BRF-Module-1

(Define contract-law of contract-nature-classification-essential elements of contract- Offer and Acceptance-

consideration- capacity of parties- Free consent- legality of objection and consideration- performance of
contract- discharge of contract- breach of contract- remedies for breach of contract.)
AGREEMENT
An agreement (Section 2(e))
An Agreement is a promise between two entities creating mutual obligations by law.
Section 2(e) of the Indian Contract Act, 1872 defines an agreement as ‘Every promise and every set of
promises, forming the consideration for each other, is an agreement’.
To form an agreement, the following ingredients are required:
 Parties: There need to be two or more parties to form an agreement.
 Offer/ Proposal: When a person signifies to another his willingness of doing or omitting to do something
with a view to obtain other’s assent. [Section 2(a)]
 Acceptance: When the person to whom the proposal is made signifies his assent for the same thing in the
same sense as proposed by the offeror. [Section 2(b)]
 Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]
 Consideration: It is the price for the promise. It is the return one gets for his act or omission. [Section
2(d)]
An agreement is, therefore, a promise or set of promises forming consideration for all the parties. [Section
2(e)]
Agreement = Promise or set of promises (offer + acceptance) + Consideration (for all the parties)
CONTRACT
The word contract is derived from the Latin word “contractum” which means ‘drawn together’
A contract is a lawful agreement. An agreement enforceable by law is a contract.
Contract = Agreement + Legal enforceability
Or
Contract = Legally enforceable Agreement
Section 2(h) of the Indian Contract Act 1872 defines a contract as an agreement which is enforceable by
law. Every agreement and promises which is enforceable by law is a contract. A contract is an agreement,
creating and defining the obligation between parties.

ELEMENTS/ESSENTIALS OF A CONTRACT
Section 10 provides for the essential elements for a valid contract, which include:

1. Two Parties: – A valid contract must include at least two parties identified by the contact. One of these
parties will propose the offer and the other party will eventually accept it.
2. An Agreement: – to make a valid contract there must be an agreement between the parties of the contract.
An agreement involves a valid offer by one party and a valid acceptance by the other party.
 3. Consensus Ad Idem:-- The parties must agree on the same thing in the same sense and at the same time.
There should be identity of minds.
4. Free Consent: – The consent is said to be free when there is absence of (a) Coercion, (b) Undue Influence,
(c) Fraud, (d) Misrepresentation and (e)Mistake. An agreement without consent is not legally binding
5. Intention to create a Legal Relationship : – There should be an intention by both parties to form a legal
relationship and to bind themselves legally as a result of such agreement. Thus, agreements of a social or
domestic nature are not contracts, as the parties do not intend to have a legal relationship. For Example: –
where two parties agree to move together, a legal contract will not amount.
6. Competency of parties: – The parties to the agreement must be able to enter into a valid contract. An
agreement by an incompetent person is not valid. According to the Act, every person is capable of entering
into a agreement, if he or she: –
o is of the age of majority;
o is of sound mind; and
o is not disqualified from contracting by any law.
7. Lawful Consideration: – A valid contract should be supported by consideration. Consideration means
“something in return”. It means an advantage or benefits moving from one party to another. It can be cash,
kind or an act. It can be past, present or future. The consideration must be genuine and valid.
8. Lawful Object: – The object or the purpose for which the agreement is created must be lawful. The object
should not be illegal, immoral or opposed to public policy. Every agreement of which the object or
consideration is unlawful is void.
9. The agreement must be certain:- The term of the agreement must not be vague or indefinite. It must be
certain, otherwise it cannot ne enforced by law.
10. The performance must not be impossible:- The terms of agreement must also be such that there is
capability of performance. An agreement to do an impossible act is not valid.
11. Legal formalities:- A contract may be made by words either spoken or written. It is however in the
interest of the parties that the contract should be in writing, or in some cases the contract incorporated
should be stamped or in some cases the contract has to be registered. Thus, where there is a statutory
requirement that a contract should be made in writing or registered or stamped, the required statutory
formalities must be complied with.
12. Agreement not expressly declared void:- An agreement must not have been expressly declared void
under the section 24 to 30 of the Indian Contract Act 1872. Thus agreements which are expressly declared
to be void by the law, then such agreement if entered into, shall not be enforceable by the court of law.
All the aforesaid elements must be present in an agreement in order to create a valid contract. If any one f
the element is found to be missing, then the agreement will not be enforceable by law.

TYPES OF CONTRACT
Classification of Contracts
I. According to Formation
II. According to Performance
III. According to Legal effect
IV. According to Form of contract

I. According to the mode of formation of contracts, contracts may be classified into three namely,
1. Express Contract,
2. Implied Contract, and
3. Quasi – Contract.
1. Express Contract
A contract is said to be an express contract, if the terms of a contract are expressly agreed upon between the
parties, either by words spoken or written, at the time of formation of the contract. An express promise
results in express contract.
2. Implied Contract
An implied contract is one for which the proposal or acceptance is made not in words is known as implied
contract. Implied contracts are inferred from the circumstances of the case and conduct or acts or
behaviour of the parties .
For example, when A takes a cup of tea in a hotel, there is an implied contract that A should pay the
amount.
3. Quasi – Contract
A quasi-contract is created by law. In the quasi-contract, there is no intention on either side to make a
contract, but the law imposes a contract. In a quasi contract, rights and obligations arise not by an
agreement but by operations of law.
For example, where certain letters are delivered to a wrong addressee, the addressee is under an obligation
to return the letters.
II. According to the extent of performance of contracts, contracts may be classified as
1. Unilateral Contract, and
2. Bilateral Contract.
3. Executed Contract,
4. Executory Contract
1. Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has to satisfy his obligation at
the time of the formation of it, the other party having fulfilled his obligation at the time of the contract or
before the contract comes into existence.
For example, A takes a public auto to go to Mount Road. A contract comes into existence as soon as A was
dropped in Mount Road. By that time, auto man has fulfilled his obligation, only A has to fulfill his
obligation i.e. paying the auto- man.
2. Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the parties to the contract are
pending at the time of formation of the contract. In this type of contract, a promise on one side is
exchanged for a promise on the other.
For example, A promises to stitch a shirt and B promises to pay Rs.30. Here A promises to stitch the shirt
and B promises to pay. Thus each party is both a promisor and a promisee.
3. Executed Contract
A contract is said to be executed contract when both the parties to contract have performed their share of
obligation. An executed contract is one that has been completely performed.
4. Executory Contract
An executory contract is one, which is either wholly unperformed, or something remains in there to be
done by both the parties to contract. A contract may be partly executed and partly executory.
III. According to legal effects / enforceability by law, contracts may be classified as
1. Valid Contract
2. Void Contract
3. Voidable Contract
4. Illegal Contract
5. Unenforceable Contract
1.Valid Contract
The Valid Contract is an agreement which is legally binding and enforceable. An invalid contract may lead
to obstruction of businesses and unlawful insincere dealings. The Indian Contract Act, 1872, lists the
essentials of a Contract either directly or by interpretation through various judgments. A contract must
qualify all the essentials of a contract. Section 10 of the contract reckons particular points which are
essential for valid contracts.
2.Void Contract
Section 2(j) of the Act defines a void contract as “a contract which ceases to be enforceable by law
becomes void”. All the contracts which are not enforceable by the court of law due to enforceable
conditions not mentioned in the contract becomes void.
3.Voidable Contract
The voidable contract in Section 2(i) of the Act, is defined as “an agreement which is enforceable by law at
the option of one or more of the parties to it, but not at the option of the others, is a voidable contract”. A
voidable contract is a Valid Contract till the time an affected party chooses to rescind the same on
legitimate grounds. In any voidable contract, a minimum one party has to be bound to the terms of the
contract. A voidable contract is one which can be set aside or repudiated or avoided at the option of the
aggrieved party.
4.Illegal Contract
An agreement which leads one or more parties to break the law or public policy or societal morality is
deemed to be illegal by the court. Illegal contracts are considered as void and not enforceable by law.
Section 2(g) of the Act defines them as an agreement not enforceable by law is said to be void. Illegal
contracts are void ab initio (from the start or the beginning), and they are punishable under the law because
of the criminal aspects of the illegal contracts.
5.Unenforceable Contracts
Unenforceable contracts are extracted unenforceable by law due to some technical aspects and cannot be
enforced against any of the parties.
Before entering any agreement it is essential that the parties understand the basic tenets of the contract law
so as not to cause a future dispute among themselves or incur losses due to the unenforceability of the other
party’s duties under the agreement.
(d)According to form of contracts, contracts may be classified as
1. Formal contract
2. Simple contract
1.Formal contact
A formal contract is a type of contract under seal, reduced to writing, signed by the parties contracting and
impressed with a seal. Formal contracts is also called specialty contracts or deeds. Its features are that it
must be signed, sealed and delivered.
2.Simple contract
A simple contract (or Informal contract) is a type of contract whether written or oral, which is not under
seal. Simple contracts can also be implied from the conduct of the parties.

There are various types of contracts that are formed voluntarily via civil obligations. They are as follows:

1. Adhesion Contracts – These types of contracts are those which are formed by the stronger party. It is a
sort of, “Opt for it or do not” contract. The stronger party or the one that has the bargaining power leaves
the other party with a choice whether to accept or reject the contract.

2. Aleatory Contracts – This type of contract involves a mutual agreement that comes into being after an
unexpected occurrence, accident, or a natural calamity. In this type of contract both the parties have an
element of risk. Fire or Car insurances are this type of contract.

What are the key differences between agreements and contracts?

Basis for ComparisonAgreement Contract

An agreement is made when a proposal by one A contract is made when an agreement

Meaning
party is accepted by another lawful consideration.
becomes enforceable by law.

Elements Offer and Acceptance Agreement and Enforceability under law

Defined in Section 2(e) Section 2(h)

In writing Not necessarily Usually written and registered

Once the agreement becomes a contract,

There is no legal obligation as long as it is a mere
Legal obligation there is a legal obligation by parties
agreement.
involved.

Scope Wide Narrow

Meaning of Void Agreement: – According to Section 2(g), of the Indian Contract Act, 1872, an
agreement which is not enforceable by law is known as void agreement. An agreement that was void from
the beginning is said to be ab-initio. For example: – An agreement by a minor is considered as void
agreement.
Agreements without consideration are also void. An agreement which impose any restrictions on marriage
and an agreement that impose any restrictions on trade are void agreement.

Key Differences Between Void Agreement and Void Contract

The following points are the difference between void agreement and void contract is concerned: –
1. A void agreement is one, which according to law is neither enforceable nor it creates any legal
consequences. The void contract, on the other hand, is a contract which is valid at the time of formation
but becomes unenforceable, due to impossibility or illegality.
2. A void agreement is void since it has been created. As against this, a void contract is valid at the time of
creation but later on becomes void.
3. A void agreement is never valid, whereas a void contract is a valid contract, till it does not lack
enforceability.
4. A void agreement is void due to the absence of one or more necessary elements that result in a contract.
On the contrary, a void contract is one that becomes void due to the impossibility of performance.
5. The void agreement does not satisfy the prerequisites of a valid contract, and because of this, it is
considered as void. Conversely, the void contract is one that fulfils all the requirements of a valid contract,
but cannot be enforced due to unexpected circumstances, thus becomes void.
6. Restitution or restoration is not granted in the case of void agreement, although in certain circumstances,
restitution is permitted on equitable grounds. On the contrary, restitution is granted to the concerned party
when the valid contract, eventually becomes void.

What are Illegal agreements?

Meaning of Illegal Agreements: – An illegal agreement in contract law is a contract that was made for an
illegal reason and is consequently against the law. If the content of the agreement causes the parties to
perform illegal actions, then the contract is illegal. There are certain agreements which are illegal in the
sense that law prohibits the very act, doing of which is considered as illegal.
For example: –
• an agreement to commit a crime or a tort.
• an agreement to defraud public income.
Such an agreement are opposed to public policy. And the law prohibits the making of such agreements. An
illegal agreement may be distinguished from a mere “void” agreement which may not be opposed to public
policy.
For example: – An agreement to do an impossible act is void which is not opposed to public policy. An
illegal agreement is one which is not permissible by law. An illegal agreement is void since very beginning.

OFFER AND ACCEPTANCE

Definition of an offer
According to Section 2(A) of the Indian Contracts Act, 1872,

When a person expresses his willingness to another person to do or to abstain from doing something and
also obtain the consent of such expression, it is called an offer.

How An Offer Is Made?

An offer can be made by (a) any act or (b) omission of the party proposing by which he intends to
communicate such proposal or which has the effect of communicating it to the other (Section 3).[4] An
offer can be made by an act in the following ways:
a. By words (whether written or oral). The written offer can be made by letters, telegrams, telex
messages, advertisements, etc. The oral offer can be made either in person or over telephone.
b. By conduct. The offer may be made by positive acts or signs so that the person acting or making
signs means to say or convey. However silence of a party can in no case amount to offer by conduct. An
offer can also be made by a party by omission (to do something). This includes such conduct or
forbearance on one�s part that the other person takes it as his willingness or assent.
 An offer implied from the conduct of the parties or from the circumstances of the case is known as implied
offer.[5]
Examples
1. A proposes, by letter, to sell a house to B at a certain price. This is an offer by an act by written
words (i.e., letter). This is also an express offer.
2. A proposes, over telephone, to sell a house to B at a certain price. This is an offer by act (by oral
words). This is an express offer.
3. A owns a motor boat for taking people from Bombay to Goa. The boat is in the waters at the
Gateway of India. This is an offer by conduct to take passengers from Bombay to Goa. He need not speak
or call the passengers. The very fact that his motor boat is in the waters near Gateway of India signifies his
willingness to do an act with a view to obtaining the assent of the other. This is an example of an implied
offer.
Specific and General Offer
An offer can be made either:
1. To a definite person or a group of persons, or
2. To the public at large.
Essential elements of an offer
1. There must be two parties
2. The offer must be communicated to the offeree.
3. The offer must show the willingness of offeror. Mere telling the plan is not offer.
4. The offer must be made with a view to obtaining the assent of the offeree.
5. A statement made jokingly does not amount to an offer.
6. An offer may involve a positive act or abstinence by the offeree.
7. Mere expression of willingness does not constitute an offer.
8. An offer may be express or implied
9. An offer may be specific or general
10. An offer must be made by the intention of creating legal obligation.

Kinds Of Offer
There are different kinds of offer. They are
1. Express offer
When the offeror expressly communication the offer the offer is said to be an express offer the express
communication of the offer may be made by Spoken word or Written word
2. Implied offer
When the offer is not communicated expressly. An offer may be implied from the conduct of the parties or
the circumstances of the case
 3. Specific offer:
It means an offer made to a particular person or a group of person: It can be accepted only by that person or
the group of person to whom it is made. Communication of acceptance is necessary in case of specific
offer.
4. General offer:- It means on offer which is made to the public in general and not to any specific individual
or group is a general offer.
General offer can be accepted by anyone who have the knowledge of offer and who comes forward
and act according to the conditions of the offer. If the offeree fulfils the term and condition which is given
in offer then offer is accepted.
5. Cross offer:
When two parties exchange identical offers in ignorance at the time of each other’s offer, then such offers
are called cross offer. Two cross offer does not conclude a contract. Two offer are said to be cross offer if:
1. They are made by the same parties to one another
2. Each offer made in ignorance of the offer made by the
3. The terms and conditions contained in both the offers are same.

6. Counter offer:- Counter offer means the fresh offer made by the offeree instead of original offer. It is the
form of offer when the offeree give qualified acceptance of the offer subject to modified and variations in
the terms of original offer. Counter offer amounts to rejection of the original offer.

7. Standing Offer / Continuous offer:

An offer is allowed to remain open for acceptance over a period of time is known as standing offer or open
offer or continuous offer. Tender for supply of goods is a kind of standing offer.
Example:
When we ask the newspaper vendor to supply the newspaper daily. In such case, we do not repeat our offer
daily and the newspaper vendor supplies the newspaper to us daily. The offers of such types are called
Standing Offer.
Lapse of an Offer
An offer should be accepted before it lapses (i.e. comes to an end). Section 16, of The Indian Contract Act,
1872 deals with various modes of revocation of offer. According to it, an offer is revoked/lapses (or) comes
to an end underfollowing circumstances.

An offer may come to an end in any of the following ways stated in Section 6 of The Indian Contract Act:
1. By communication of notice of revocation:
An offer may come to an end by communication of notice of revocation by the offeror. It may be noted that
an offer can be revoked only before its acceptance is complete for the offeror. In other words, an offeror
can revoke his offer at any time before he becomes bound by it. Thus, the communication of revocation of
offer should reach the offeree before the acceptance is communicated.
2. By lapse of time:
 Where time is fixed for the acceptance of the offer, and it is not accepted within the fixed time, the offer
comes to an end automatically on the expiry of fixed time. Where no time for acceptance is prescribed, the
offer has to be accepted within reasonable time. The offer lapses if it is not accepted within that time. The
term reasonable time will depend upon the facts and circumstances of each case.
3. By failure to accept condition precedent:
Where, the offer requires that some condition must, be fulfilled before the acceptance of the offer, the offer
lapses, if it is accepted without fulfilling the condition.
4. By the death or insanity of the offeror:
Where, the offeror dies or becomes, insane, the offer comes to an end if the fact of his death or insanity
comes to the knowledge of the acceptor before he makes his acceptance. But if the offer is accepted in
ignorance of the fact of death or insanity of the offeror, the acceptance is valid. This will result in a valid
contract, and legal representatives of the deceased offeror shall be bound by the contract.
5. By counter offer by the offeree:
Where, a counter offer is made by the offeree, and then the original offer automatically comes to an end, as
the counter offer amounts to rejections of the original offer.

6. By not accepting the offer, according to the prescribed or usual mode:

Where some manner of acceptance is prescribed in the offer, the offeror can revoke the offer if it is not
accepted according to the prescribed manner.
7. By rejection of offer by the offeree:
Where, the offeree rejects the offer, the offer comes to an end. Once the offeree rejects the offer, he cannot
revive the offer by subsequently attempting to accept it.The rejection of offer may be express or implied.

8. By change in law:
Sometimes, there is a change in law which makes the offer illegal or incapable of performance. In such
cases also, the offer comes to an end.

Communication Of Offer and Revocation Of Offer:

An offer, its acceptance and their revocation (withdrawal) to be complete when it must be communicated to
the offeree. The following are the rules regarding communication of offer and revocation of offer:
a. Communication of offer
. The communication of an offer is complete when it comes to the knowledge of the person to whom it is
made
i. An offer may be communicated either by words spoken (or) written (or) it may be inferred from the
conduct of the parties.
ii. When an offer/proposal is made by post, its communication will be complete when the letter
containing the proposal reaches the person to whom it is made.
b. Revocation of offer:
 A proposal/offer may be revoked at anytime before the communication of its acceptance is complete as
against the proposer, but not afterwards.

Termination of an Offer
An offer can be terminated in several ways before the offer is accepted.
· The first is rejection, which terminates the power of acceptance. An example of an indirect rejection
is a counter-offer. Whether a counter offer is express or implied, it counts as rejection and terminates the
offer.
· The second is revocation. Revocation occurs when the offeror manifests an intention not to enter into
the proposed agreement. At any time before acceptance, the offeror retains control over the offer. This
includes the right to modify or terminate the offer.
· The third is lapse – an offer will lapse within the time stated in the offer, or – in the event that no
time for expiration is specified – at the end of a reasonable time.
· Finally, death terminates an offer. Death deprives a person of the legal capacity to enter into a
proposed contract.
Acceptance 2(b):

When the person to whom the proposal is made, signifies his assent there to , the proposal is said to be
accepted. On the acceptance of the proposal, the proposer is called the promisor/offeror and the acceptor is
called the promise/offeree.

Examples
A trader receives an order from a customer and executes the order by sending the goods. The customer’s
order for goods constitutes the offer which was accepted by the trader by sending the goods. It is a case of
acceptance by conduct. Here the trader is accepting the offer by the performance of the act.

In the case of a specific offer, it can be accepted only by that person to whom it is made.

Legal Rules for the Acceptance: [21]

1. Acceptance must be absolute and unqualified:
o An acceptance to be valid it must be absolute and unqualified and in accordance with the exact terms of the
offer.
o An acceptance with a variation, slight, is no acceptance, and may amount to a mere counter-offer (i.e..,
original may or may not accept
2. Acceptance must be communicated:
Mere mental acceptance is no acceptance, But there is no requirement of communication of acceptance of
general offer.
o For a valid acceptance, acceptance must not only be made by the offeree but it must also be communicated
by the offeree to the offeror.
o Communication of the acceptance must be expressed or implied.
o A mere mental acceptance is no acceptance.
3. Manner of acceptance
General rule say that it must be as per the manner prescribed by offeror. If no mode is prescribed in which
it can beaccepted, then it must be in some usual and reasonable manner.
o Communication of the acceptance must be expressed or implied.
o A mere mental acceptance is no acceptance.
4. If there is deviation in communication of an acceptance of offer, offeror may reject such acceptance by
sending notice within reasonable time. If the offeror doesn’t send notice or rejection, he accepted
acceptance of offer.
5. Acceptance of offer must be made by offeror.

6. Acceptance must be expressed (or) implied

o An acceptance may be given either by words (or) by conduct.

o An acceptance which is expressed by words (i.e.., spoken or written) is called ‘expressed acceptance’.

o An acceptance which is inferred by conduct of the person (or) by circumstances of the case is called an
‘implied or tacit acceptance’.

7. Time limit for acceptance

o If the offer prescribes the time limit, it must be accepted within specified time.

o If the offer does not prescribe the time limit, it must be accepted within reasonable time.

8. Acceptance of offer may be expressly (by words spoken or written); or impliedly (by acceptance of
consideration); or by performance of conditions (e.g.in case of a general offer)
9. Mere silence is not acceptance of the offer
Example A offers to B to buy his house for Rs.5 lakhs and writes, ‘if I hear no more about it within a week,
I shall presume the house is mine for Rs.5 lakhs’. B does not respond. Here, no contract is concluded
between A and B
10. However, following are the two exceptions to the above rule. It means silence amounts as acceptance
of offer:
o Where offeree agrees that non-refusal by him within specified time shall amount to acceptance of offer.

o When there is custom or usage of trade which specified that silence shall amount to acceptance.

11. Acceptance subject to the contract is no acceptance

If the acceptance has been given, subject to the contract, or subject to approval by certain persons, it has not
effect at all. Such an acceptance will not create binding contract until a formal contract is prepared and
signed by all the parties.

General Rules as to Communication of Acceptance

1. In case of acceptance by post
Where the acceptance is given by post, the communication of acceptance is complete as against the
proposer when the letter of acceptance is posted. Thus, mere posting of letter of acceptance is sufficient to
conclude a contract. However, the letter must be properly addressed and stamped
2. Delayed or no delivery of letter
Where the letter of acceptance is posted by the acceptor but it never reaches the offeror, or it is delayed in
transit, it will not affect the validity of acceptance. The offerer is bound by the acceptance.
3. Acceptance by telephones telex or fax
If the communication of an acceptance is made by telephone, tele-printer, telex, fax machines, etc, it
completes when the acceptance is received by the offeror. The contract is concluded as soon as the offeror
receives not hears the acceptance.
4. The place of Contract
In case of acceptance by the post, the place where the letter is posted is the place of contract. Where the
acceptance is given by instantaneous means of communication (telephone, fax, tele-printer, telex etc.), the
contract is made at the place where the acceptance is received,
5. The time of Contract
In case of acceptance by post, the time of posting the letter of acceptance to the time of contract. But in
case of acceptance by instantaneous means of communication, the time of contract is the time when the
offeror gets the communication, the time of contract is the time when offeror gets the communication of
acceptance.
6. Communication of acceptance in case of an agent.
Where the offer has been made through an agent, the communication of acceptance is completed when the
acceptance is given either to the agent or to the principal. In such a case, if the agent fails to convey the
acceptance received from offeree, still the principal is bound by the acceptance.
Consideration
At the desire of the promisor if the promisee either
 Does something (in the past, present or future) OR
 Abstains from doing something (in the past, present or future)
Then, this act of doing or abstinence is called Consideration.
“When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence is
called a consideration for the promisee.”
According to Section 2(d) of the Indian Contract Act, 1872, the follows features are essential for a valid
consideration:
(i) Consideration must move at the desire of the promisor
Consideration can be offered by the promisee or a third-party only at the request or desire of the promisor.
If an action is initiated at the desire of the third-party, it is not a consideration.
(ii) Consideration may move from the promisee to any other person
If you look at the definition of consideration according to section 2 (d) of the Indian Contract Act. 1872, it
explicitly states the phrase ‘promisee or any other person…’ This essentially means that in India,
consideration may move from the promisee to any other person. However, it is important to note that there
can be a stranger to consideration but not a stranger to the contract.
(iii) It can be in the past, present or future
a. Past
 Since consideration is the price of a promise, it is normally given to induce the promise. However,it can be
given before the promise is made by the promisor. This is past consideration. It is important to note that
past consideration is not considered for a new promise since it is not been given in lieu of the promise.
According to Indian law, ‘past considerations’ is ‘good consideration’ if it was given at the desire of the
promisor.
a.1. Past Voluntary services
At times, a person might render voluntary services without any request or promise from another. If the
person receiving the services makes a subsequent promise to pay for the services, then such a promise is
enforceable in India under Section 25(2) of the Indian Contract Act, 1872 which states:
‘An agreement made without consideration is void, unless it’s a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the promisor, or something which the promisor was
legally compellable to do; or unless.’
Peter finds John’s wallet on the road. He returns it to him and John promises to pay Peter Rs 500 for his
services. This is a valid contract.
b. Present
If the promise and consideration take place simultaneously then it is present or executed consideration. An
example is Peter goes to a shop, buys a bag of chips and pays for the same on-spot.
c. Future
When the consideration for a promise moves after the contract is formed, it is a future or executor. It is also
valid if it depends on the condition.
Peter promises to create architectural plans for John’s new house. John promises to pay Peter an amount of
Rs 50,000 provided the plans are approved by his wife.
(iv) It must have value in the eyes of the law
While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real and have
value in the eyes of law. While the Court will not consider inadequacy, it will look at it to determine if the
consent was given by the party with free-will or not.
(v) It should be over and above the Promisors’ existing obligations
If the promisor is already obligated either by his promise or law to perform or abstain from a certain act,
then it is not a good consideration for a promise.
(vi) It cannot be Unlawful
A consideration that is against the law or public policies is not valid.
Consideration notes indicate the items of value that are exchanged by each party to a contract. This quid
pro quo transaction is essential to create a contract that can be legally upheld by the court. For example, if
you promise to sell someone your car for $1,000, the money and the car each constitute consideration, thus
creating a valid purchase contract.

Features of Valid Consideration

i. To be valid, the party who agrees to do or not to do something as part of the contract terms must not have
already been planning to voluntarily engage in that specific action or inaction. That's because he or she is
not offering consideration.
 ii. Anyone can provide the consideration provided it is done so on behalf of the contracted party.
iii. Consideration can be given before, at the time of, or after the contract is signed. Past consideration, for
example, would be a promise to pay a debt that was already incurred. This type of consideration is often
not valid because the person was already obligated to pay. However, one valid example would be if you
work to plant crops for a farmer and he or she promises to pay you at harvest time. Your labor would be
considered valid past consideration. Present consideration means that both items of value are provided at
the same time, such as when you order food and pay for it upon delivery. Your agreement to purchase the
meal constitutes a valid contract. Future consideration, also called executory consideration, is when
consideration is provided at a later established date.
iv. Consideration must exist and have some legal value, though this value does not need to be equal to the
consideration provided by the other party. However, if consideration is inadequate on one side the court
may consider whether the other party signed the contract of his or her free will.
v. Forbearance to sue is considered valid consideration provided the actions described in the contract are not
illegal.
vi. An existing legal duty or obligation is not valid consideration.
vii. Consideration that is illegal or against policy is not valid. For example, if someone offers a third party $500
to attack their enemy but does not pay up, the person who conducted the assault cannot seek legal recourse
because the consideration was illegal, rendering the contract invalid. This is true even if only part of a
single consideration is illegal.

Capacity of Parties
Capacity of parties refers to each party who is entering a contract. Each is required by law to have the
mental and intellectual capacity to understand the terms of the contract and to make the decision to enter it.
Therefore, people such as minors, those of reduced mental acuity, and people under the influence of drugs
or alcohol would not legally meet the capacity required to enter into an insurance contract.
Other parties considered by law to have no legal capacity are trade names. A trade name on its own is
considered to have no legal status and therefore have no legal capacity to enter into contracts. Trade names
must be attached to a corporation or a natural person via a legal designation in order to gain the capacity
necessary to enter into legally enforceable contracts.
One caveat to this though is that minors have the ability to enter into contracts for necessities such as food,
clothing and shelter under certain circumstances.
Capacity of parties is also known as legal capacity

Meaning of consent
 According to Section 13 of the Indian Contract Act, 1872 consent means when both parties agree to a thing
in the same sense of mind or unison of mind.
 The principle of consensus-ad-idem
Eg:- “A” and “B” are the two parties in a contract. It was seen that there was some crisis and “A” had put a
plan forward to solve it. “B” after being made aware of this fact and analysed that it was the perfect
solution, agreed to it. In this case, both parties showed their consent.

Free consent (Section 13 and 14)

Consent is said to be a free consent when it is not caused by coercion, undue influence, fraud,
misrepresentation and Mistake.
 When an agreement is done with consent and is free from coercion, fraud, misrepresentation, undue
influence, and mistake. Then the agreement is considered to be done with free consent. Both parties must
be entering into the agreement in the same sense of mind.
Elements of free consent
 Consent is considered to be free consent when the following factors are satisfied:
 It should be free from coercion.
 The contract should not be done under the pressure of undue influence.
 The contract should be done without fraud.
 The contract should not be made through misrepresentation.
 The contract should not be made by mistake.
Importance of free consent
 The contract made out of free consent protects the validity and enforceability of an agreement.
 It provides a protecting shield to the parties from coercion, undue influence, misrepresentation, fraud, and
mistake
 It provides the parties to withstand their autonomous power to frame their running policy or principle.
 The principle of consensus-ad-idem is followed.
Difference between consent and free consent

Basis Consent Free consent

When both the parties agree to a thing When

in an agreement is done with consent and is free from
the same sense of mind or unison of mind,coercion, fraud, misrepresentation, undue influence, and
Meaning
then the agreement is considered to be done
mistake. Then the agreement is considered to be done
with consent. with free consent.

Both parties must be entering into theConsent should be free from:

agreement in the same sense of mind.
Coercion
Essentials Both parties must be entering into thefraud
misrepresentation
agreement should be agreeing to the same
thing. undue influence
mistake
When there is a lack of consent, the When there is no free consent, then the voidability of the
Voidability
contract would be void. contract depends on the option of the aggrieved party.

Mistake in the free consent

A mistake is described as an element, which when occurs in a contract makes it void.
There are two types of mistakes, which occurs in a contract
1.Unilateral Mistake :- A mistake is said to be unilateral when one party is mistaken in the agreement.
2. Bilateral Mistake/ Mutual mistake
 A mistake is said to be mutual when both parties misunderstood each other. Thus it shows that there is a
breach in the principle of consensus-ad-idem in the contracts and the contract is to be considered as void.
Common mistake
Section 20 of the Indian Contract Act, 1872 lays down the provision for common mistakes. A contract
arising out of common mistake is considered to be void. This type of mistake is possessed by both the
parties but this mistake is not the result of mutual mistake, it arises individually.
Free consent examples
Illustration
1. “A” agrees to sell his land to “B”. “A” has 10 lands in different places and he wanted to sell the land in the
west direction but “B” wanted the land in the east part. In this case, it is seen that there is no meeting of
minds and the principle of consensus-ad-idem is violated. Thus the agreement would be considered void.
2. “A” an old man who stays with “B”, his nephew and he takes care of him. “B” demanded to get the
property of “A” as he was taking care of him and forces him to sign the papers. In this case, “A” is under
undue influence.

Coercion

 When a person commits or threatens to commit an act which is forbidden under the Indian Penal Code, or
detains an object unlawfully or threatens to do so with the intention to force a person to enter into a
contract, then it is said to be coercion.

Effect of coercion

 When the agreement made is found to be made out of coercion, then the contract would be rescinded or
cancelled, due to which both parties are released from their obligation to perform their duties as per the
contract.

 Coercion and duress distinguished

Basis Coercion Duress

When a person commits or threatens to commit an act which When is a person is subjected to
forbidden under the Indian Penal Code, or detains an object actual violence or threat of
Meaning
unlawfully or threatens to do so with the intention to force a person
violence, it is said to be duress
to enter into a contract, it is said to be coercion. under Common Law.

When the agreement is done by

When the agreement made is found to be made out of coercion, then the means of duress, the chances
Effect on
the contract would be rescinded or cancelled, due to which both the of contract been void is less.
contract parties are released from their obligation to perform their duty as per
the contract. But if the party voluntarily acted
to it, then he is bound to contract.

Unlawful detention of an object

Detention Unlawful detention of object amounts to coercion.
does not amount to duress.
 A person who is not in the contract or is a stranger, coercion can But
be in duress, it is mandatory to
Conviction
employed against him also. be the party of the contract.

Undue influence

 When a contract is made between two parties and one of them is in the position to dominate the will of the
other party and takes unfair advantage of the position, then the contract is said to be made out of undue
influence.
 The principle of undue influence is based on the doctrine of equity.
Salient features
 Either of the parties should be in a state to dominate over other
 The party who dominates should have taken undue advantage of his position

Parties that can be affected by undue influence

 Real and apparent authority

 Fiduciary relationship
 Parent and child
 Adult child and parent
 Husband and wife
 Lawyer and client
 Doctor and patient
 Trustee and beneficiary
 Creditor and debtor
 Landlord and tenant
 A person whose mental capacity is low
 Old age
 Tender age

Effect of undue Influence

 When an agreement is caused due to the impact of undue influence, can be considered void at the opinion
of the party whose consent was so caused, according to Section 19A of the Indian Contract Act.

The distinction between coercion and undue influence

 Coercion Undue influence

When a person commits or threatens to commit an act When a contract is made between two parties an
which is forbidden under the Indian Penal Code, one or of them is in the position to dominate the w
Definition detains an object unlawfully or threatens to do so with of the other party and takes unfair advantage of th
the intention to force a person to enter into a contract,position,
it then the contract is said to be made out o
is said to be coercion. undue influence.

The relationship between parties helps

Relationship Relationship between both the party is not required.
establishing the burden of proof under this section

To misuse the power and dominate people, takin

Objective To force a person to enter into an unlawful contract.
their advantage and dominate them.

Nature of
Criminal offence Not a criminal offence
offence

“A” cause “B” to enter into an agreement which is

forbidden under the Indian Penal Code. “A” had done
the act when an English ship was on the high seas. The
“A” an old person appoints “B” as his attenda
“A” sues “B” for breach of contract in Mumbai. and “B” is his nephew as well. “B” demands
Illustration
share of his property and “A” agrees to pay him. I
This agreement was considered to be void as “A” had this situation, “A” is under the undue influence
employed coercion, though the Indian Penal Code was “B”.
not in force at the place where the act was done.

Fraud

 Fraud means an action that includes the false assertion of facts, concealment of facts and any promise with
the intention to deceive a person.
 According to Section 17 of the Indian Contract Act, 1872 when a party contracts with the other party with
the intention to deceive amounts to fraud. The party may directly make the contract with the other party or
it can be done with the help of an agent even.

Characteristics

 When a party conceals the fact from the other party

 When a party promises to perform an act for the other party but has no real intention to fulfil the promise.
 The false representation of facts has been made to enter into the contract.
 The omission of any act which is considered to be fraudulent in the eyes of law.

Does silence amount to fraud?

 Mere silence does not amount to fraud. But when there is a duty to speak and silence is equivalent to
speech then it amounts to fraud.
 When two parties made an agreement, the parties are not compelled to disclose every fact to the other
party. It is the duty of the other party to enquire about things rather than expecting the party to come and
disclose the fact.
 When a person keeps silencing on the facts which would deceive the other person, then the person can be
convicted of fraud.
 In the case of Jaswant Rai v Abnash Kaur[5], it was found that the vendor concealed the fact that the
material to be sold was defective. Then it was held that the disclosure of the facts amounted to fraudulent
activity of the vendor.
 In the case of Banque Financiere de la Cite SA v Westgate Insurance Co Ltd[6], it was delivered in the
context of negotiation, the party is not obliged to speak.

Effects of fraud

 The contract raised out of fraud is a voidable contract.

 The party deceived has the right to revoke the contract.
 The party is liable to recover the damages due to the fraudulent contract

Misrepresentation

 Misrepresentation means a false representation of the fact.

 According to Section 18 of the Indian Contract, Act Misrepresentation is the stating of deceiving
information which results in the assertion of the other party into entering into a contract and subsequently
undergoing loss. The information, however, presented by the guilty party is a result of genuine belief about
the matter.
 Misrepresentation is said to be committed- Firstly when the person deceiving positively asserts not
warranted information to another misleading them somehow. Secondly, there is a breach of duty which has
caused the prejudice of one or another to be at stake. Lastly, a mistake has been committed by another
because of the act or information of the one misrepresenting them.

Characteristics

 It should be mentioned that the false statement was of material fact and not mere words.
 When a party makes a misrepresentation to the other party, it should be proved that at the party believed the
fact to be true.
 The party should have misrepresented the facts to induce the other party to enter into a contract.

Kinds

There are two kinds of misrepresentation

 Negligent misrepresentation

 When misrepresentation occurs due to lack of any reasonable ground and carelessness then it is known to
be a negligent misrepresentation.
 Negligent misrepresentation is established only when the representative owed a duty to the representee to
handle carefully.
 A person would be liable only when he had neglected the duty mentioned in particular.
 The responsibility exists between the two parties even when there is no fiduciary relationship.

Innocent misrepresentation

 When the representation is based on good grounds to believe and it lacks negligence and fraudulent
intention, then it is said to be an innocent misrepresentation.
 When a person enters into a contract with innocent misrepresentation has the right to revoke the contract
but is not entitled to damages suffered.
 A contract won’t be void unless reasonable grounds are provided. Proving innocence in misrepresentation
would be enough to establish the fact.

Effect of misrepresentation

When the party who has suffered due to the misrepresentation while entering into a contract, can opt to
cease the contract. There are two remedies provided to the party either to rescind the contract or claim
damages.

The claim of damages means that the contract is left intact and the party is to be subjected to money
damages during the suit.

Suit for rescission is to cease the performance of the contract that is to restore the party to the original
position.

The distinction between fraud and misrepresentation

Fraud Misrepresentation

Fraud means an action that includes

the false assertion of facts, Misrepresentation means a false representation of
Meaning
concealment of facts and any promise the fact.
with the intention to deceive a person.

According to Section 17 of the Indian According to Section 18 of the Indian Contract,

Contract Act, when a party contracts Act Misrepresentation is the starting of deceiving
Definition with the other party with the information which results in the assertion of the
intention to deceive amounts to other party into entering into a contract and
fraud. subsequently undergoing loss.
 Deliberate intention to deceive the otherBonafide intention while representing a false fact
Intention
party believing it to be true, with no intention to deceive

Claim ofIn the case of fraud, the aggrieved But in the case of misrepresentation, the
damages party has the right to claim for damage aggrieved party has no right to claim for damage

Mistake
According to Section 20 of the Indian Contract Act, a contract is declared void when a mistake is caused by
both the parties that bilateral mistake, which violates the essentials to an agreement.

Illustration

“A” made agreement with “B” to sell the goods and the agreement was done. “A” was not aware of the fact
that the goods are perished due to some reason. In this case, the contract would be void because the basis
on which the contract was made does not exist.

Mistake of law

People should have minimum knowledge about the law, they should be aware of the fact that which act
they should restrain from doing and which they are ought to do. And there would be no remedy provided or
excused under the fact of mistake of law in these circumstances.

Mistake of fact

When there is a bilateral mistake causing a contract void, it is subjected to a mistake of fact and not to
mistake of law. When there is a misunderstanding between the parties or omission of facts which leads to
the mistake, is said to be a mistake of fact.

Bilateral Mistake

When both parties commit a mistake in the contract under the mistake of facts, the mistake is considered as
a bilateral mistake. This happens due to the lack of meeting of minds, which is an essential element to
constitute free consent. Thus the contract is made void.

There are two types of bilateral mistake

1. Mutual mistake
2. Common mistake
Illustration

“A” agrees to sell his car to “B”. but it was found that his car was stolen and he was not aware of the fact
while making the agreement. Thus this contract would be considered void.

Bilateral mistake as to the subject matter

Existence of subject matter
When both parties have made an agreement on a subject matter which does not exist, then the contract
would be considered void.
Quality of the subject matter
When both parties have made an agreement on a subject matter and it is found that the quality differs from
the one which was mentioned. But in the case of bilateral mistake, the contract would be considered void.
Identity of subject matter
When both parties have made an agreement on the identity of a subject matter and it differs than the
contract ceases to be void.
Mistake as to the possibility of performing the contract
Physical impossibility
When an agreement is made and it is found that the subject matter is not available anymore, then it
becomes impossible for the parties to execute their part of the obligation. This is considered to be a
physical impossibility to perform, thus the contract becomes void.
Legal impossibility
When an agreement is done between two countries, but it is seen that war arises between the countries.
Thus the contract between the countries becomes legally impossible to be carried out.
Agreement of wager are void (section 30)
According to Section 30, Wagering agreements are void and no suit shall be brought to recover anything
that has been won by a wager.
Meaning
According to Sir William Anson, a wager is “a promise to give money or money’s worth upon the
determination or ascertainment of an uncertain event.”
Thus a wagering agreement is one whose outcome is based on a future uncertain event and upon the
happening of that uncertain event one party will gain and the other party will lose and the loser shall pay
the winner a sum of money or any other stake. Such parties shall not have any other interest other than
winning or losing the bet.
Wagering Contract is one in which there are two necessary parties between which the contract has been
made and wherein, the first party promises to pay a certain sum of money to the second party on the
happening of a particular event in the future and the second party agrees to pay to the first party on not
happening of that particular event. The basic fundamental of a wagering agreement is the presence of two
parties who are of sound mind to get profit or loss. A Wager in the common language means Betting or
Gambling.
Contingent Contract
Section 31 of the Act defines a contingent contract as a contract between parties to do or not do something
if some event which is collateral to the contract happens or does not happen. So, a contingent contract is
also primarily a contract. But it is not an absolute or unconditional one.

A contingent contract is dependent on the happening or non-happening of the event.

Now, the ‘contingent contract’ means enforceability of that contract directly depends upon happening or
not happening on an event.

Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’ as follows:
‘A contingent contract is a contract to do or not to do something, if some event collateral to such contract
does or does not happen’.
In simple words, contingent contracts are the ones where the promisor performs his obligation only when
certain conditions are met. The contracts of insurance, indemnity, and guarantee are some examples of
contingent contracts.

Distinction between a contact and a quasi-contract

A quasi-contract can be considered as a constructive contract or an implication of law. It is just a fictitious
contract, aimed towards providing a remedy to the aggrieved party, which is not the case in an express
contract.
In the case of quasi-contracts, the intention of the parties is not considered, but in the case of an express
contract, the intention of the parties is very crucial as, without the intention to enter into an agreement,
there would be no contract at all.
 In the case of an express contract, the duty of the parties defines the contract, which forms the terms of
the contract. But on the other hand, in the case of quasi-contract, the duties are defined due the formation
of a contract.

Breach of contract
A contract is breached or broken when any of the parties fails or refuses to perform its promise under the
contract. Breach of contract is a legal cause of action in which a binding agreement is not honoured by one
or more parties by non-performance of its promise by him renders impossible.
Strictly speaking, a breach of contract occurs if any of the terms are broken.
1.Actual damages or loss
To be successful in breaching a contract lawsuit, the grieved party must show that they have suffered some
type of loss or damage as a result of the breach. Current damages or loss may take the form of loss of
money, time loss, loss of chance or many more losses.

What happens after a breach of contract?

If an infringement or allegation occurs, one or both of the parties may wish to see that the contract is
implemented under their terms or try to recover for any harm caused by the alleged infringement.
If a dispute arises over a contract and informal attempts at resolution fail, the next most common step is a
lawsuit. The parties may be able to resolve the issue in the Court of Small Claims if the amount concerned
is below a specific rupees figure.
Not only are courts and formal lawsuits the option for people and enterprises involved in contract disputes,
but the parties may also agree to review the contractual argument by a mediator or may agree to resolve a
contractual dispute through arbitration. These are two “alternative dispute settlement” options.

Types of breach of contract

A breach of contract occurs when the terms of a contract are broken. At least one party to the agreement
does not keep its part of the deal. There are various types of contraventions:

1. Minor or partial contraventions

A partial breach occurs when some but not all of the contract terms have been fulfilled. The injured party
may only sue for damages in this case.

2.Material violations
If a Party does not do what it says in the contract, this leads to its destruction and makes that Party liable
for violating the contractual damages. You may have the right to sue it, but only for “actual damages.” In
the context of the Contract Restatement, the following must be shown to determine if a material breach
happened:
 How badly the injured party is affected by the breach.
 How much the injured party can be paid according to the terms of the contract.
 How badly the other party broke the terms of the contract.
 How likely the other party will be able to perform the failed terms depending on his or her circumstances.
 How the other party acts in good faith and fair dealing standards.
3.Fundamental breach
One party can sue the other party for breaking the terms and possibly terminate the contract.
4. Actual breach
If a party fails, by the due date, to do what the terms say it will be an actual breach of a contract.
5.Anticipatory breach
If one party ceases to fulfil its portion of the contract, which suggests that the agreement remains
incomplete. For example, refusal of payment, lack of a product ordered, or the fact that one or more parties
can not or will not fulfil their part of the deal. The violator may be sued and the other party may conclude
the contract.
Both actual and anticipatory breaches can waste time and money.
Consequences of breach of contract (Section 73-75)
Section 73 – deals with compensation for loss or damage caused by breach of contract
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the
party who has broken the contract, compensation for any loss or damage caused to him ,which naturally
arose in the natural course of things from such breach, or which the parties knew, when they made the
contract, to be likely to result from the breach of it.
No compensation shall be given to any remote and indirect loss or damage sustained by reason of breach.
Compensation in regard to failure to discharge obligation which resembles those created by the contract.
Section 73 deals with remote and indirect loss or damage
It states that no compensation is payable for remote and indirect loss or damage arising out on account of
breach of contract. The indirect loss cannot be said to arise on usual course of things.
Section 74 – penalties in regard to breach of contract
The party to the contract may agree at the time of contracting that , in the occurrence of breach,the party in
default has to pay a stipulated sum of money to the other, or may agree that in the event of breach by one
party any amount paid by him shall be forfeited. If this sum is genuine pre-estimate of damage likely to
flow from the breach is called ‘liquidated damages’ .If it is not genuine pre-estimate of the loss, but an
amount intended to secure performance of the contract, it may be called ‘penalty’.
Essence of penalty and liquidated damage
Penalty is a payment of money to a non –defaulting party, which puts the other party in fear and enforces
the other party to perform its promise under the contract .The penalty is deterrent in nature .
A liquidated damage is a genuine and reasonable pre-estimate of damage. Liquidated damages means it
shall be taken as the sum which the parties have by the contract assessed as damages to be paid whatever
may be the actual damage.
Section 75 – compensation to the party rightfully rescinding the contract
A person who rightfully resides the contract is entitled to compensation for any damage which he has
sustained through non fulfillment of the contract