Business Law

Week no.2
Lecture no.3 & 4
Ms.Ayesha Zaman Khan
Overview
 Contract Act 1872
 Essentials elements of Contract
 Definition
 Kinds of Contract
 Offer and Acceptance
 Consideration
Essential Elements of a Contract
 Offer & acceptance
 Lawful agreement
 Lawful consideration
 Free consent
 Contractual Capacity( The minimum mental capacity)
 Lawful Object
 Possibility of performance
 Certainty of Term(clarity)
 Legal Formality(relationship)
What is a Contract
 An agreement enforceable by law
 (Section 2 (h) contract act 1872.
Basic Definitions of the Contract
 Every businessman has to enter into different
sorts of business contract daily . So the
contract act is a major part of business law.
 Therefore, it is necessary that before

discussing the rules and laws related to

contracts, we must be well-aware from the
basic terms of the contracts which may be the
following:
 1) Proposal
 2) Promise
The definition of Proposal reveals the
following three points:
 1) It is an expression of willingness to do or
not to do something.
 2) The Proposal is always made by one

person to another person. It means there are

at least two parties in a proposal.
 3) The proposal is always made to obtain the

consent of the person to whom it is made.

 Example: A offers to sell his horse to B for Rs.

30,000. It is a proposal made by A to B and B

has a right to accept or reject the proposal.
Continue
 3) Consideration
 4) Agreement
 5) Contract
 6) Valid Contract
 7) Voidable Contract
 8) Void Contract
 9) Unenforceable Contract
 10)Reciprocal Promises
1) Proposal
 Proposal is the starting point of a contract.
When one wants to enter into a contract, he
makes someone proposal to another. The
proposal and offer are the same in the meaning
of law and has been defined under section 2(a)
of The Contract Act 1872 as follows:
 “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 to such act or abstinence ,he is said
to make a proposal.”
2) Promise
 Promise is the second step of the contract.
According to section 2(b), the promise has been
defined as follows:
 “When the person to whom proposal is made
signifies his assent thereto, the proposal is said to
be accepted. A proposal when accepted, becomes a
promise.”
 Promise= Proposal + Acceptance
 Two parties are involved in the promise the
promisor ( the person who makes the proposal) and
the promisee ( the person who accepts the proposal)
Consideration
 Keeping in view the three types of
consideration , it has been defined under
section 2(d) of The Contract Act as follows:
 “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 or
abstinence or promise is called a
consideration for the promise.”
According to Pollock

 “Consideration is the price for which the

promise of the other is bought.”
 Example:
 A promises to sell his horse for Rs.90,000 to

B. In this promise Rs.90,000 is consideration

for A and horse is consideration for B.
Types of Consideration
 The definition of the consideration given in
The Contract Act covers three types of
consideration which are as follows:
 1)Past Consideration:
 2)Present Consideration
 3)Future Consideration
4) Agreement
 According to section 2(e) of The Contract Act,
the Agreement has been defined as follows:
 “Every promise and every set of promises,

forming the consideration for each other, is

an agreement.”
 According to above definition two conditions

must be fulfilled for an agreement.

 First, there must be a promise and secondly,

the promise must have consideration for both

the parties in a promise.
Cont..
 In other words:
 Agreement= promise + consideration
 Example:
 A promises to sell his bicycle for Rs.8000 to

B. It will be an agreement because it is

promise and it also form consideration for
both the parties. Here Rs.8000 is
consideration for A’s promise and bicycle is
consideration for B’s promise.
5) Contract
 According to section 2(h) of the Contract Act, the
contract has been defined as follows:
 “ An agreement enforceable by law is a contract.”
 The contract must fulfill two conditions.
 First, there must be an agreement and secondly, the
agreement must be enforceable by law. It means that
agreement must create some legal relationship due
to which its performance becomes compulsory.
Therefore, when any of the contracting parties fails
to perform his part of obligation, the other party can
go into the court for the performance of the
contract.
Cont..

 Contract= Agreement + Enforceability

 Example:
 A promises to sell his bicycle for Rs. 8000 to

B. it is an agreement enforceable by law , so it

will also become a contract.
Proposal

Acceptance

Promise

Consideration

Agreement

Enforceable by
law
Contract
6) Valid Contract
 An contract which satisfies all the legal
requirement provided for under sec-10
 Example:
 P offers to sell his camera to Q for Rs. 3000

and Q accepts it. It is a valid contract if all the

other legal requirement have been fulfilled.
7) Voidable Contract
 According to The Contract Act, the voidable contract
has been defined under section 2(i) as follows:
 “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.
 A voidable contract is that contract which is
enforceable by law at the option of one contracting
party and there is at least one party in the contract
who cannot enforce the contract. The contracts
caused by coercion, undue influence, fraud or
misrepresentation are voidable contracts.
8) Void Contracts
 An agreement which ceases to be enforceable by
law.
 An agreement which is valid in beginning but at
later stage it becomes void subsequently due to
impossibility of performance.
 An agreement void from the beginning is known as
‘void ab in initio’. Then we can not use the term
void contract.
eg. An agreement with a minor.
 Section 2 (j)
9) Unenforceable Contract
 A contract which is valid but due to some
technical problem it becomes invalid.
 Technical problems are:

Absence of evidence
Expiry of period
Example: X sells a piece of land to Y for
Rs.10,00000 with oral contract. It fulfills all
the requirements of law but is not written, so
it is an unenforceable contract.
10) Reciprocal Promises
 According to The Contract Act the Reciprocal promises has
been defined as under:
 “Promises which form the consideration or part of the
consideration for each other are called reciprocal
promises.”
 Example
 A enters into contract to purchase 100 units of raw
material from B and agrees to deliver 50 units of his
finished product for the payment of the raw material.
These are the reciprocal promises forming consideration
for each other. The contract of B with A to sell 100 units of
raw material is the consideration for A’s contract to
provide 50 units of product and vise versa.
Kinds of Contract

 1. According to Enforceability

 2. According to Formation

 3. According to Performance

 4. According to Parties
1. According to Enforceability
 In this we have 6 kinds of contract.
 1. Valid contract
 2. Void Contract
 3. Void Agreement
 4. Voidable Contract
 5. Unenforceable contract
 6. Illegal contract
According to Enforceability
 1.Valid Contract
 Contract= Agreement + Enforceability
 Valid Contract= Agreement+ Enforceability +

All Essentials of valid contract.

 2. Void Contract= Agreement- Enforceability
 3. Void Agreement
 “void.ab initio” ( from the very beginning)
 Absence of one or more essential except free

consent.
Cont..
 4. Voidable Contract
 Contract= Agreement+ Enforceability at the

option of party.
 Consent is not free, fraud, misrepresentation,

,mistake, undue influence.

 5. Unenforceable contract
 Due to technical defects such as absence of

writing, registration, stamp etc.

 6. Illegal Contract
 Agreement involve illegal activity
2. According to Formation
 1. Express Contract
 Expressed in words written or spoken
 2. Implied Contract
 It arises from acts, conduct and course of
dealing or circumstances.
 E.g. Lunch in a restaurant.
 3. Quasi or constructive Contract
 Person shall not allowed to get benefit at the
cost of another.
 E.g. return lost goods of others.
3. According to Performance

 1. Executed Contract
 Completion of obligation of both the parties
 2. Executory Contract
 Something remains to be done, regarding to

obligations.
4. According to Parties
 1. Unilateral Contract
 Only one party is bound but the other party

choses to be bound by it.

 E.g. Pay prize to a person who finds some

lost goods.
 2. Bilateral Contract
 Both parties are bound, and parties have yet

to perform their obligations.

What is meant by Acceptance
 According to The Contract Act , “ When the
person to whom proposal is made signifies
his assent thereto, the proposal is said to be
accepted . A proposal when accepted
becomes a promise.”