Contract I

 History – Formation of Contract – Agreement and Contract – Definitions – Classification

 Offer and Acceptance – Communication – Revocation – Essential elements – Invitation to Offer –
Tenders.
 Consideration – Nudum Pactum - Essential elements – Privity of Contract and of Consideration –
Exceptions – Unlawful Consideration and its effect.
 Contractual Ability – Electronic Documents as Web Pages – Digital Certificates as Entry Passes –
Time and Place of Contract – Secured Custody of Electronic Records.

 “All contracts are agreements but all agreements are not

contracts”. Comment [Jan 2010]
 Define contract. Explain the essentials of valid contract. [June
2011]
Contract Definition:

A contract is an agreement between two or more persons creating rights & duties and which is
enforceable by law.

 Definition of Contract according to different personals

 According to Pollack
- “Every agreement and promise enforceable at law is a contract"
 According to Salmond
- “A contract is an agreement creating and defining obligation between two or more
persons by which rights are acquired by one or more to acts or forbearance on the
part of others"
 According to Sir William Anson
- “A legally binding agreement between two or more persons by which rights are
acquired by one or more to acts or forbearance on the parts of others"
-

Elements of the contract

There are the following elements of the contract.

 Agreement

We can define the agreement when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal when it is accepted becomes
a promise. Thus, an agreement is a promise or set of promises. A promise comes into
existence when one party makes a proposal or offer to other party and that promises must
form consideration to each other.

- The following are the characteristics of the agreements

 Plurality of persons: there must be two or more persons to make an
agreement because one person cannot enter into an agreement with
himself.
 Consensus ad idem: it means that both the parties to an agreement must
agree about the subject matter of the agreement in the same sense and at
the same time. The term consensus means identity of minds. Unless there is
consensus ad idem, there can be no contract.
- There are two types of agreements
 Social Agreements: these agreements are social in nature and do not enjoy
the benefits of law. These agreements are not enforceable because they do
not create legal obligation. In such agreements the parties do not intend to
create legal relationship.
 Legal Agreement: these are the contracts because they create legal
obligation between the parties. In these agreements the parties intend to
create legal relationship. In business agreements it is presumed that the
parties intend to create legal relationship so all business agreements are
contracts.
 Enforceability
 - Enforceability is the second requirement of contract. An agreement is enforceable if
it is recognized by court. In order to be enforceable by law, the agreement must
create legal obligation between the parties. If an agreement does not create legal
obligation, it is not a contract.

ESSENTIALS OF A VALID CONTRACT

According to Section 10, “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
expressly declared to be void.”

The analysis of the provisions of Section 10 shows that a valid contract must have the following
essential elements:

1. Proper Offer and Acceptance There must be at least two parties- one making the offer
and the other accepting it. Such offer and acceptance must be valid. An offer to be valid
must fulfil certain conditions, such as it must intend to create legal relations, its term,
must be certain and unambiguous, it must be communicated to the person to whom it is
made, etc. An acceptance to be valid must folds certain conditions, such as it must be
absolute and unqualified, it must be made in the prescribed manner, it must be
communicated by an authorised person before the offer lapses.

2. Intention to Create Legal Relationship There must be an intention among the parties to

create a legal relationship. In case of social or domestic agreements, the usual
presumption is that the parties do not intend to create legal relationship but in
commercial or business agreements, the usual presumption is that the parties intend to
create legal relationship unless otherwise agreed upon.

Example: X invited Y to a dinner Y accepted the invitation. It is a social agreement. If X

fails to serve dinner to Y, Y cannot go to the courts of law for enforcing the agreement.
Similarly, if Y fails to attend the dinner, X cannot go to the courts of law for enforcing the
agreement.

But even a business agreement may not be enforceable by law where the agreement so
provides e.g. in Rose & Frank Co. v. Crompton Bros. (1925) A.C. 445, the agreement
entered into stated that it will not be subject to legal jurisdiction in the law courts, the
agreement was not enforceable by law as the parties never agreed to create legal
obligations despite being a business agreement.

3. Capacity of Parties The parties to an agreement must be competent to contract. In other

words, they must be capable of entering into a contract. According to Section 11 of Indian
Contract Act, 1872. “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 contracting by any law to which he is subject.”
 In other words. the person must be major, must be of sound mind and must not be
declared disqualified from contracting by any law to which he is subject. If the parties to
agreement are not competent to contract, then no valid contract comes into existence.

Example: X a minor borrowed Rs 8,000 from Y and executed mortgage of his property in
favour of the lender. This was not a valid contract because X is not competent to contract.
Therefore, the mortgage was not valid and the money advanced to minor could not be
recovered.

4. Lawful Consideration An agreement must be supported by lawful consideration.

Consideration means something in return. According to Section 23 of the Indian Contract
Act, 1872, “the consideration is considered lawful unless it is forbidden by law or is
fraudulent or involves or implies injury to the person or property of another or is
immoral or is opposed to public policy.”

Example : X agrees to sell his car to Y for Rs. 1,00,000. Here Y’s promise to pay Rs.
1,00,000 is the consideration for X’s promise to sell the car and X’s promise to sell the car
is the consideration for Y’s promise to pay 1,00,000.

5. Free Consent There must be free consent of the parties to the contact. According to
Section 14, “Consent is said to be free when it is not caused by (i) coercion, (ii) undue
influence, (iii) fraud, (iv) misrepresentation, or (v) mistake”. If the consent of the parties is
not free, then no valid contract comes into existence.

Example: X threatens to kill Y if he does not sell his house to X. Y agrees to sell his house
to X. In this case, Y’s consent has been obtained by coercion and therefore, it cannot be
regarded as free.

6. Lawful Object The object of an agreement must be lawful. According to Section 23 of the

Indian Contract Act, 1872, “the object is considered lawful unless it is forbidden by law or
is fraudulen1t or involves or implies injury to the person or property of another or is
immoral or is opposed to public policy.”

Example : X, Y and Z enter into an agreement for the division among them of gains
acquired or to be acquired by them by fraud. The agreement is void because its object is
unlawful.1

Example II: X lets a flat on hire to Y a prostitute, knowing that it would be used for
immoral purposes. The agreement is void because its object is for immoral purposes.1

7. Agreement not Expressly Declared Void The agreement must not have been expressly
declared void under the provisions of Sections 24 to 30 of the Indian Contract Act, 1872.
Under these provisions, agreement in restraint of marriage, agreement in restraint of
legal proceedings, agreement in restraint of trade and agreement by way of wager have
been expressly declared void.

Example : X promised to marry none else except Y and in default pay her Rs 1,00,000. X
married to Z and Y sued X for the recovery of Rs 1,00,000. It was held that Y was not
entitled to recover anything because this agreement was in restraint of marriage and as
such void.
 8. Certainty of Meaning The terms of the agreement must be certain and unambiguous.
According to Section 29 of the Indian Contract Act, 1872, “agreements the meaning of
which is not certain or capable of being made certain are void.”

Example: X a dealer in different types of oils agreed to sell 100 tonnes of oil to Y. This
agreement is void on the ground of uncertainty because it is not clear what kind of oil is
intended to be sold. If, however, the meaning of the agreement could be made certain
from the circumstances of the case, it will be treated as a valid contract. Example: X who is
a dealer in mustard oil, agreed to sell 100 tonnes of oil to Y. This agreement is valid
because the meaning of the agreement could be easily ascertained from the
circumstances of the case.

9. Possibility of Performance The terms of the agreement must be such as are capable of

performance. According to Section 56, “an agreement to do an impossible act is void.”

Example : X agrees with Y to discover treasure by magic and Y agrees to pay Rs 1,000 to X.
This agreement is void because it is an agreement to do an impossible act. Example II: X
agrees with Y to enclose some area between two parallel lines and Y agrees to pay Rs
1,000 to X. This agreement is void because it is an agreement to do an impossible act.

10. Legal Formalities The agreement must comply with the necessary formalities as to
writing, registration, stamping etc. if any required in order to make it enforceable by law.

 Example : An oral agreement ‘for arbitration is unenforceable because the law requires
that arbitration agreement must e in writing.

Kinds of Contract

The contract can be divided according to enforceability, formation and performance

According to Enforceability

On the basis of enforceability, the contract can be divided into following categories

 Valid Contract

A valid contract is an agreement enforceable by law. we can say an agreement is a valid

contract when all the essential elements of the contract is fulfilled

 Void Contract

a contract is called void which cannot be enforced by law. when a contract is made but after
its formation it becomes void due to impossibility of performance, subsequent illegality,
rejection of a voidable contract & when depending event become impossible.

 Voidable Contract

when an agreement is enforceable by law at the option of one of the parties to agreement,
but not at the option of the other party of the contract, is called voidable contract.

 unenforceable Contract
 it is a contract that is not enforceable in the court of law due to some technical defects like
absence of writing, registration of the contract, stamp missing or due to some other defects

 Illegal Agreement

when the performance of any act forbidden by the law, such agreement are called illegal
contract. such agreement can never be consider as contract.

According to Formation

According to formation a contract can be divided into three kinds

 Express Contract

an agreement is called express when it is made by words. so we can say that a promise
made in words is called an express Contract.

 Implied Contract

implied contract is which that is made other than words. an implied promise results in
implied contract. when a person, without being requested provides his services under some
circumstances with the expectation that he will be paid and the other person, knowing such
circumstances, accept the benefit of those services

According to Performance

According to performance there are the following types of contract

 Executed Contract

Executed contract means when both the parties have completely performed their obligation.
means that nothing is left to be done by all the parties under the contract

 Unilateral Contract

under this contract only one party makes a commitment. under this only one party is bound
to perform while the other party choose to be bound by it.

 Bilateral Contract

under this when a contract is made all the parties to the contract is bound to perform. under
this all the parties have to perform their obligation

Offers

it is first essential of a valid contract. An agreement is made when one party made an offer and the
other party accepts it. we can say that when one person signifies his willingness to do something to
the other person or to abstain from doing something, with a point to obtain the assent of the other
person such act is called proposal. the person making an offer is called offeror.

Example M says to N that he will sell his phone to him for $50. it is an express offer.

Invitations to treat
invitation to treat is an expression of wiliness to negotiable. under this an individual is not bound
until it is accepted by the individual to whom it is addressed. It includes the terms like display of
goods, auction advertisement and the invitation for tenders

Acceptance/ counter offer

proposal is accepted incase when a person to whom the offer is made signifies his assent to accept
the same proposal. Without the acceptance of the proposal no agreement came into existence. In
order to make a valid acceptance it should b given by the offeree, it must be absolute, it should be
communicated through prescribed manner &it should be communicated to the offeror. In case
where there is a condition in his acceptance it is called counter offer. as a result of counter offer
there will be no contract until the counter offer is accepted by the other party.

Example A asks to B to reply of his offer by telegram but B send reply by letter. A may reject such
acceptance

Consideration

Consideration is the price for which the promise of the other party is bought and the promise gives
the value is enforceable. it is done when the desire of one party the other party done something or
abstained from doing something or the other party does or abstains from doing, or it abstain from
doing something, such act or abstinence or promise is called consideration for the promise

Example: A agrees to sell his house for $ 2000 to B. A’s promise to sell the house is consideration for
B. B’s promise to pay is the consideration for A

The rights of third parties

according to the law rule a third party could not enforce the terms of a contract, as well as the third
party could not perform against the promisor only if in the contract specifically mentioned in the
contract as some authorized to do so.

Capacity

An agreement is enforceable only if it is made by parties who posses contractual capacity. From
capacity of parties we means that the parties entering into an agreement they must be competent
to contract. The parties to the agreement must be of the majority and the sound mind and must not
disqualified from contracting by any law to which they are subject.

Example: A person of unsound mind agrees to sell his house to S for $ 1000. it is not a valid contract
because he is not competent to contract

Standard form Contract

it is a contract made between two parties that does not allow for negotiation. it means that they only
have the option of take it or leave it.

Example a salesperson of a firm is given a contract by a salesperson. the individual had the option to
take it or leave it

Tenancy Agreements
When premises are let, it is always best to do so with a legally valid and clearly written agreement
between the parties. Furthermore, it is a legal requirement for the landlord to provide a written
statement of the main terms of a tenancy agreement if requested by the tenant.

For the landlord, a tenancy agreement allows them to secure certain legal undertakings from the
tenants. Commonly, that they will not damage the property during the tenancy and will leave the
premises promptly and in good order and repair at the end of the tenancy. For the tenant, it allows
piece of mind that their occupation of the premises will be peaceful and without interruption, so
long as they act within their agreement. Additionally, a good tenancy agreement will make clear all
the obligations of both parties, so that should something go wrong during the tenancy, both parties
know their respective responsibilities and duties, thereby resolving potential disputes before they
occur.

There are the following tenancy agreements

Assured Short hold Tenancy: These agreements are common type of letting contracts in England.
The time Period for these contract vary from six month to twelve months, although it can be
extended.

Assured Tenancy: This type of contract is used for more time spam here both the parties are seeking
to enter into an agreement that can run for many years. unless there is a breach of contract by
either party

House & Flat Share (Lodgers): These type of tenancy agreements suits for the people those wish to
rent only a room in their property.

Holiday Letting Agreement: These type of agreements are simple in nature, and these are used to let
a accommodation for the holidays. The house property is used for a shorter period of time i.e. for
few week or a month

Offer & Acceptance

it is the most important element if a contract that there must be an offer for the agreement and the
other party accept it. it is not necessary the that offer and acceptance must be in oral or written
form. Implied is one in which some of the conditions of the contract is not expressed in words.
Taking the example of by searching a house for rent, tenant had agreed that he will pay the rental
amount to landlord. Incase if the tenant refuse to pay then he had breached a contract. an offer
must be clear and definite. incase the terms of the offer are not definite then it cannot be called a
valid offer. a proposal