Meaning of Contract. According to Sec 2(h) of the Indian Contract Act, 1872 An agreement enforceable by law is a contract.

. In other words, an agreement which can be enforced in a court of law is known as a contract. On analyzing this definition, the contract must have the following two elements An agreement, and Enforceability of an agreement. In the equation form, Contract is Contract = an agreement + Enforceability of an agreement. Agreement Definition According to Sec 2(e) of the Indian Contract Act 1872, Every Promise and every set of promise forming the consideration for each other is an agreement. According to Sec 2(b) of the Indian Contract Act 1872, A proposal when accepted becomes a promise. In other words, an agreement consists of an offer by one party and its acceptance by the other. In the form of an equation. Agreement = Offer (or Proposal) + Acceptance of offer (or Proposal) Meaning of an Enforceability of Agreement An agreement is said to be enforceable by law if it creates some legal obligation. In other words, the parties to an agreement must be bound to perform their promises and in case of default by either of them, must intend to sue. Example: In case of social or domestic agreements, the parties do not intend to create legal relations. Example: In Balfour Vs Balfour (1919) A promise by the husband to pay his wife 30 every month was held unenforceable as the parties never intended it to be attended by legal obligations.

Difference between an agreement and a contract An Agreement i) Offer and its acceptance constitute an agreement. ii) An agreement may or may not create a legal obligation. iii) Every agreement need not necessarily be a contract. iv) Agreement is not concluded or a binding contract. A Contract Agreement and its enforceability constitute a contract. A Contract necessarily creates a legal obligation. All Contracts are necessarily agreements. Contract is concluded and binding on the concerned parties.

Different kinds of Contract. The following are the different kinds of contract. I) CONTRACTS ON THE BASIS OF CREATION. On the basis of creation, the contracts may be classified as under. a) Express Contract: Express Contract is one which is made by words spoken or written. Example: X says to Y will you buy my car for Rs.1, 00,000? Y says to X I am ready to buy your car for Rs.1,00,000. It is an express contract made orally. b) Implied Contract: An Implied contract is one which is made otherwise than by words spoken or written. It is inferred from the conduct of a person or the circumstances of the particular case. Example: A transport company runs buses on different routes to carry passenger and X boards a bus. This is an implied offer by the transport 10 and acceptance by X. II) CONTRACTS ON THE BASIS OF EXECUTION. On the basis of execution, the contracts may be classified as under. a) Executed Contract: It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract. Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts Xs offer. X delivers the car to Y and Y Pays Rs.1,00,000 to X. It is an executed contract. b) Executory Contract: It is a contract where both the parties to the contract have still to performed their respective obligations Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts Xs offer. If the car has not yet been delivered by X and the price has not yet been paid by Y. It is an executory contract.

c) Partly Executed and partly Executory Contract: It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation. Example: X offers to sell his car to Y for Rs. 1,00,000 on credit of one month. Y accepts Xs offer. X delivers the car to Y. Here, the contract is executed as to X and executory as to Y. III) CONTRACTS ON THE BASIS OF ENFORCEABILITY. On the basis of enforceability, the contracts may be classified as under. a) Valid Contract: A contract which satisfies all the conditions prescribed by law is a valid contract. Example: X offer to marry Y. Y accepted Xs offer. This is a valid contract. b) Void Contract: The term Void Contract is a contradiction in terms. A void contract is a contract which was valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason. Example: X offers to marry Y. Y accepts Xs offer. Later on Y dies. This contract was valid at the time of its formation but became void on the death of Y. c) Void Agreement: According to Sec 2(g), An agreement not enforceable by law is said to be void. Void agreement means that they are unenforceable right from the time they are made. Example: An agreement with agreement minor or a person of unsound mind is void because a minor or a person of unsound mind is incompetent to contract. d) Voidable Contract: According to Sec 2(i) of the Indian Contract Act, 1872, an agreement which is enforceable by law at the option of one or more of the parties there on but not at the option of the other or others, is a voidable contract. For Example, A contract is treated as voidable at the option of the party whose consent has been obtained by coercion or undue influence or fraud or misrepresentation. Example: X threatens to kill Y if he does not sell his house for Rs.1,00,000 to X. Y sells his house to X and receives payment. Here, Ys consent has been obtained by coercion and hence this contract is voidable at the option of Y, the aggrieved party. e) Illegal Agreement: An illegal agreement is one the object of which is unlawful. Such an agreement cannot be enforced by law. Thus, illegal agreements are always void.

Example: X agrees to pay Y Rs.1,00,000 if Y kills Z. Y kills Z and claim Rs.1,00,000. Y cannot recover from X because the agreement between X and Y is illegal as its object is unlawful. f) Unenforceable Contract: It is a contract which is actually valid but can be enforced because of some technical defect (Such as not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed. Example: An oral agreement is unenforceable because the law requires that an agreement must be in writing. It the oral agreement is rectified to writing, it will become enforceable. Essential elements of a valid contract. The following are the essential elements of a valid contract. 1) Proper Offer and Acceptance: There must be at least two parties. One making the offer and the other accepting it. Such Offer and Acceptance must be valid. An offer to be valid must fulfill certain conditions, such as it must intend to create legal relations, its terms must be certain and unambiguous and an acceptance to be valid must fulfill certain conditions. Such as it must be absolute and qualified. 2) Intension to create legal relationship: There must be an intension among the parties to create a legal relationship. In case of social or domestic agreements the parties do not intend to create legal relationship but in case of commercial or business agreements the parties intend to create legal relationship. 3) Free Consent: There must be free consent of the parties to the contract. According to Sec 14, consent is said to be free when it is not caused by Coercion Undue influence Fraud Misrepresentation or Mistake 4) Capacity of Parties: The parties to an agreement must be competent to contract. In other words, they must be capable of entering into a contract. According to Sec 11 of Indian Contract Act, 1872 every person is competent to contract who is of the sound mind and is not disqualified from contracting by any law to which he is subject. In other words, the person must be of sound mind and must not be declared disqualified by any law.

5) Lawful consideration: An agreement must be supported by lawful consideration. Consideration means some thing in return. According to sec. 23 of the Indian contract act 1872, the consideration is considered lawful unless it is forbidden by law or is fraudulent or involves or implies injury to the person or property of another or is immoral or is opposed to public policy. 6) Lawful object: The object of an agreement must be lawful. According to sec. 23 of the Indian contract act, 1872, the object is considered law unless it is forbidden by law or is fraudulent or involves or implies injury to the person or property of any other or is immoral or is opposed to public policy. 7) Agreement not expressly declared void: The agreement must not be have been expressly declared void under the provisions of sec 24 to 30 of the Indian contract 1872. Under this provisions agreement in restraint of marriage, agreement in restraint of legal proceedings, agreements in restraint of trade have been expressly declared void. 8) Certainty of meaning: The terms of the agreement must be certain and unambiguous. According to Sec 29 of the Indian Contract Act, 1872, the meaning of the agreement which is not certain is void. 9) Possibility of performance: The terms of the agreement must be such as are capable of performance. According to Sec 56, an agreement to do an impossible act is void 10) Legal Formalities: The agreement must comply with the necessary formalities as to writing, registration, stamping etc., if any required in order to make it enforceable by law.

OFFER Meaning of an Offer (Or) Proposal The term Offer or Proposal is defined in Sec 2(a) of the Indian Contract Act, 1872, A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence. Offeror and Offeree The person making the proposal or offer is called proposer, offeror or promisor, and the person to whom the offer or proposal is made is called the proposeree or offeree. When the offeree accepts the offer, he is called promisee or acceptor.

TYPES OF AN OFFER An Express Offer is one which is made by words spoken or written. Example: X writes to Y in a letter. I want to sell my house for Rs.2,00,000. An Implied Offer is one which is made otherwise than in words. In other words, the offer which is expressed by conduct is called an Implied offer. A Specific Offer is one which is made to a definite person or particular group of persons. A specific offer can be accepted only by that definite person or that particular group of persons to whom it has been made. Example: An offer made to a company is an offer to a group of persons and hence it is a specific offer. A General Offer is one which is not made to a definite person, but to the world at large or public in General. A general offer can be accepted by any person by fulfilling the terms of the offer. Example: X advertised in the newspapers that he would pay Rs.5,000 to anyone who traces his missing boy. LEGAL RULES OF A VALID OFFER An offer to be valid only if it must fulfill the following conditions i) Intension to create legal relationship: An offer must intend to create legal relations. An offer must be such that when accepted it will result in a valid contract. So the offer must be one when accepted, it will create legal relationship among the parties. ii) Certain and unambiguous terms: The terms of the offer must be certain and unambiguous and not vague. If the terms of the offer are vague, no contract can be entered into because; it is not clear as to what exactly the parties intended to do.

iii) Different from a mere declaration of intention: The offer must be distinguished from a mere declaration of intension. Such statement or declaration merely indicates that an offer will be made or invited in future. Example: X, a broker of Mumbai wrote to Y a merchant of Delhi stating the terms on which he is willing to do business. It was held that the letter was a mere statement of intension and not an offer.

iv) Different from an invitation to offer: An offer must be distinguished from an invitation to offer. In case of an invitation to offer, the person making an invitation invites others to make an offer to him. Example: A prospectus issued by a company for subscription of its shares and debentures is only an invitation to general public to make an offer to buy the shares / debentures which may or may not be accepted by the company. v) Communication: An offer is effective only when it is communicated to the offeree. A person cannot accept an offer, unless he knows of the existence of the offer. Until the offer is made known to the offeree, there can be no acceptance and no contract. An offer is completed only when it has been communicated to the offeree. An offer accepted without its knowledge, does not confer any legal rights on the acceptor. vi) An offer may be positive or negative: An offer may be to do something or not to do something. An offer to do something is a positive offer and an offer not to do something, is negative offer. vii) No term the Non-compliance of which amount to acceptance: An offeror cannot say that if acceptance is not communicated upto a certain date, the offer would be presumed to have been accepted. If the offeree does not reply, there is no contract, because no obligation to reply can be imposed on him, on the grounds of justice. viii) Special terms and conditions of the offer be communicated: If the acceptor or the promise had no knowledge of special terms, before or at the time of the contract, they are not binding upon the acceptor.

MEANING OF CROSS OFFERS AND STANDING OFFER Cross Offers: Two offer which are similar in all respect made by two parties to each other, in ignorance of each others offer are known as Cross Offers. Cross offers do not amount to acceptance of ones offer by the other. Hence, no contract is entered into on Cross offers. Standing Offer: An offer of a continuous nature is known as Standing Offer. A standing offer is in the nature of a tender. It is the same thing as an invitation to an offer. A contract is said to have been entered into only when an order is placed on the basis of the tender.

ACCEPTANCE Meaning of Acceptance Acceptance means giving consent to the offer. It is an expression by the offeree of his willing to be bound by the terms of the offer. Sec 2(b) of the Indian Contract Act defines Acceptance as, A proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto. A proposal when accepted becomes a promise. Types of Acceptance An offer may be accepted either by Implied acceptance or Express Acceptance. i) Express Acceptance: An express acceptance is one which is made by words spoken or written. Example: X says to Y, will you purchase my car for Rs.1,00,000?. Then Y says, I am ready to purchase your car for Rs.1,00,000. ii) Implied Acceptance: An Implied Acceptance is one which is made otherwise than in words. In other words, it is inferred from the conduct of the person. Example: A transport company runs buses on different routes to carry passengers. X, a passenger boards the bus. Xs act is an implied acceptance by X. Essentials of a Valid Acceptance i) Acceptance must be communicated to the offeror: The acceptance is completed only when it has been communicated to the offeror. Until it does not create any legal relations. A mere mental acceptance is no acceptance. A mere mental acceptance means that the offeree is assenting to an offer in his mind only and has not communicated it to the offeror. ii) The Acceptance must be in the prescribed manner: Where the offeror prescribes a particular mode of acceptance then the acceptor should follow that mode. However, where acceptance is not made in the prescribed mode, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed mode. But if he fails to do so, he accepts the defective acceptance. In case no mode of acceptance is prescribed by the proposer, then the acceptance must be according to some usual and reasonable mode. iii) The acceptance must be in response to offer: There can be no acceptance without offer. Acceptance cannot precede offer. Example: No allotment of shares in a company can be made unless the allottee has applied for them beforehand. As such, acceptance should follow the offer and no precede it.

iv) The Acceptance must be by the offeree: An offer can be accepted only by the person or persons to whom it is made. A valid contract arises only if acceptance is communicated by a person who has the authority to accept. If it is communicated by any unauthorized person, it will not create any legal relationship. vi) The Acceptance must be given before the offer lapses or is revoked: The acceptance must be given before the offer lapses or is withdrawn. In other words, if an acceptance is made after the lapse or withdrawal of the offer, it will not give rise to legal relations.

Legal provisions relating to the communication of offer. Communication of offer: An offer can be communicated by any act of the offeror by which he intends to communicate it (Sec 3). The offer can be communicated in any way which has the willingness to do or abstain from doing something. The communication of an offer is complete when it comes to the knowledge of the persons to whom it is made (Sec 4) when an offer is made by post, its communication will be complete when the letter containing the offer reaches the offeree. Example: Mr.A offers by a letter to sell his house to Mr.B at a certain price. The communication of the offer is complete when B receives the letter. Revocation of an offer: The term Revocation means taking back or withdrawal. Section 6 has described the modes in which an offer lapses. An offer comes to an end, and is no longer open to acceptance under the following circumstances. i) By Notice: An offer may be revoked any time before acceptance but not afterwards. An offer lapses when a notice of revocation has been given any time before its acceptance is complete as against the offeror. ii) By lapse of time: When the proposer prescribes a time within which the proposal must be accepted, the proposal lapses as soon as the time expires. iii) After expiry of reasonable time: If no time has been prescribed, the proposal lapses after the expiry of a reasonable time. The reasonable time will depend on the circumstance of the case.

Legal provisions relating to the communication of Acceptance. Communication of Acceptance: The acceptance can be communicated by any act of the acceptor by which he intends to communicate it or by any act which has the effect of communicating it (Sec 3). The communication of acceptance is complete by two aspects, viz., As against the proposer When it is put into a course of transmission to him, so as to be out of the power of the person who makes it As against the acceptor When it comes to the knowledge of the proposer. Revocation of Acceptance: An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor but not afterwards. In fact, revocation of acceptance amounts to withdrawal of the acceptance to a proposal of the offeree himself. Example: A proposee by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. B may revoke his acceptance any time before the letter communicating it reaches A but not afterwards.