CONTRACT – It is an agreement enforceable by law.

FORMATION OF CONTRACT
 It requires atleast 2 parties – Offeror/Promisor and Offeree/Promisee
 It starts with a proposal/offer.
Offer + Acceptance = Promise
Promise + Consideration = Agreement
Agreement + Enforceable by law = CONTRACT
[Note – All contracts are agreements but all agreements are not contract. For an agreement to
become contract, legal enforceability and legal obligation is required.]

PROPOSAL/OFFER
One person (Promisor)  Signifies (communication)  his willingness (intention to create legal
relationship)  to do/to abstain from doing anything  In order to obtain assent (consent)  of
other person (Promisee)  Such person is making a proposal.
ACCEPTANCE
When the person to whom the proposal/offer is made (Offeree)  signifies his assent to such
proposal (communication)  Proposal is said to be accepted.
A proposal, when accepted, becomes a PROMISE.

KINDS OF OFFER
(1) General Offer – The offer is made to the public at large/world at large.
(2) Specific Offer/Particular Offer – When an offer is made to a particular or specific person,
it is called as specific offer.
(3) Counter Offer – When a person to whom the proposal is made does not accept the offer
rather he makes another offer, he is said to make a counter offer.
(4) Cross Offer – When two persons make same/identical offers at the same time
(simultaneously) to each other without knowing that the other party has made the same
offer, it is cross offer. In this no party accepts the offer.
(5) Invitation to Offer – It means you are inviting a person to make an offer. Response to
invitation to offer would be an offer.
E.g., Quotation of price, Auction, Tender, Catalogue in a book shop, Display of articles,
Restaurant menu card, Voluntarily Retirement Scheme.

COMMUNICATION WHEN COMPLETE

(1) OF OFFER – It is complete when it comes to the knowledge of the person to whom it is
made. (Knowledge of offeree)

(2) OF ACCEPTANCE
 Against the proposer – When letter of acceptance is posted in course of transmission
and out of power of the acceptor. (It binds the proposer and now proposer cannot
revoke his offer).
 Against the acceptor – When it comes to the knowledge of proposer. (It binds the
acceptor and now acceptor cannot revoke his acceptance).
(3) OF REVOCATION
- Revocation of offer (by offeror) can be done at any time before the letter of acceptance
is posted by acceptor.
- Revocation of acceptance (by acceptor) can be done at any time before letter of
acceptance comes to the knowledge of offeror.
 PLACE WHERE CONTRACT GETS CONCLUDED
POSTAL RULE INSTANTANEOUS RULE
 When contract is made through post,  When contract is made through phone,
letter etc. text etc.
 Inter-absentees rule (Parties not in each  Inter-presentees rule
other presence)
Rule – Place where acceptance is
Rule – Place from where the acceptance is heard/received.
posted or sent.

ESSENTIALS OF A VALID CONTRACT

1) Competent Parties
2) Free Consent
3) Lawful Consideration
4) Lawful Object
5) Not declared to be void.

COMPETENT PARTIES
(a) Age of majority – Completing the age of 18 years.

(b) Sound Mind – Capable of understanding the terms & conditions of contract AND Capable
of making a rational judgment to his interest.
[Note – Sound mind has to be always seen “at the time of making of contract”. Not
concerned with before or after making of contract.]

(c) Persons disqualified by law – Alien enemy, Convicts, Insolvents, Foreign ambassadors and
representatives.

Q) Position of minor in contract

A minor is incompetent to enter into a contract. A contract with a minor is VOID AB INITIO.
In case of necessaries supplied to a minor or person of unsound mind – Recovery can be made only
from his property/estate.

FREE CONSENT
 Meaning of ‘consent’ – Two or more persons are said to be consent when they “agree” upon
the “same thing” in the “same sense” (Consensus ad idem – Meeting of minds).

Free Consent – Consent is free when it is not caused by: –

 Coercion
 Undue Influence
 Fraud
 Misrepresentation
 Mistake

VOIDABLE – It means aggrieved party has option to make the contract void or to enforce it.
 (1) COERCION
 Committing or threatening to commit any act forbidden by IPC/BNS or
 Unlawful detaining or threatening to detain any property,
with the intention of causing any person to enter into an agreement, amounts to coercion.
Effect – VOIDABLE

(2) UNDUE INFLUENCE

In this, one party is in a position “to dominate the will of the other” AND such person uses his
dominant position to obtain an “unfair advantage” over the other.
Note – A person is deemed to be in a position to dominate the will of another in following cases: -
(a) Fiduciary relation (Relation based on active trust and confidence. E.g., Advocate-Client,
Spiritual Guru-Disciple, Doctor-Patient etc.)
(b) Real or Apparent Authority (Judge-Accused, Police-Accused etc)
(c) Mental Distress (Mental capacity is temporarily or permanently affected by old age, body
illness) E.g., Old bedridden lady-Caretaker.
Effect – VOIDABLE

(3) FRAUD
Fraud means intentional misrepresentation of facts. It involves elements of deceive or cheat.
(a) Suggestion Falsi – Suggesting a false thing/fact which is not true.
(b) Suppressio Veri – Suppressing the truth. Active concealment of fact.
(c) Promise made without any intention of performing it.
(d) Any other fact fitted to deceive.
(e) Any such act or omission which is declared by law to be fraudulent.
Effect - VOIDABLE
NOTE – Mere silence is no fraud. However, silence may become deceptive when the person
keeping silence is under a duty to speak and to disclose all material facts.

(4) MISREPRESENTATIO
It means misstatement of a fact material to the contract without any intention to deceive.
Effect – VOIDABLE

(5) MISTAKE
It is of two types: - Mistake of fact and Mistake of law
(a) Mistake of law
 Mistake of Indian law – NOT VOIDABLE
 Mistake of Foreign law – Same effect as a mistake of fact
(b) Mistake of fact
 Bilateral Mistake – Both the parties are at mistake – VOID
 Unilateral Mistake – Only one party is at mistake – NOT VOIDABLE

LAWFUL CONSIDERATION & LAWFUL OBJECT

In the following cases, the consideration or object of an agreement is unlawful: -
(a) If it is forbidden by law
(b) If it would defeat the provisions of any law
(c) If it is fraudulent
(d) If it involves injury to person or property of another
(e) If Court regards it as immoral or opposed to public policy
Effect – Every agreement of which the object or consideration is unlawful is VOID.
VOID AGREEMENTS – Following agreements are void: -
(a) Agreement without consideration
(b) Agreement in restraint of marriage
(c) Agreement in restraint of trade
(d) Agreement in restraint of legal proceedings
(e) Uncertain agreement

Restraint of marriage – Every agreement in restraint of marriage of any person is VOID.

Restraint can be total or partial - in both the cases – VOID.

Restraint of Trade – Every agreement by which any one is restrained from exercising a lawful
profession, trade or business of any kind, is VOID.
 Exception – Sale of Goodwill (Restriction can be there), Protection of Trade
Secret/Confidential Information agreement.

Restraint of Legal Proceedings – Every agreement purporting to oust the jurisdiction of the courts
is VOID.
 Note – (1) Only absolute restraint is VOID. Partial restraint is valid provided court has
jurisdiction to entertain such case. (Where 2 or more courts have jurisdiction to try a case,
agreement between the parties to choose one court is valid).
(2) Parties by agreement cannot confer jurisdiction on a court which it does not possess.

Uncertain Agreements – Agreements, the meaning of which is not certain or capable of being
made certain, are VOID. (Words & meaning of the agreement must be clear, definite and
unambiguous).

CONTINGENT CONTRACT – Contract that depends upon happening or non-happening of an

event.
Nature of event – (1) Future event (2) Uncertain event (3) Parties have no control over the event.
Effect – VALID

WAGERING AGREEMENT – Agreement in nature of bet or risk is VOID.

Essentials – (1) Future & Uncertain event (2) Parties have no control over the event. (3) Parties
interest – either to win or lose (no other interest involved) (4) Mutual chance of winning or losing.
Exceptions – (a) Horse Racing – whose winning amount is Rs 500 or more (b) State lottery.
Game of Chance/Luck Game of Skill
Games in which chance or luck is involved, it is Games in which skill/mind/intellect is involved,
wagering agreement and VOID in nature. it is valid. E.g., Crossword puzzle

CONSIDERATION – It is price of the promise. Quid pro quo – something in return. It must move
from the promisor. As per Contract law, act, abstinence, promise or money can be consideration for
a promise.
[Note – An agreement without consideration is VOID.]
Kinds of consideration – PAST (has done or abstained from doing), PRESENT (does or abstains
from doing), FUTURE (promises to do or to abstain from doing).
Consideration should be ‘something’ – (a) It must have some value in the eyes of law (b) It must be
real and not illusory (c) Inadequacy is immaterial.
Exceptions (Agreement w/o consideration is VALID) –
(1) Natural love and affection – written & registered – b/w near relatives.
(2) Past voluntary services
(3) Time barred debt
PRIVITY OF CONTRACT – It means a stranger to a contract cannot sue. A contract is a contract
b/w the parties’ only and no third party can sue upon it or can enforce it.
Exceptions – Beneficiaries (for benefit of a third party)

BREACH OF CONTRACT – Remedies are Damages/Compensation, Specific Performance and

Injunction.
When a contract is broken, the aggrieved party is entitled for compensation for any loss or damage
caused to him, which naturally arose in the usual course of things.
Such compensation is not to be given for any remote and indirect loss or damage due to such
breach. [Act/Cause ---- DIRECT NEXUS ---- Consequence/Effect].

INDEMNITY CONTRACT
Indemnity means protection or security against loss. In this contract, one party promises to save the
other from loss caused to him.
Parties: Indemnifier – One who saves from loss or gives protection, Indemnity Holder – One for
whose loss protection is given.
Loss – It must be loss by conduct of human agency only.

GUARANTEE CONTRACT
It is a contract to perform the promise of a third person or to discharge the liability of a third person,
in case of his default.
Parties: There are 3 parties (Surety – Person who gives the guarantee, Principal Debtor – Person
in respect of whose default the guarantee is given, Creditor – Person to whom the guarantee is
given.)

BAILMENT CONTRACT
It is a contract in which delivery of goods by one person to another for some specific purpose, upon
a contract that these goods are to be returned when the specific purpose is complete.

Parties: Bailor - The person who delivers the goods, Bailee - The person who receives the goods.
For example, A delivering his car for service at the service center is an example of bailment.

Essentials – (1) Delivery of Possession (2) Delivery should be upon contract (3) Delivery should be
upon same purpose.