INDIAN

CONTRACT ACT

DEFINITIONS
CONTRACT- In the words of Pollock, every agreement and promises
enforceable by law is contract. Section 2(h) of the Indian Contract Act,
1872 states that an agreement enforceable by law is contract. This
definition gives us two ingredientsan agreement and enforceable by
law.
E.g. - An agreement to buy certain specific goods at an agreed price lets
say 100 bags at Rs 1430 per bag is a contract becoz it gives rise to a duty
enforceable by law and in case of default on the part of either party an
action for breach of contract could be enforced.
AGREEMENT
An agreement means a promise and a reciprocal set of promises forming
consideration for each otherSection 2(e). All contracts are
agreements but all agreements are not contracts.

CONTRACT = Agreement + Enforceable by

law

PARTIES TO AN AGREEMENT/A CONTRACT

Promisor:A person making the proposal (offer) is known as a promisor.
He is also known as an offeror. We can also recognize him as a
proposor.
Promisee:A person accepting the proposal (offer) is known as a
promisee. He is also known as an offeree. We can also recognize him as
an acceptor.
PROMISOR

PROMISEE

ESSENTIALS OF CONTRACTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Agreement
Legal Obligation
Free & Genuine Consent
Parties Competent to Contract
Lawful Consideration
Lawful Object
Agreement not declared Void
Certainty of Meaning
Possibility of Performance
Necessary Legal formalities

AGREEMENT
Has 2 elements viz.,
i) A proposal/offer, and
ii) Acceptance of that proposal/offer
Offeror and Offeree 2 parties
Same thing in same sense consent
A contract which is an agreement enforceable
in law has two elements viz;
i) An agreement
ii) Legal obligation

AGREEMENT
Offer or Proposal
When a person indicates to another,
his willingness to do or abstain from
doing anything, with a view to obtaining
an assent of that other person to such act
or abstinence,
he said to make a proposal or offer
Acceptance
when the person to whom the proposal
is made signifies his assent thereto, the
proposal is said to be accepted.
In other words, acceptance is the
manifestation of the offeree of his
consent to the terms of the offer.

LEGAL OBLIGATION

Intention to create legal relationship

Belfour Vs Belfour Case (1919)

Social/Domestic agreements not contract. Parties
didnt intend to create legal relations

Commercial or social, domestic agreements

must have some presumptions to show legal
obligations to be a contract

FREE & GENUINE CONSENT

Contract should not be obtained by

- misrepresentation
- Fraud
- Undue influence
- Coercion
- mistake
If any of above flaw exists in a contract it will
be held as void

PARTIES COMPETENT TO CONTRACT

Who is a competent party?

Of majority age i.e., not a minor

Of sound mind lunatic, idiot,
drunkenness, status
Not disqualified by any law to which
he is subject

Flaw if any, contract becomes

unenforceable, except in
exceptional circumstances

LAWFUL CONSIDERATION

Is price for the promise of the other need not

be in terms of money

If not supported by consideration bare

consideration contract not enforceable

Must be real & lawful

Each party must promise something and

receive something

LAWFUL OBJECT

OBJECT
Not disapproved by law
Does not defeats any provision of law
Where it is not fraudulent
Not injurious to another person or property
Not immoral
Not opposed to public policy

AGREEMENT NOT
DECLARED VOID

Although an agreement contains all the

elements yet, certain agreements are
declared illegal or void agreements,
such as;
Restraining marriage
Restraining trade
Restraining legal proceedings
Wagering agreements

1. Agreement in Restraint of Marriage :An agreement in which an adult person is prevented or restraint from
marriage is declared void by law.
The law regards marriage as the right of every person. But law does not
favor the marriage of minor.
Example :-Mr. Chips agrees with Miss. Sophie that she will not marry with
Mr. Sams. It is a void agreement.
2. Agreement in Restraint of Business :Any lawful profession, trade or business of any kind restrained by any
agreement is declared void.
Example :-Mr. Adeel a publisher offers Rs. one lac to Miss. Hina not to
deal in this business. Miss. Hina accepts the agreement is void. Mr. Adeel
cannot enforce her for agreement.
3. Mistake of Both Parties :If the the parties of agreement are under mistake as to a matter of fact
essential to the agreement, the agreement is void.

4.

Agreement By Way of Wager :An agreement by way of wager is void with certain exceptions.
The wagering contract is only void and not illegal. A wager is a game of chance, in which
loss or gain depends on certain events.

Example 1 :- Mr. Shan bets with Mr. Hassan and loses. An agreement between the two is
void.
Example 2 :- In the above case if Mr. Shan borrows money from Mr. Akram to pay Mr.
Hassan. The contract between Mr. Shan and Mr. Akram is valid.
5. Uncertainty in Agreement :For the valid agreement it is necessary that it should be certain and clear in all respect. If
the meanings of the agreement are not clear and it is not capable of being certain is void
by law.
Example :- Suppose Miss. Bina sells to Mr. Raj ten books. Nothing is clear and certain
about the books. So it is void agreement.
6. Unlawful Object :If the object or consideration of the agreement against the law, it will make the agreement
void. Any object of the agreement which is forbidden by law or it defeats the provisions of
any law is void.
7. Immoral :If any agreement is against the moral values of the society it will be also void.

8. Fraudulent Case :If the object or consideration of an agreement is to injure the other
property or a person is also a void agreement
9. Agreement Without Consideration :An agreement may not exist without consideration it will be a void
agreement.
10. Agreement To Do Impossible Acts :If the object of an agreement is to perform that act which is not possible.
Such type of agreements are void ."An agreement to do an act impossible in
itself is void."
Example :-Suppose Mr. Fazil agrees to pay Mr. Singh Rs. 1000 if he put the
moon on his hand. It will be void agreement.
11. Agreement in Restraint of Legal Proceedings :Every person is allowed by law to obtain his legal rights through the legal
proceedings. No body should prevent others.
According to contract act"Every agreement, by which a party is restrained
absolutely from enforcing his rights under or in respect of any contract by
the usual legal proceeding in the ordinary tribunals is void to the extent."
Example :-Mr. Jhon agrees to sell one hotel to Mr. Kim for Rs. 10 lac and
further agree that in case of breach of contract none of them will go to the
court. This agreement is void.

CERTAINTY OF MEANING

Specific (say cloth, oil type)

Shouldnt be vague

Punit Beriwala Vs. Suva Sanyal (1998)

Agreement to agree

POSSIBILITY OF
PERFORMANCE
Agreement to do an act impossible cannot be
enforced
Eg; Discover treasure by magic

Based on the maxim Law does not compel to

do what is impossible
(Lex non cogit ad aimpossibilia)

At the time of entering into contract, was

capable of being performed, but subsequently
become impossible or unlawful Known as
doctrine of supervening impossibility, doctrine
of frustration

NECESSARY LEGAL FORMALITIES

Contract may oral or in writing

However, certain cases documented, comply
with formalities of writing, registering,
attestation, stamp duty
Made in presence of a witness
Agreements which must be writing
- time barred debt
- arbitration agreement
- lease agreement for more than 3 yrs.
- contract of insurance
- negotiable instruments
- memorandum & article of association
- transfer of immovable property & so on

NECESSARY LEGAL FORMALITIES

Contracts which must be registered:

- promise w/o consideration out of natural love
& affection between parties of near relation
- documents u/s 17 of Registration Act
- transfer of immovable properties under
TPA,1882
- Memorandum & Art. Of Association, Mortgage
and Charges under Co.Act,1956

NECESSARY LEGAL FORMALITIES

Instruments those chargeable under Indian
Stamps Act,1894
- Negotiable instruments
- Insurance Policy
- Partition Deed
- Share/ Debenture Certificates
- Pledge
- Mortgage Deeds
Unstamped or under stamped , improperly
stamped instruments not admitted in
evidence

All essential elements must exist together in

a contract, to be a legal and valid agreement
or simply called a contract

But, if any one of the elements is missing,

the contract is either voidable, void, illegal
or unenforceable in law

TYPES OF CONTRACTS
On the Basis of the Mode
of Formation

On the Basis of
Performance

On the Basis of Validity or

Enforceability

Express contract

Executed contract

Valid contract

Implied contract

Executory contract

Void contract

Quasi-contract

Unilateral contract

Voidable contract

Bilateral contract

Illegal agreement
Unenforceable contract

On the basis of formation:

1.Express contract: Where the terms of the contract are expressly agreed
upon in words (written or spoken) at the time of formation, the contract is
said to be express contract.
Example
A says to B Will you purchase my bike for20,000? B says Yes to A.
2.Implied contract: An implied contract is one which is inferred from the
acts or conduct of the parties or from the circumstances of the cases. Where
a proposal or acceptance is made otherwise than in words, promise is said to
be implied.
Example
A stops a taxi by waving his hand and boards it. There is an implied contract
that A will pay the prescribed fare on reaching his destination.
Withdrawal of cash from the ATM of a bank.

3.Quasi contract: A quasi contract is created by law. Thus, quasi contracts

are strictly not contracts as there is no intention of parties to enter into a
contract. It is legal obligation which is imposed on a party who is required to
perform it. A quasi contract is based on the principle that a person shall not
be allowed to enrich himself at the expense of another.
For example, suppose that vacationing physician Jane Doe is driving down
the highway and finds Joe Bloggs lying unconscious on the side of the road.
Doe renders medical aid that saves Bloggs's life. Although the injured,
unconscious Bloggs did not solicit the medical aid and was not aware that the
aid had been rendered, he received a valuable benefit, and the requirements
for a quasi contract were fulfilled. In such a situation, the law will impose a
quasi contract.

On the basis of performance:

1.Executed contract: An executed contract is one in which both the
parties have performed their respective obligation.
Example
A sells his car to B for1 lakh. A delivered the car and B paid the price. This
is an executed contract.
2.Executory contract: An executory contract is one where one or both the
parties to the contract have still to perform their obligations in future.
Thus, a contract which is partially performed or wholly unperformed is
termed as executory contract.
Example
A sells his car to B for1 lakh. If A is still to deliver the car and B is yet to
pay the price, it is an executory contract.

3.Unilateral contract: A unilateral contract is one in which only one party

has to perform his obligation at the time of the formation of the contract,
the other party having fulfilled his obligation at the time of the contract or
before the contract comes into existence.
Example
Alap promises to pay1000 to anyone who finds his lost cellphone. Bansi
finds and returns it to Alap. From the time Bansi found the cell phone, the
contract came into existence. Now Alap has to perform his promise, i.e.,
the payment of1000.
4.Bilateral contract: A bilateral contract is one in which the obligation on
both the parties to the contract is outstanding at the time of the formation
of the contract. Bilateral contracts are also known as contracts with
executory consideration.
Example
A promises to sell his car to B for1 lakh and agrees to deliver the car on
the receipt of the payment by the end of the week. The contract is bilateral
as both the parties have exchanged a promise to be performed within a
stipulated time.

On the basis of validity:

1.Valid contract: An agreement which has all the essential elements of a
contract is called a valid contract. A valid contract can be enforced by law.
2.Void contract[Section 2(g)]: A void contract is a contract which ceases
to be enforceable by law. A contract when originally entered into may be
valid and binding on the parties. It may subsequently become void. There
are many judgments which have stated that where any crime has been
converted into a "Source of Profit" or if any act to be done under any
contract is opposed to "Public Policy" under any contractthan that contract
itself cannot be enforced under the lawReasons:
Supervening Impossibility( marriage)
Subsequent Illegality( wheat-pvt trading)
Repudiation of a voidable contract( lack of free concent)
Uncertain Future event( c dies)

3.Voidable contract[Section 2(i)]: An agreement which is enforceable by

law at the option of one or more of the parties thereto, but not at the
option of other or others, is a voidable contract. If the essential element of
free consent is missing in a contract, the law confers right on the aggrieved
party either to reject the contract or to accept it. However, the contract
continues to be good and enforceable unless it is repudiated by the
aggrieved party. Lack of free consent
4.Illegal contract: A contract is illegal if it is forbidden by law; or is of such
nature that, if permitted, would defeat the provisions of any law or is
fraudulent; or involves or implies injury to a person or property of another,
or court regards it as immoral or opposed to public policy. These agreements
are punishable by law. These are void-ab-initio.
5.Unenforceable contract: Where a contract is good in substance but
because of some technical defect cannot be enforced by law is called
unenforceable contract. These contracts are neither void nor voidable. Bill
of exchange become unenforceable after three years