Unit – 1 Contract Law

Prepared By:
Premendra Sahu
Asst. Professor, itm University
 Business Law

Business law is a rule which helps us to regulate and manage our

business transactions and activities system. It has direct relation with
trade, industry and commerce. e.g. insurance act, contract act, tax act,
sale of goods act, agency act etc.
THANK YOU
HAVE A FABULOUS DAY 
 INDIAN CONTRACT ACT, 1872
Enacted by Date Parliament of India 25 April 1872
enacted 1 September 1872
Date
Extentcommenced
Total sections 238
All States of India except
the State of Jammu & Kashmir

The Indian Contract Act consists of the following two parts:

 What is a Contract?

An agreement which is legally enforceable alone is a contract.

Agreements which are not legally enforceable are not contracts but
remain as void agreements which are not enforceable at all or as
voidable agreements which are enforceable by only one of the parties
to the agreement.
“All contracts are agreements, But all agreements are not contracts.”
OFFER/PROPOSAL ACCEPTANCE PROMISE
 Contract
Offer/Proposal sec 2(a) - 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 either to such act or
abstinence, he is said to make a proposal.
Acceptance sec 2(b) - When the person to whom the proposal is made, signifies his assent there
to , the proposal is said to be accepted.

3. Promise sec 2(b) - A Proposal when accepted becomes a promise. In simple words, when an
offer is accepted it becomes promise.
Promisor and promise sec 2(c) - When the proposal is accepted, the person making the proposal
is called as promisor and the person accepting the proposal is called as promisee.
5. Consideration sec 2(d) - When at the desire of the promisor, the promisee or any other
person has done or abstained from doing something or does or abstains from doing
something or promises to do or abstain from doing something, such act or abstinence or
promise is called a consideration for the promise.
Price paid by the one party for the promise of the other Technical word meaning QUID-
PRO-QUO i.e. something in return.
Agreement sec 2(e) - Every promise and set of promises forming the consideration for
each other.
Capacity : The parties to a contract must have capacity (legal ability) to make valid contract.
Section 11:- of the Indian contract Act specify that every person is competent to contract provided.
 Is of the age of majority according to the Law which he is subject
Who is of sound mind and
Is not disqualified from contracting by any law to which he is subject.

Lawful object :The object of agreement should be lawful and legal. Consideration or object of an agreement is unlawful 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 person or property of another; or
Court regards it as immoral, or opposed to public policy.
 ENFORCEABLE BY LAW CONTRACT
AGREEMENT

Contract sec 2(h) - An agreement enforceable by Law is a contract.

 9 Essential Elements of a Valid Contract

As per Section 10 “All agreements are contracts, if they are made – by free
consent of the parties, competent to contract, for a lawful consideration and
with a lawful object, and not hereby expressly declared to be void .”
ESSENTIAL ELEMENTS OF A VALID CONTRACT

1)Offer and acceptance

2)Legal relationship
3)Free consent.
4)Capacity or competency of parties
5)Lawful object
6)Lawful consideration
7)Certainty and possibility of performance
8)Agreements not declared to be void
9)Legal formalities
 1} Offer and Acceptance

There must be two parties to an agreement i.e., one party making the offer and
the other party accepting it. the terms of offer must be definite and the
acceptance of the offer must be absolute and unconditional. The acceptance
must also be according to the mode prescribed and must be communicated to
the offeror.
 2} Intention to create legal relationship

When the two parties entering in to an agreement, their intention must be to

create legal relationship between them if there is no such intention on the part
of the parties, there is no contract between them.
 3} Lawful Consideration

An agreement to be enforceable by law must be supported by

consideration.’ Consideration’ means an advantage or benefit moving from
one party to another. It is the essence of a bargain. in simple words; it
means” some thing in return”.

The agreement is legally enforceable only when both the parties give
something and get something in return. Consideration need not necessarily
be in cash or kind. It may be an act or abstinence or promise to do or not to
do some thing. It may be past, present or future. but it must be real and
lawful.
 4} Capacity of Parties-Competency

The parties to the agreement must be capable of entering in to a valid

contract if he (a) is of the age of majority.(b)is of sound mind, and(c) is not
disqualified from contracting by any law to which he is subject. Sec.
11&Sec.12. Flaw in capacity to contract may arises from minority, lunacy,
idiocy, drunkenness etc and status
 5} Free and genuine consent

It is essential to the creation of every contract that there must be a free and
genuine consent of the parties to the agreement. The consent of the parties
is said to be free when they are of the same mind on all the material terms
of the contract. The parties are to be same mind when they agree about
the subject matter of the contract in the same sense and at the same time.
(Sec.13).If the agreement is induced by coercion, undue influence, fraud,
misrepresentation etc then it is not said to be free consent. Sec.14
 6} Lawful Object

The object of the agreement must be lawful. It means

that the object must not be
Illegal;
Immoral; or
Opposite to public policy.
If an agreement suffers from any legal flaw, it would not be
enforceable by law.
 7} Agreements not declared void

The agreements must have not been expressly declared void by any
law in force in the country.
 8} Certainty and possibility of performance

The agreements must be certain and not indefinite. (Sec.29)If it is not possible
to ascertain its meaning, it can’t be enforced. The terms of the agreement must
also be such as are capable of performance. Agreement to do an impossible
act can not be enforced by law.
According to Sec. 10, all agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful consideration and with a
lawful object and are not expressly declared to be void. in order to become a
contract, an agreement must have the following essential elements:-
 9} Legal Formalities

A contract may be made by words spoken or written. In written agreements,

there are some other formalities also which have to be complied within order to
make an agreement legally enforceable. For Ex. - Writing stamping,
registration, signature of witnesses and legal charges etc.
TYPES OF CONTRACT
 ON THE BASIS OF CREATION

Express Contracts: 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.

Implied Contracts: Implied contracts in contrast come into existence by

implication.
Most often the implication is by law and or by action.
Tacit Contracts: Tacit contracts are those that are inferred through the
conduct of parties.

Quasi Contracts: 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
 ON THE BASIS OF VALIDITY

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.
Void contract (2(j) : "A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable". Thus a void contract is one which cannot be enforced by a court of law.
Under a mistake of facts [20]
Consideration or object of an agreement is unlawful [23] Agreement made without consideration
[25]
Agreement in restrain of marriage [26] Restraint of trade [27]
Restrain legal proceeding [28]. Agreement by wage of wager [30]
Voidable contract Section 2[i] : Defines that an agreement which is enforceable
by law at the option of one or more parties but not at the option of the other or
others is a voidable contract.Result of coercion, undue influence, fraud and
misrepresentation.

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.
Example: Writing registration or stamping.
 Illegal contract : Contracts those which are forbidden by law. All illegal
contracts are hence void also, because of the illegality of their nature
they cannot be enforced by any court of law. In fact even associated
contracts cannot be enforced. Contracts which are opposed to public
policy or immoral are also illegal.

“All illegal agreements are void agreements but all void agreements are not
illegal.”
 ON THE BASIS OF EXECUTION

Executed contract : An executed contract is one in which both the

.
parties have performed their respective obligation.

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.
 ON THE BASIS OF LIABILITY

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.

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.
 CONTRACT OF INDEMNITY

Sec 124 of Indian Contract Act defines “a contract of indemnity as a contract by

which one party promises to save the other from loss caused to him by the conduct
of the promisor or himself or by the conduct of any other person is called a
“Contract of indemnity”

From the above definitions it is cleared that contract of indemnity is a special type
of contract.
i. Where one person promises another to compensate the loss caused by promisor
interalia by another.
ii. The person who agrees to compensate the loss is calledthe indemnifier and the
person whose loss is to be made good is called the indemnified or indemnity
holder, this type of contract is a class of contingent contracts.
 Characteristics of Indemnity

1.contract of indemnity must satisfy all the essential elements viz.

legal relationship, free consent etc.
2. Contract of indemnity may be express or implied.
 Rights of Indemnity holder (Sec 125)

According to it, an indemnity holder can recover from indemnifier

i. All damages had suffered.
ii. All costs which he may be compelled to pay in bringing such suit.
iii. All sums which may have paid the towns of any compromise of any suit.
 Rights of indemnifier: -

Indian Contract Act is silent regarding the rights of the indemnifier in a contract
of indemnity. However he has been held in number of cases that the rights of
indemnifier are similar to the rights of a surety under Sec 141 of Indian
Contract Act.
 CONTRACT OF GURANTEE

According to Sec 126 if Indian Contract Act,

Acontract of guarantee is a contract to perform the promise or discharge the
liability of third person In case of his default or non performance. The person
who gives the guarantee is called Surety. The person irrespective of whose
default the guarantee is given is called the “principal debtor” and the person to
whom the guarantee is given is called the “creditor”.