Law of contract

Contract

 Sec 2(h)-an agreement enforceable by law

 Elements of contract :
1. Agreement sec 2(e): offer and acceptance, hence agreement is a
promise and a promise is an accepted proposal.
2. Enforceable by law– Balfour vs Balfour
3. While all contracts are agreements, all agreements are not
contracts. An agreement which is legally enforceable alone is a
contract. An agreement which are not legally enforceable are not
contracts but remains as void or voidable agreements which are
enforceable by only one of the parties to the agreement.
Essentials of a valid contract
According to sec. 10, all agreements are contracts if they are made by the free consent of the
parties who are competent to the contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to void. In order to become a valid contract, an agreement
must have the following essential qualities:
1. Offers and Acceptance: For an agreement there must be a lawful offer by one and
lawful acceptance of that offer from the other party. The term lawful means that the offer
and acceptance must satisfy the requirements of Contract Act. The offer must be made
with the intention of creating legal relations otherwise, there will be no agreement.
2. Legal Relationship: The parties to an agreement must create legal relationship. It arises
when parties know that if one for the failure of a contract. Agreements of a social or
domestic nature do not create legal relations and as such cannot give rise to a contract. It
is presumed in commercial agreements that parties intend to create legal relations.
3. Lawful Consideration: The third essential of a valid contract is the presence of
consideration. Consideration is “something in return.” It may be some benefit to the party.
Consideration has been defined as the price paid by one party for the promise of the other.
An agreement is enforceable only when both the parties get something and give
something. The something given or obtained is the price of the promise and is called
consideration.
4. Capacity of Parties: An agreement is enforceable only if it is entered into by parties who
possess contractual capacity. It means that the parities to an agreement must be competent
to contract. According to Section 11, in order to be competent to contract the parties must
be of the age of majority and of sound mind and must not be disqualified from contracting
by any law to which they are subject. A contract by a person of unsound mind is void ab-
initio (from the beginning).
5. Free Consent: It is another essential of a valid contract. Consent means that the parties
must have agreed upon the same thing in the same sense. For a valid contract it is necessary
that the consent of parties to the contact must be free.
6. Lawful Objects: It is also necessary that agreement should be made for a lawful object.
The object for which the agreement has been entered into must not be fraudulent, illegal,
immoral, or opposed to public policy or must not imply injury to the person or property of
another. Every agreement of which the object or consideration is unlawful is illegal and the
therefore void.
7. Writing and Registration: According to Contract Act, a contract may be oral or in
writing. Although in practice, it is always in the interest of the parties that the contract
should be made in writing so that it may be convenient to prove in the court. However, a
verbal contract if proved in the court will not be considered invalid merely on the ground
that it not in writing. It is essential for the validity of a contact that it must be in writing
signed and attested by witness and registered if so required by the law.
8 Certainty: According to Section 29 of the Contract Act, “Agreements the
meaning of which are not certain or capable of being made certain are void.” In
order to give rise to a valid contract the terms of the agreement, must not be
vague or uncertain. For a valid contract, the terms and conditions of an agreement
must be clear and certain.
9 Possibility of Performance: The valid contract must be capable of
performance section 56 lays down that. “An agreement to do an act impossible in
itself is void.” If the act is legally or physically impossible to perform, the
agreement cannot be enforced at law.
10 Not Expressly Declared Void: An agreement must not be one of those, which
have been expressly declared to be void by the Act. Section 24-30 explains certain
types of agreement, which have been expressly declared to be void. An agreement
in restraint of trade and an agreement by way of wager have been expressly
declared void.
Offer and acceptance

 Offer must be clear and not vague

 Acceptance should be made without any condition
 Offer is willingness to do to not to do
 Promissor and promisee
 An offer should be different from an invitation eg menu
 Offer can be expressed and implied
 Lapse of an offer sec 6
 If it is revoked by an offerer before the acceptance is
complete

 Not accepted within specified time

 Upon failure of fulfillment of the condition

 Death or insane of any parties

Acceptance sec 2(b)
 An offer should be accepted only by the person to whom it is
made
 acceptance should confirm with the agreement made eg an
offer for an sale of house
 Acceptance needs to be communicated
Intention to create legal relationship
 Rose & franck co .Vs Crompton Bros case [ one to serve as
agent]
 Lawful consideration

 Consideration must move at the behest of the Promissor

 It may be from any body
 An agreement made without consideration is void
 The consideration in question must be real and not illusory
and should be capable of evaluation by the court of law
 Exception to consideration
 Capacity to contract sec 10 & 11

 Competencies to contract are majority

 Incompetent persons are:
1. Minors agreement is void abinitio - Moharibibi vs. Dharmodas Ghose[ a
minor mortgage the house for Rs 20000 with an money lender].
2. Minors agreement cannot be Ratified by him on his attaining majority (
Arumugam vs Duraisinga promissory note).
3. No question of specific performance of minors agreement
4. Misrepresentation of age.
5. Doctrine of restitution-law protects but do not tell him to cheat
6. Minor as a partner
7. He can act as an agent
 Cont…
1. Person of unsound mind-usually unsound but occasionally
sound,lunatics,idiot,drunken

2. Persons disqualified by law-alien enemies, foreign diplomat,

corporations, insolvent, convicts
 Free and genuine consent sec 10
 Consent is said to be free:
1.Coercion- threat sec 15
 Threat, physical compulsion and menace to property
 Clear utterance of threat inducing a party to give his consent
 It is not necessary that the coercion should take place from promissor
through any third party
 Vise versa
Cont…
2.Undue influence[ use of power]- dominance due to
relationship,age,mental,sec 16
Exception :mother & daughter, grand father and grand son,
creditor and debtor, principal and agent, landlord &
tenant.
 Father & son, guardian & ward, master & servant, advocate &
client, teacher & student, income tax officer & assesses.
Cont..

3.Fraud sec 17- deceive, it exists when

A false representation has been made knowingly [peek vs

gurney]
Recklessly
Concealment of a fact
Essential requirements of a fraud
 There must be a misrepresentation
 The representation must have been made before conclusion
of the contract
 The other party must have relied upon
 The other party has suffered a loss
Effects of fraud:
He can rescind the contract
He can insist for specific performance
He can sue for damages
Cont..
4.Misrepresentation- prospectus
5.Mistake- [ of law & fact] unilateral and bilateral
 Mistake must be mutual
 Mistake should be a mistake of fact
 Mistake as to the subject matter of existence of an item
Lawful object
 Performance of contract should be lawful ex..license
 If the object to an agreement is the performance of an
unlawful act , the agreement is unenforceable.
Agreement is forbidden by law
1. if it defeat any law
2. If it is done for fraudulent purpose
3. If it is injurious to person
Classification of contract
On the basis of their enforceability:
 Valid contract
 Voidable contract: is enforceable by law at the option of any
one party
1. Elements are missing
2. When one party prevents the performance of the contract
3. When one party promises to do but fails to do
Cont…
 Void contract: a contract which was valid originally but
becomes void subsequent on account of the happening of
some subsequent events.
1. Supervening impossibility: mad
2. Subsequent illegality: government
3. Contingent event
Void agreement
 Minor
 Lunatic
 Mistake by both parties
 No consideration

Unenforceable contract
On the basis of their formation
 Express
 Imlied/tacit
 Quasi : a contract which is not entered into between the
parties but is created by law.
Ex: finder of lost article
 On the basis of performance
 Executed
 Executory
 Partly executed
 Unilateral: A permits
 Bilateral

 Doctrine of privity of contract: The doctrine of privity of contract

is a common law principle which provides that a contract cannot
confer rights or impose obligations upon any person who is not a party
to the contract. The premise is that only parties to contracts should
be able to sue to enforce their rights or claim damages as such. Dunlop
vs Selfridge company