The document discusses key concepts related to Indian contract law. It defines a contract according to Indian law as an agreement that is enforceable by law. It outlines the essential elements of a valid contract including offer and acceptance, intention to create legal relations, consensus ad idem, consideration, capacity to contract, lawful object, certainty and possibility of performance, and enforceability by law. It also discusses different types of contracts based on validity, formation and performance.

1. MODULE 1

2. LAW
According to Salmond, Law is the body of
principles recognized and applied by the state in
the administration of justice.
According to Holland, Law is a rule of external
human actions enforced by the sovereign
political authority.

3.  Law is inevitable in all spheres of life.
 Ignorance of Law is no excuse.
 A society demands us intermingling and and contact
with different persons in our day-to-day life.
 People enter into different dealings throughout their
life. Eg: seller and buyer, companies and
shareholders, government and citizens etc.
 In all these dealings, certain set of rules are to be
followed which are to be observed by the parties
contacting each other.
 So, some knowledge of law is necessary for them.

4.  It is the main source of Indian Law.
 It came into force on September 1, 1972.
 It can be divided into two parts;
- Section 1 to 75 deals with general
principles of the Law of Contract.
- Section 124 to section 238 deals with
special types of contracts such as;
-Contract of Indemnity and Guarantee
- Contract of bailment and pledge.
- Contract of Agency.

5. CONTRACT - According to sec.2(h), a contract
is defined as an agreement enforceable by the law.
AGREEMENT - According to sec.2(e), every
promise or set of promises forming consideration for
each other is an agreement.
Thus,
CONTRACT= AGREEMENT +
ENFORCEABLILITY BY LAW

6. 1.Offer / Proposal & acceptance.
2.Intention to create legal relationship.
3.Consensus - ad - idem.
4.Consideration.
5.Capacity to contract.
6. Lawful Object.
7.Certainity &Possibility of performance.
8.Writing & registration.
9. Enforceability by law

7. OFFER
In order to create a valid contract, there must be an
agreement between the two parties.
AGREEMENT= OFFER + ACCEPTANCE
.According to Sec 2(a) of Indian Contract Act,
“When a person signifies to another, his
willingness to do or abstain from doing
something, he is said to make a proposal or
offer”.

8. According to Sec 2(b), “When the person to
whom the proposal or offer is made, signifies
his assent thereto, the proposal is said to be
accepted.”
A proposal or offer when accepted becomes an
agreement or promise.

9.  Agreements which create legal relations or are
capable of creating legal relations are contracts.
 Agreements must be made with the intention to
create legal relationship with the parties.
 Agreements of social or domestic nature don't create
legal relations.
 Eg: Agreements b/w husband and wife doesn’t create
legal relationship and thus are not contracts.

10.  It means that the parties of a contract must give their
consent with a free mind.
 The parties must agree upon the same thing in the
same sense, forming a consent.
 Also the consent must be free. It shouldn’t be
obtained by coercion, undue influence, fraud,
misrepresentation or mistake.

11.  When a party to an agreement promises to do
something he must get “something in return” This
“something in return” is defined as consideration.
 It is defined as the price paid by one party for the promise
of the other.
 According to Sec 2(d), “When at the desire of the
promisor, the promisee has done or abstained from
doing something, such act or abstinence is called a
consideration for the promise.”
 Eg: If A promises to sell his house to B for 30 lakhs, A
gets 30 lakhs as consideration and B gets the house.
 Eg: If a father promises his son a car if he abstains from
smoking and if the son quits smoking, the son gets car as
consideration and father gets healthy son as consideration.

12.  The parties to an agreement must be capable
of entering into a contract.
 According to Section 11, following are the
persons not competent to enter into a contract.
- Minors.
- Persons of unsound mind.
- Persons disqualified by law.

13.  The object of an agreement must be lawful. Then
only it can be enforced by the law.
 It must not be;
- Illegal
- Immoral or
- Opposed to public policy.
 If the object is unlawful, the agreement is void.

14.  The terms of the contract must be certain and
precise.
 According Section 29, “ Agreements the meaning of
which are not certain or capable of being made
certain are void.”
 Eg: A agrees to sell a car to B out of his five cars.
There is nothing whatever to say which car was
intended. Thus, the ageement is void for uncertainity.

15. Contd…
 A contract becomes valid if it is possible to be
performed.
 According to Section 56 of the Indian Contract Act,
“An agreement to do an act impossible in itself is
void.”
 Eg: A promises to share with B 50% of the treasure,
if he gets some treasure by magic. Such agreements
are incapable of performance and hence void.

16.  Contracts are not valid unless they are written
and registered.
 Oral contracts are invalid incase of mortgage,
sales and lease of negotiable instruments,
memorandum and articles of association of a
company.
 Oral contracts are devoid of proof and hence
proper writing and registration are preferred in
Indian law.

17.  A contract in order to be valid, must be enforceable
by law.
 Enforceability by law is the element which
distinguishes an agreement and a contract.

18. Contracts can be classified according to their validity,
formation and performance.
1. According to validity or enforceability
a) Valid contracts
An agreement enforceable at law is a valid
contract. An agreement becomes a contract, when all
the essentials of a valid contract as laid down in section
10 of the Indian Contract Act are fulfilled.

19. b) Void Contracts
 Literally the term void means ‘not binding in law’.
 Void contract implies a useless contract which has no
legal effect at all.
 According to section 2(j), “A contract which ceases to be
enforceable by law becomes void.”
 It can also happen in such a manner that a contract may
be valid initially but it may become void subsequent to
its formation.
 Eg: A contract between between citizens of India and
Pakistan is a valid contract but if war breaks out between
the two countries, the agreement will become void
contract.

20. c) Voidable Contracts
 An agreement which is enforceable by law at the option
of one or more parties thereto, but not at the option of
other or others is a voidable contract.
 A contract becomes voidable when the consent of one of
the parties to the contract is obtained by coercion, undue
influence, misrepresentation or fraud.
 Such a contract is voidable at the option of the aggrieved
party i.e. the party whose consent was so caused.
 Once it is avoided by the other party, it is void. But if the
party chooses to affirm it, the contract continues to be
valid.

21. d) Unenforceable contracts
 It is a contract valid in itself but not capable of being
enforced.
 It cannot be enforced in the court of law because of
some technical defect such as;
- absence of writing
- absence of registration
- absence of requisite stamps
- time barred
 Such contracts won’t be enforced unless and until the
defect is rectified.

22. e) Illegal or Unlawful Contracts
 These contracts are prohibited by law or against the
public policy.
 The terms illegal agreement and illegal contract can be
used interchangeably.
 Illegal agreements are void ab-initio(from the beginning)
since they are immoral or criminal in nature.
 Thus, an agreement to commit murder or robbery would
be illegal and void ab-initio.

23. 2. According to formation
a) Express Contracts
 The contracts which are entered into between two parties, by
words, spoken or written are called so.
 In this contract, the parties make oral or written declaration of
their intentions and of the terms of the transaction.
b) Implied Contracts
Contracts which come into being on account of the act or
conduct of the parties. The contract is implied in the act itself
and hence it is called so.
Eg: It is implied that a person travelling in a bus has to take
ticket. As soon as he enters into the bus, it is implied that he has
to take ticket. Thus, it is an implied contract that he has to pay
the fare.

24. 3) According to performance
a) Executed Contracts
When both the parties of the contract have fulfilled
their respective obligations and nothing else remains to
be done by either party, the contract is said to be
executed.
b) Executory Contract
These are the contracts where the obligations on both
the parties are outstanding wholly or in part, at the time
of the formation of the contract.

25. c) Unilateral or one-sided contract
A contract is said to be unilateral, when one party
has performed his obligation either before or at that
time when the contract comes into existence. It is only
the obligation of the other party which remains
outstanding at the time of formation of the contract.
Eg; B permits a coolie A to carry his luggage and put it
on the carriage. A contract comes into xistence as soon
as the luggage is put into the carriage. Now B has to
fulfill his obligation i.e. he has to pay the fare to A.

26. d) Bilateral Contract
When the obligation of both the parties are
outstanding at the time of the formation of the contract,
it is known as bilateral contract.
Eg: A promises to sell his house to B after one month
and B promises to pay the price on the sale. Here the
obligation of both the parties are outstanding at the
time of formation of the contract.

27. According to Section 13 of the Indian Contract Act
defines consent as, “Two or more parties are said to
consent when they agree upon the same thing in the
same sense. Thus, consent involves identity of minds or
consensus ad idem, agreeing upon the same thing in the
same sense.
Consent and Free Consent are different.
Meaning of Free Consent
Free consent is the real consent which is required to
make a valid contract.

28. According to Section 14 of the Indian Contract Act,
consent is said to be free when it is not caused by;
I. Coercion (Section 15)
II. Undue Influence (Section 16)
III. Fraud (Section 17)
IV. Misrepresentation (Section 18)
V. Mistake (Sections 20,21 &22)
1. COERCION
When a person is compelled to enter into a contract
by the use of force by the other party or under
threat, coercion is said to be employed.

29. It includes;
 Committing or threatening to commit any act
forbidden by the Indian Penal Code.
 Unlawful detaining or threatening to detain any
property.
 Coercion can be applied either by the party to a
contract or even by a stranger.
 The place of coercion is immaterial.

30. 2. UNDUE INFLUENCE
It is the improper use of power possessed over the
mind of the contracting party. Sometimes a party is
compelled to enter into an agreement against his will
as a result of unfair persuation by the other party.
This happens when a special kind of
relationship exists between the parties and when that
relation is being used to obtain the consent of the
other, undue influence resulted. The parties may be
related in such a manner that one of them might be
able to dominate the will of the other.

31. According to Section 16(1) “ A contract is said to be
induced by undue influence when the relation
subsisting between the parties are such that one of
the parties is in a position to dominate the will of the
other and uses that position to obtain the unfair
advantage over the other.”
Thus it includes;
 Two parties.
 One party is having a dominant position.
 Dominant party takes unfair advantage of his
position.

32. PERSONS IN DOMINANT POSISTION 16(2)
According to Section 16(2), a person is deemed to be in a
position to dominate the will of the another where;
 He holds a real or apparent authority over the other.
Eg: Relationship b/w manager and worker, master and
servant etc.
 He stands in a fiduciary relation to the other.
Eg: Relationship b/w parent and child, doctor and patient,
spiritual advisor and disciple.
 He makes a contract with a person whose mental
capacity is temporarily or permanently affected due to
age, illness or mental or bodily distress.

33. Eg: Relationship b/w a medical attendant and
his patient, an alone ailing old women and
her home nurse.
3. FRAUD
Fraud means intentional or willful representation of
the fact. When a wrong representation is made by a
party with the intention to deceive the other party or
to cause him to enter into a contract, it is said to be
fraud.
According to Section 17 of the Indian Contract Act,
Fraud means and includes the following acts.

34. 1. The suggestion, as to a fact, of which is not true, by
one who does not believe it to be true.
2. The active concealment of a fact by one having
knowledge or belief of that fact.
3. A promise made without any intention of performing
it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially
declares to be fraudulent.

35. 4. MISREPRESENTATION
Misrepresentation means misstatement of a fact,
material to a contract. It is a false statement which
the person making it honestly believes to be true or
which he does not know to be false. It also includes
non disclosure of a material fact or facts without any
intention to deceive the other party.
According to section 18 of the Indian Contract Act, it
means;
- A positive assertion made by a person, which is not
true, though he believes it to be true.
- Causing, however innocently, a party to the
agreement to make a mistake as to the non-disclosure
of the substance of the thing, which is the subject of
the agreement.

36. ESSENTIALS OF MISREPRESENTATION
 The representation should be made innocently
believing it to be true and without the intention of
deceiving the other party.
 Misrepresentation should be of facts material to the
contract.
 The representation must be made with a view to
inducing the other party to enter into a contract and
the other party must have acted on the faith of the
representation.
5. MISTAKE
Mistake is defined as an erroneous belief concerning
something. If the agreement is made under mistake,

37. It means that there is no consent and when the consent
is nullified by such mistake, then the agreement has
no legal effect. i.e the effect of mistake is to make
the contract invalid.
CLASSIFICATION OF MISTAKES
It can be of types.
 Mistake of Law.
 Mistake of Fact.
1. MISTAKE OF LAW
a) Mistake of Indian Law
Indian law says that “ Ignorance of Law is no
excuse.” Hence , if a person does not know the law
of his country, he must then suffer the consequences.

38. As such, a mistake of Indian law will not effect the
validity of the contract and it will remain valid.
b) MISTAKE OF FOREIGN LAW
A person is supposed to know the laws of his
country, but he cannot be expected to know the laws
of other countries. Thus, if both the parties are under
a mistake relating to a foreign law, the contract is
void.
2. MISTAKE OF FACT
Mistake relating to terms and conditions of any facts
essential to the agreement is known as mistake of
fact. It can be classified into;
A. BILATERAL MISTAKE
If both the parties to an agreement are under a

39. mistake of fact essential to the agreement, such
mistake is called bilateral mistake of fact.
b. UNILATERAL MISTAKE
This is a situation where only one party is under a
mistake. It will not invalidate the agreement.