CLASSIFICATION OF CONTRACTS

VALID CONTRACTS
VOID CONTRACT
VOID AGREEMENTS
VOIDABLE CONTRACTS
UNFORCEABLE CONTRACTS
ILLEGAL CONTRACTS

EXPRESS CONTRACTS
IMPLIED CONTRACTS
QUASI CONTRACTS

EXECUTORY CONTRACTS
EXECUTED CONTRACTS
UNILATERAL
CONTRACTS
BILATERAL CONTRACTS

Kinds of Contracts
(Point of view of
Enforceability)
Valid Contract
Void Contract
Void Agreement
Voidable Contract
Unenforceable Contract
Illegal or Unlawful Contract

Kinds of Contract
(Point of view of Mode of
Creation)

Express Contract
Implied Contract
Constructive or QuasiContract

Kinds of Contract
(Point of view of Performance)

Executed Contract
Executory Contract
Bilateral
Unilateral

Bilateral Contract
A bilateral contract is entered into by way
of exchange of promises of the parties-a
promise for a promise. No act of
performance is necessary to create a
Bilateral
contracts are formed when
bilateral contract.
parties exchange a set of promises. For
example, a contract to buy a house
involves a promise to pay an agreed price
in exchange for a promise to convey title
to the property. Making the promises is
what creates a bilateral contract; the
actual performance of paying the money
and transferring title is not required. A
party who breaks his promise to perform

Unilateral Contract

A unilateral contract is a contract in which the

offeror's offer can be accepted only by the
performance of an act by the offeree-a promise
for an act.

A unilateral contract is based on a promise

in exchange for a specific act. For
example, a person's pet dog is missing
and the dog owner posts a sign in a local
paper with contact details and a photo of
the dog. The sign reads Rs. 100 Reward
for the Return of the dog." A unilateral
contract will be formed if someone returns
the dog. The offeror is asking for
acceptance by performance, not by
promise. If the dog is returned and the

PROPOSAL OR OFFER
When one person signifies to
another his willingness to do or
to abstain from doing anything,
with a view to obtaining the
assent of that other to such act
or abstinence, he is said to
make a proposal or offer
Section 2(a)

Essentials of an OFFER
There must be an expression of
willingness to do or to abstain from
doing something
The expression of willingness to do or
to abstain from doing must be made
to another person
This expression must be made with a
view to obtain the assent of the other
person to such act or abstinence
The expression must be made with a
view to create legal relations

Legal rules with regard to a

Valid Offer

An offer may be express or implied

An offer must be capable of creating
legal relations
The terms of offer must be certain and
not vague or loose
An invitation to offer is not an offer
(advertisements,
expression
of
intentions, tenders etc.)
Offer may be specific or general

Contd.
An offer must be communicated to
the offeree
An offer can be made subject to any
terms & conditions
An offer should not contain a term the
non-compliance
of
which
would
amount to acceptance
Two identical cross-offers do not
make a contract
An offer may be one-time or standing

Types of Offer

Cross offer
Counter offer
Standing offer
Express or Implied offer
Specific or General offer
Positive or Negative offer

Lapse & Revocation of

offer

An offer lapses by rejection

An offer lapses after stipulated or
reasonable time
An offer lapses by not being
accepted in the mode prescribed &
if no mode is prescribed, in some
usual or reasonable manner
An offer lapses by counter offer

Contd.
An offer lapses by the death or
insanity of the offeror or the
offeree before acceptance
An offer lapses by revocation
Revocation by non-fulfillment of a
condition precedent to acceptance
An offer lapses by subsequent
illegality or destruction of subject
matter

ACCEPTANCE
When the person to whom
proposal has been made signifies
his assent thereto, the proposal
is said to be accepted. A proposal
when
accepted
becomes
a
promiseSection 2(b)

Legal Rules as to
Acceptance
Acceptance
must be absolute

and

unqualified.
Acceptance must be communicated to
the offeror.
Acceptance must be according to the
mode
prescribed
or
usual
and
reasonable mode.
Acceptance must be given within a
reasonable time or before the offer
lapse or is withdrawn.

Contd.
Acceptance must succeed an offer.
Acceptance must be given only by the
party to whom the offer is made.
Acceptance cannot be implied from
silence.
Rejected offer can be accepted only if
renewed
It may be express or implied

When

Consideration
at

promisor,
other

the

the

person

desire

of

the

or

any

done

or

promisee
has

abstained from doing, or does or

abstains from doing, or promises
to do or to abstain from doing
something, such act or abstinence
or

promise

is

called

consideration [Section 2(d)]

Legal Rules as to
Consideration
Consideration must move at the
desire of the promisor.
Consideration may move from
promisee or any other person.
Consideration may be an act,
abstinence or forbearance.
Consideration may be past,
present or future.

Contd.
Consideration need not be
adequate.
Consideration must be real and not
illusory.
Consideration must be something
which the promisee is not already
bound to do.
Consideration must not be immoral
or opposed to public policy.

No consideration, No
contractExceptions
Agreement made on account of

natural love and affection

Agreement to compensate for past
voluntary service
Agreement to pay a time barred debt
Completed gift
Contract of agency
Remission of performance of promise
by the promisee
Contribution to charity

CAPACITY TO
CONTRACT

Every person is competent to contract

who is of the age of majority according to the

law to which he is subject, and

is of sound mind, and
is not disqualified from contracting by

any law to which he is subject (Section

11)
21

Position of Minors
Agreements

An agreement with or by minor is void ab

initio : Mohiri Bibi vs Dharmodas Ghose
(1903)
Doctrine of Estoppel does not apply, never
stopped to plead minority
Limited application of
Restitution/restoration (to the extent of
the property or money still traceable with
minor)
Contracts for the benefit of Minor: A minor
may be a beneficiary under the contract
No ratification of agreement on attaining
majority
22

Contd.

No specific performance
Cannot be adjudged insolvent
Can be an agent
Minors liability in Tort
Minor as a Partner
Minor as a Shareholder
Liability of minor for necessaries
supplied to him- only his estate,
not his person

Persons of unsound mind

A person is said to be of sound mind for
the purpose of making a contract, if at the
time when he makes it, he is capable of
understanding it and of forming rational
judgment as to its effects upon his
interests.Section 12
A person who is usually of unsound mind, but
occasionally of sound mind may make a contract, when
he is of sound mind, and, a person who is usually of
sound mind but occasionally of unsound mind may not
make contract, when he is of unsound mindSection 12

Tests of soundness of
mind

Idiots
Lunatics or insane persons
Drunkards
Hypnotized
Persons with mental decay
e.g. old aged persons

Other Persons
Disqualified by Law

Alien Enemy
Foreign Sovereigns and Ambassadors
A Company and a Corporation- for
contracts not made under its seal, for
ultra vires contracts, and for
contracts of personal nature
Convicts
Insolvents
Married women- in respect of
properties not their stridhan
Pardanashin women
26

FREE CONSENT
Consent is defined:
Two or more persons are said to
consent when they agree upon the
same thing in the same sense.
Section 13
Consent involves consensus ad-idem
i.e. identity of minds about the subject
matter of the contract.
A mere consent is not enough, it should
be free and voluntary.

FREE CONSENT

CONSENT is said to be free

when it is not caused by:
a)
Coercion.
b)
Undue influence.
c)Fraud.
d)
Misrepresentation.
e)
Mistake
Section 14

Coercion
Coercion is the committing or
threatening to commit, any act
forbidden by the Indian Penal Code,
or
the
unlawful
detaining
or
threatening to detain, any property,
to the prejudice of any person
whatever, with the intention of
causing any person to enter into an
agreementSection 15

Legal rules as to
coercion
Committing or threatening to commit any act
forbidden by the Indian Penal Code
Unlawful detaining or threatening to detain any
property
The act of coercion must be done with the
object of compelling any person to enter into
an agreement
The act of coercion may be directed at any
person and not necessarily at the other party
to the agreement
The act of coercion may proceed from any
person and not necessarily from the party to
the agreement
Whether Threat to Commit Suicide Amounts To
Coercion?

Undue Influence
A Contract is said to be induced by
undue influence, where:
the relations subsisting between the
parties are such that one of the
parties is in a position to dominate
the will of the other, and
uses that position to obtain an unfair
advantage over the other.Section
16(1)

 A person is deemed to be in a position

to dominate the will of another:
When he holds a real or apparent
authority over the other,
when he stands in a fiduciary relation to
the other (relationship of mutual trust
and confidence), and
Where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by reason of age,
illness etc. .. Section 16(2)

Presumption of
Domination
Master and Servant,

Parent and Child,

Guardian and Ward,
ITO and the Assessee,
Police officer and Accused
Trustee and Beneficiary,
Spiritual Guru and Disciple,
Teacher and Student
Solicitor and Client,
Doctor and Patient.

33

Coercion & Undue InfluenceDistinguished

Coercion

Forbidden by IPC
Mainly physical in
nature
No prior presumption
Restoration of the
benefit received
Criminal liability
involved

Undue Influence

Domination of will
Moral or
psychological in
nature
Prior presumption
Restoration of the
benefit received at
the direction of the
court
No criminal liability
involved

Fraud
Fraud means and includes any of
the following acts committed by
a party to a contract, or with his
connivance or by his agent with
the intent to deceive or to
induce another party thereto, or
his agent, to enter into the
contract:

 i. The representation that a fact is

true when it is not true by one who
does not believe it to be true;
ii. The active concealment of a fact
by one having knowledge or belief
of the fact;
iii. A promise made without any
intention of performing it;
iv. Any other act fitted to deceive;
v. Any such act or omission as the
law specifically declares to be
fraudulent Section 17

Does silence tantamount

toLetfraud?
Caveat Emptorthe buyer beware
Silence is fraud in the following cases:
In contracts where silence is in itself equal
to speech
In contracts of uberrimae fidei (utmost good
faith):
Fiduciary relationship
Contracts of insurance
Contracts of family settlements
Contracts of marriage engagement
Contracts of share allotment

Effects of fraud
Rescission of the contract
Restitution and not rescission
(Performance with restitution)
Sue for damages/compensation

Misrepresentation
Where a person asserts
something which is not true,
though he believes it to be
true,
his assertion amounts to
misrepresentation.

Mistake

When both the parties to an

agreement are under a
mistake to a matter of act
essential to the agreement
the
agreement is altogether
void