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1. Introduction
Law of contract – Foundation upon which the superstructure
of modern business is built.
Business – promise made between parties performance
follows later.
Breaking of a promise – without incurring liability – endless
complications.
Law of contract lays down legal rules relating to promises,
their formation, performance and enforcement
Applicable not only to business community but others.

2. Indian Contract Act (1872)
Sec 2(h): “An agreement enforceable by law”
AGREEMENT : Sec 2(e) "every promise and every set of promises,
forming the consideration for each other."
PROMISE : Sec 2(b) "when the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted.
Proposal when accepted, becomes a promise.“

3. A proposal when accepted becomes a promise.
e.g.- Sita offers to sell her house to Ritu for Rs 40,00000.Ritu
accepts the offer. This offer after acceptance becomes promise
and this promise is treated as agreement between Sita and
Ritu.
Agreement- Proposal+ Acceptance
Analysis of the definition-Characteristics of the agreement-
a)Plurality- There must be two or more persons to make an
agreement.
b)Consensus-ad-idem- Both parties to the agreement must
agree about the same subject matter of the agreement in the
same sense and at the same time.

4. Analysis of the definition-Characteristics of
the agreement-
a)Plurality- There must be two or more
persons to make an agreement.
b)Consensus-ad-idem- Both parties to the
agreement must agree about the same
subject matter of the agreement in the same
sense and at the same time.

5. CONTRACT (1872)
Sec 2(h): “An agreement enforceable by law”
AGREEMENT : Sec 2(e)
PROMISE : Sec 2(b)
Agreement (Accepted Proposal)
Offer/
Proposal
Acceptance of
that Offer

6. What Agreement are Contract
Contract Act is the law of those agreement which
create legal obligation. i.e a duty that is enforceable
by law.
Some agreement are not Enforceable.
What obligations are Contractual in nature.
Agreement to do unlawful, immoral or illegal Act.
Agreement is broader term than Contract.
Legal
Obligation
CONTRACT

7. What Agreement are Contract?
Contract Act is the law of those agreement which
create legal obligation.
All contracts are agreement but all agreement are not
contracts-Agreement of moral, religious or social
nature are not contracts.
Legal
Obligation
CONTRACT

8. e.g- A promises to have dinner with B but B fails to reach
there. It is not a contract as they are not likely to create a
legal contact. Since some agreement are not enforceable.
A father promises to pay his son Rs 1000 as pocket
allowance. Later he refuses to pay. Can the son recover the
Amount???
The son cannot recover as its is a domestic agreement and there is
no intention on the part of the parties to create legal relations.
In commercial or business agreements the usual
presumption is that the parties intend to create a legal
relationship

9. Essential Elements of a valid Contract (Sec 10)
1.Offer and acceptance-
There should be a lawful proposal and a lawful acceptance of that
proposal thus resulting in an agreement.
There must be two parties to an agreement i.e. one party making the
proposal and the other party accepting it. The terms of the proposal must
be definite and the acceptance of the proposal must be absolute and
unconditional. The acceptance must be also according to the mode
prescribed and must be communicated to the proposer.
2-Intention to create a legal Relationship.
Agreements of social and domestic nature do not contemplate legal
relationship. e.g. husband's promise to wife to take her to market. – No
written agreement by both the parties indicating not legal implication.

10. • Balfour Vs Balfour(1919)
The defendant was a civil servant stationed in Ceylon. He
and his wife were enjoying leave in England. When the
defendant was to return to Ceylon his wife could not
accompany him due to health reasons. The defendant
agreed to send her 30 pounds a month as maintenance
expenses during her stay in England. The defendant failed
to do
so. She sued him for breach of agreement. Her action was
dismissed on the ground that no legal relations had been
contemplated and therefore there was no contract.
In commercial or business agreements an intention to
create legal relations is presumed. Thus, an agreement to
buy and sell goods intends to create legal relationship,
hence is a contract, provided
CASE:

11. • Balfour Vs Balfour(1919)
• FACTS: The defendant was a civil servant stationed in Ceylon. He and his wife were
enjoying leave in England. When the defendant was to return to Ceylon his wife could
not accompany him due to health reasons.
• The defendant agreed to send her 30 pounds a month as maintenance expenses
during her stay in England. The defendant failed to do so. She sued him for breach of
agreement.
• JUDGEMENT: Her action was dismissed on the ground that no legal relations had been
contemplated and therefore there was no contract.
• In commercial or business agreements an intention to create legal relations is
presumed. Thus, an agreement to buy and sell goods intends to create legal
relationship, hence is a contract, provided other requisites of a valid contract are
present.
Defendant: person
sued/accused in a
court of law
Mr.
Plaintiff: Person who
brings a case against
another in a court of law
Mrs.

12. other requisites of a valid contract are present. But if the parties have
expressly declared their resolve is not to create a legal obligation, even a
business agreement does not amount to a contract.
• Rose&Frank Co. vs Corromption Bros [1925 AC 445]
There was an agreement between R company and C company by means of which
the former was appointed as the agent of the latter. One clause in the
agreement was: ”This agreement is not entered into….as a formal or legal
agreement and shall not be subject to legal jurisdiction in the law courts.”
HELD - There was no binding contract as there was no intention to create legal
relationship

13. CASE 1:
It was clear to everyone that prices of laptops were going to rise from the month of
April. There was, thus, a rush to buy laptops before April. Ajay needed two laptops for
his software development business. Ajay negotiated with a laptop seller, Daman, for the
supply of two laptops. Daman was willing to supply only one laptop. On Ajay’s proposal
that the laptop be delivered in March, Daman said, “Done. We will deliver it by March
31.” Ajay booked an order for the supply of the second laptop with Vishal. On being
asked to supply it in March, Vishal said, “We will try to get it in March.” Both, Daman and
Vishal, delivered the laptops to Ajay in April. Ajay had to pay Rs. 4, 000 more for each
laptop.
a. Can Ajay hold Daman responsible for having to pay the additional Rs. 4000 for the
laptop? Can Ajay demand the additional money from Daman?
b. Can Ajay hold Vishal responsible for his having to pay an additional Rs. 4000 for the
laptop? Can Ajay demand the additional money from Vishal?

14. Case 2: Offer, Acceptance and Meeting of Minds
Arnold said to Sujay, “I should have done my homework. I bought this clip-on mike for Rs. 1400, to
use with my portable recorder. I now realise that it works only with computers. It is useless for me.
I will be happy to sell it to anyone for the price I bought it for.”
Sujay responded, “I have been desperately looking for a clip-on mike to use with my computer for
months, without any success.”
Arnold exclaimed, “Really! I can sell it to you right now, at the price I bought it for.”
Sujay replied, “Accepted. Thank you. Here is Rs. 1400.”
Q 1) Have Arnold and Sujay agreed on the sale of the mike?
Seconds later, Sujay retracted, “I am sorry, I will not buy it from you. The receipt for the purchase
of the mike must be in your name and I would not be able to get a reimbursement from my
office.” Arnold insists that an agreement had been formed between the parties and Sujay is
breaching the contract. Decide.