,. .. .

, )

HISTORICAL BACKGROUND OF. INDIAN CONTRACT ACT

'
When the Courts of Justice for the three presidency towns of Calcutta, Madra
s and
Bombay were ·established there was no codified law governing contracts in India.
The law
relating to contracts was·dealt with the charter granted in 1726 by King George
I to the East
India company. Thereafter in the year 1781, the Act of Settlement was passed by
the British
Government. The Act of Settlement authorized the Supreme Court of India to
deal with all
the matters of ~ontract , between the parties._ But the matters relating to contrl:l
ct }were
determined in case of Hindus by the laws governing Hindus and in case of Muslim
s by the
laws governing Muslims. In cases where parties to a contract belonged 'l
to . different
persuasions, then the Law of the Defendant was applied. For outside the Presid
ency Town~,
the matters relating to contrac~ was mainly dealt with through the English Contra
ct Laws
(based on the principles of justice, equity and good conscience).
Inspite of the changes made by the Statutes, there were number of complication
s relating
to the laws concerning contracts resulting into a strong need for a compr
ehensive law
governing contracts. Therefore in the year 1861, the Third Law Commission of
British India
under the chairmanship of Sir John Romilly presented the report on Contract
Law for India.
The Law Commission submitted a draft on 28th July, 1866. The Draft Contra
ct Law after
several amendments was then enacted as The Act 9 of 1872 on 25th April
1872 and the
INDIA N CONTRACT ACT, 1872 came into force with effect from 1st Septem
ber, 1872.
The Indian Contract Bill, passed by the legislature, received its assent on 2s•b
April,
1872 and came on the Statute Book as THE INDIAN CONTRACT ACT, 1872
(9 of 1872)
NEED OR OBJECTIVE OF THE ~AW OF CONTRACT
< ~'. Sir Frederl_ck Pollock says, "Th~ Law of .Contract represents._ the cor;i~tar_,t endeavour, of the
·public ·a·uthofitY, viz:, the st~te _to ~stablish_a positi~e ,sanction,f~r_ttte expecta
-has gtown' up in the mutual dealing of men." ,:·_ tio~,of g~ f~~th ~hi~~:
· ' · · · ..· , . -. ·, "·. : • . ,. · · ·
The fundamentals of the Law of Contract have been in existence since the
times of
ancient India and infact they were well recognized under the Hindu Law. In ancien
t times, the
 Definition'and Nature of ContradfJ

Law of Contract was based ori the principles of truth. It was the religious belief of the people .1
that if a person died without paying his debts, he would go to horrid hell. It was considered to l
be the duty of the King to ensure that the persons performed the agreements entered into by J
them.
In a way, it has always been the effort of mankind to ·ensure that the promises made by
men are fulfilled. Keeping this as the base, the objective of the Law of Contract is precisely to
ensure that the promises made are. fulfilled. Law of Contract ~etennines the circumstances .
and situations which ascertain the intention of the parties to the contract so as to make both ,
the parties legally answerable to each other. In other words, the primary objective of law of
contract is to identify the circumstances where promises !'lade by partie~ to a contract
beco!lle legally binding on the~. . - . _ ..
In nutshell, the objective of Law of Contract is :
• To identify the true intention of the parties to contract,
' ·• So as to define promises made by them,
• And make such promises legally binding on both.

THE INDIAN CONTRACT ACT, 1872

SHORT TITLE : This Act may be called the Indian Contract Act, 1872. '
·COMMENCEMENT : The indian Contract Act shall come into force on the first day of
September, 1'872. · I

EXTENT : The Act · e~tends to the · whole of india except the State of Jammu and
Kashmir. '
I I

SCOPE : The law relating to contracts is contained in the Indian Contract Act, 1872. The
Act has been divided into two parts :
l I - ' ( f I

' • · The General Principles of the Law of Contract (Section 1 to 75)

'
, . • Th~ Specific Contracts (Section 124 to 238)
The Indian Contract Act, 1872 deals with a particular aspect of the contract, but it does
not deal with every aspect of the law of contract. Hence, there are several other laws relating
to contract, which are not a part of this Act. Some of the other statutes relating to law of
contract are : . •I : .
(i) The Indian
'
Partnership
,., .
Act,
.. -
1932
.
• I

.
(ii) The Indian Companies
.. Act, 1956 . l ' • I I
' . • I

(iii) The Sale of Goods Act, 1930

(iv) The Specific Relief Act, 1963 ·, . 'l'
r I

. (v) The ~egotiable lnstr\llJl.ents '.Act, 1881 • ., I

· (vi) The Indian Insurance Act, 1938 I
I

(vii) -The Indian Trusts Act, 1882

· ' NATURE : The law of contract does not enforce certain rights and duties of the parties
to the contract, instead it specifies certain limits within which the parties can create their own
 Definition and Nature of Contract,, 11-1.3 1 /

terms and conditions

· ·
for the contract and respective rights and duties for themselves. The
Law of Contract shall then upheld such rights and duti~s. Therefore; the parties to the contract
can create ~heir rules of the contract provided they do not infringe some legal prohibition.
Another distinctive trait of the Law of Conh'act i~ that it creates Rights in Personam
and not Rights in Rem ' · : 1 •
•
j l Ji •
• ~
• I
• ' '
I

. us in rem or Rights in Rem means a right ,of a person that exists against the whole
w~rld. · ~ereas, a Jus in Personam Or Rights in Personam means a right of a person that
exists ag~st a specific person. The law of contract creates Rights in Personam i.e. the Law
~ ~.o n~act can enable a person to create_a right against one person. Let us widerstand the
0

distmctton between Right in_ Rem and Right in Personam with the help of examples :
... - - - f'

(1) Say Joy Sells her

House to Lucky

I Joy/Seller I ILucky/Buyer I
- .. Joy enjoys the Rights in Personam as against Lucky to receive the ·p ayment for sale
ofhouse. ·_ · · · · . . ,
' ;

• Lucky enjoys the Rights in Rem as against the whole world so as to the possession of
the house. In other words~ no ·o ne in the world can disturb Lucky so as Jo have the
quiet pos·session of his house once he has purchased it and paid for it too.
' .
FORMATION OF A ~ONTRACT · ·
· ' The Indian Contract Act, 1872 is divided int~ tw~ parts, sectio~ 1 to section 75 of the Act
deals with the General Principles of the Law of Contract that explain the procedure of
formation of a contract and Section 124 to Section 238 deals with Special Kinds of Contract
such as indemnity, guarantee, pledge; bailrnent and agency. This book shall deal with all
these sections so that the students can 9omprehend in detail the nuances of the Indian
Contract Law. To begin with, we need to understand what is a contract and how is it formed? .
"A CONTRACT IS AN AGREEMENT, ··
AN AGREEMENT IS A PROMISE,
A PROMISE IS AN ACCEPTED PROPOSAL."
..
The statement given above has created a link between three important terms, contract!
agreement and promise. Therefore, we would understand the definition of contract ontr if we
understand what is an agreement, a promise and other related terms.
The formation of a contract primarily begins when one person gives a proJ>osa~ or offer
to the other person. Such an offer is given so as to obtain the assent or accepta~ce of the other
party. Hence,·when a person makes an offer to the other person, th_ e other person may accept
it or reject it. Where the offer is rejected, it results into nothing hil~ where the .offer gets
accepted, it becomes a promise. Now basically when there ~e two parties in. a contract, both
of them make promises to each other. In other words, a promise of one party 1s exchanged for
 Definition and Naflire of Contrad
- .
the promise of other party. Therefore, ·t here are.two promises, in one contract, and :they are
called as reciprocal promises. When one party exchanges his/h.e r_promise for the promise of
the other party, this is termed ;as making an I agreement. An agree,m ent is exchange of
reciprocal promises ~etween the P.arties. The _last step is to understand how an agreement
becomes a contract. An agreement if can be made enforceable by the Court of Law, ,it is a
contract i.e. an agreemen~ that can be forced/enforced by the law is a contract. Enforced by
the law basically means that if the parties deny to perform their ob~gation in a contract, the
law can force them to perform or the law can enforce the perfqrmance in the contract. _,

A Propo.s al is when one person gives an offer to the other person

A proposaVoffer if is accepted by the other party it becomes a Promise

When both the parties exchange promise, it becomes an Agreement

An agreement which can be enforced by the law is a Contract

The flow chart given above describes how an offer is made into a ~oritract. Formation of
a Contract can alsp be explained as follows : I

OFFER + ACCEPTANCE = PROMISE

EXCHANGE OF RECIPROCAL PROMISES AS CONSIDERATION = AGREEMENT

AGREEMENT + ENFiORCEABILITY BY LAW = CONTRACT

DEFINITIONS: (Section Wise) · ,

; ~-,. r *Section 2(a); ICA 1872 defines, an offer; ·h• !">,~ - 1 1 ;, . · . • :·. " • \ · t~' t· ,
•.• ' • " ,. •;,- Iii.,-•• i , ...,,_, •• < r ~ •ft ~,. • • • ,.. t
1
.- ,vtieo .one person signifies or communicates .hfs willingness to do or to abstain from-' doing
~

'~!1~ing, to,(!btai'} ~e ~ssen( efthe other,_he is ~~!d"to,ma~e:.~~ Offer.".. - ,1 ,,,. ·•A"t

. . •sectio.J12(b), ICA, 1872 defl,:aes-a Promise, , { ,· .• "• _,.. - ··
, ... •Ai;, offe[.when '; ccepfa'd becomes a Promise." ·. ,. y ·' _·. • ,,"

. ~, *Section 2(c), ICA, 1872 defines Promisor and Proml; ee, ,: ,· ',f • •

. ~-, .,.he pe~n maki~g ,. _th~ offer 'is caiied _Pr~mlso'r

Promlsee." .·. . · ·•,:: . ::· w' .·. ·
l rye·perso~ accepting the
· ·
'and · · ',,·,.... ·:· ~,;.,.-:-:\'
1

:·· ,<Ji-trt,":>l1
offe; isc~,,;~r
. • ' • •• _:;,! . • - .,~ ~ .(.: .. .,.,' ; " \ ', ii-.. '" : • ; ... ~ ••
,. *Section 2(d), ICA, ,s12 defines consideration, . · .1 . · , ·
1
, ( 1!,'!: i: 1 .
.. , , ( 'l
" ;{ f ' 'f ... ,.t • .
"; • - .. •.. . t'

'When at th~ desire of the pro~ls~r,_ t~-~ prof!1isee_or any other person has done ot abstained ;
fro,n ,doing, or ~oes or abstain~ fro~ doing, or. promis~s.,,.to ~~ or ab~tain ·from doing, some\t:itog,:• .
s~~h ~~ as abstin~n? or promise f~ ~lie~ ~on~l~e!",~ o~,•" .i.,:. . , ! · . 1 p • 4,. , ,, I , ~ ,J--: :\, :·t .• i:". r1.,••
, • : s~~•o~ 2(f:t,d0A, 187~ ~efl~e.s_agr~rm~~t •'. ·. _' . ,, . , . ~ - ~ .,· ... / . , . : :_ it.- ~:-~ ;~::
~ _Ev~ry. promi~e and . every set of promises, forming • consideration for each other ·is · an
i ~: 1-J_,•.
agreement• •t-·. . ~ , . f ,
... ' • •
t~
j '
,·
"
'·•
.
. , •.
'·~·"" , ..¼
t . --' ,t
:. '.. ~~ ·'
·•· j \ ... - · , . , •• ..-
I t J-.,Y, ';
• ' • • ,t. y

:•.;_ i •~on ~(f), ~CAr 1872 d~~nes rec~pro~l!pl'0/1'.'lsest •~- ·_',, :'.'.; ~·, t·_ ·.: .,i';; ~ /r,/'.~ .. ·,.
· ·•'"Promises wttlch fonn the oonslderation or 'part of the COJ1Slderation for; each other r·are balled
reciprocal promises.'' .~... ~~ .,>. ~ ~ -!9•
;;.
• i
.' i
-.::_~ -::"',~~~
, • ,.. , .,. .
1.:. •
'.~-::
Definitionia nd Nafur e-0fiC ontrad
11-1.S

•.·. :, !Sect ion2( g);IC A,187 2defl nesa VoldA greem ent .. ,:,,.,
>.:l i••.:--.: r i ,. ' · ; .-.• ".: 1 •·
• J : • • JiAn agree ment not enforc eable
by law ·is a void agreement." .' ~- : '1 ~ ·:· ,; , i ·. ·,, . ·( , . · · •, •
· •.
, i • • , :s,-ct lon 2(h), ICA, 1872
defines a Cont,r acWa lld Contract, ·1 • • : • • ,._ 1; .. _ . , ,
, , ~An agree ment enforceable by law is a contr act: · . ,. · . ~,
h - ,, . :. - .,
· The analysis of the above given definitions, make s it clear that a contr
act that exists today
in prese nt has been throu gh differ ent stage s so as to becom e a valid
contract. An offer gets
accep ted and becom es a promise. As there are two parties, so there
are two promises. Thes e
prom ises are excha nged betw e.e n the partie s so they becom e recip
rocal promises. Thes e
reciprocal prom ises becom e consideration (benefit in retur n) for both
partie s resul ting into an
agreement. An agree ment if is backe d by legal enfor ceabi lity of
the law conv erts into a
contract.
Therefore to conclude, we can say,
"All contra cts are agreements, · ,
·~ . All agreements are promises,
All promi ses are accep ted proposa'ls." ... .
, I'

, ... .~rom Ex~~ natio n Point ~f View s.r_ ·~ .. . . .. . ,o/· .,._ .,

·, Ques . 1. Define the term contract. What are the essentials of a valid
.. 'I •
•
contr act ? OR ..

· Ques . 2. · H All contr acts are agreements, but all ·agree ments are
not contracts." Explain
and illustrate: OR · 1
: ' · • ' ~.
,.. • - '
• • a,. ~ 1 . • ~ •
.. Ques . 3. Disc~ss ~he v~ri(?US te_sts you woul d apply to ascertc!in ..

wheth er an agree ment is

a contr act or not. · · · '
Now that we have understood how a contract is fo~e d, we need
to comp rehen d the
above given questions from examination point of view that how
an agreement actua lly
becom es a contract. For this we need to define the term contr act again
and discuss in detai l all
the essential characteristics that must exist in an agreement to make
it a valid contract.
., The .statement,
"All contracts are agreements but all agreements are not contracts"
highlights two
significant terms i.e. a contr act and an agreement. Thes e two terms
are on the one hand
interconnected and on the other hand are absolutely distinct from
each other. As we read
earlier in the 9hapter, that a contract passes through differeAt stage
s in its formation. One of
the prior stages make s a contract an agreement but only those agree
ments becom e a valid
contract that satisf y various tests or conditions or essentials of
a valid contract. Such
tests/essentials if exist completely in all respects in an agreement
, only then an agreement
passes its last stage of formation of a valid contract. In other word
s, all essentials unde r
section 1O of India n Cont ract Act, 1872 must be prese nt in an agree
ment to· make it a valid
CQntract.
· ·· S~ let us once again understand What is a Contract ?
,. •An agree ment enf,orceable bY, l~w is a v~lld contract."·.
..
-U/S 2(h) of lCA, 1,?2.,
h~ "Every agree ment.and promise enforceable at law is a cor_rtract."
, . . . , · .
· _: -.: ·- •· · :· ·: " · _· ·
,
, ➔According to Sir Fredrick PollQCk
11-1.6 Definition and Nature _of Contract

·- • ~A contract consists an actionable promise or promls~s. : ~~ery sue~. promise ~ps two
1
parties; a promisor and promlsee, a·nd an expression of a common intention and of expectatif~~ -~
the act or forbearance· promised: . . ➔According to Sir Wllllam ~son
· "Contract is an agreement creating and defining obligations between the _parties: ~ · .. •t t ·•:.:'-.,;. ·
· · . _,.. , ➔According to Salmond
~ .,

From the analysis of the above given definitions, it is very clear that: ' ,· '
(i) An offer must be accepted to become ·a promise [U/S 2(b) of ICA, 1872] .! ·' ·' ;
(ii) A prorcise must be exchanged for another promise (becoming consideratio'~ for
both parties) to become an agreement. [U/S 2(e) ofICA, 1872] ·-
(iii) An agreement must satisfy all essentials to become a contract. [U/S 2(h) of ICA!
. '
1872] I
I

To sum up, we can say:

AGREEMENT+ ESSENTIALS U/S 10 =VALID CONTRACT . ..-
'

a
But before we study in detail all the essentials of valid contract -as explained under
section ·10 of Indian Contract Act, 1872, we need to comprehend the term agreement in depth'.
The term· agreement is a wider term than a contract, as an agreement may be an enforceable
. '
agreement (i.e. a contract) or an unforceable agreement. The point to note is t~ati' only .. .. ~

enforceable agreements become a valid contract. · ·' '

Agreement

Enforceable Agreements Unenforceable Agreements

Valid Contract
Domestic Agreement Social Agreement Void Agreement
' '
1

The chart illustrated above, makes it clear that an agreement that can be enforced by the!
Cou~ of Law becomes a valid coptract under section 2(h) of Indian Contract Act, 1872. But'
there may be instances where an agreement cannot be enforced by the law, such agreements·
are called unenforceable agreements.

UNENFORCEABLE AGREEMENTS
DOMESTIC AGREEMENTS :
Whenever two persons enter into an agreement, they must have a common intention to
enter
. ' · 1
.into a legal relationship. Until and unless the parties to a contrac· t have a common
mtent1on .(that once they enter a contract they shall be bound by th · · h'tp
. e Iega1 reIattons
between them) to form a legal relationship, a contract does not come into existence.
: .I
 t11 'i•'•':,~I\ (1,11, rf•,·••ina, {I
t , 1 ~•, :1,) 1.r :,
Oefimt1on and Nature o Contract 11-1.7

.,'.. ~.The Case ofBA LFO ~ Vs. BAµ 'O~ (1'119) is a well kno~ Illustration
.;•,; a-'t :~~
ofthli
nncin
P ,.. le •t ~):·,.
. '!.. ,
,.•'!

. • •
?-,
I
I",~ l ,"..
• C•
V
•
( ., '
•
• -
,
• • ·:
)' ,,. I ,,.w _ J"-,,-t -lo--" 1 ' ! ;•.
. ~. . .,. -
. , ~. . • - -- ~ :·

Fa~ta ofth e·Case·:· 1,~-:.,-. ., .:.:•.:· : ·i: f. 1

' 1 ·•
1
·::,l :•--.• ·· ·· :,
• . ft!! ~ I ; -;, •. •
~?~·Mrs. 'And'Mr.'Balfour·were enjoying lea-ye m Engl~~-· When they -~ere to ~etuin ~ -
~. -:-- • . • ' • • • ., •1 t f .. : I I · . ) ? .' , ~ ..:, • • , , t ', •

.l~eylon _(where, ~ :· -~al~ou( ·wa~·" empl~yed)_' ~: · Balfou(·w~ ,:a~vi~ed::to;

England by' r~aso~ ·~r ~er'ill healili. _ Mr;.Balf~ur ret~e d t~ Ceylo? and agr~d
·!emain;. in:
~~~ his
wife an amount of£ 30 a month for her expenses: He sent ~e expenses for sometime but
, '·'ifte~~rds1 so~e ·differe~ces·'ar(?Se ' which -res¢ted in thefr. separation:'
a.rid he stopped
sending the allowances to her: As result; Mrs. Balfom:· fileo case agains
t her husband a a
ifoi the allowances: i'. , ' :,.... , ' •. · · • '·. -~· ·. 1 ·: 1 " • · • • •
•. , ... ···"""",._ :.. ,..· .. ,.,. .,,.. ..ot.,- ... .,_ ... ·; ..
Beld : , . '. . . .
t -,"'<;
"'~-~?

~ ~ :. ~: ,_ i-: . ,_ . . .
.
, •
'It was held that Mr: Balfoutwas no~ hable f<;>r the expenses.. ~·.. · ~ ~
~
J ,. ' ... .,.... • , • .. , ,<, •✓
'!;
• ,. ' . l· .:

•
- " ' ' -:_..;. "l_!•: I ,."~., ~ ~ ~ ~
., , • • ) }".;: : >' 6 W • • '4 -.... ,' C) - .,

)te.~~on :·. _:" : :

~ \ • ) ' .... 1 ·, •.• -;_ : • .:·.
.
• , _• "" .,·,,.'· ,t ·: , ", •. , ••
' • ' f't • 'I- ' I, .,

}1/:;;T_he: ~gi:~-~men~ betwee~ _Mi:s. & Mr. ~a~four .w~ ID;~~ely a ·domes~ic agr~~m
~nt, not
ienforceable ·by law as •the intention of the -parties was never to C?nter
• .., into a legal, 1
' \ • •

.'relationship and thus,did not pear _any legal c9nsequences. . .

A~ /
\
'
t
t .. · '
• •• I

·SOCIAL AGREEMENTS :
Like a domestic agreement, a social agreement where the intention of the partie
! s is not to
enter a legal relationship never becomes enforceable by. law. We as the memb
..
ers of a society
~ay agree to do something which may not be backed by any legal enforceable
intentions,
such instances do not constitute a contract and make parties legally liable to each
' other.
. E I . .
,· ·,' xamp e.: · •· ·· · · · ,., · · ,,... , .- ~.. ·
J· r J ... I ~ -
l ~, -~ • . . : .. ~
· · ·1 ' · · . • ...
. •. • ., -.. "' ., •.
.•.
♦
.. .· i...... )_ • .. ,...... ' •' I ',i) ... f • ~ : T.
•. -~. •l Joy invited Shashi to her house for dinner. But when Shashi arrived Joy '

l 4 , was n_ot present' • ~ \' I

i in: her house (as she got stuck somewhere due to her job work):-Shashi filed a
• ,
"':.. • ,

"• f ,• If ~ case against

,. • .-(_ .. ;
~ ◄
Joy;'· It was held it was only a social agreement not enforceable by law as the
""'- •, . 'I. •1 -., • ..,;~ .,_ ' o._ ...,_ ~)

parties. neyer
had an intention to enter·into a legal relationship. ' ' .
VOID AGREEMENTS :
An agreement can become a void agreement due to many reasons such
as absence of
<_;onsideration, an agreement with a minor, an agreement whose objective is
unlawful and
many more. Void agreements are basically those agreements which are not enforc
eable by
law [U/S 2(g) of ICA, 1872]. Sections 24 to 30 in Indian Contract Act~ 1872 make
a special
mention about void agreements. These have been discussed in detail in chapter No.
6.
I_NT~NTION ~F PARTIES : CAN MAKE A SOCIAL at DOMESTIC
AGREEMENT VALID CONTRACT ,.
A social or a domestic agreement can also become a valid contract where the intenti
on of
the parties was to enter into a legal relationship. The intention of the parties is
ascertained
11-1.8 Definition and Nature of adntrad
the case; The test of int'ention
from the terms of the agreement or from the circumstances·of
minds of the parties. i .,, 1 , , •
of the parties is not judge d from the fact that what existed in the
what a reasonable man
The intention of the parties is infact judge d on •the basis that
thinks woul d have been the intention of the parti~s fI1 the giv~n circw
ps~c es. The point to
may be e~pressely s~tedi but in
consider here is, that' ht some cases the intentio~ of the part~~s
to ,be understood, fr9m ··the
some cases the intention ~h~n · is not e~pre~sed· clearly is • 1' ' •I
· q
' ~ '1 ... •
. •.,
•
• • • ; 1 , , :1
circwnstances of the case. . ... . . 11 • • 1 , ;
~
.
act expre ssely state ·what
Expressed Intention of Parties : Where the parties to the contr
situations the court uphelds
actually is the intention to enter into the agreement, then in those
: · • ,,1, ' , _. 1 t' , • !
the intention so stated.
, ~ i ,, ~.:. . ~- -~ ... ·,l "t ,,, ,t ,A-...,,... v~ -,I.~

·..
1 ' .•

· Examp Ie.• · ·.~. . ·;, ·: ,. . . ., }, } ·. . ~• ·· ~

! ..
,I:• .~

,l""'°" ~- ....~......._.-~ -... ( ...... "<~-~.

~ '( ,, ,!~ •
.. ~·>··i_ -::-·. ~{:: .;_.,
-,e, ~.., _ ; . . . . . .....,...; ~ - 4 " - ;
·-\ \ • • ,_;:; <
: -~:
. ._

-~~ ';'',;; . >.~ 't ·;l-'

p~ny~n th_e parties~

: ·,
~
-
-... ·• -~ "-'i, ,•.-,M,...,-"'\• ~,,t!O'i· _,..,.,. _._- .t .

' • '" Rose 'and Fra'nk Co. vs/Crompt~on '.~, BfOS.".Ltd,,~;~t~e ag~tnih~
• ••• • - .. .,. • • • .. • P,',; .,,..,.._.,. •p)l'f·

to the co1:1tract p~vided tfiat,:, Mn,a~, arr~,rigement' ts ·~o~_.! ~ter~ ~i:~tq;

~ .._:.'. ·}·:as . { f~.r.i;naJ..or
l~w ~ourts· ;;:~·.•_:;~. !that it,,
•legal agreement,. and shall ,:iot be subject to legal j~risdi~tioh !n _the ly ccP
(the ·agreement) will ·be ca.rried•*''.through by· the parties with mutual · loyalty_and frieJd
)-j • s:-? > , ' ,
•• . ~ 'f'. '):;

,· -.z·.1-''.~' -·'):,. ;,_ J· ,~.--""¥,!4.t>-'~,, ,;.. S.i:,,i,~ .: it~

•~ I -,(" ~\,.
• ,< ~'.,
.:

'operation", •... ·
, ' I ~ , ( "<,

· • "i<,:
-~ ~: . . ~l.· .- ;~
f-. · ···\'
,». , ~ .. ~~-~ · , ~ ;···'>'.j ~ ~ ~ ~ ~~ 't. :·.. ~~~~;
~- . ~
~-: •• ~.. .~
.. ~.-.: • ·~ ..:-.-; ~;
~'I. ·•

~~h~r party ~~,o~{~ r:ip,.t

~ fn th!$ parti~~la~_5ase, ~~e of th~ eaJ~i~! .c<?,mn,!:~~dj >reac.~, ~~t.t~~
bring ~ny leg?~- a~ior:t ~ecause•.~!,wa~,expr~ss~IX stat~ ,'" t~~ agre~ \ ·, · '« <:; . ·';, . '~. ·· :..t .~.
;m_epJ.t_~~~ siJc~ _agr~rn:i; n.t
4 • _

shall not be subject to any legal consequences in the Court_of La~. .;·
in some situations can be·
Implied Intention of Parties : The intention of t,he parties
· , , 1
implied from the circumstances of the case as well.
•
-~ ►
' t
(
-=--- Ie !. .
IJlelll lp -!: ...
.
, ~ ,,
.... ••, . , "'-
,
'
l
•
"
~~ •" · ,
.
. , -• "1.;.
'4
.. " ,.
,i,,."'
1,. .. ("
~ •
if •-1.;;f• 'i>'..
•ti.,.::. ,!.·•.
'"""' "'>,1 ';.
?'' 4-
::..., ~ ...-~,
¥~ ~
:t
~ .;/
..
• ' .
., '•
. .
•
.. t". r .. -✓.z, ..,...t.§._t
• t
:
► i
•
,...\,f~;.
J
' ,
~
Y.1
,.;,.~'f/

plie~ly u~derstood~tci\Z6 li~-',

•: •In Balfour vs•.FBalfou~, the intentl~n ~f tneipa~iel ~~~ i~~ ~- .,
; , .
<,

creating any legal relationship between the par,ties. ~-.).•. ;_ 1

•

of ICA,
.ESSENTIAL ELEMENTS OF A VALID CONTRACT (U/S 10
187 2)
Section 10 of India n Cont ract Act, 1872 reads ,
nt of the parties competent to
•A11 ·agree~en_ts ~re contracts If they a_re made by the free conse
are not hereby expr~ssely declared ' l
contract. for a lawful consldei:atlon and with a lawful object, and
. ,' , ' '
• ·. .. . .~.. , . ' , .. ~ :" ;.,1l\;~~ )
to be Void• )~• • ·-. ,, • ~ •i.1· , J> 1

exist in an agreement
. In simple words, all the essential elements of a valid contract must
l O are as follows : · ·, ·-· ,
so as to construct a v~lid contract. The essentials as explained U/S
1. Lecal Offer and Acc epta nce :
· i
The primary essential of a valid contract is th~t one person shall
make a lawful 'offer to I
~e o~er and the other shall accept the offer unconditionally.
An offer when accepted I
1
shall
g_iv~ nse to a promise [U/S 2(b)]. An offer must satisf y the essen tials of a valid offer ' andJ
d satisfy the essenti~ls ~f
smularly an acceptance must be absolute or unconditional and shoul
o,finition and _Nature of Contract
11-1.9

a valid ~~ceptance [Refer Chapter 2 for detailed infonnation on essentials of a valid offer and
acceptanc.e] -. ,1 1 , 1 •• • ii, . , l • ; , • , : , -'·' ' ,,: •, ;, 11 , · · il, .. . ,. : 11
2 ..·lntent ion·to create legal relationahip: ., 1 .t1 1
• , • , 111 ·: •, 1
. ,: , ,, '.' :.! ;
1
~ Both 'the parties· m. an agreement m~~t have Ji! ~oininon intention to enter' ~to a l~gal
relationship i.e. both ifhe parties must liave consensus that once they enter into contract they
shall ·bind each other in a legal relationship: The bas_ic purpose 'of a legal relationship is that in
a
case a party does not perfonn his/her part of obligation the other party can talce a legal action.
Tuere~<?re, it is.. an essential t?leme,;it that the parties must mutually agree to bear the legal
~-~ ~eque.nc~s. ~ c~e 9,f ~ dispute atjsing be~ee~ them somewhere ii) future.
Intention of the parties decides whether the agreement between the parties shall become
legally-enforceable or not. - ···- ·

• ~• •, I t tt tr""'. Is to enter into a

- -
Such an agreement
becomes enforce able-- Hence it becomes
,• 1 i!. ;•- legal relationship
,-----, by law a Valid Contract
• , . , Where the
·' ' · intention of
~, 1 • r parties is
Such an agreement Hence it is an
Is not to enter into is not enforceable Unenforceable
a legal relationship bylaw
•,·. .J agreement

1
From the chart explained above, it becomes clear that in order to have legal backing by
the law, the parties must ha~e a mutual intention of forming a legal relationship. In simple
words, the parties can take legal action against each other only when they entered into a legal
relationship. ·
, The point to note is, that how is the intention of the partie~ ascertained by the Court
of Law? '
The Intention of the Parties is ascertained :
--- • From the terms of the agreement
.. ~ ~ •·~
·~ From the circumstances ofthe case r

• The intention is judged from the fact that con~idering the tenns of the agreement and
circumstance~ of the case what would have been the intention of a reasonable person.
As quoted earlier in "Balfour Vs. Balfour", the intention of husband and wife was never
to enter into a legal relationship and therefore the agreement between them was not
enforceable by law.
,This does not mean that all agreements between family m~mbers are unenforceable.
1

~. , Example: .- · ,~. · • ;r._ .,, , · · . , :1 ·

) ~ .. ., ·\
•.
.
.
, ~-..
.,
·.l \ l •
•'
,. ; •

' ·. • A husband ·and wife withdrew their•complaints .under an agreement whereby the
1
hu~qap~ .promis~~ to pay ~~ran allo~ance and the wife agreed not to ple~ge his credit:·The-
.agreement was held to be a• binding and enforceable. contract. Therefore all. domestic or
Ji 11\:h~~ll}en!s c~~ al~o_b,e~om~ ,e~f~rcea~I~ b,Y ia\V. if,t_h~ inte~~i~n \~~--p~rt~_es was·t~ . ?.:
.,enter into a legal relat1onsh1p. , ,, .. . , .• . . , .· , ·· • . . • · , .·
 .' I

J - ~ #! ~? j , ) J \,'l ",: ~- ,,, i,f,•l • ••

Definrt,on and Nature of Cont~
11-1.10

3. Lawful Conside ration :

Considera tion means the benefit accruing to the parties in the contract. .When two peopJe
enter a contract, they have reciprocal benefits for each other i.e. one party gives something or
does something for the other and in return the second party also gives something or does
something for the first party. These benefits ·for both the parties are termed as consideration.
In a valid contract, there must exist considera tion for both the parties. Agreemen ts where
considera tion does not exist for both the parties, never become enforceab le by law. ·

1. -''An agreement without consideration is a void agreement under section 25 of ICA, 1872."
Section 23 of ICA, 1872 states, that the object and consideration of an agreement
must be lawful/legal. Object of the agreemen t is the purpose of forming the agreement
whereas, considera tion is the benefit to both the parties. Both the object of the agreement and
the consideration of the agreemen t must be lawful for the enforceab ility of the agreement. ·

., Example· : .. · _: : ; . , . ·«·'~ . ~- t
• .;, , • , I"(. <· ~ , "' #.. •' , '>-

. • Chanderilal pro.:nises l tb ' obtain a governme nt job for ' Gadha rrasad_and i~ retum
Gadha Pr~sad pr_omises· to p~y Chanderilal ~ 10 lacs. .Su,c}i _an a$~eery1~nt is,,~oid ?greerrient
as
U/S 23 of ICA both consideration and object ofJhe agreemen t are illegal or unlawful. .·

Important points for Consideration :

, • Consideration means "QUID PRO QUO" i.e. "Somethi ng in return".
• Consideration can be anything ; money, goods, services and even a promise.
• Consideration may be given in past, present or future.
• An agreemen t without consideration is a void agreemen t UIS 25 ofICA, 1872
• Considera tion must be lawful UIS 23 of ICA, 1872.
4. Compet ency of Parties :
The parties who intend to enter into a contract must be competen t to do so. The
competen cy or personal capacity of the parties to enter into a contract is governed by Section
11 o~ the Indian Contract Act, 1872. Section 11 states that the person willing to enter into
a contract must satisfy three conditions, namely :
(i) He must be a major (i.e. a person equivalen t to 18 years of age or more than 18
years of ~ge)
(ii) He must be a person of sound mind.
(iii) H e must not b~ disqualified from contracting by any law to which he is subject.
Section 11 ~as detailed the various disqualifications of parties due to which an agreement
may be~ome v?td. If the party to the agreemen t is a person of eighteen years of age or more
then he ts considere d as a major (the age for being a major can be twenty one years in some
cases, refer cha~ter 4 for detailed information). A person 0 ( sound mind is a person who
understands logically the terms and condition s of the agreemen t (at the time of making the
agreemen t) and also logically understan ds the conseque nces of entering into such an
 . Definition and Nature of Contrac
t
: 11-t.11
agr eem ent: Be sid es min ors and per
son s of uns oun d mi nd, a person ma
from entering into a contract by y also be dis9ualified
som e oth er fla w (be sid es ICA , 187 2) to wh ich he is
_sub jec t, suc h as an ins olv ent is inc 1
om pet ent to_con tra ct acc ord ing to ins
J olv enc y law s,
.. An agr eem ent wher(?bY the, J?~J rtie • I I I

s to the agr eem ent are dis qua lifi ed

· the se conditions, suc h an ' agr eem bec aus e of any of
ent · is no t enforceable by law .
·' agr eement wit h .a mi.nor is v~i d-a b-i In oth er wo rds, an
niti o '(vo id sin ce beg inn ing ); an agr
~ of uns oun d mi nd and wit h a per e~me!}t wit h a pers on
son dis qua lifi ed by any o.t her law is
als o voi d agr eem ent .
5. Fr ee Co ns en t·:_-:_ · ...
r _:_---=--:-----:- - --- ---
. Sec tion 1o of the Ind ian Co ntr act Ac
t sta tes tha t the con sen t of the par ties
t ·sh~~ld alw~ys by fre e consep.t: Th to the con tra ct
e temf con sen t me ans the wil~ingne
( ter m co"nsent has bee n def ine d U/S ss of the per son . Th e
t ,-- _' ._ --- --- --- --- --: 13 .of IC A, 187 2 as fol low s :
--: --: --- ·, l
_ . 'l', :',T wo or mo re per
sons are said to con--: --: --- ::- --- -:- --- -;: ---
--- ---
1
sen se.: ~ ~, ~ ; sen t whe n .the y -agree uppn the sam e thing-_ __ ;,, _,
in the sam e
" ,. , --;. • t •• . ' t ... \1:-~,,. - -~ •. ·{ • .... . . .
- -J ..... 1.... ...... -;. ._ , .. , • . ....... ·'
In simple wo rds , wh en boJ h the par
ties hav e mu tua l con sen t i.~. wh en
sam e thi ng in the sam e sen se, the n the the y agr ee upo n th~
' • con sen t j s cal led ,a~ con sen t:-a d-\ d_
e m.
- ' , I - ' , ,, .. .
Under Section 14, Consent of the '
parties is sai d to be free con sen t
caused by the fol low ing : wh en it is no t
, , _,_ : 1 ,. - · . - ., 1 , -u 1,.. , • ,
(a) _Coercion - Co nse nt obt ain ed by .,
4
I ~
phy sic al thre;it. . ,
(b) Undue Influence - Co nse nt obt • ,. • • , I
ain ed by me nta l threat. .
(c) Fr au d- Co nse nt obt ain ed by int I • t • I - ,.

ent ion ally dec eiv ing the oth er.

r• • (d).. Misrepresentation - Co nse nt obt ._
aiq ep by, un- int ent ion ally 'de cei v~ g
: ' · (e) Mi sta ke ~ Co nse nt obt ain th~ oth er. ,
ed by com mit tin g a mis tak e/e rro r.
{ ·• ·~ '
Th ere for e, the re wo uld exi st flaw in
consent wh ene ver the con sen t-is-ob
the abo ve sta ted rea son s. [Al so ref tain ed by· any of
er Ch apt er- 5' for-de tail ed inf orm atio
n on Fre e Co nse nt]
Th ere for e: .' . ' • • I•
·:.•

,. --: (i) , I o con stit ute a val id con tra • 1 '

agr eem ent , and

ct the . con sen t or' bo th th; pa1ties ~ho~id ;xi st -.. '

i~ the
•

··
(ii)' Th e con sen t of the par ties sho
uld be free con sen t i.e. not obt ain
1
• und ue inf lue nce
ed· by coe rc; on,
•
, fra ud, mis
, . rep res
. entation and mis take.
(iii) A con tra ct wh ere the con sen -
t is obt ain ed by coe r~ion, w1due inf
mis rep res ent atio n is a Voidable Co lue nce, fraud a~d
ntract [Re fer kin ds of con tra cts exp
in ·the
chapter]. lain ed later
I>. '
(iv) An agreement whose con sen t
wa s obt ain ed by mis tak e is a void.
1
·.,,.. • kinds of con tra cts exp lain ed late r in agreement [Re fer
., the chapte r]
,
· .6. La wf ul Ob jec t : ~! ;
" l
. . 1-"~ bje ct" me ans th~ bas ic pur
pos e of entering into the c;on tract.
. w1ter ~_t9 a con tra ct the re is a bas Wh enever two ~erson s
ic pUll)OS e of fom1ing suc h a con trac
,· obJect of the con trac t. . t, wh ich is called
. . .
the as
: , ., ..
 · · · t be 1£.onned must be lawful in the
, )iDefiltltlan;md-NMaedJG~
--
ei es7

.-.T he.obJect 1or pwpose for wJtlch the contract 1s o

·tin..r ' • • ,
of iaw.~ Under Section 23 of the icA, I 1J72 . both the object and ' consideration of. the
. •
, agreement, must be lawful m order to make tt an eniorcea
£. ble contract. The agreemenr.the
. ., ' 1
object of which is illegal or unlawful is called as an illegal a~~ement! , ~ illegaJ
agreements are void agreement i.e. are n?t ~nf?rceable ~y _Jaw. · .. ,. 'f !
l
Unlawful
. Such an agi:eement , · All illegal agreement j
Agreement the objed is an illegal agreement .. , are void agreements - -
- - ofwhichis - -· object .

~
' ' ·!l~,f··
~ ~~<.. -...•~:S. - , - _if.d~ff,):fti ~·,,,J.-.;;.~•., _
,.•>/j!
• , ~,-'>.
ExampIe :,,,,·i::";" ,' : ' '• . ~
.• ;~•••1J'' I' .~.• . ,:_;, f~ _,J. J.J, .',_ti! '$.fJ.¥:J/;
r.,:U.;'.
r ~ - ', '
•
,
• ,._.
.' 4.
<
, ..;.,!,[
; t~"
'f..·r.-:~ ~;.'('')}~f"* :i'"f-i~1'.fuf*- ·. . •,L
~-.,~_t'\1,. ~.:;~,_:;fa~""'•"'
-,., -,":J. I ., >r
. ~f":.i<-..,.t,,.~~.J4".4-.IJ ;\f s' ~ ·
"'f;,s ;J•"fi, .' ·"

':'<
I ii .. : ,-:; ~•n~'.'." 1
· ·:: ,:~
••-
-~-st~
. e. A. ten,a~t ta~ef a room ,. On:_,ref'.I\ ~~~ u~~~g''Sr~ gg. mg:~ ,,,
tflth~tgr~·
t:_: '•".-·.~:· ,,"~ ·, J·"'f"'>,'' :.. d ,ent 1s\1r.11rr~ai
~ :":c ,: :v;. , ~Yr~ ,: o . ..,
i[i-'

1t i , '. ,_· ....i · ;:1,t> • •

agreement becau~ t~.e object, ~f,th~ ag~m.~Q!· 1s;ynl~wf~!::~~~~~J~~n ~!:!·a reep-e ;'~:-" '
• • ,--i- .... ..,. t'\ . ' ,} ·( -~11~,•-.~l' t:-¥ . ~. ~·.~-·~ ¼.). - ,( ·.,I,~. ..rt
enforceaole.by _law/ ·· ".
1 "

•q'!{''&:" 'f1?¼l:tt-· ~?,·-t:f~:.:i~ '<,..:::-t:i:"'·'~'...,i,,h, ·"" x, ',~

Section 23 provides that the object and consideration is said to be unlawful when :
$ •• ,.,

(i) It is forbidden by law ; or ' · ' · · ·

(ii) It is of such a nature that, if permitted, it would defeat the provisions of any law ; or
(iii) It is fraudulent ; or '"
• (iv) It involves injury to the person or property of another ; or :· , ,!
(v) The court regards it as immoral or opposed to public policy [Refer Chap~·6,.for
detailed information]. •· , ·. ;~,!WO:;

7. Certafnity of Meaning :
, Section 29 ofsJC~--.,~ tes~ that Nagreell).E:~.t, :th~J riea,n,ing _cf ~~J<;p·_is~ -·!1.91 ce~ain, or
capable of being n;aae certain,
ar~void."·~1'.·.~:~·1! ,· " !' ·:_-t?,..' :}L:.;~. : :~·' ·:~ , ·: .. {.:~.-.:·~ . ~>

The terms and conditions of the contract must

. '
be._. clear and must not be vague or\ a~stract
,. :
Where the meaning of the agreement is vague or uncertain and is not capable of bemg made
l , , , • • • • • "#.

certain the agreement will be a void agreement.

Examples: , ' .. _:':1 .~f~t'i;, t:f····.~~~ . ·,·>·. .... ~.,,::·.,:-· ;~· ~~ . :· .. ~~~ _~·.. .· ': } f __ \ ,;~ ·~_.: _ ~ ~-\ ... ~ ~
,, . ,· 1 ;:& '". At. .'"",. ,, . • p .,..'J l • •
• • ' ,Z';,
w:.t' •~..·•-·..,.~( .!~~:·
, .... ~
. ,.. \
!' ... :.
. ' •
~~-
½.; , •~ , .,
·''SI-',;-::· ,J, y;, ..
~ ,.,~_t ~ ~· ~~15-~;.;:srf;'"'\ ~.-, J • •• • '·' t :;:- •

, • An agreem~~t to gra!:1! .~ lea;~ :w~s ~~Id, tq ·-~ an un7en_~Qrc~able .agreement ~a.use

the date of_commencement,of lease ~a~ 'neither expressly,. nor J~pliec!ly fi><;~, ,bY.~the;pal1!e$i•
Such an agree111erit is. an.uncert~in agreement U/S 29, hence unenforceable. , '· ~, ...... •. '· ·,.
' ·.· - ~. ·,,.
•
:" >-..· ,, :2· '
, • "'· •
., . " ' , '
, •
' -. '(·,.
., \
< : ,~'
,
• .~
'1 • .._'+ , . l-..~-.. ·, ... -:,j
~ • ..,,,o:i,, .i P-•
1) ~
,....,. ~

.• Sahib_agreed_to buy a flat) n_;the bujldi,;1g owne~.. by _a· builder provi~ecl the bui,lder,
Ndec~rat~ ·the _flat as pe,r_ the pre~ent style.'! ~uch. an agreement 'declared to, b~ un- \vas t

cnfor~eable ~cause· th~ meaning of th~ t~rllJ "present style;, co'uld be co~strued in. ci'Ufe~~H{
sense; hence the meaning,ofthe agreement was not certain. ~ · ,. · : , . · "};r~~;;t\ 'ji! t
8. Possibfilty of Performance : ; I

An agreement to do an act which is impossible in itself cannot be enforced by the Court

of~aw. "11?1possible in itself' means where ~e parties to an agreement agree upon tq.perfonn
an 1mposs1ble act, the Court of Law can~ot regard such promises as being enforceable.
. , l \J
11-1.14
Definition and Nature of C o ~

(vi) Uncertain agreements - Section 29

(vii) Wagering agreements - Section 30
(viii) Agreements to do impossible acts - Section 56.
Where the parties to an agreement form any of such agreements stated above, then all
such agreements are already declared by the law to be void agreements, therefore no such
agreement can become an enforceable agreement.
. .
All essentials must exist : In order to make an agreement a vali~ contract all !en·(I0)
essentials of a valid contract must be present in the agreement as stated U/S IO of ICA, 1872.
Absence ~f even one of the ten essentials can make the agreement a void agreement and
· hence un~nforceable by law. This is the reason that we quote, "All contracts are agreements
but all agreements are not contTacts" i.e. only those agreements which satisfy all the ten
essentials of a valid contract can become valid contracts.
From Examination Point Qf View w- _. · ,
Ques. 1. Differentiate between Voidable Contract and Void agreement. : : ;_, ...
.. • ~ 4 • ., .'

Ques. 2. Differentiate between Voidable Contract and Void Co~tr~~t.

Ques. 3. Differentiate between lilegal Agr~~me~t and Void Agreement.

KINDS OF CONTRACTS .' . ,

I

in
• • • • ' I

- • Now that we have understood detail how a contract is formed and what all essentials
inust be present in- an agreement in order to make it a valid contract, , so let us further
' comprehend the classification of contracts. The contracts can be classified on the different
basis.

(A) CONTRACTS Ot.J THE BASIS OF FORMATiON OF CONTRACTS

f .J . • r • '

The co~1tracts can be sub-classified into three categories on the basis of how they were
formed or incorporated. · · •
,. ~I • l • •

.
( 1) EXPRESS
. ... ' CONTRACTS :
> •.
_ An c~pr~ss contract _is a contra~t_.which .is e~prcsscd in words spoken or writte;1 U/S 9 of
ICA, 1872., Wl~er~ the parties to the contract express (orally or in writing or online) the

Classification of Contracts
j ,

(A) (B) (C) (D)

On the Basis of On the Basis of Standard form On the basis of
formation Performance contracts validity

•r ► Valid contracts
•~ Void agreements
Implied • Illegal agreement
contracts contracts • Void contract
• Voidable contracts
• Un-enforceble
contract
Oral Written E-commerce Unilateral · Bilateral
contracts contracts contracts ' contracts QOntracts
Definition and Nature of Contract
11-1.15 .

intention to enter into a contract and then form the contrac~ such
a contract is called an
express contract.
An expre ss contr act can be,sub-d ivid~ d as :
(a) Written Cont ract : Where the parties enter into a written contract
and mutually agree
~pon the terms and · conditions ·of the contract, such a contract is said
to be expressed in
writing. The ICA, 1872 has not made writing a requirement for formi
ng a contract, although
there are some contracts which should be in writing, such as :
• The Memorandum of Association, the Articles of Association, transf
er of shares and
· debentures of a company - Under the Companies Act, 1956.
. . . . '
• Sale of immo vable prope rty
, • Negotiable lpstruments - Unde r Negotiable Instruments Act, 1881
• A pow~r of attorney - Unde r Powers of Attorney Act, 1882
• A will - under the Indian Succession Act, 1925, etc.
·,
(b) Oral Contr acts : A contract can be expressed orally also and it
will be enforceable
by law. An oral contract is legally enforceable of law unless required
by any other law to be ·
in writing ·(such as examples quoted above 'where writing ·is a comp
ulsion). But all oral
contracts should have a clear and satisfactory evidence about its forma
tion and its contents. •' ·
(c) E-Co mmer ce Cont racts : Where the parties to the c-ont~ ct expre
s~ their intention t~
enter into a contract via internet, such contrncts are called as E-Commcrce
contracts. All the
documents in electronic form are treated as equivalent of written
contracts except . the
instances of contracts where writing is a compulsion.
(2) IMPL IED CON TRA CTS :
I•
A contract which is not expressed in words _(spoken or written) but is
implied from the
circumstances of the case or the conduct i.e. behaviour of the partie
s or from the previous
dealing between the parties is known as implied contracts U/S 9 of ICA, I

'
1872.
Where in an express contract, both the parties communicat~ with each
other (either orally
or in writing), in an implied contract the contract is formed impliedly
on the basis of either
conduct or behaviour of the parties or from circumstances of the case.
\ .
i· Examples :
• After eating food in a restaurant, it is implied to pay the bill. It is an
• I implied contract.
• On board ing a pus, it is implied to buy ticket. ' , · ' , ., 1 . ,
• Wher e. a custom er of a bank did not objec t to charging extra. intere
st. by the ba~k; it
was implied that the custom er had accep ted the chang ed rate of intere
st so levied.
(3) QUA SI CON TRA ~TS OR CON STRU CTIV E CON TRA CTS
: (U/~ 68-7 2)
As the n8!lle. suggests, a quasi or a constructive contract is a contract which
is not formed 1
by the parties to the contract but is enforced on the parties to the contra
ct by the Court of
 _Defirilllbn').and Nature of Con~()
-----
Law. In other words, such a contract is not formed but is constructed by law, that is why it is·,,.
called as constructive contract. ; . . ·' ' · ·, ·, . 'n :•'
I ~C---PIe •• . . 1: ~\-
f ...
.
\ . (. 'l
~.... • .. ,
'i't:
!
~
. . ~·'$!
"1
~. ·". .
-
... ~ ,j,:
t
.f : ~ , -,~ . . -~, . ;', ·, .• . >-: .
r • •

. ': ': . . .\ . ! '.)• • • , ·} , / - , ,· 't' • ( f' . z "'

,... , • _If ~m~ goods are delivered by mistake 'to a wrc;mg_person (who l;S not !he ow~er of
1
~ese- good~f then there forpls ' a quasi cont~aGt b~tweeh" ~h~' per~on' wtlo.: is-wrongfulfy'
, del ~vered the ~goods a,:td' t~e t_rue owner" of the goods~· As per t~e -· contra~t'.•the person IT!Ust
return the.good~ to the true owner a~-~ i"n. retJ;ri ~he true 9w11er must (:Ort1pensat:E; th,e other.;,_
[Al~o Refer Chapter-IO for detailed information on quasi contracts]
: ~

(B) CONTRACTS ON THE BASIS OF PERFORMANCE OF CONTRACTS .

• • • I
·performance of the contract decides the completion of the contract. On the ~asis of I
performance of contracts, a · contract c~n be called as executed (complete in perfo~ance) I
, contract or an executory contract (incomplete in performance). · . .
t ' ?
(1) EXECUTED CONTRACTS: . /
In a contract both the parties promise to each other to act or to perform their part of the ·
_obligation. Where an act. is ex.changed for. another act, it is an executed contract. j In)
simple words, where ·both the parties perform their promise, the contract is said to C?mplete
or executed. ·
• "i ' :, ...
(2) EXECUTORY CONTRACTS : . , .. _. ,
• .. .. • ·~ • .3: :.

(i) Where both the parties do not perform their part of obligation, i.e. a contract ~here _
a promise is exchanged for another promise, such a contract is called as bi- ·
lateral executory ·contract.
(ii) Where one party has performed but the other party did not perform i.e. where'an act ·
· is exchanged for a promise, such a contract is called as Unilateral executoey·)
contract. · ·
•.•"" '*

} ,. ~ _Exarnpll!5: / .'"'. . ::, .. ;;; · ,. j 1\ . . . 1~ " :t·

i -;::. • "!',", ' ~..: ~ > .,- •••• • • ''I' ' ' ~'!-{.-:1: f • f .J• '

:'.L ~ J?Y_. ~nt~~ed-into~ 5~n~r~~ wtth a ~ai~ter for ..getting her picture_painted and in ret~m
pay the painter f 5,000,-:-oi · · _. .. , ".•;.' · · 'M • • , , , • • • • .,

... : ' .; - ~ '\, · , ~'j ~ \ .. , ~ J;:.\,i, • . . • :. ~ '. -,,_ • ,. ~ ,t ' ... , • t ;,; • • ';, ..•· .}:

·.. ~ Opti~n Fi~ : The ~ainter, pa_in!ed. ~e ,:>i~ture an~ Joy paid him , 5,~00/-. It is ~n .
.executed contract. · ·· · .. ~
I .,..~ ' •- '-• .._ ..~Jt+-r '. '.:. ~ .,,,.. • :• . .,__ ' ~ 4i:/

~-, .· • Option Sicond : . painter did not paint the picture and Joy did not pay him r~e
. f 5,000/-•.It is a· bi lateraf executory contract. . ., . . . · . · · .,,
t_' l.. • ·;. . :. ;a Y., •' ..., • • •

:·. · • <?PJion T~ird : Th~"painter painted th~ picture but Joy did not pay him , 5,000/-. It ·is
. an unilateral executory cor:itrad. ... : ' 1
"' : ~'/'. !

(C) STANDARD FORM CONTRACTS

. . .
In a standard form contracts, the terms of the contract are pre-drafted by one of ~~
parties and the other·party has just to sign it for acceptance (without having any oppo~ty:1
or time to get the terms changed). In a such a contract the terms and conditions of the contract
are not --settled by the process _of,negotiation between the parties. In view of °'C?. ~equal
bargaining power of the two parties, ~e law has evol~ed certain rules to protect the interest of
the weaker party, such as : -
• There should . be a contractual
. document.
-
- l

• There should be no misrepresentation. r r

I •• •
,. ;

• .,There should be sufficient notice to draw the attention of the party to the tenns and
conditions of the contract _(such ~s by printing on the ticket, "For conditions ·see
back".)
• The tenns
l. ,_ t, •
of the contract should be reasonable.
,

Few examples of Standard Fonn Contracts : - · , · . . · . . - . . ...

·•r-~ , "';)_.,,,.• ; 'I' I' • . ~ :~ ' "t "'•1•. ', ,.4":", :.,.~• ••· \ ""•'• •.- ~-., , "t... , :"· ~' . , • .... , .•;. '" •.•••~~: ," - ... , ,, ,;.~ , ,, ,I • ,•!, •. •,~ :·,'.,"' •, r '!·"'

, _' ~ q) t.\ draft pr~par~ 9Y·. !risu.~a~~e}:~~P.~9Y.f~~-l~~ur.a~~e Po~jcy. ·:·•., -~ .. . . . . ,-. ..

·, t • •· ~• ·-~.:- ~ ..i,1.-· •t ,.;., ,;. ~, J\ ,' , , •· ,. • (· ! •, -j,,. ~" l.,

or ,a.Rail~ay.1ick~! ~<>,I passengers~

\ ' } .~- -~ ~ -. 1 •• ·' -i: , • • • ., . •. • - 4_ )!,.._,'..,_•~•• ¥.• ;

. . . (ii) Ten:ns & COl"!diti,ons pr!nt~ , . . . ·.. _· ·. ·.

\ .;,. •• ;'_-.:''• ,· • • ,.; '" ' ..-,, ?:'• \•'·· ,,, ., , : ~ .,~ -- • • .,_.,, •• .. ,. I • " • •, f ', •.: • -• I ~ • • '

·._ (iii) Tenns & conditions printed on·a·r~c~ipt issued by a dry cle~ne~. .. ._. . •._' _· ·
The
·. i :.(iv)· admission form seeki~g admission to sch~ols,·~olleg~s, universities et~"'. ... ,_

(.D) CONTRACTS ON THE BASIS OF VALIDITY.OF CONTRACTS

- ,

' Whether an agreement becomes enforceable by law depends entirely on its validity in the
eyes of the law. The contracts can therefore be classified on the basis of validity .as beJow:
(~) _V~m CONTRACTS: U/S 2(h) ofICA, 1872
\ .i : ;, .•An agreement enforceable by law Is a valid contract" · ' ,! • i' • • ' ·

Therefore an agreement which satisfies all the essentials (U/S 10 of ICA, 1872) of a valid
contract becomes enforceable by law arid thus is called a valid contract. -
(2) VOID AGREEMENTS: U/S 2(g) of ICA, 1872
I . ·•An agreement not enforceable by law is a'void agreement.• .·•· · I
' -
i An agreement which does not fulfill all the ten essentials of a valid contract can become
' . '
a void agreement because of the lack of any of those essentials.
i Such as :
: ' • · ' An agreement without consideration is void.
; • An agreement with minor is void.
: 1 ' ..

· • · An agreement whose meaning is uncertain is void. I

I

, • A wagering agreement is void.

[Refer Chapter-6 for detailed infonnation.on Void Agreements]
(3) ILLEGAL AGREEMENTS : -
(
An agreement the object or purpose of which is unlawful is called an illegal agreement.
All _ill~gal agreements are not enforceable by law because of their illegal purpose and
therefore all illegal agreements become void agreements.
.. . .i '· •
 Definition and Nature of c ~
-...... [
' Examples: ~- · · ,. "' .·1 ., ,. \ . _,:1 ::_~ ,;_.. ,~, · 1_:
.~ .. ' ... • • . • t .. , , .. ' ' ·\.. .. ~ j .~•..,,:, ,: •.; ~1(·] '!, '-'.: ,:t."'i ti •}~ ~ -~• .. 1 ,~ •
• An agreement to commit any crune. , · . ' · - .,·•"." ., ,, . , , . , .: · ·. .... ··
• An agreement that gives rise to corruption, . .· · · , ·',' · ' ~.. .. I'-'
• • p, •,.!,t,.t ...,' <,) • • ~.t,._t,.'.,._,..'.l-'" ,:.;~Y..-'\ 1 •:"~~""'~\J.,..:~ . .. :..,..,.
• ' An agreement to perform an immoral· act: · ···. : ·. , .··. · - i ' . r.
(Refer Chapter 6 for detailed information on lllega_l Agr~mentsf.:t. ~-·'?: -~

(4) vom CONTRACTS : u,s·2 U)' o!ICA, 1872~- 1

•~ conb"$ct ~ich·" cease!'.i . to be' enfor~~ble:' by .!~.w-'b~~-"l~~ vo~ 1 -.Y.~en, it ~e_ase_

s,,to be
enforceable." · •· 1- ' • · · • · ·· •· J' · :r· .·· " ' 1,. • ' .,: .

A void contract is a contract :

• Which· was a valid contract when formed,
• But because of the supervening impossibility ~f performance~
• · Today it ~as become impos.sibl~ t~ perform, he~ce"void. · {, :·..,.
In simple words, if a~·contract becomes impossible to . perform without the, fault (?f.tlie ;
promisor but because of some later event that is outside the control of the promisor, then such ,
a contract beooines a void contract. r , . ' . _- .. ~- ; ' ,.. · ~ " :- ·_ ... , ~-- ,. / ·

.. The performance in a void contract may be excused due to : ·. · ·· 1 1; . •

(i)' · Performance is rendered impossible by any change of law. ,·· · · I .• ·11 i '; ., , : •
(ii) Performance is rendered impossible _be~ause· ~f destruction of subject matter... , ~· ~l 1
- (iii} P·erformance is rendered impossible because of dt?ath of a party. ·
. -
.. [Refer Chapter 9 for detailed informatiqn] •i • ••
-- E., • . · .
:I" ~P•~= . }') ·" , .
...
r ."" ~ .. ~
.,
~
•• p_
!-. •· ~
~
· ·-~ .....
~ . 1 .. -
. ,. • ,.t It.-
t t .,,.,
·· - .-- ...
•• .J,.
> ,) ~:
t ,.
..._ ~
. .
--
... • 1.(,
~~ -~~......
.
..~ . .• 1 , '!- ._
# ......... ~✓'
, ..~ j

.,.
• r -;, ~ ~
: ,,. \.
.
,• ,_ :• •• ' " ;.. 1,.,_, • ,ri;,,, }! ,• •• .. r•' ' I -~ C,~ • ,~ • •,, t' ~ • o !' f ' /" o .. •

, . ~-X entered into a c;ontrac1;,with ·- a', painter-': for.. getting· his picture . painted'\ ~c ~paying
.! ·10,000 in· re~·m•/:,T ~e --·pairiter ~'i ed· ,l:iefore . perlqrming'°":J h-~: contr~c;t. : H~ld it js··_a: void
:·.,-, . ,. ,-, r,. ;1. ;1. ~:i.:"··~~••·~ l . ._ .,,.ii,~(; - , ~ .;; :-t... :· ~ -;t :'·
c • . .. _,;)_.:.. ••, , - . .. • ,,l , .. "' . . . - -· _ -,.. • • • •

>
c~_~ tract. .. , 7 .~ -... ~~'_ r•" _,i.;. ~ ..~ ._ ...i;. , -...•! '~ ~ ... , r , .: , }:.•.••
• ' • : ' I ... j ..
• • . ...
r . i- t ' ~ ' : •
, . ,, .
••_,. ~ ~~. J { • ' ~
. ·.
t -' \
. ··
: . :; ·.: .
l'I,.. I t I •• 1 .... ; l • <

, •· Ram ' fro~ lndi~ entered_' in_to . a CO,Ptract ,for ,.sale _of_, wheet: ~ .o rth~ !,_.s9,~90. ,tQ
Mohammad of Palcistari. 13efore the contract could' be performed, a war broke off between
1
lndiaand~ Pakistan. Hel'd the contract became void, .. <: •• \'X', / ,

(5) VOIDABLE CONTRACT: U/S 2 ·(1J of ICA~ 1872 .

. .•An agreemenf whicli ls enforceable by law at the option of one or more· of the parties-thereto,
but not at the option of the other or others is a voidable contract." ' · . · , , - .... · r. ~.~ r i. - ' · ·
Let us understand the meaning of tbe term 'Voidabie Contract' in form of a story ·:
(i) In a contract, where consent ot one of the parties was not free. (because consent.
was obtained by coercion, unc;lue influence, fraud or mis-representation) '" ., ~.l··-,ll
. (ii) Sue~. party (whose consent was not free) is called as an aggrieyed pa~tr ,pr an
i~n~cent party.
(iii) The aggrieved party has two options : either · it may .continue with the salllC
contract i.e. affirm it (accept it) or it may avoid the contract.
 lhl.19 ·
Definition and Nature of Contract:

- ¥ -(iv) If the ·aggrieved party affirms the con_tract; then the contract becomes enforceable
i.e. it becomes a valid contract
(v) But if the aggrieved party wants to avoid the contract (by proving that his or her
consent obtained was not free) then ·it may avoid it. In such a case, the contract
would become a voidable ~ontract which cari only be avoided by one of the parties
(i.e. by the aggrieved party).
then the parties to the contract are
(vi) Once the aggrieved party. avoids the contract,
restored·to their originai positions i.e. if a pafo/ suffered losses, then these_loss~s
have to be compensated and if a party had some benefits then these benefits have to
be returned back.
r I ~ ..... J f • • • #

. .Exam~te : - · . , · f' . . ,. .
. - • Muk~l th;eatened to kill Raghav if Raghav did' not agre~ t~ sell his house. (worth ~ 2
f ' •
:
~ I • • I
II:. •- I· • ; 1 1 ,.., 'l'

crores) for,~ 20 lakhs only. Being·threatened, Raghav entered into the contract. Lat~r Raghav
' filel a ' case against' Mukul to cancel. the contract on t~e grounds o.f coercion (physical ·
· threat). Held, Raghav can av?id this contract as i~ is voidable at the ·option of only aggr_i~ved
· party (Raghav). ' · .. ,

(6) UN-ENFORCEABLE CONTRACTS :

An un-enforceable contract is a contract·which is not enforceable by law because of some
technical defect existing in it. Once that defect is c~re.d, the contract becomes enforceable by
law. Like, some contracts should be _duly registered as required U/S 17 of the Indian ,
Registration Act XVI of 1908. If such a contract is fonned without registration, it would be
called as un-enforceable contract until it is registered. Once it is registered, it shall become a
valid enforceable contract. Similarly, some contracts must be duly stamped after payment of, I

stamp duty. If such contracts are fom1ed without stamp _duty, they will. not be enforceable
unless stamped.
DISTINCTION BETWEEN AGREEMENT AND CONTRA CT . -

Basis
, ,
Contract Agreement
.
•· ·•'

,1. Meaning "An agreement unforceable by law "Every promise and every set of
' is a contract" -U/S 2(h) of ICA, promises, fonning consideration for .
. 1872 . each other is an agreement." -U/S
,_ ' .
2(e) oflCA, 1872.
---
2. Legal A contract is capable ·o r being ~ agreement cannot be enforced
enforceability enforceable by law. by law.
3. Intention of In a contract both the parties have a The intention of the parties is not' to
parties common intention to enter into a fonn a legal ~Jationship m an
l~gal relationship. agreement.
4. Consequences of If a party commits breach of An agreement does not give rise to
Breach , ~.ontract, the other party can sue. any lega_l protection in case of a
breach.