A basic primer on the essentials of contract. A very useful tool for the managers or lawyers to understand the basic concepts related to formation of contract.

1. Offer – Section 2(a)
• An offer may be express or implied
• An offer must give rise to legal consequences and be
capable of creating legal relations
• The terms of offer must be certain and not loose or
vague
• An invitation to offer is not an offer
• An offer may be specified or general
• An offer must be communicated to the offeree
• An offer should not contain a term the non-compliance
of which amount to acceptance
• An offer can be made subject to any terms or
conditions
• Two identical cross-offers do not make a offer

2. Lapse of Offer
• An offer lapses after stipulated or reasonable
time
• An offer lapses by not being accepted in the
mode prescribed
• An offer lapses by rejection
• An offer lapses by the death or insanity of the
offeror before acceptance
• An offer lapses by revocation
• Revocation by non-fulfillment of a condition
precedent to acceptance
• An offer lapses by subsequent illegality or
destruction of subject matter

3. Acceptance – Section 2(b)
• Acceptance must be given only by the person to whom
the offer is made
• Acceptance must be absolute and unqualified
• Acceptance must be expressed in some usual and
reasonable manner – unless the proposal prescribes
the manner in which it is to be accepted
• Mental acceptance ineffectual
• Acceptance must be communicated by the acceptor
• Acceptance must be given within a reasonable time
and before the offer lapses and/or revoked
• Acceptance must succeed the offer
• Rejected offers can be accepted only, if renewed

4. Communication of Offer, Acceptance and
Revocation
• Communication of an Offer
• Communication of an Acceptance
• Communication of a revocation
• Time during which an offer or acceptance can be
revoked
• Effect of delay or loss of letter of acceptance in postal
transit
• Contracts over telephone – No question of revocation
“Acceptance is to an offer what a lighted match is to a
train of gunpowder”

5. Consideration – Section 2 (d)
• Consideration must move at the desire of the
promisor
• Consideration may move from the promisee or
any other person
• A stranger to a contract cannot sue*
• Consideration may be past, present or future
• Consideration must be something of value
• No consideration, No contract*
• * with exceptions

6. Capacity of Parties
• Minor
• Person of unsound mind
• Disqualified persons

7. 1. Minor
• An agreement by a minor is absolutely void and inoperative
against him/her
• Beneficial agreements are valid contracts
• No ratification on attaining the age of majority
• The rule of estoppel does not apply to minor
• Minor’s liability for necessaries
• Specific performance
• Minor partner
• Minor agent
• Minor and insolvency
• Contract by a minor and adult jointly
• Surety for a minor
• Position of minor’s parents
• Minor Shareholder
• Minor’s liability in tort

8. 2. Persons of unsound mind
• Idiocy
• Lunacy or Insanity
• Drunkenness
• Hypnotism
• Mental Decay
• Effect of agreements made by persons of unsound
mind is void, and inoperative against him/her
• A person who is usually of unsound mind, but
occasionally, of sound mind, may make a contract
when he is of sound mind

9. 3. Disqualified Persons
• Alien enemies
• Foreign sovereigns and ambassadors a special
• Convict
• Married women
• Insolvent
• Joint stock company or corporation
incorporated under a special Act

10. Free Consent – Section 14
• Coercion – Section 15
• Undue Influence – Section 16
• Misrepresentation – Section 18
• Fraud – Section 17
• Mistake – Sections 20, 21, and 22
* Mistake of Law
* Mistake of Fact

11. Legality of Object & Consideration
• If it is forbidden by law
• If it is of such nature that, if permitted, it would
defeat the provisions of any law
• If it is fraudulent
• If it involves or implies injury to the person or
property of another
• If the court regards it as immoral
• If the court regards it as “opposed to public
policy”

12. Void Agreements
• Agreement by a minor or a person of unsound
mind
• Agreement made under a bilateral mistake of
fact material to the agreement
• Agreements of which the consideration or
object is unlawful
• Agreement made without consideration

13. Void Agreements
• Agreement in restraint of marriage
• Agreement in restraint of trade
• Agreement in restraint of legal proceedings
• Agreement the meaning of which is uncertain
• Agreement by way of wager
• Agreement contingent on impossible events
• Agreement to do impossible acts

14. Performance of Contracts
• Who can demand performance?
It is only the promisee who can demand
performance of the promise under a contract
• By whom contracts must be performed?
1. By the promisor himself
2. By the promisor or his agent
3. By the legal representatives
4. Performance by a third person

15. •Performance of joint promises
•Who can demand performance of joint promises?

16. •By whom joint promises must be performed?
* All promisors must jointly fulfil the promise
* Any one or more of joint promisors may be
compelled to perform
* Right of contribution inter-se between joint
promisors
* Sharing of loss by default in contribution
* Effect of release of one joint promisor

17. •Order of Performance of Reciprocal Promises
•Mutual and Independent
•Mutual and Dependent
•Mutual and Concurrent
•Consequences where a party prevents
performance (Voidable)

18. Specific Contracts
Section 124 – Section 147
• Indemnity & Guarantee
– Indemnity: A contract by
which one party promises to
save the other from loss
caused to him/her by the
conduct of the promisor
himself/herself, or by the
conduct of any other person
– Guarantee: A contract of
gurantee is a contract to
perform a promise or
discharge the liability of a
third person in case of his/her
default
Section 148 – Section 181
• Bailment & Pledge
– A bailment is the delivery of
goods by one person to
another for some purpose,
upon a contract that they
shall, when the purpose is
accomplished, be returned or
otherwise disposed off
according to the directions of
the person delivering them
– The bailment of goods as
security for payment of a
debt or performance of a
promise is called pledge
(pawn)

19. Contract Of Agency
• Principal
• Agent
Creation of Agency
Termination of Agency
Irrevocable Agency