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UNIT I CONTRACT ACT 1872 WHAT ARE THE ESSENTIALS OF A CONTRACT UNDER THE CONTRACT ACT 1872?
OUTLINE OF CLASS DISCUSSIONS Masoud Zafer School of Business Studies Sharda University Greater Noida January 11, 2011
-------------------------------------------------------------------------------------------------------------------------Follow up this outline of our class discussions on Essentials of a Contract in conjunction with your class notes, Bare Act, plus any book of your choice from the Suggested Readings list at the bottom of the syllabus. You may discuss your questions on this topic with me in my cubicle in the School of Business Studies Building between 9:30 am and 5:00 pm, except class hours, on working days. You can post your questions, access the transcripts of class discussions, the question bank, syllabus, plus web links to important articles at Sharda Universitys Learning and Management System (LMS). --------------------------------------------------------------------------------------------------------------------------

b What are the essentials of a contract?

The essentials are: Offer

+
Acceptance

+
Consideration

+
S 10 components (Consideration, Competent Parties, Free Consent, Lawful Object)

+
Intention to create legal relations Page 2 2

b To create a contract, FIRST create its FOUNDATION:

Offer

+
Acceptance

+
Consideration

b Next, add TWO more essentials to the foundation

They are: -- S 10

-- Intention to create legal relations

b S 10 contains FIVE components of legal enforceability

S 10 says, an agreement will become a contract when it is

8
made for Consideration

8
between Parties

8
who are Competent

8
with their Free Consent

8
for a Lawful Object S 10 or Legal Enforceability require Offer, Acceptance, Consideration to take place - between parties who are

Competent
, i.e. they understand the consequences of their actions (e.g. they are not minors, or of unsound mind ) - with their

Free Consent
, i.e. not through force (e.g. not at the point of a gun ) - for a

Lawful Object
, (e.g. not to sell drugs ) Solve this case Mr. Good Heart buys a brand new latest series Mercedes sports car from a showroom. Same morning he takes out Miss Devious for a joy ride in his new car. That evening Miss Devious invites him to an expensive restaurant for dinner. She orders expensive wines and gets Mr. Good Heart drunk. She then offers to buy his car for Rs10,000. Mr. Good Heart accepts. She gives him the money, and he gives her the car keys and papers. Next morning he realizes what he did in the restaurant. He contacts his lawyer, and Miss Devious contacts hers. Page 3 3 The matter goes to the court of Judge I.M. Sober. Miss Devious lawyer argues there was OFFER, ACCEPTANCE, CONSIDERATION between his client and the Plaintiff. Mr. Good Hearts lawyer argues, Yes there was offer, acceptance, consideration, but it happened when his client was of

unsound mind
. State what Judge I.M. Sober is likely to write in his judgment.

b Intention to create legal relations

In social agreements the presumption is that the parties do not intend to create legal relations.

An agreement to go a restaurant is not a valid agreement under the Act as the law presumes that parties did not intend to create legal relations. In business agreements the presumption is of legal relations where parties intention operates automatically in the background of their agreement. Illustration A offers to sell his LML 150cc scooter to B for Rs4,000, and Bs acceptance of that offer is a valid contract as law presumes that parties intended to create legal relations. If A breaches the contract and puts up his defense that he intended his offer to be a joke, will the court accept that? There were offer, acceptance, consideration + presence of s 10 components + presence of intention to create legal relations Can you explain why A will not succeed in his defense? Can you explain why the law treats contracts, big or small, very seriously?

Summing Up
To fully understand a contract, look up

THREE
sections: i. S 2(h): Definition of Contract Contract = Agreement + Legal Enforceability ii. S 2(e): Definition of Agreement Agreement = Offer + Acceptance (i.e. mutual exchange of promises) Page 4 4 iii. S 10:

FIVE
components of Legal Enforceability An agreement will become a contract when it is:

8
made for Consideration

8
between Parties

8
who are Competent

8
with their Free Consent

8
for a Lawful Object And

NEVER EVER
forget Contracts need not be written and registered. (There are however certain exceptions) Most contracts are in fact oral When you buy bread, butter and coffee, it is a contract.

When you send your car to a garage for repairs, it is a contract. Do you write these contracts, or register them? Test your knowledge Distinguish between: Social agreement Business agreement ___________________________