Contract Laws: Indian Contract Act 1872: Definition of contract, essentials of a valid contract, classification of contracts, remedies of beach of contract

1. Unit-2 CONTRACT
LAWS

2. Unit 2: Contract laws
Indian Contract Act, 1872: Definition of Contract, essentials
of a valid contract, classification of Contracts, remedies for
breach of contract

3. INDIAN CONTRACT ACT
1ST Sept 1872 with 266 sections
1-75- General Provisions
76-123-Sale of Goods
124-147-Indemnity and Guarantee
148-181-Bailment and Pledge
182-238-Agency
239-266- Partnership

4. Objective
• To fulfill thepromisemade
• Failing of whichwill bemadeto
pay compensation

5. Definition
AccordingtoSec2(h) of Indian
Contract Act,1872,
thetermcontractis definedas
‘An agreementenforceableby
law’.

6. According to Pollock defines a
contract as, "Every agreement
and promise enforceable at law”

7. AGREEMENT – Section 2(e)
•Agreement is an accepted proposal. There must be one
party to offer a proposal and another to accept the proposal.
•A proposal when accepted becomes a promise(sec.2(b)).
Agreement = Offer + Acceptance

8. Essentials of valid contract
1. OfferandAcceptance
2. FreeConsent
3. Contractual Capacity
4. Lawfulconsideration
5. Lawful object
6.Agreementnotdeclared
void
7.Possibilityofperformance
8. Certaintyofterms
9. Legal relations
10. Legal formalities

9. Offer and Acceptance
There must be two parties to an agreement i.e. one party making
the offer and other party accepting it.
Offer and acceptance must be both lawful i.e. it must conform to the
rules laid down in the Indian Contract Act.
Agreement is the result of offer and acceptance.
Person who offer is called offeror
Person who accept the offer or proposal is called offeree
Example:
A say to B that he will sell his cycle to him for Rs.2000. This is an offer. If B accepts this offer, there is an
acceptance.

10. Free Consent
Parties Should Think:
1. About Same Thing
2. In the same sense
3. At the same time.
A contract between two or more parties to agree
with a mutual commitment
AND not affected by=
1. Coercion: On Treat,
Gun Point…
2. Undue Influence:
Minister is my
Relative..
3. Fraud: Thumb
Impression on wrong
Paper
4. Misrepresentation: I
am partner of Tesla
company
5. Mistake: Without
Proper knowledge

11. Contractual Capacity
The parties to the agreement must be competent of entering into a valid contract.
(a) of age of majority
(b) of sound mind and
(c) not disqualified from entering a contract by any law.
Example:
1. Rahul a person of unsound mind, enters into an agreement with Sathya to sell his house for Rs.2 lac. It is not a valid
contract because Rahul is not competent to contract.

12. Lawful consideration
Consideration is “something in return.”
It may be some benefit to the party.
Hanuman
Purchased Jeans
of 10K
Zuhair, Hanuman’s friend wanted
to have same Jeans
Ready to buy in 1k only, &
Hanuman Agrees to sell in that
small amount
Consideration
may be
Inadequate, it
no need to be
adequate.

13. Lawful object
1. Forbidden by law.
2. Should not defeat other Law
3. Immoral Nature
4. Must not be fraudulent,
5. opposed to public policy
6. Injury to the person or property of another.

14. Agreement not declared void:
An agreement to become a contract should not be an agreement which has been
expressly declared void by any law in the country, as it would not be enforceable at
law.
Under different sections of the Contract Act, 1872, the following agreements have
been said to be expressly void, viz :-
(i)Agreements made with the parties having no contractual capacity, e.g. minor and
person of unsound mind (Sec. 11).
(ii) Agreements made under a mutual mistake of fact (Sec. 20).
(iii) Agreements with unlawful consideration or object (Sec. 23).
(iv) Agreements, whose consideration or object is unlawful in part (Sec. 24).
(v) Agreements having no consideration (Sec 25).

15. Possibility of performance
The valid contract must be capable of
performance.
Example:
Asking Himalaya Mountain to bring in Bagalore.

16. Certainty of terms
For a valid contract, the terms and conditions of an agreement must be clear and certain.
The agreement must not be vague, uncertain or ambiguous
Example:
1.A promised to sell 20 books to B. It is not clear which books A has promised to sell. The agreement is void because the
terms are not clear.
2. O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over two years. Held there was
no contract as the terms were not certain about rate of interest and mode of payment.

17. Legal relations
The parties to an agreement must create legal relationship.
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.
Example:
1. Father promises to pay his son Rs.500 every month as pocket money. Later, he refuses to pay. The son cannot
recover as it is a social agreement and does not create legal relations.
2.A offers to sell his watch to B for Rs.200 and B agrees to buy it at the same price, there is a contract as it
creates legal-relationship between them.

18. Legal formalities
The agreement may be oral or in writing.
When the agreement is in writing it must comply with all legal formalities as to attestation, registration
(required for land).
If the agreement does not comply with the necessary legal formalities, it cannot be enforced by law.
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.
Example:
1.A Verbally promises to sell his book to Y for Rs.200 it is a valid contract because the law does not require it to
be in writing.
2.A verbally promises to sell his house to B it is not a valid contract because the law requires that the contract of
immovable property must be in writing.

19. Formation /
Creation
• Expressed
• Implied
• Quasi
• Contingent
• E-Contract
Validity
• Valid
• Void
• Voidable
• Illegal
• Unenforceable
Execution /
Performance
• Executed
• Executory
Liability
• Unilateral
• Bilateral
Types of Contracts

20. Based on Formation
Expressed Contracts:
The terms of the contract are
made clear in writing or orally at
the time of formation of the
contract.
Ex: Oral offer and acceptance

21. Written contract

22. Implied (not stated directly) contract:
• An implied contract is when the offer and acceptance is
made by the acts or conducts of the parties.
Ex: Ordering in a restaurant
Keeping Gardener in House

23. Quasi Contract:
• In quasi contract, there is no intention of the parties to
form a contract but created by law.
• Eg: X, a trader, leaves certain goods at house of Y by
mistake. This imposes an obligation on “Y” either to
return the goods to X or to make the payment if he
treats the goods as his own

24. Contingent Contract
It is acontract in whichapromiseis conditional
and the contract shall be Performed only on the
happeningofthat uncertainevent.
Eg:Insurance

25. Based on Validity
V
alid Contract:
• An agreement enforceable by law is a valid contract.
• Contract that has all essential elements of contract.
• valid contract is that contract which satisfies
all the essentials of section 10 of Indian
Contact Act like:- offer & acceptance, free
consent, etc..

26. Voidable contract:
Contract which is
acceptable by law at the
option of one party but
not at other.
Ex: Entering into a
contract by coercion
Mr. 007
Mr.
Spiderman

27. Void Contract:
Void Contract Sec2(j):- void contract is one which was
a valid contract when it was made but subsequently it
becomes void due to change of circumstances.
Eg:X agrees to sell his horse to Y for Rs. 5,000. but the
horse died in an accident. It become impossible to
perform the contract due to destruction of the subject.
Thus, a valid contract changes into void contract
because of impossibility of performance

28. Illegal contract:
• Contracts which are
forbidden by law
• Punishable under law
• It will make collateral party
also illegal
“All illegal agreements are
void agreements but all
void agreements are not
illegal.”

29. Unenforceable Contract:
• A contract which is valid in all respects
but because of non – fulfillment of some
technical formality, it cannot be treated
as enforceable
• Eg: Cheque without signature
• lack of proof

30. Based on Execution / Performance
Executed Contract:
An executed contract is one in which both the parties have
performed their respective obligation.
Ex: Husain agrees to paint a painting toArjun for Rs.5000.He
paints the painting andArjun pays Rs.5000 to him

31. Executory contract:
• Contract in which one or both the parties to the contract
have still to perform their obligations in future.
• Partially performed or wholly unperformed is termed as
executory contract.
• Ex: If Husain painted the painting,Arjun didn’t pay
Rs.5000 yet.

32. Based on Liability
Unilateral Contract:
• Aunilateral contract is one in which only one party has to
make a promise.
• It is a one-sided contract.
• One party known as offeror makes a promise in exchange for
an act by another party known as offeree.
• Eg: Reward Contract (pay reward if anyone get the lost
dog/cat)

33. Bilateral contract:
• Commonly used in business transactions
• Bilateral contract contains a promise by each party to fulfill certain
obligations to complete the deal.
• Similar to executory contract.
• Eg: ‘A’agrees to pay 50,00,000 to purchase the house. So buyer
must pay the price and seller must transfer the ownership.

34. Person Making Offer –Offeror/ proposer
Person to whom offer is made-
Proposee/Offeree
Peson who accepts the offer – Acceptor/
promisee

39. Acceptance

42. CONSIDERATION

45. 6.Consideration must be real and
not illusory

47. Capacity of
Parties

55. PERSONS OF UNSOUND
MIND

56. BREACH OF CONTRACT

57. BreachofContract
• Failure of a party to perform his /her obligations under a contract is
called breach of contract
• When there is a breach of contract by one party the other party
called injured or aggrieved party shall have certain
remedies against him.

58. TYPES OF REMEDIES
SUIT FOR RESCISSION
SUIT FOR DAMAGES
SUIT FOR QUANTUM MERUIT
SUIT FOR SPECIFIC PERFORMANCE
SUIT FORAN INJUNCTION