Unit I - The Contract Act, 1872 & Sale of Goods Act,

1930

Introduction
The law of contracts is an important branch of Business Law. It is one of the oldest branches of English
common Law. It was enacted in 1872 and comes into force on the first day of September 1872.
Briefly the law of contracts deals with principles subject to which parties create rights and duties
inter-se.

CHAPTER 1
AGREEMENTS and CONTRACTS
a) Agreement: The term agreement means to agree or to come to an understanding. Here one
person gives an Offer or Proposal to another, and the latter accepts or agrees to the offer. This is
an agreement. Thus Agreement is equal to Offer + Acceptance. U/S 2(E) of the ICA Agreement is
defined as “Every promise and set of promises, forming the consideration for each other”.
b) An agreement enforceable by law is a contract 2(H). Thus contract has two important elements
Viz
o Agreement
o Enforceability

ESSENTIALS OF A VALID CONTRACT

According to Section 10 - All contracts are agreements; but All Agreements are not contracts.
Thus there are certain essential elements for creating a legally binding contract which are as follows:-

1. OFFER AND ACCEPTANCE: There must be an agreement between minimum two parties in
which there is an offer by one party and acceptance by the other, for creating a valid contract.
2. LEGAL RELATION: If there is no intention to create legal relation there is no contract. Thus
agreements of a personal or social nature as in the case of BALFOUR v/s BALFOUR are not
contracts.
3. CAPACITY to CONTRACT: Every person is competent to contract who is of the age of majority,
of sound mind and not disqualified from contracting by any law to which he is subject. Thus
every person who is a major, of sound mind and not disqualified by any law can enter into a
valid agreement.
4. CONSIDERATION: It means something in return or quid pro quo. It is the price paid by one
party for the promise of the other. It is something of value which may be in money or a
tangible asset. For e.g. A agrees to sell his watch to B, for 3lakhs.Here for A, the consideration
for the watch is the money from B. For B the consideration for the money he gives is the
watch.
5. LAWFUL OBJECT: The object or purpose of the contract must be lawful. It is unlawful if it is
forbidden by law, it defeats the provisions of any law, fraudulent in nature, causes injury to
the person or property of another or court regards it as immoral or opposed to public policy.
6. FREE CONSENT: Consent is free when parties agree in the same sense on the same subject
matter, at the same time. This is called CONSENSUS- AD -- IDEM. Thus parties must consent
 voluntarily. There is absence of free consent, if it is caused by coercion, undue influence,
misrepresentation, fraud and mistake.
7. NOT EXPRESSLY DECLARED VOID: Void means not enforceable by law. Thus void agreement
is a nullity. It does not give rise to any legal obligation. Sections 26 to 30 of ICA specifies
agreements which are expressly declared void.
8. LEGAL FORMALITIES: A contract may be express or implied. Law does not specify any format.
However in specific cases such as gift deed, lease, and negotiable instruments etc, the contract
must be in writing, stamped and registered.
9. CERTAINTY OF TERMS: Agreement must be certain and not vague or indefinite. For e.g. X
agrees to sell Y 100 tons of oil. This agreement is void for uncertainty (SEC29).
10. POSSIBILITY OF PERFOMANCE: An agreement must be capable of performance. Thus
agreement to do an act impossible in itself is void in it self SEC 56.

KINDS OF CONTRACT
1 On the basis of enforceability or validity

1. Valid contract: A contract which satisfies all the essential elements.

2. Void contract: Sec 2 (J) A contract which ceases to be enforceable by law, becomes void
when it ceases to be enforceable. For eg P contracts to import goods from a foreign
country. It becomes void when a war breaks out between the exporting and importing
country.
3. Voidable contract: Sec 2(i) An agreement which is enforceable by law at the option of one
or more of the parties there to, but not at the option of the other or others is a voidable
contract.
4. Unenforceable contract: It is a valid contract, which cannot be enforced in a court of law.
This is because of some technical flaw or defect. For e.g. contracts barred by the law of
limitation or absence of written format.

2 On the basis of execution

1. Executed contract: It is a contract in which both the parties have performed their
respective obligations.
2. Executory contract: It is a contract in which something is yet to be done. Thus where
parties are yet to perform their respective promises, it is called an executory contract.

3 On the basis of creation

1. Express contract: Contracts made by words spoken or written are said to be express
2. Implied contract: A contract which is inferred from the act or conduct of the parties is
implied.
3. Contingent contract: A contract to do or not to do something if some event collateral to
such a contract does or does not happen, is a contingent contract. For eg X contracts to
pay Y Rs500/ if Y s’ house I catches fire.
4. Quasi contract: It is one created by law, thus certain obligations which are not contracts,
but are considered to be so, by law, are called quasi contracts.
5. E – Contracts: It is an electronic or digital contract which is made, drafted & signed with
digital signature in the electronic form.