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All contracts are agreements but all agreements are

not contracts.
A contract is a legally binding agreement or relationship that exists between two or more parties to do or
abstain from performing certain acts. There must be offer and acceptance for a contract to be formed. An offer
must backed by acceptance of which there must be consideration. Both parties involved must intend to create
legal relation on a lawful matter which must be entered into freely and should be possible to perform.

Definition of contract
According to section 2(h) of the Contract Act 1872:
An agreement enforceable by law is a contract.
A contract therefore, is an agreement the which creates a legal obligation i.e., a duty enforceable by law.
From the above definition, we find that a contract essentially consists of two elements:
(1) An agreement and
(2) Legal obligation i.e., a duty enforceable by law.

An agreement is a form of cross reference between different parties, which may be written, oral and lies
upon the honor of the parties for its fulfillment rather than being in any way enforceable.

An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other
party and that other party signifies his assent thereto.
All agreements are not contracts
As stated above, an agreement to become a contract must give rise to a legal obligation. If an agreement is
incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a
Agreements of moral, religious or social nature e.g., a promise to lunch together at a friends house or to
take a walk together are not contracts because they are not likely to create a duty enforceable by law for the
simple reason that the parties never intended that they should be attended by legal consequences.

According to section 10 of the contract act 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 not hereby
declared to be void.
Thus an agreement becomes a contract when at least the following conditions are satisfied.
1-free consent
2-competency of the parties
3-lawful consideration
4- lawful object.


"When one person signifies to another his willingness to do or to abstain from doing anything with a view to
obtaining the assent of that other person to such act or abstinence, he is said to make a proposal."

The person making the proposal is called the 'offeror' or 'promisor'. The person to whom the offer is made is
called the 'offeree' or 'promisee'.

Offer and Acceptance

A offers to sell his scooter to B for Rs. 5,000. This is a proposal. A is the offeror or promisor and B is the

Legal Rules Regarding Offer :

An offer to be valid must comply with the following rules:

1. Offer may be express or implied:

An offer may be express or may be implied from the conduct of the parties or circumstances of the case.

Implied Offer - An implied offer is not made by words spoken or written. It is implied from the conduct of the
parties or from the circumstances.

2. Offer may be specific or general:

A specific offer is one which is made to a particular person. It can be accepted by the person to whom it has
been made, no one else can accept such an offer.

A general offer is made to the world at large. Therefore, it can be accepted by any person..

3. Offer must give rise to legal obligation:

An offer to be valid must create legal relationship between the parties. The very purpose of entering into an
agreement is to make it enforceable at a Court of law. If the offer has not been made with this intention it will
not become a contract even if it is accepted by the party to whom it was made.

4. Terms of an offer must be definite and certain:

The terms of an offer should not be vague or indefinite.

5. Offer must be distinguished from an invitation to offer:

An offer must be distinguished from an invitation to offer. The shopkeepers generally display their goods in
showcases with price tags. The shopkeeper in such cases is not making an offer so that you can accept it. He is,
on the other hand, inviting you to make an offer which he may or may not accept. Thus you cannot compel a
shopkeeper to sell the goods displayed in the showcase at the marked price. However, if there is specific law to
sell goods at marked price then the seller will have to sell at marked price. For example, during National
Emergency essential commodities like sugar etc. have to be sold at marked price.

6. Offer must be distinguished from a mere declaration of intention:

A declaration of intention to make an offer is not an offer. It is regarded as an invitation to offer. An

advertisement for sale in a Newspaper or Magazine etc. is not an offer for sale.

It should be noted that a general offer can be made through advertisement if the terms are certain and capable
of being accepted.

7. Offer must be communicated:

An offer must be communicated to the person to whom it is made. A person can accept the offer only when he
knows about it. If he does not know it, he cannot accept it.

8. Communication of Special Terms:

Special terms of a contract must be communicated. Generally, such cases arise in respect of general offers, like
tickets or receipts for depositing luggage at the Railway Station or receipts for clothes given for dry cleaning
etc. The rule in these cases is that parties are not bound unless conditions printed are properly communicated.
It should be noted that an acceptor is bound by the condition even if the conditions are printed in a foreign
language. He should ask for its translation.


In the law of contracts, acceptance is one person's compliance with the terms of an offer made by another.
occurs in the law of insurance when an insurer agrees to receive a person's application for insurance and t
o issue a policyprotecting the person against certain risks, such as fire or theft. When a person who is offe
red a gift by someone keeps thegift, this indicates his or her acceptance of it.

Legal Rules Regarding a valid Acceptance

A valid acceptance must be in conformity with the following rules.
1. Acceptance must be given only by the person to whom the offer is made.
An offer can be accepted only by the person or persons to whom it is made and with whom it imports an
intention to contract. It cannot be accepted by another person without the consent of the offeror. The rule of
law is clear that if you propose to make a contract with A. then B cant substitute himself for A without your
consent. An offer made to a particular person can be validly accepted by him alone. Similarly an offer made to
a class of person s (i.e., teachers) can be accepted by any member of that class. An offer made to the world at
large can be accepted by any person who has knowledge of the existence of the offer.
2. Acceptance must be absolute and unqualified [sec. 7(1)]. In order to be legally effective it must be an
absolute and unqualified acceptance of all the terms of the offer. Even the slightest deviation from the terms
of the offer makes the acceptance invalid. In effect a deviated acceptance is regarded as a counter offer in law.
Illustration. L offered to M his scooter for Rs. 4,000 M accepted the offer and tendered Rs. 3,900 cash down,
promising to pay the balance of Rs. 100 by the evening. There is no contract, as the acceptance was not
absolute and unqualified.
3. Acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes
the manner in which it is to be accepted. [sec. 7(2)]. If the offeror prescribes no mode of acceptance, the
acceptances must be communicated according to some usual and reasonable mode. The usual modes of
communication are by word spoken or written or by conduct, it is called an implied or tacit acceptance. Implied
acceptance may be given either by doing some required act, for example, tracing the lost goods for the
announced reward, or by accepting some benefit or service, for example, stepping in a public bus by a
If the offeror prescribes a mode of acceptance, the acceptance given accordingly will no doubt be a valid
acceptance, even if the prescribed mode is funny. Thus, if an offeror prescribes lighting a match as a mode of
acceptance and the offeree accordingly lights the match, the acceptance is effective and complete. But what
happens if the offeree deviates from the prescribed mode? The answer to this query is given in section 7(2)
itself which states that in cases of deviated acceptances the proposer may, within a reasonable time after the
acceptance is communication to him, insist that his proposal shall be accepted in the prescribed manner, and
not otherwise; but, if he fails to do so, he accepts the (deviated) acceptance.
4 Mental acceptance ineffectual. Mental acceptance or quiet assent not evidenced by words or conduct does
not amount to a valid acceptance, and this is so even where the offeror has said that such a mode of acceptance
will suffice. Acceptance must be communicated to the offeror, otherwise it has no effect. Thus, if an oral
acceptance is spoken into a telephone after the telephone has gone dead, there is in effect no acceptance.
5. Acceptance must be given within a reasonable time and before the offer lapses and/or is revoked. To be
legally effective acceptance must be given within the specified time limit, if any, and if no time is stipulated,
acceptance must be given within a reasonable time because an offer cannot be kept open indefinitely (shree
Jaya Mahal cooperative Housing society vs. Zenith chemical works pvt. Ltd.) where M applied for certain
shares in a company in June but the allotment was made in November and he refused to accept the allotted
shares. It was held that the offeror M could refuse to take shares as the offer stood withdrawn and could not be
accepted because the reasonable period during which the offer could be accepted had elapsed (Ramsgate
Victoria Hotel co. vs. Monteforte). Again the acceptance must be given before the offer is revoked or lapses by
reason of offerees knowledge of the death or insanity of the offeror.
6. Acceptance must succeed the offer. Acceptance must be given after receiving the offer. It should not
precede the offer. In a company shares were allotted to a person who had not applied for them. Subsequently
he applied for shares being unaware of the previous allotment. It was held that the allotment of shares
previous to the application was invalid.
7. Rejected offers can be accepted only, if renewed. Offer once rejected cannot be accepted again unless a fresh
offer is made (Hyde vs. Wrench).


It is defined in the following words : "When at the desire of the promiser the promisee has done
or abstained from doing or does or abstains from doing such act is called a consideration for the
1. By Promisee :-
Consideration by the promisee or any other person.
2. Desire of the Promisor :-
It should be given at the desire of the promisor.
3. Consideration May Be Past, Present or Future :-
Consideration is an act which has already been done or in progress or to be done in future at the
desire of the promisor.
4. Must be Real :-
Consideration must be realistic and competent. If consideration is physically impossible, illegal and
uncertain it will be not valid.
5. Needs Not To Be Adequate :-
The law only insists on the presence of consideration and not on its adequacy. Inadequacy may create the
doubt about the free consent of two parties but it is valid if free consent is proved.
6. Lawful Consideration :-
Consideration should be unlawful because it can not form a valid contract. It should not be against the
public policy.
7. Case of Time Barred Debt :-
If a debtor promises to pay a time barred debt, then there is no need of consideration. The promise must
be in written and signed by the debtor or his agent.
8. Contract Under Seal :-
A contract without consideration is valid if it is made under seal.

ANS 5. Capacity of Parties & rules regarding Minors Interest

For a valid contract, the parties to a contract must have capacity i.e. competence to enter into a contract. Every
person is presumed to have capacity to contract but there are certain persons whose age, condition or status
renders them incapable of binding themselves by a contract. Incapacity must be proved by the party claiming
the benefit of it and until proved the ordinary presumptions remains.
Section 11 of the Contract Act deals with the competency of parties and provides that "every person is
competent to contract 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 disqualified from contracting by any law to which he is subject."
It follow that the following person are incompetent to contract:
(a) minor
(b) person of unsound mind, and
(c) Person disqualified by any law to which they are subject.
Contract entered into by the persons mentioned above are void.
Every person is competent to contract:
(a) Who is of the age of majority.
(b) Who is of sound mind.
(c) Who is not disqualified from making a contract.
Therefore the following persons are not competent to contract
(a) A person who is a minor.
(b) A person of unsound mind.
(c) A person who is diqualified from making a contract.

Minor: Who is Minor?

An infant or a minor is a person who is not a major. According to the Indian Majority Act, 1875, a minor
is one who has not completed his or her 18th year of age. A person attains majority on completing his
18th year in India.
In the following two cases, a person continues to be a minor until he completes the age 21 years.
1. Where a guardian of a minor' person or property has appointed under the Guardians and Wards Act,
1890; or
2. Where the superintendence of a minor's property is assumed by a court of wards.
An amendment to this Act was made by Indian Majority (Amendment) Act 2000 which fixed uniform age
of majority as 18 years irrespective of the fact whether any guardian has been appointed but president's
assent to kid has yet to be obtained.

ANS 6. Two or more persons are said to consent when they agree upon the
same thing in the same sense.
Section 13 of the Contract Act defines the term consent and lays down that Two or more persons are
said to consent when they agree upon the same thing in the same sense. Thus, consent involves identity
of minds or consensus ad-idem i.e., agreeing upon the same thing in the same sense. If, for whatever
reason, there is no consensus ad item among the contracting parties, there is no real consent and hence no
valid contract.

Now we come to free consent

Free Consent defined. Section 14 lays down that Consent is said to be free when it is not caused by-
1. Coercion, as defined in Section 15, or
2. Undue influence as defined in Section 16, or
3. Misrepresentation as defined in Section 18, or
4. Fraud, as defined in Section 17, or
5. Mistake, subject to the provisions of Section, 20, 21 and 22.

Henceforth the various factors which vitiate consent are

Undue influence
Consent is said to be so caused when it would not have been given but for the existence of such
coercion, undue influence, misrepresentation, fraud or mistake (Sec. 14). This means that in order to
bring a case within this Section, the party, who alleges that his consent has been caused by any of the
above elements which vitiate consent, must show that, but for the vitiating circumstance the agreement
would not have been entered into. To put it differently, in order to prove that his consent is not free, the
complainant must prove that if he had known the truth, or had not been forced to agree, must prove that if
he had known the truth, or had not been forced to agree, he would not have entered into the contract.
In the absence of free consent, the contract may turn out to be either voidable or void depending upon
the nature of the flaw in consent to an agreement is caused by coercion, undue influence,
misrepresentation or fraud, there is no free consent and the contract is voidable at the option of the party
whose consent was so caused (Sec. 19 and 19A).
But when consent is caused by bilateral mistake as to a matter of fact essential to the agreement, the
agreement is void (Sec. 20). In such a case there is no consent at all.
ANS 7. Various kinds of VOID agreements under the ICA, 1872.
Void Agreement :-Void Contract means that a contract does not exist at all. The law can not enforce any
legal obligation to either party especially the disappointed party because they are not entitled to any
protective laws as far as contracts are concerned. An agreement to carry out an illegal act is an example of
a void contract or void agreement. For example, a contract between drug dealers and buyers is a void
contract simply because the terms of the contract are illegal. In such a case, neither party can go to court
to enforce the contract.

(i) Void ab initio :- void-ab-initio i.e. unenforceable from the very beginning

(ii) Void due to the impossibility of its performance :- A contract can also be void due to the
impossibility of its performance. E g: If a contract is formed between two parties A & B but during the
performance of the contract the object of the contract becomes impossible to achieve (due to action by
someone or something other than the contracting parties), then the contract cannot be enforced in the
court of law and is thus void.

(iii) Void agreements as per the provisions of Indian Contract Act , 1872 :-
Any agreement with a bilateral mistake is void.(Section 20) :- Where both the parties to an
agreement are under a mistake as to matter of fact essential to agreement , the agreement is void , for ex.
A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain ,
though neither party was aware of the fact . The agreement is void .

Agreements which have unlawful consideration and objects are void.(Section 23 & 24) :- The
consideration or object of an agreement is unlawful if it is forbidden by law or of such a nature that if
permitted , it would defeat the provisions of any law or is fraudulent or involves injury to the person or
property of another or court regards it as immoral or opposed to public policy .

If any part of a single consideration for one or more objects , or any one or any part of any one of several
consideration for a single object , is unlawful , the agreement is void. But where the legal part of an
agreement is severable from the illegal , the former would be enforced.

Agreements made without consideration is void.(Section 25) :- An agreement without the consideration
is void unless :-

(i) It is made on account of natural love and affection and it is expressed in writing and registered under
the law for the time being in force.

(ii) It is a promise to compensate, a person who has already voluntarily done something for the promisor.

(iii) It is a promise to pay a time barred debt.

Agreement in restraint of marriage of any major person is void (Section 26) :- Every agreement in
restraint of the marriage of any person , other than a minor is void. It is the policy of the law to discourage
agreements which restrains freedom of marriage . The restraint may be general or partial , that is to say ,
the party may be restrained from marrying at all , or from marrying for a fixed time or from marrying a
particular person or class of persons , the agreement is void .

Agreement in restraint of trade is void. (Section 27):- Every agreement by which anyone is restrained
from exercising a lawful profession, or trade or business of any kind , is to that extent void.

ANS 8. Distinguish between a Wagering Agreement and a Contingent Contract

Contingent Contract

1. A contingent contract has been defined as a contract to do or not to do something, if some event
collateral to such contract does or does not happen. A contingent contract is wider in scope.
2. A contingent contract thus includes a wager. In other words a wagering agreement is a contingent
agreement (contract).

3. In a contingent contract mutual promises are not necessary.

4. Example. A promises B to pay Rs. 1,000 if a ship does not return. Here A is making a promise to pay
but B is not making a similar promise to pay A. thus there is no mutuality of promises in a contingent

5. In a contingent contract there is an independent interest. Example. A gets his house insured. It is a
contingent contract as A has independent interest in this case.

6. In a contingent contract determination of an uncertain event is not the sole condition.

7. A contingent contract is valid.

Wagering Agreement

1. A wager is a promise to pay money or money's worth on the happening or non-happening of an

uncertain event.

2. A contingent contract need not necessarily be a wager. Thus we can say that all wagering agreements
are contingent but all contingent contracts are not wager.

3. In case of a wagering agreement promise must be mutual.

4. Example. In wagering agreement A agrees to pay B 20 rupees if it rains on Monday and if it does not
rain B will pay 20 rupees to A. In the above example there is mutuality of agreement but this mutuality of
promises is not necessary in case of a contingent contract.

5. In a wagering agreement there is no independent interest apart from the money to be won or lost.

6. Example. A promises to pay Rs. 100 to B if it rains on Monday. It is a wagering agreement as A has no
independent interest.

7. In a wagering agreement determination of an uncertain event is the main condition of the contract.

A wagering agreement is void/ illegal

ANS 9. Performance of Contract AND TYPES

The term Performance of contract means that both, the promisor, and the promisee have
fulfilled their respective obligations, which the contract placed upon them. For instance, A visits
a stationery shop to buy a calculator. The shopkeeper delivers the calculator and A pays the price.
The contract is said to have been discharged by mutual performance.

Section 27 of Indian contract Act says that

The parties to a contract must either perform, or offer to perform, their respective promises,
unless such performance is dispensed with or excused under the provisions of this Act, or any
other law.

Promises bind the representatives of the promisor in case of the death of the latter before
performance, unless a contrary intention appears in the contract.

Thus, it is the primary duty of each contracting party to either perform or offer to perform its
promise. For performance to be effective, the courts expect it to be exact and complete, i.e., the
same must match the contractual obligations. However, where under the provisions of the
Contract Act or any other law, the performance can be dispensed with or excused, a party is
absolved from such a responsibility.


A promises to deliver goods to B on a certain day on payment of Rs 1,000. A expires before the
contracted date. As representatives are bound to deliver the goods to B, and B is bound to pay
Rs 1,000 to As representatives.

Types of Performance
Performance, as an action of the performing may be actual or attempted.

Actual Performance

When a promisor to a contract has fulfilled his obligation in accordance with the terms of the
contract, the promise is said to have been actually performed. Actual performance gives a
discharge to the contract and the liability of the promisor ceases to exist. For example, A agrees
to deliver10 bags of cement at Bs factory and B promises to pay the price on delivery. A delivers
the cement on the due date and B makes the payment. This is actual performance.

Substantial Performance

This is where the work agreed upon is almost finished. The court then orders that the money
must be paid, but deducts the amount needed to correct minor existing defect. Substantial
performance is applicable only if the contract is not an entire contract and is severable. The
rationale behind creating the doctrine of substantial performance is to avoid the possibility of one
party evading his liabilities by claiming that the contract has not been completely performed.

Partial Performance

This is where one of the parties has performed the contract, but not completely, and the other
side has shown willingness to accept the part performed. Partial performance may occur where
there is shortfall on delivery of goods or where a service is not fully carried out.
There is a thin line of difference between substantial and partial performance. The two following
points would help in distinguishing the two types of performance.

Partial performance must be accepted by the other party. In other words, the party who is at
the receiving end of the partial performance has a genuine choice whether to accept or reject.
Substantial performance, on the other hand, is legally enforceable against the other party.

Payment is made on a different basis from that for substantial performance. It is made on
quantum meruit, which literally means as much as is deserved. So, for example, if half of the
work has been completed, half of the negotiated money would be payable. In case of substantial
performance, the party that has performed can recover the amount appropriate to what has been
done under the contract, provided that the contract is not an entire contract. The price is thus,
often payable in such circumstances, and the sum deducted represents the cost of repairing
defective workmanship.

Attempted Performance

When the performance has become due, it is sometimes sufficient if the promisor offers to
perform his obligation under the contract. This offer is known as attempted performance or more
commonly as tender. Thus, tender is an offer of performance, which of course, complies with the
terms of the contract. If goods are tendered by the seller but refused by the buyer, the seller is
discharged from further liability, given that the goods are in accordance with the contract as to
quantity and quality, and he may sue the buyer for.breach of contract if he so desires. The
rationale being that when a person offers to perform, he is ready, willing and capable to perform.
Accordingly, a tender of performance may operate as a substitute for actual performance, and can
effect a complete discharge.

ANS 10. What is Quasi Contract? What are the different types of Quasi

Quasi Contract or Implied Contract deals with rights or liabilities accruing from relations resembling
those created by Contract. These relations resembling contract are known as contract implied in law or
quasi contract. It is not a real contract and thus called a consensual contract based on agreement of the
parties. Quasi-contracts are based on the principal of equity and justice and prevent enrichment of one
person at the cost of another.

The different types of Quasi Contracts are:

a.Claim for necessaries supplied to person incapable of contracting or on his account.- If a person,
incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by
another person with necessities suited to his condition in life, the person who has furnished such supplies
in entitled to be reimbursed from the property of such incapable person.

b.Reimbursement of person paying money due by the other, in payment of which he is interested A person
who is interested in the payment of money which another is bound by law to pay, and who therefore pays
it, in entitled to be reimbursed by the other.

c.Obligation of person enjoying benefit of non-gratuitous act When a person lawfully does anything for
another person or delivers anything to him not intending to do so gratuitously and such other person
enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of or to
restore, the thing so done or delivered.

d.Responsibility of finder of goods; A person who finds goods belonging to another and takes into his
custody, is subject to the same responsibility as a bailee.

e.Liability of person to whom money is paid, or thing delivered by mistake or under coercion A person to
whom money has been paid or anything delivered by mistake or under coercion must repay or return it.