Business Law BBA I Year Osmania University

BUSINES
S LAWUNIY-1
PRESENTED BY
K.BALASRI PRASAD
B.Sc(KU), M.B.A(OU), NET(UGC), (Ph.D) (MGU)

Essential elements of a valid
Contract
An agreement , to be enforceable by law, must possess the essential
elements of a valid contract as contained in section 10 of the Indian
contract Act.
1. Offer and Acceptance: In order to create a valid contract, there
must be a ‘lawful offer’ by one party and ‘lawful acceptance’ of the
same by the other party.
2. Intention to create legal relationship: In case, there is no such
intention on the part of parties , there is no contract. Agreements of
social or domestic nature do not contemplate legal relations.
3. Lawful Consideration: Promises made for nothing are not
enforceable under the Indian Contract Act. The law enforces only
those promises which are made for consideration. Consideration
may take form of money, goods, services, a promise to marry etc.

4. Capacity of Parties: The parties to an agreement must be
competent to contract. Minors, persons of unsound mind and
persons disqualified by law to which they are subject are
incompetent to contract.
5. Free Consent: According to Sec. 13, “Two or more persons are
said to consent when they agree upon the same thing in same
sense.
According to section 14, consent is said to be free when it is
not caused by:- (a) Coercion (b) Undue influence (c) Fraud (d)
Mis-representation (e) Mistake

6. Lawful Object: The purpose or design of the
contract must be lawful. The object is said to be
unlawful if:
(a) it is forbidden by law
(b) it is of such nature that if permitted it
would defeat the provisions of any law.
(c) it is fraud
(d) it involves an injury to the person or
property of any other
(e) the court regards it as immoral or opposed
to public policy.

7. Certainty of meaning: According to section-29,
“Agreements, the meaning of which is not certain or
capable of being made certain are void.”
8. Possibility of Performance: If the act is impossible in
itself, physically or legally, it cannot be enforced at law.
9. Not declared to be void or illegal: The agreement
though satisfying all the conditions for a valid contract
must not have been expressly declared void by any law
in force in the country.
10. Legal Formalities: An oral contract is a perfectly valid
contract, except in those cases where writing,
registration etc., is required by same statute.

Classification of
Contracts
Contracts may be classified on the basis of their,
A. Validity or Enforceability
1.Valid Contracts
2.Void contracts
3. Void Agreements
4. Voidable contracts
5. Unenforceable contracts
6. Illegal contracts

Classification of Contracts
contd..
B. Formation
1.Expess Contracts
2.Implied contracts
3. Quasi Agreements

contd..
C. Performance
1.Executed Contracts
2.Executary contracts
(i) Unilateral Contracts
(ii) Bilateral Contracts

contd..
1. Valid Contracts: An
agreement becomes a contract
when all the essentials of a valid
contract as laid down in section-
10 are fulfilled.
Ex: A offers to sell his house for Rs.5
lakhs to B. B agrees to buy it for this

contd..
2. Void Contract: An agreement
which was legally enforceable when
entered into but which has become
void due to supervening impossibility
of performance.
Ex: A contract between a citizen of
Pakistan and India is a valid contract
during peace but if war breaks out

contd..
3. Void Agreement: According to
section-2(g), “An agreement which is
not enforceable by law by either of
the parties is void.”
Ex: An agreement without
consideration or with a minor.

contd..
4. Voidable Contract:
According to section-2(i), “An
agreement which is
enforceable by law at the
option of one or more of the
parties but not at the option of
the other or others is a

contd..
Ex: A, intending to deceive B,
falsely represents that 500
units of a product at C’s factory
and induces B to buy the
factory.
The contract is voidable at the
option of B. B can take

contd..
5. Unenforceable Contracts:
It is a contract which is
otherwise valid, but cannot be
enforced because of some
technical defect like absence of
a written form or absence of a
proper stamp.

contd..
Ex: A borrows Rs.10,000 from B and makes a
promissory note and a one rupee stamp is
pasted on the pronote. The agreement though
complete is unenforceable because of the
technical defect i.e., promissory note being
understamped.

contd..
6. Illegal Agreement: A contract
which is either prohibited by law is an
illegal agreement.
All illegal agreements are void but
all void agreements or contracts are
not necessarily illegal.

contd..
B. According to Formation:
1. Express contract: An express
contract is one entered into by words
which may be either spoken or
written. Where the proposal and
acceptance is made in words, it is an
express contract.

contd..
2. Implied contract: Where the
proposal or acceptance is made
otherwise than in words, it is an
implied contract.
Ex: A person employs another to do
some work , the law implies that the
former agrees to pay for the work.

contd..
3. Constructive or Quasi contract:
It is a contract in which there is no
intention on either side to make a
contract, but the law imposes a
contract.
Ex: A finder of lost goods is under an
obligation to find out the true owner
and return the goods.

contd..
C. On the basis of Performance:
1. Executed contract: An
executed contract is one where
both the parties have
performed their obligations or
carried out the terms of the
contracts. It is a completed
contract.

contd..
2. Executory contract: Where
the contract is yet to be
performed either wholly or
partially or one or both the
parties have yet to perform
their obligations. Executory
contract may be (i) Unilateral (ii)

contd..
(i) Unilateral Contract: A
Unilateral contract is one which a
promise on one side is exchanged
for an act on the other side.
(ii) Bilateral Contract: A promise
on one side is exchanged for a
promise on the part of other party.

Proposal or Offer
Proposal or Offer is the starting
point in the formation of a contract.
Section 2(a) defines Proposal as
“ When one person signifies
to another his willingness to do
or to abstain from doing
anything with a view to
obtaining the assent of that

Example: A offers to sell his
motor cycle to B for Rs. 3000.
B agrees to pay A, Rs. 3000
for the motor cycle. Here A is
called the offerer or promisor
and B the offeree or promisee.

Kinds of Offer: Offers or proposals may be
classified on the basis of
(1) How an offer is made
(2) To whom an offer is made
(1) How an offer is made: An offer may be either
express or implied from the conduct of the
parties.
An express offer is one which may be
made by words spoken or written such as
letter, telegram, e-mail.
An implied offer is one which may be
gathered from the conduct of the party or the

(2) To whom an offer is made: An offer
may be made to
(a) A particular person
(b) A particular group or body of
persons
(c) The public at large i.e. the whole
world
Specific offer
General Offer

Essentials of a valid offer or
rules regarding valid offer
1. Offer must be capable of
creating legal relations:
The offerer must intend the
creation of legal relations.
One must intend that if one’s
offer is accepted , a legally
binding agreement shall

2. Offer must be certain,
definite and not vague:
Both the parties should be
clear about the legal
consequences arising out
of contract. A vague offer
does not convey what it
exactly means.

3. Offer must be
communicated to the
Offeree:
Offer must always be
communicated to the Offeree.
If there is no communication of
an offer, there is no
acceptance resulting in the
contract. A person cannot

4. Offer must be made with a
view to obtaining the assent
of the other party:
An offer must be distinguished
from mere expression of
intention.

5. An Offer may be
conditional
An Offer can be made
subject to a condition. In
that case it can be
accepted only subject to
that condition. A conditional
offer lapses when the

6. Offer should not contain a
term, the non-compliance of
which would amount to
acceptance:
On cannot say while making
the offer that if the offer is not
accepted before a certain
date, it will be presumed to
have been accepted.

7. Lapse of an Offer:
An offer lapses—
(i) If either Offerer or Offeree dies before
acceptance.
(ii) If it is not accepted within the
specified time or a reasonable time.
(iii) If the Offeree does not make a valid
acceptance.
(iv) An offer can also lapse by
revocation. A person who makes an
offer can withdraw it at any time before

8. An invitation to offer
is not an offer:
Invitations are not offers
in the eyes of law and
do not become promises
on acceptance.

Acceptance
When the person to
whom the proposal is
made signifies his
assent, it is an
acceptance of the
proposal. An accepted

Essentials of Valid
Acceptance
1. Acceptance must be
absolute and
unconditional
A variation or alteration,
however, small of the offer,
will make the acceptance

communicated to the
offerer:
If the Offeree remains silent
and does nothing to show
that he has accepted the
offer, no contract is
formed.

made within a
reasonable time:
Acceptance to be valid
must be made within the
time allowed by the Offerer
and if no time is specified,
it must be made within a

4. It must be according to the
mode prescribed or usual
or reasonable mode:
Acceptance has to be made
in the manner prescribed
or indicated by the Offerer.

5. The acceptor must be
aware of the proposal at
the time of the offer:
An act done in ignorance of the
offer cannot be called an
acceptance.

6. Acceptance must
be given before the
offer lapses or
before the offer is
revoked

7. Acceptance
cannot be implied
from silence

Communication of an
Offer:
The communication of
an offer is complete
as soon as it comes
to the knowledge of
the Offeree.

Communication of
Acceptance:
Communication of an acceptance is
complete,
(a) As against the proposer, when
it is put in a course of
transmission to him so as to
be out of the power of the
acceptor to withdraw the

Revocation of Offer and
Acceptance:
Revocation of Offer arises only if
there has been no Acceptance of
the Offer by the time of Revocation.
Modes of Revocation of Offer:
1. By notice of Revocation: Offer
may be revoked by a
communication of a notice of
Revocation by the Offerer to the

2. By lapse of time: A Proposal will
come to an end by the lapse of time
prescribed in such Proposal for it’s
Acceptance.
3. By non-fulfillment of condition
precedent: A Proposal is revoked
when the acceptor fails to fulfill a
condition precedent to the Acceptance
of the Proposal.
4. By death or insanity: A Proposal is
revoked by the death or insanity of the

5. By Counter Offer: An Offer comes to
an end when the Offeree makes a
counter Offer or rejects the Offer.
6. By the non-Acceptance of the Offer
according to the prescribed or usual
mode
7. By subsequent illegality: An Offer
lapses if it becomes illegal after it is
made and before it is accepted.

Consideration
The law enforces only those
Promises which are made
for Consideration. Where
on party promises to do
something, it must get
something in exchange.
This ‘something in return’ is

Example: A agrees to sell his
Horse to B for Rs. 10,000.
Here A’s Promise to sell his
Horse is for B’s Consideration
to pay Rs.10,000. Similarly,
B’s Promise to pay Rs.10,000
is for A’s Consideration to sell
his Horse to B.

Essentials of Valid
Consideration:
1. At the desire of the Promisor:
Any act performed at the desire of
a third party cannot be a
consideration. The desire of the
Promisor may be Express or
Implied.
2. The Promisee or any other
person: Consideration move from

3. Consideration may be
Past, Present of Future:
4. It need not be adequate:
It is nowhere laid down that
Consideration should be
adequate to the Promise.
Adequacy is for the parties to
decide at the time of making
the agreement.

5. Consideration must be real:
Though Consideration need not be
adequate, yet it must be real and
not illusory.
6. Consideration must be lawful:
The Consideration for an agreement
must be lawful. An agreement is
Void, if it is based on unlawful
Consideration.
7. It must be something which the

Capacity of Parties
Section 11 of the Contract Act
deals with the competency of
parties and provides that every
person is competent to Contract
who is the age of majority
according to the law to which
he/she is subject, and who is
sound mind and is not

Minor
According to the Indian Majority Act,1875, a
minor is one who has not completed his or
her 18th year of age.
A person continues to be a minor until
he/she completes the age of 21 years
when,
 where a guardian of a minor’s
person or property has been appointed
under the Guardians and Wards Act, 1890,
or

Rules regarding Minor’s agreement
1. An agreement with or by a minor is void
A minor is not competent to contract and
that a contract by minor is void ab initio.
But if a guardian , on behalf of a minor,
enters into an agreement for the benefit of
minor, it is enforceable.

Case Example: Mohiri Bibi Vs Dhamodas Ghose
The lady agreed to give a loan of Rs.20,000 to
a minor( Dharmodas) by mortgaging his
property. She paid Rs.8000 as advance. The
mortgage was agreed to be executed after the
payment of balance amount.
But the minor did not take the balance. So,
she filed a suit. The Court of Law held that the
minor cannot be forced to mortgage his
property. Moreover, the amount paid to him
cannot be recovered.

2. Agreements made for the benefit of
minors can be enforced by them:
When an agreement is made between a
major person and a minor in which the
minor is the beneficiary, it can be
enforced by the minor but not by the
major person.

3. Agreements for the supply of
necessaries of life to minors can be
enforced:
According to the rule of Quasi Contracts,
if a person supplies necessaries of life to
another person who is incompetent to
contract, the value of the goods and
services can be recovered from his/her
private property. This rule applies to
minors also.

4. Minor’s agreement cannot be ratified:
If can agreement is made by a minor during his
minority is revised or confirmed or ratified by
him/her after becoming major, such agreement will
not become valid.
5. Minor can plead minority at all times:
If a minor enters into an agreement with a major
person by wrongly representing his age as major,
such agreements also becomes void. Because a
minor cannot be held liable for misrepresentation of
his age.

6. Minor is not liable for any civil torts:
When a minor causes a loss to a major person by not
following his/her instructions or committing a civil
tort, the minor cannot be held liable to compensate
the loss or pay for damages. Even his/her parents
cannot be held liable.
7. A minor can become a partner:
A minor can be a partner in a firm. There should be
at least two major partners in such firm. She/he will
be eligible to share profits but not losses. Liability is
limited to the extent of capital contributed. She/he
may or may not continue as partner after becoming
major.

8.A minor can become a share holder:
A company should not allot shares to minors. But if
shares are allotted to a minor by mistake, the
agreement cannot be avoided by the company,
because the minor becomes beneficiary.
9. Minor can become an agent of a major
person:
A major can appoint a minor as his/her agent.
Agreement made by minor agents with third parties
on behalf of major will become valid but the agent
will not become personally liable.

10. Any money paid to a minor cannot be
recovered:
Any amount paid to a minor or any goods delivered
to a minor cannot be recovered except in the case of
necessaries of life, because any consideration given
to a minor becomes nullity as per law.

Business Law BBA I Year Osmania University

Business Law BBA I Year Osmania University

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