of contract only if we
understand what is an agreement, a promise and other related terms.
The formation of a contract primarily begins when one person gives a proposal or offer to
the other person. Such an offer is given so as to obtain the assent or acceptance of the other
party. Hence, when a person makes an offer to the other person, the other person may accept it
or reject it. Where the offer is rejected, it results into nothing but where the offer gets accepted, it
becomes a promise. Now basically when there are two parties in a contract, both of them make
promises to each other. In other words, a promise of one party is exchanged for the promise of
I–6 Formation of a Contract

other party. Therefore, there are two promises in one contract, and they are called as reciprocal
promises. When one party exchanges his/her promise for the promise of the other party, this is
termed as making an agreement. An agreement is exchange of reciprocal promises between the
parties. The last step is to understand how an agreement becomes a contract. An agreement if
can be made enforceable by the Court of Law, it is a contract i.e. an agreement that can be
forced/enforced by the law is a contract. Enforced by the law basically means that if the parties
deny to perform their obligation in a contract, the law can force them to perform or the law can
enforce the performance in the contract.

The flow chart given above describes how an offer is made into a contract. Formation of a
Contract can also be explained as follows :

DEFINITIONS : (Section Wise)

*Section 2(a), ICA 1872 defines, an offer,
“When one person signifies or communicates his willingness to do or to abstain from doing anything, to
obtain the assent of the other, he is said to make an Offer.”
*Section 2(b), ICA, 1872 defines a Promise,
“An offer when accepted becomes a Promise.”
*Section 2(c), ICA, 1872 defines Promisor and Promisee,
“The person making the offer is called Promisor and the person accepting the offer is called Promisee.”
*Section 2(d), ICA, 1872 defines consideration,
“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 abstain from doing, something, such act as
abstinence or promise is called Consideration.”
*Section 2(e), ICA, 1872 defines agreement
“Every promise and every set of promises, forming consideration for each other, is an agreement.”
*Section 2(f), ICA, 1872 defines reciprocal promises,
“Promises which form the consideration or part of the consideration for each other, are called reciprocal
promises.”
Formation of a Contract I–7

*Section 2(g), ICA, 1872 defines a Void Agreement

“An agreement not enforceable by law is a void agreement.”
*Section 2(h), ICA, 1872 defines a Contract/Valid Contract,
“An agreement enforceable by law is a contract.”
The analysis of the above given definitions, makes it clear that a contract that exists today in
present has been through different stages so as to become a valid contract. An offer gets
accepted and becomes a promise. As there are two parties, so there are two promises. These
promises are exchanged between the parties so they become reciprocal promises. These
reciprocal promises become consideration (benefit in return) for both parties resulting into an
agreement. An agreement if is backed by legal enforceability of the law converts into a contract.
Therefore to conclude, we can say,
“All contracts are agreements,
All agreements are promises,
All promises are accepted proposals.”

From Examination Point of View 

Ques. 1. Define the term contract. What are the essentials of a valid contract ? OR
Ques. 2. “All contracts are agreements, but all agreements are not contracts.” Explain and illustrate. OR
Ques. 3. Discuss the various tests you would apply to ascertain whether an agreement is a contract or
not.

Now that we have understood how a contract is formed, we need to comprehend the above
given questions from examination point of view that how an agreement actually becomes a
contract. For this we need to define the term contract again and discuss in detail all the essential
characteristics that must exist in an agreement to make it a valid contract.
The statement,
“All contracts are agreements but all agreements are not contracts” highlights two
significant terms i.e. a contract and an agreement. These two terms are on the one hand
interconnected and on the other hand are absolutely distinct from each other. As we read earlier
in the chapter, that a contract passes through different stages in its formation. One of the prior
stages makes a contract an agreement but only those agreements become a valid contract that
satisfy various tests or conditions or essentials of a valid contract. Such tests/essentials if exist
completely in all respects in an agreement, only then an agreement passes its last stage of
formation of a valid contract. In other words, all essentials under section 10 of Indian Contract
Act, 1872 must be present in an agreement to make it a valid contract.
So let us once again understand What is a Contract ?
“An agreement enforceable by law is a valid contract.” –U/S 2(h) of ICA, 1872
“Every agreement and promise enforceable at law is a contract.” According to Sir Fredrick Pollock
“A contract consists an actionable promise or promises. Every such promise involves two parties, a
promisor and promisee, and an expression of a common intention and of expectation as to the act or
forbearance promised.” According to Sir William Anson
“Contract is an agreement creating and defining obligations between the parties.”
I–8 Formation of a Contract

According to Salmond

From the analysis of the above given definitions, it is very clear that :
(i) An offer must be accepted to become a promise [U/S 2(b) of ICA, 1872]
(ii) A promise must be exchanged for another promise (becoming consideration for both
parties) to become an agreement. [U/S 2(e) of ICA, 1872]
(iii) An agreement must satisfy all essentials to become a contract. [U/S 2(h) of ICA, 1872]
To sum up, we can say :
AGREEMENT + ESSENTIALS U/S 10 = VALID CONTRACT
But before we study in detail all the essentials of a valid contract as explained under section
10 of Indian Contract Act, 1872, we need to comprehend the term agreement in depth. The term
agreement is a wider term than a contract, as an agreement may be an enforceable agreement
(i.e. a contract) or an unforceable agreement. The point to note is that only enforceable
agreements become a valid contract.

The chart illustrated above, makes it clear that an agreement that can be enforced by the
Court of Law becomes a valid contract under section 2(h) of Indian Contract Act, 1872. But there
may be instances where an agreement cannot be enforced by the law, such agreements are called
unenforceable agreements.

UNENFORCEABLE AGREEMENTS

DOMESTIC AGREEMENTS :
Whenever two persons enter into an agreement, they must have a common intention to enter
into a legal relationship. Until and unless the parties to a contract have a common intention (that
once they enter a contract they shall be bound by the legal relationship between them) to form a
legal relationship, a contract does not come into existence.

The Case of BALFOUR Vs. BALFOUR (1919) is a well known illustration of this principle
Facts of the Case :
Mrs. And Mr. Balfour were enjoying leave in England. When they were to return to Ceylon (where Mr.
Balfour was employed) Mrs. Balfour was advised to remain in England by reason of her ill health. Mr. Balfour
Formation of a Contract I–9

returned to Ceylon and agreed to send his wife an amount of £ 30 a month for her expenses. He sent the
expenses for sometime but afterwards some differences arose which resulted in their separation and he
stopped sending the allowances to her. As a result, Mrs. Balfour filed a case against her husband for the
allowances.
Held :
It was held that Mr. Balfour was not liable for the expenses.
Reason :
The agreement between Mrs. & Mr. Balfour was merely a domestic agreement, not enforceable by law
as the intention of the parties was never to enter into a legal relationship and thus did not bear any legal
consequences.

SOCIAL AGREEMENTS :
Like a domestic agreement, a social agreement where the intention of the parties is not to
enter a legal relationship never becomes enforceable by law. We as the members of a society may
agree to do something which may not be backed by any legal enforceable intentions, such
instances do not constitute a contract and make parties legally liable to each other.

Example :
 Joy invited Shashi to her house for dinner. But when Shashi arrived Joy was not present in her house
(as she got stuck somewhere due to her job work). Shashi filed a case against Joy. It was held it was only a
social agreement not enforceable by law as the parties never had an intention to enter into a legal
relationship.

VOID AGREEMENTS :
An agreement can become a void agreement due to many reasons such as absence of
consideration, an agreement with a minor, an agreement whose objective is unlawful and many
more. Void agreements are basically those agreements which are not enforceable by law [U/S
2(g) of ICA, 1872]. Sections 24 to 30 in Indian Contract Act, 1872 make a special mention about
void agreements. These have been discussed in detail in chapter No. 6.

INTENTION OF PARTIES : CAN MAKE A SOCIAL & DOMESTIC AGREEMENT

VALID CONTRACT
A social or a domestic agreement can also become a valid contract where the intention of the
parties was to enter into a legal relationship. The intention of the parties is ascertained from the
terms of the agreement or from the circumstances of the case. The test of intention of the parties
is not judged from the fact that what existed in the minds of the parties.
The intention of the parties is infact judged on the basis that what a reasonable man thinks
would have been the intention of the parties in the given circumstances. The point to consider
here is, that in some cases the intention of the parties may be expressely stated but in some cases
the intention when is not expressed clearly is to be understood from the circumstances of the
case.
I–10 Formation of a Contract

Expressed Intention of Parties : Where the parties to the contract expressely state what
actually is the intention to enter into the agreement, then in those situations the court uphelds
the intention so stated.
Example :
 In Rose and Frank Co. vs. Cromption & Bros. Ltd., the agreement between the parties to the
contract provided that, “That arrangement is not entered into ……… as a formal or legal agreement, and shall
not be subject to legal jurisdiction in the law courts ……… that it (the agreement) will be carried through by
the parties with mutual loyalty and friendly co-operation.”
In this particular case, one of the parties committed breach, but the other party could not bring any legal
action because it was expressely stated in the agreement that such agreement shall not be subject to any
legal consequences in the Court of Law.

Implied Intention of Parties : The intention of the parties in some situations can be implied
from the circumstances of the case as well.
Example :
 In Balfour vs. Balfour, the intention of the parties was impliedly understood to not to creating any
legal relationship between the parties.

ESSENTIAL ELEMENTS OF A VALID CONTRACT (U/S 10 of ICA, 1872)

Section 10 of Indian Contract Act, 1872 reads,
“All agreements are contracts if they are made by the free consent of the parties competent to contract,
for a lawful consideration and with a lawful object, and are not hereby expressely declared to be void.”
In simple words, all the essential elements of a valid contract must exist in an agreement so
as to construct a valid contract. The essentials as explained U/S 10 are as follows :

1. Legal Offer and Acceptance :

The primary essential of a valid contract is that one person shall make a lawful offer to the
other and the other shall accept the offer unconditionally. An offer when accepted shall give rise
to a promise [U/S 2(b)]. An offer must satisfy the essentials of a valid offer and similarly an
acceptance must be absolute or unconditional and should satisfy the essentials of a valid
acceptance [Refer Chapter 2 for detailed information on essentials of a valid offer and
acceptance]

2. Intention to create legal relationship :

Both the parties in an agreement must have a common intention to enter into a legal
relationship i.e. both the parties must have consensus that once they enter into a contract they
shall bind each other in a legal relationship. The basic purpose of a legal relationship is that in
case a party does not perform his/her part of obligation the other party can take a legal action.
Therefore, it is an essential element that the parties must mutually agree to bear the legal
consequences in case of a dispute arising between them somewhere in future.
Intention of the parties decides whether the agreement between the parties shall become
legally enforceable or not.
Formation of a Contract I–11

From the chart explained above, it becomes clear that in order to have legal backing by the
law, the parties must have a mutual intention of forming a legal relationship. In simple words,
the parties can take legal action against each other only when they entered into a legal
relationship.
The point to note is, that how is the intention of the parties ascertained by the Court of
Law ?
The Intention of the Parties is ascertained :
 From the terms of the agreement
 From the circumstances of the case
 The intention is judged from the fact that considering the terms of the agreement and
circumstances of the case what would have been the intention of a reasonable person.
As quoted earlier in “Balfour Vs. Balfour”, the intention of husband and wife was never to
enter into a legal relationship and therefore the agreement between them was not enforceable by
law.
This does not mean that all agreements between family members are unenforceable.
Example :
 A husband and wife withdrew their complaints under an agreement whereby the husband promised to
pay her an allowance and the wife agreed not to pledge his credit. The agreement was held to be a binding
and enforceable contract. Therefore all domestic or social agreements can also become enforceable by law if
the intention of the parties was to enter into a legal relationship.

3. Lawful Consideration :
Consideration means the benefit accruing to the parties in the contract. When two people
enter a contract, they have reciprocal benefits for each other i.e. one party gives something or
does something for the other and in return the second party also gives something or does
something for the first party. These benefits for both the parties are termed as consideration. In a
valid contract, there must exist consideration for both the parties. Agreements where
consideration does not exist for both the parties, never become enforceable by law.
“An agreement without consideration is a void agreement under section 25 of ICA, 1872.”
Section 23 of ICA, 1872 states, that the object and consideration of an agreement must be
lawful/legal. Object of the agreement is the purpose of forming the agreement whereas,
consideration is the benefit to both the parties. Both the object of the agreement and the
consideration of the agreement must be lawful for the enforceability of the agreement.
I–12 Formation of a Contract

Example :
 Chanderilal promises to obtain a government job for Gadha Prasad and in return Gadha Prasad
promises to pay Chanderilal ` 10 lacs. Such an agreement is void agreement U/S 23 of ICA as both
consideration and object of the agreement are illegal or unlawful.

Important points for Consideration :

 Consideration means “QUID PRO QUO” i.e. “Something in return”.
 Consideration can be anything ; money, goods, services and even a promise.
 Consideration may be given in past, present or future.
 An agreement without consideration is a void agreement U/S 25 of ICA, 1872
 Consideration must be lawful U/S 23 of ICA, 1872.

4. Competency of Parties :
The parties who intend to enter into a contract must be competent to do so. The competency
or personal capacity of the parties to enter into a contract is governed by Section 11 of the Indian
Contract Act, 1872. Section 11 states that the person willing to enter into a contract must
satisfy three conditions, namely :
(i) He must be a major (i.e. a person equivalent to 18 years of age or more than 18 years of
age)
(ii) He must be a person of sound mind.
(iii) He must not be disqualified from contracting by any law to which he is subject.
Section 11 has detailed the various disqualifications of parties due to which an agreement
may become void. If the party to the agreement is a person of eighteen years of age or more then
he is considered as a major (the age for being a major can be twenty one years in some cases,
refer chapter 4 for detailed information). A person of sound mind is a person who understands
logically the terms and conditions of the agreement (at the time of making the agreement) and
also logically understands the consequences of entering into such an agreement. Besides minors
and persons of unsound mind, a person may also be disqualified from entering into a contract
by some other law (besides ICA, 1872) to which he is subject, such as an insolvent is
incompetent to contract according to insolvency laws.
An agreement whereby the parties to the agreement are disqualified because of any of these
conditions, such an agreement is not enforceable by law. In other words, an agreement with a
minor is void-ab-initio (void since beginning), an agreement with a person of unsound mind and
with a person disqualified by any other law is also void agreement.

5. Free Consent :
Section 10 of the Indian Contract Act states that the consent of the parties to the contract
should always by free consent. The term consent means the willingness of the person. The term
consent has been defined U/S 13 of ICA, 1872 as follows :
Formation of a Contract I–13

“Two or more persons are said to consent when they agree upon the same thing in the same sense.”
In simple words, when both the parties have mutual consent i.e. when they agree upon the
same thing in the same sense, then the consent is called as consent-ad-idem.
Under Section 14, Consent of the parties is said to be free consent when it is not caused by
the following :
(a) Coercion – Consent obtained by physical threat.
(b) Undue Influence – Consent obtained by mental threat.
(c) Fraud – Consent obtained by intentionally deceiving the other.
(d) Misrepresentation – Consent obtained by un-intentionally deceiving the other.
(e) Mistake – Consent obtained by committing a mistake/error.
Therefore, there would exist flaw in consent whenever the consent is obtained by any of the
above stated reasons. [Also refer Chapter-5 for detailed information on Free Consent]
Therefore :
(i) To constitute a valid contract the consent of both the parties should exist in the
agreement, and
(ii) The consent of the parties should be free consent i.e. not obtained by coercion, undue
influence, fraud, misrepresentation and mistake.
(iii) A contract where the consent is obtained by coercion, undue influence, fraud and
misrepresentation is a Voidable Contract [Refer kinds of contracts explained later in
the chapter].
(iv) An agreement whose consent was obtained by mistake is a void agreement [Refer
kinds of contracts explained later in the chapter]

6. Lawful Object :
“Object” means the basic purpose of entering into the contract. Whenever two persons enter
into a contract there is a basic purpose of forming such a contract, which is called as the object of
the contract.
The object or purpose for which the contract is to be formed must be lawful in the eyes of
law. Under Section 23 of the ICA, 1872 both the object and consideration of the agreement, must
be lawful in order to make it an enforceable contract. The agreement, the object of which is
illegal or unlawful is called as an illegal agreement. All illegal agreements are void agreement
i.e. are not enforceable by law.

Example :
 A tenant takes a room on rent for doing smuggling. Such an agreement is an illegal agreement
because the object of the agreement is unlawful. Hence such an agreement is not enforceable by law.

Section 23 provides that the object and consideration is said to be unlawful when :
I–14 Formation of a Contract

(i) It is forbidden by law ; or

(ii) It is of such a nature that, if permitted, it would defeat the provisions of any law ; or
(iii) It is fraudulent ; or
(iv) It involves injury to the person or property of another ; or
(v) The court regards it as immoral or opposed to public policy [Refer Chapter 6 for
detailed information].

7. Certainity of Meaning :
Section 29 of ICA states that “agreement, the meaning of which is not certain, or capable of being
made certain, are void.”

The terms and conditions of the contract must be clear and must not be vague or abstract.
Where the meaning of the agreement is vague or uncertain and is not capable of being made
certain the agreement will be a void agreement.

Examples :
 An agreement to grant a lease was held to be an un-enforceable agreement because the date of
commencement of lease was neither expressly nor impliedly fixed by the parties. Such an agreement is an
uncertain agreement U/S 29, hence unenforceable.
 Sahib agreed to buy a flat in the building owned by a builder provided the builder, “decorated the flat as
per the present style.” Such an agreement was declared to be un-enforceable because the meaning of the
term “present style” could be construed in different sense, hence the meaning of the agreement was not
certain.

8. Possibility of Performance :
An agreement to do an act which is impossible in itself cannot be enforced by the Court of
Law. “Impossible in itself” means where the parties to an agreement agree upon to perform an
impossible act, the Court of Law cannot regard such promises as being enforceable. Therefore,
for making an agreement become a valid contract, the promises made by the both parties to each
other must be possible to perform.

Example :
 Jadugar Goga promises to discover treasure by magic for Santa Singh. Such an agreement to do an
impossible act is a void agreement.
[Also Refer Chapter 9 for detailed information on impossibility of performance.]

9. Legal Formalities :
As such, the Indian Contract Act does not itself lay down any formality requirements for a
contract, but the Act gives a legal sanction to all those formalities which may be prescribed by
some other law. The most common formality requirements include :
 requirement of having an agreement in writing ;
 requirement of having an agreement in prescribed form ;
 requirement of having an agreement attested ;
Formation of a Contract I–15

 requirement of having an agreement registered ;

 requirement of having paid any stamp duty.
Depending upon the nature of the contract and the law to which such a contract should
abide to the legal formalities need to be fulfilled. Such as, all oral contracts are enforceable
contracts unless required by any other law to be in writing. An oral contract although requires
clear and satisfactory evidence about formation and contents. Some examples of contracts that
should be in writing are :
(i) A negotiable instrument under Negotiable Instruments Act, 1881
(ii) A power of attorney under Powers of Attorney Act, 1882
(iii) A trust under Indian Trusts Act, 1882.
(iv) Any contract for sale of immovable property.
The point to note is that unless the legal formality required in a contract is fulfilled, it
shall not become enforceable by law. The only defect in such a contract is a technical defect,
which when cured shall make the unenforceable contract an enforceable valid contract.

10. Not declared to be Void :

The Indian Contract Act, 1872 has specifically declared some of the agreements to be void
agreements (i.e. agreements not enforceable by law) under Section 23 to Section 30 of the Act
namely :
(i) Unlawful agreement – Section 23 and Section 24
(ii) Agreements without consideration – Section 25
(iii) Agreements in restraint of marriage – Section 26
(iv) Agreements in restraint of trade – Section 27
(v) Agreements in restraint of legal proceedings – Section 28
(vi) Uncertain agreements – Section 29
(vii) Wagering agreements – Section 30
(viii) Agreements to do impossible acts – Section 56.
Where the parties to an agreement form any of such agreements stated above, then all such
agreements are already declared by the law to be void agreements, therefore no such agreement
can become an enforceable agreement.
All essentials must exist : In order to make an agreement a valid contract all ten (10)
essentials of a valid contract must be present in the agreement as stated U/S 10 of ICA, 1872.
Absence of even one of the ten essentials can make the agreement a void agreement and hence
unenforceable by law. This is the reason that we quote, “All contracts are agreements but all
agreements are not contracts” i.e. only those agreements which satisfy all the ten essentials of
a valid contract can become valid contracts.

From Examination Point of View 

Ques. 1. Differentiate between Voidable Contract and Void agreement.
Ques. 2. Differentiate between Voidable Contract and Void Contract.
I–16 Formation of a Contract

Ques. 3. Differentiate between Illegal Agreement and Void Agreement.

KINDS OF CONTRACTS
Now that we have understood in detail how a contract is formed and what all essentials
must be present in an agreement in order to make it a valid contract, so let us further
comprehend the classification of contracts. The contracts can be classified on the different basis.

(A) CONTRACTS ON THE BASIS OF FORMATION OF CONTRACTS

The contracts can be sub-classified into three categories on the basis of how they were
formed or incorporated.

(1) EXPRESS CONTRACTS :

An express contract is a contract which is expressed in words spoken or written U/S 9 of
ICA, 1872. Where the parties to the contract express (orally or in writing or online) the
intention to enter into a contract and then form the contract, such a contract is called an express
contract.

An express contract can be sub-divided as :

(a) Written Contract : Where the parties enter into a written contract and mutually agree
upon the terms and conditions of the contract, such a contract is said to be expressed in writing.
The ICA, 1872 has not made writing a requirement for forming a contract, although there are
some contracts which should be in writing, such as :
 The Memorandum of Association, the Articles of Association, transfer of shares and
debentures of a company – Under the Companies Act, 1956.
 Sale of immovable property
 Negotiable Instruments – Under Negotiable Instruments Act, 1881
 A power of attorney – Under Powers of Attorney Act, 1882
 A will – under the Indian Succession Act, 1925, etc.
(b) Oral Contracts : A contract can be expressed orally also and it will be enforceable by law.
Formation of a Contract I–17

An oral contract is legally enforceable of law unless required by any other law to be in writing
(such as examples quoted above where writing is a compulsion). But all oral contracts should
have a clear and satisfactory evidence about its formation and its contents.
(c) E-Commerce Contracts : Where the parties to the contract express their intention to enter
into a contract via internet, such contracts are called as E-Commerce contracts. All the
documents in electronic form are treated as equivalent of written contracts except the instances
of contracts where writing is a compulsion.

(2) IMPLIED CONTRACTS :

A contract which is not expressed in words (spoken or written) but is implied from the
circumstances of the case or the conduct i.e. behaviour of the parties or from the previous
dealing between the parties is known as implied contracts U/S 9 of ICA, 1872.
Where in an express contract, both the parties communicate with each other (either orally or
in writing), in an implied contract the contract is formed impliedly on the basis of either conduct
or behaviour of the parties or from circumstances of the case.

Examples :
 After eating food in a restaurant, it is implied to pay the bill. It is an implied contract.
 On boarding a bus, it is implied to buy ticket.
 Where a customer of a bank did not object to charging extra interest by the bank, it was implied that
the customer had accepted the changed rate of interest so levied.

(3) QUASI CONTRACTS OR CONSTRUCTIVE CONTRACTS : (U/S 68-72)

As the name suggests, a quasi or a constructive contract is a contract which is not formed by
the parties to the contract but is enforced on the parties to the contract by the Court of Law. In
other words, such a contract is not formed but is constructed by law, that is why it is called as
constructive contract.

Example :
 If some goods are delivered by mistake to a wrong person (who is not the owner of these goods) then
there forms a quasi contract between the person who is wrongfully delivered the goods and the true owner of
the goods. As per the contract, the person must return the goods to the true owner and in return the true
owner must compensate the other.

[Also Refer Chapter-10 for detailed information on quasi contracts]

(B) CONTRACTS ON THE BASIS OF PERFORMANCE OF CONTRACTS

Performance of the contract decides the completion of the contract. On the basis of
performance of contracts, a contract can be called as executed (complete in performance)
contract or an executory contract (incomplete in performance).

(1) EXECUTED CONTRACTS :

I–18 Formation of a Contract

In a contract both the parties promise to each other to act or to perform their part of the
obligation. Where an act is exchanged for another act, it is an executed contract. In simple
words, where both the parties perform their promise, the contract is said to complete or
executed.
(2) EXECUTORY CONTRACTS :
(i) Where both the parties do not perform their part of obligation, i.e. a contract where a
promise is exchanged for another promise, such a contract is called as bi-lateral
executory contract.
(ii) Where one party has performed but the other party did not perform i.e. where an act is
exchanged for a promise, such a contract is called as Unilateral executory contract.

Examples :
 Joy entered into a contract with a painter for getting her picture painted and in return pay the painter
` 5,000/-
 Option First : The painter painted the picture and Joy paid him ` 5,000/-. It is an executed contract.
 Option Second : The painter did not paint the picture and Joy did not pay him ` 5,000/-. It is a bilateral
executory contract.
 Option Third : The painter painted the picture but Joy did not pay him ` 5,000/-. It is an unilateral
executory contract.

(C) STANDARD FORM CONTRACTS

In a standard form contracts, the terms of the contract are pre-drafted by one of the parties
and the other party has just to sign it for acceptance (without having any opportunity or time to
get the terms changed). In a such a contract the terms and conditions of the contract are not
settled by the process of negotiation between the parties. In view of the unequal bargaining
power of the two parties, the law has evolved certain rules to protect the interest of the weaker
party, such as :
 There should be a contractual document.
 There should be no misrepresentation.
 There should be sufficient notice to draw the attention of the party to the terms and
conditions of the contract (such as by printing on the ticket, “For conditions see back”.)
 The terms of the contract should be reasonable.

Few examples of Standard Form Contracts :

(i) A draft prepared by Insurance Company for Insurance Policy.
(ii) Terms & conditions printed on a Railway Ticket for passengers.
(iii) Terms & conditions printed on a receipt issued by a dry cleaner.
(iv) The admission form seeking admission to schools, colleges, universities etc.

(D) CONTRACTS ON THE BASIS OF VALIDITY OF CONTRACTS

Formation of a Contract I–19

Whether an agreement becomes enforceable by law depends entirely on its validity in the
eyes of the law. The contracts can therefore be classified on the basis of validity as below :

(1) VALID CONTRACTS : U/S 2(h) of ICA, 1872

“An agreement enforceable by law is a valid contract.”
Therefore an agreement which satisfies all the essentials (U/S 10 of ICA, 1872) of a valid
contract becomes enforceable by law and thus is called a valid contract.

(2) VOID AGREEMENTS : U/S 2(g) of ICA, 1872

“An agreement not enforceable by law is a void agreement.”
An agreement which does not fulfill all the ten essentials of a valid contract, can become a
void agreement because of the lack of any of those essentials.
Such as :
 An agreement without consideration is void.
 An agreement with minor is void.
 An agreement whose meaning is uncertain is void.
 A wagering agreement is void.
[Refer Chapter-6 for detailed information on Void Agreements]

(3) ILLEGAL AGREEMENTS :

An agreement the object or purpose of which is unlawful is called an illegal agreement. All
illegal agreements are not enforceable by law because of their illegal purpose and therefore all
illegal agreements become void agreements.

Examples :
 An agreement to commit any crime.
 An agreement that gives rise to corruption.
 An agreement to perform an immoral act.
[Refer Chapter 6 for detailed information on Illegal Agreements]

(4) VOID CONTRACTS : U/S 2 (j) of ICA, 1872

“A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”
A void contract is a contract :
 Which was a valid contract when formed,
 But because of the supervening impossibility of performance,
 Today it has become impossible to perform, hence void.
In simple words, if a contract becomes impossible to perform without the fault of the
promisor but because of some later event that is outside the control of the promisor, then such a
contract becomes a void contract.
I–20 Formation of a Contract

The performance in a void contract may be excused due to :

(i) Performance is rendered impossible by any change of law.
(ii) Performance is rendered impossible because of destruction of subject matter.
(iii) Performance is rendered impossible because of death of a party.
[Refer Chapter 9 for detailed information]
Examples :
 X entered into a contract with a painter for getting his picture painted & paying ` 10,000 in return. The
painter died before performing the contract. Held it is a void contract.
 Ram from India entered into a contract for sale of wheat worth ` 50,000 to Mohammad of Pakistan.
Before the contract could be performed, a war broke off between India and Pakistan. Held the contract
became void.

(5) VOIDABLE CONTRACT : U/S 2 (i) of ICA, 1872

“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.”
Let us understand the meaning of the term ‘Voidable Contract’ in form of a story :
(i) In a contract, where consent of one of the parties was not free. (because consent was
obtained by coercion, undue influence, fraud or mis-representation)
(ii) Such party (whose consent was not free) is called as an aggrieved party or an innocent
party.
(iii) The aggrieved party has two options : either it may continue with the same contract i.e.
affirm it (accept it) or it may avoid the contract.
(iv) If the aggrieved party affirms the contract, then the contract becomes enforceable i.e. it
becomes a valid contract.
(v) But if the aggrieved party wants to avoid the contract (by proving that his or her
consent obtained was not free) then it may avoid it. In such a case, the contract would
become a voidable contract which can only be avoided by one of the parties (i.e. by the
aggrieved party).
(vi) Once the aggrieved party avoids the contract, then the parties to the contract are
restored to their original positions i.e. if a party suffered losses, then these losses have
to be compensated and if a party had some benefits then these benefits have to be
returned back.
Example :
 Mukul threatened to kill Raghav if Raghav did not agree to sell his house (worth ` 2 crores) for ` 20
lakhs only. Being threatened, Raghav entered into the contract. Later Raghav filed a case against Mukul to
cancel the contract on the grounds of coercion (physical threat). Held, Raghav can avoid this contract as it is
voidable at the option of only aggrieved party (Raghav).

(6) UN-ENFORCEABLE CONTRACTS :

An un-enforceable contract is a contract which is not enforceable by law because of some
Formation of a Contract I–21

technical defect existing in it. Once that defect is cured, the contract becomes enforceable by law.
Like, some contracts should be duly registered as required U/S 17 of the Indian Registration Act
XVI of 1908. If such a contract is formed without registration, it would be called as un-
enforceable contract until it is registered. Once it is registered, it shall become a valid enforceable
contract. Similarly, some contracts must be duly stamped after payment of, stamp duty. If such
contracts are formed without stamp duty, they will not be enforceable unless stamped.

DISTINCTION BETWEEN AGREEMENT AND CONTRACT

Basis Contract Agreement

1. Meaning “An agreement unforceable by law “Every promise and every set of
is a contract” –U/S 2(h) of ICA, promises, forming consideration
1872 for each other is an agreement.” –
U/S 2(e) of ICA, 1872.

2. Legal A contract is capable of being An agreement cannot be enforced

enforceability enforceable by law. by law.

3. Intention of parties In a contract both the parties have a The intention of the parties is not to
common intention to enter into a form a legal relationship in an
legal relationship. agreement.

4. Consequences of If a party commits breach of An agreement does not give rise to

Breach contract, the other party can sue. any legal protection in case of a
breach.

5. Kinds There are many kinds of contract An agreement can be broadly

on the basis of formation (express, classified into enforceable
implied, quasi), on the basis of agreements (which are called as
performance (executed and contracts) and un-enforceable
executory) and on the basis of agreements (such as void, social
validity. and domestic agreements)

6. Essentials of valid A contract consists of all ten An agreement lacks one or more
contract U/S 10 of essentials of a valid contract U/S 10 essentials of a valid contract, that is
ICA, 1872 of ICA, 1872 why it is not enforceable by law.

7. Effect of In case of insolvency of a party, the An agreement is devoid of any

Insolvency contract has to be performed by the legal protection to the innocent
official receiver/official assignee on party for insolvency of the other
behalf of the insolvent party. party.

8. Scope All contracts are agreements hence All agreements may not become
the term contract is a wider term. contracts. Agreement is a narrow
term.

9. Constituents A contract constitutes all ten An offer when accepted becomes a

I–22 Formation of a Contract

essentials of a valid contract U/S 10 promise. And an agreement is only

of ICA, 1872 namely ; offer, exchange of reciprocal promises
acceptance, promise, agreement, between the parties.
consideration, capacity of parties,
free consent, etc.

10. Example Joy agreed to teach on ad-hoc basis Joy agreed to teach on ad-hoc basis
in XYZ college for a monthly salary in XYZ college for a monthly salary
of ` 20,000. The XYZ college duly of ` 20,000. The XYZ college
appointed her for the session 2002- appointed her for the session 2002-
2003 with an appointment letter but 2003 but did not issue any
later denied to pay her salary. Joy appointment letter for the same.
sued the XYZ college for salary and After teaching for almost 3 months,
compensation as well. Held, the she filed a case against XYZ college
XYZ college was liable for salary for non-payment of salary to her.
and compensation as it was a valid Held, Joy could not sue XYZ
contract between Joy and XYZ college because the agreement
college. between XYZ college and Joy was
devoid of legal consequences and
hence not enforceable by law. The
prime reason for non-enforceability
of this agreement was lack of any
proof of legal enforceability.

DISTINCTION BETWEEN VOIDABLE CONTRACT AND VOID AGREEMENT

Basis of Distinction Voidable Contract Void Agreement

1. Definition U/S 2(i) of ICA, 1872 “An U/S 2(g) of ICA, 1872, “an
agreement which is enforceable by agreement not enforceable by law is
law at the option of one of the a void agreement.”
parties, but not at option of the
other is a voidable contract.”
2. Reason A contract becomes voidable when An agreement may become void
the consent of one of the parties is due to many reasons such as ; an
not free mainly because of agreement with an incompetent
Coercion, Fraud, Misrepre- person, an agreement without
sentation and Undue Influence. consideration, an agreement in
restraint of marriage, etc.

3. Validity A voidable contract is a valid & A void agreement is unenforceable

enforceable contract unless it is & invalid since its inception i.e.
avoided by the aggrieved party. from the very beginning.
4. Remedies The aggrieved party can obtain the In a void agreement no remedy is
following remedies : available as the agreement was
(i) Cancellation/Rescission of never enforceable by law.
Formation of a Contract I–23

Contract
(ii) Restitution i.e. to restore the
benefits (if any) and to compensate
the losses.
5. Right of the third In case a party transfers the goods In a void agreement there is no
parties (under a voidable contract) to a question of any rights of a third
third party, then in such a case the party because such an agreement is
third party shall lawfully, acquire void since beginning.
those rights.
6. Legal A voidable contract shall have A void agreement never results into
Consequences legal consequences when the any legal consequences because it is
aggrieved party exercises his/her never enforceable by law.
option to affirm the contract. If the
aggrieved party exercises the
option to avoid the contract, then
the contract comes to an end.
7. Example A commits fraud with Z and Joy agrees to donate ` 50,000 to a
acquires his property rights. Z can temple without obtaining any
avoid the contract by proving that consideration in return. Later Joy
his consent in the contract was denied to pay ` 50,000. Held the
obtained by fraud. It is a voidable temple authorities cannot enforce
contract. the agreement because there was no
consideration for Joy & an agree-
ment without consideration is void.
DISTINCTION BETWEEN VOID CONTRACT AND VOIDABLE CONTRACT
Basis of Distinction Void Contract Voidable Contract
1. Meaning A contract which was an A contract which can be avoided
enforceable contract when entered by the party whose consent was
into, but due to some supervening not free in a contract is called as
impossibility of performance, today voidable contract.
it has become impossible to
perform & hence void.
2. Reason A contract becomes void, due to A contract becomes a voidable
some subsequent event that contract when the consent of the
renders the performance of contract party is not free due to coercion,
impossible to perform i.e. due to undue influence, misrepresentation
supervening impossibility of or fraud.
performance.
3. Point of Un- A void contract becomes un- A voidable contract becomes un-
enforceability enforceable by law on the enforceable by law when the
occurrence of that event which aggrieved party exercises the
makes the performance impossible. option to avoid/cancel the
contract.
I–24 Formation of a Contract

4. Remedies The innocent party can bring about The remedies available for a
the claim for “Quantum Meruit” voidable contract are :
remedy. Quantum meruit means to (i) Rescission of contract
claim the remuneration for the
(ii) Restitution
work so done in a contract which
has now become void. [Refer [Refer distinction between voidable
Chapter-10 for detailed information contract and void agreement]
on Quantum Meruit]
5. Rights of third A third party cannot acquire any A third party can acquire rights in
parties right in a contract that has become a voidable contract.
void.
6. Legal Effects A void contract is a nullity and A voidable contract shall have full
therefore it gives rise to no legal and proper legal rights & effects
rights from the time when such a until it is set aside (avoided) by the
contract becomes void. aggrieved party.
7. Example Ranbaxy and Cipla entered into a A threats to kill B’s wife if he does
contract for sale of opium for not sell his land at extra ordinary
manufacturing medicines. It was a cheaper rates. Held such a contract
valid contract. But later the law can be avoided by B on the plea
changed and no two that his consent was obtained by
pharmaceutical companies were physical threat i.e. coercion.
allowed to buy and sell any drug.
Held the contract became void due
to change of law.

DISTINCTION BETWEEN VOID AGREEMENT AND ILLEGAL AGREEMENT

Basis of Void Agreement Illegal Agreement
Distinction
1. Definition U/S 2(g) of ICA, 1872, “An An illegal agreement is an agreement
agreement not enforceable by law the object of which is unlawful.
is void. agreement”
2. Reason An agreement may become void An illegal agreement becomes illegal
due to many reasons such as ; an only when the object of the agreement
agreement with an incompetent is not legal i.e. unlawful.
person, an agreement without
consideration, an agreement in
restraint of trade, etc.
3. Governing Sections 23 and 30 of ICA, 1872 Sections 23 and 24 of ICA, 1872 state
Sections have specifically stated the void about illegal agreements.
agreements.
4. Scope The scope of void agreement is All illegal agreements are void
wider than illegal agreement. agreements. But all void agreements
Infact, illegal agreement is a kind are not illegal agreements.
Formation of a Contract I–25

of void agreement.
5. Punishment for A void agreement may not always The parties to an illegal agreement are
parties result into legal punishment for liable to punishment by law.
parties to the contract.
6. Effect on Transactions collateral to void Transactions collateral to illegal
Collateral agreements are enforceable by law. agreements are also tainted with
Transactions illegality and hence are devoid of legal
enforceability.
7. Example  An agreement without  A tenant rented an apartment for
consideration is void–U/S 25. carrying out smuggling is an
 An agreement with a minor is illegal agreement.
void–U/S 11.  Committing a crime.

DIFFERENCE BETWEEN VOID CONTRACT AND VOID AGREEMENT

Basis of Void Contract Void Agreement
Distinction
1. Meaning A contract which was an U/S 2(g) of ICA, 1872, “An agreement
enforceable contract when entered not enforceable by law is a void
into, but due to some supervening agreement.”
impossibility of performance,
today it has become impossible to
perform & hence is void.
2. Reason A contract becomes void due to An agreement may become void due
some subsequent event that to many reasons such as ; an
renders the performance of agreement with an incompetent
contract impossible to perform i.e. person, etc.
due to supervening impossibility
of performance.
3. Enforceability A void contract becomes A void agreement is unenforceable
unenforceable by law on the since beginning e.g. if a person forms
occurrence of that event which an agreement with a minor, it is
makes the performance impossible. unenforceable since its formation.
4. Remedies The innocent party can bring about There are no remedies when an
the claim for Quantum Meruit agreement is void.
remedy.
5. Example  A contract between residents of  An agreement without consideration
two countries becomes void when is void U/S 25.
war is declared between these two  An agreement with a minor is void
countries. U/S 11.
I–26 Formation of a Contract

SHORT QUESTIONS
1. Define the term Contract.
2. Explain the following :
(a) Legal enforceability (b) Free Consent
(c) Consideration (d) Capacity of Parties
(e) Social Agreement (f) Domestic Agreement
(g) Void Agreement (h) Valid Contract
3. Can all agreements become valid contracts ?
4. Differentiate between the following :
(a) Void Agreement and Illegal Agreement
(b) Void Contract and Voidable Contract
(c) Void Agreement and Voidable Contract
(d) Rights in Rem and Rights in Personam
5. What is a Promise ?
6. What are reciprocal promises ?
7. Define the following :
(a) Express Contract (b) Implied Contract
(c) Executed Contract (d) Unforceable Contract
(e) Quasi Contract (f) Standard form Contract
(g) Illegal Agreement (h) Executory Contract
8. Can a social agreement become enforceable by law ?
9. What is the difference between legality of object and legality of consideration ?
10. Distinguish between void agreement and void contract. (Dec. 2014)

LONG QUESTIONS
1. “All contracts are agreements but all agreements are not contracts.” Discuss the statement. (Dec. 2014)
2. Define the term Contract. Also explain the essentials of a valid contract.
3. What tests are applied to ascertain whether an agreement is a contract or not ?
4. “In commercial and business agreements, the presumption is that the parties intend to create a legal
relationship.” Discuss.
5. Discuss the relevance of intention of parties in forming the contract. Can intention of parties be
presumed from the circumstances of the case ?
6. “The benchmark case on Balfour Vs. Balfour 1919 earmarked the significance of intention of the
parties to enter into a legal relationship.” Discuss the statement.
7. Discuss in detail the kinds of contracts.
8. What are the essential ingredients required in the formation of a valid contract ?
9. Is there a difference between contract and agreement ? Explain in detail.
Formation of a Contract I–27

1. A fire broke out in the defendant’s farm. He believed that he was entitled to the free services of Upton
Fire Brigade and, therefore, summoned it. The Brigade put out the fire. It then turned out that the
defendant’s farm was not within free service zone of the Upton, which therefore, claimed
compensation for the services. Discuss the case.
[Hint : The defendant wanted the services of Upton ; he asked for the services of Upton and Upton, in
response to that request, provided the services. Hence the services were rendered on an implied
promise to pay for them.]
2. The customer of a bank did not object to the charge of a compound rate of interest. Was the customer
liable ?
[Hint : The customer was held to have implied acceptance, hence liable.]
3. A divorced woman was living in Washington with her son where she was employed as an assistant
accountant in the Indian Embassy on attractive terms. Her mother was in Trinidad and wished her
daughter to be near her. She was particularly attached to the grandson. The mother persuaded her
daughter, much against her will, to leave service, to take legal education in England and finally to
come back to Trinidad as practising lawyer. The mother undertook to foot the expenses.
Subsequently, the mother bought a house in England part of which was allowed to the daughter and
rest tenanted out. For five long years the daughter could not complete her education. She also
remarried in the meantime. Differences arose between them and the mother stopped payments and
also commenced proceedings to evict the daughter. Did the agreement result into a valid contract ?
[Hint : Yes, it was a valid contract.]
4. The mere opening of a joint banking account between a man and his wife and the man promising to
buy her a car in an effort to improve their strained matrimonial relationship. Did the agreement result
into any legal relationship ?
[Hint : Held, it was purely domestic agreement did not result into any legal relationship.]
5. Over a cup of coffee in a restaurant, A invites B to a dinner at his house on a Sunday. B hires a taxi
and reaches A’s house at the appointed time, but A fails to perform his promise. Can B recover any
damages from A ?
[Hint :No, it was a social agreement not enforceable by law.]
6. State whether there is any contract in the following cases :
(a) A engages B for a certain work and promises to pay such remuneration as shall be fixed by C. B
does the work.
(b) A and B promise to marry each other.
(c) A takes a seat in a public vehicle.
(d) A invites B to a card party. B accepts the invitation.
[Hints : (a) There is a contract between A and B and A is bound to pay the remuneration as shall be
fixed by C. If C does not fix, or refuses to fix the remuneration, A is bound to pay a reasonable
remuneration. (b) and (c) There is a contract between A and B. (d) There is no contract, it is only a
social agreement.]
7. C orally offered to pay A, an auto mechanic, ` 50 for testing a used car which C was about to purchase
from D. A agreed and tested the car. C paid A ` 50 in cash for his services. Is the agreement between C
and A (a) express or implied, (b) executed or executory, (c) valid, void, voidable or unforceable ?
[Hint : The agreement is (a) express, (b) executed, and (c) valid]
8. A promises to pay B ` 500 if he (B) beats C. B beats C, but A refuses to pay. Can B recover the amount?
I–28 Formation of a Contract

[Hint : No as the agreement is illegal.]

9. D lived as a paying boarder with a family. He agreed with the members of the family to share prize
money of a newspaper competition. The entry sent by D won a prize of £750. He refused to share the
amount won. Can the members of the family recover their share ?
[Hint : Yes, as there was a “mutuality in the agreement between the parties” and the parties had
intended to be bound.]
10. Mohan polished Mr. Ram Prasad’s shoes without using aspect to do so. Mr. Ram did not make any
attempt to stop Mohan from polishing his shoes. Can Mohan make Mr. Ram liable for payment for his
services.
[Hint : Mr. Ram is liable to pay because he accepted Mohan’s Implied offer by not stopping him from
polishing his shoes.]
11. A agrees to pay ` 50,000 to B if B kills C. To pay to B, A borrows ` 50,000 from D who is also aware of
the purpose of loan. B kills C but A refuses to pay. A also refuses to repay the loan to D. Advise B &
D.
[Hint : The agreement between A & B is an illegal agreement because its object is unlawful. Hence B
cannot recover anything from A. Since main agreement between A & B is illegal, the agreement
between A & D which is collateral to main agreement is also void & hence D cannot recover anything
from A.]
12. A spiritual guru promised a disciple that he would get her dead mother to life, if the disciple paid
him ` 1 crore. Is the contract valid?
[Hint: No, the agreement is impossible to perform, hence is void agreement.]
13. Mrs. & Mr. Gupta went to a restaurant and enjoyed the buffet served there. Later they denied the
payment of the food, on the plea that they never placed an order for food, hence there was neither
express nor implied contract. Discuss.
[Hint: They have to pay, eating food served in buffet is itself an implied contract.]

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