INTRODUCTION TO THE LAW OF CONRACT- STUDY
NOTES, MAY 2021
Introduction
The law of contract is the foundation upon which the superstructure of modern business is built.
In business transactions, quite often promises are made at one time and the performance follows
later. The law of contract lays down the legal rules relating to promises, their formation, their
performance, and their enforceability.
The Nature of Contract
A contract is an agreement of promises which is legally binding or enforceable by law. A
contract has been defined by Sir William Anson in the words, “a legally binding agreement
between two or more persons by which rights are acquired by one or more to acts or forbearance
on the parts of others.” The law of contract imposes an obligation on every person to honour his
legally enforceable promises, failure to which renders him liable to compensate the injured party
or otherwise atone for his conduct. What is intended here is to promote commercial relations and
since commerce generally entails individual or personal interactions, the obligation imposed by a
contract is, in general, created by the parties themselves. The parties must, however, act within
the ambit of the law.
Essentials of a Valid Contract
The essential elements of a valid contract are as follows:
1. Offer and acceptance
There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an
agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the
requirements of the Contract Act in relation thereto.
2. Intention to create legal relation
There must be an intention among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreements of social or domestic nature do not
contemplate legal relations, and as such, they do not give rise to a contract e.g. an agreement to
,dine at a friend’s house or a promise to buy a gift for a wife are not contracts because these do
not create legal relationship.
In commercial agreements an intention to create legal relations is presumed. Thus, an agreement
to buy and sell goods intends to create a legal relationship thus is a contract provided other
requisites of valid contracts are present.
3. Lawful Consideration
Consideration has been defined as the price paid by one party for the promise of the other. An
agreement is legally enforceable only when each of the parties to it gives something and gets
something. The something given or obtained is the price for the promise and is called
consideration.
4. Capacity of parties
The parties to an agreement must be competent to contract, otherwise it cannot be enforced by a
court of law. In order to be competent to contract, the parties must be of the age of majority and
of sound mind and must not be disqualified from contracting by any law to which they are
subject.
5. Free Consent
Free consent of all parties to an agreement is another essential element of a valid contract.
‘Consent’ means that the parties must have agreed upon the same thing in the same sense. There
is absence of ‘free consent’, if the agreement is induced by (i) coercion, (ii) undue influence, (iii)
fraud, (iv) misrepresentation, or (v) mistake.
6. Lawful object
For the formation of a valid contract, it is also necessary that the parties to an agreement must
agree for a lawful object. The object for which the agreement has been entered into must not be
fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the
person or property of another.
7. Possibility of Performance
, Another essential feature of a valid contract is that it must be capable of performance. If the act
is impossible in itself, physically or legally, the agreement cannot be enforced at law.
All the above elements must be present. If one or more elements are absent then the contract may
be void, voidable or unenforceable.
Classification of Types of Contracts
Contracts may be of various types. These may be classified as under:
1. Express and Implied Contracts
An express contract is one in which the parties specifically agree about the nature and terms of
their relationship. There is then said to be an express agreement. For example, if A agrees to sell
his goods to B for 10,000/= and B agrees to buy the goods at that price, there is said to be an
express contract for the sale of goods at an agreed price.
On the other hand, there is no specific agreement in an implied contract. The conduct of the
parties, as well as all the surrounding circumstances, must be taken into account in order to
ascertain whether or not a contract exists. Thus where A hires a taxi and boards it there is an
implied contract that the taxi man shall convex A up to his destination and that A shall pay such
fare as is usually paid for that trip.
2. Unilateral and Bilateral Contracts
A Unilateral Contract is one in which only one party is bound. It is a rare type of contract which
arises, for instance, where there is an offer of a reward. Thus, if ‘A’ offers a reward to anyone
who will recover his lost property, no one is bound to recover the lost property but ‘A’ himself is
bound to give the promised reward to anyone who might recover the property.
Most contracts are bilateral. A bilateral contract is one in which both parties are bound. Thus, if
A agrees to sell his goods to B and B agrees to buy them at a stated price, both parties are bound.
A is bound to deliver the goods to B and B is bound to accept them to pay the price.
3. Valid, Void and Voidable Contracts
A valid contract is an agreement enforceable by law. An agreement becomes enforceable by law
when all the essentials of a valid contract discussed above are present. A void contract is an
NOTES, MAY 2021
Introduction
The law of contract is the foundation upon which the superstructure of modern business is built.
In business transactions, quite often promises are made at one time and the performance follows
later. The law of contract lays down the legal rules relating to promises, their formation, their
performance, and their enforceability.
The Nature of Contract
A contract is an agreement of promises which is legally binding or enforceable by law. A
contract has been defined by Sir William Anson in the words, “a legally binding agreement
between two or more persons by which rights are acquired by one or more to acts or forbearance
on the parts of others.” The law of contract imposes an obligation on every person to honour his
legally enforceable promises, failure to which renders him liable to compensate the injured party
or otherwise atone for his conduct. What is intended here is to promote commercial relations and
since commerce generally entails individual or personal interactions, the obligation imposed by a
contract is, in general, created by the parties themselves. The parties must, however, act within
the ambit of the law.
Essentials of a Valid Contract
The essential elements of a valid contract are as follows:
1. Offer and acceptance
There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an
agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the
requirements of the Contract Act in relation thereto.
2. Intention to create legal relation
There must be an intention among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreements of social or domestic nature do not
contemplate legal relations, and as such, they do not give rise to a contract e.g. an agreement to
,dine at a friend’s house or a promise to buy a gift for a wife are not contracts because these do
not create legal relationship.
In commercial agreements an intention to create legal relations is presumed. Thus, an agreement
to buy and sell goods intends to create a legal relationship thus is a contract provided other
requisites of valid contracts are present.
3. Lawful Consideration
Consideration has been defined as the price paid by one party for the promise of the other. An
agreement is legally enforceable only when each of the parties to it gives something and gets
something. The something given or obtained is the price for the promise and is called
consideration.
4. Capacity of parties
The parties to an agreement must be competent to contract, otherwise it cannot be enforced by a
court of law. In order to be competent to contract, the parties must be of the age of majority and
of sound mind and must not be disqualified from contracting by any law to which they are
subject.
5. Free Consent
Free consent of all parties to an agreement is another essential element of a valid contract.
‘Consent’ means that the parties must have agreed upon the same thing in the same sense. There
is absence of ‘free consent’, if the agreement is induced by (i) coercion, (ii) undue influence, (iii)
fraud, (iv) misrepresentation, or (v) mistake.
6. Lawful object
For the formation of a valid contract, it is also necessary that the parties to an agreement must
agree for a lawful object. The object for which the agreement has been entered into must not be
fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the
person or property of another.
7. Possibility of Performance
, Another essential feature of a valid contract is that it must be capable of performance. If the act
is impossible in itself, physically or legally, the agreement cannot be enforced at law.
All the above elements must be present. If one or more elements are absent then the contract may
be void, voidable or unenforceable.
Classification of Types of Contracts
Contracts may be of various types. These may be classified as under:
1. Express and Implied Contracts
An express contract is one in which the parties specifically agree about the nature and terms of
their relationship. There is then said to be an express agreement. For example, if A agrees to sell
his goods to B for 10,000/= and B agrees to buy the goods at that price, there is said to be an
express contract for the sale of goods at an agreed price.
On the other hand, there is no specific agreement in an implied contract. The conduct of the
parties, as well as all the surrounding circumstances, must be taken into account in order to
ascertain whether or not a contract exists. Thus where A hires a taxi and boards it there is an
implied contract that the taxi man shall convex A up to his destination and that A shall pay such
fare as is usually paid for that trip.
2. Unilateral and Bilateral Contracts
A Unilateral Contract is one in which only one party is bound. It is a rare type of contract which
arises, for instance, where there is an offer of a reward. Thus, if ‘A’ offers a reward to anyone
who will recover his lost property, no one is bound to recover the lost property but ‘A’ himself is
bound to give the promised reward to anyone who might recover the property.
Most contracts are bilateral. A bilateral contract is one in which both parties are bound. Thus, if
A agrees to sell his goods to B and B agrees to buy them at a stated price, both parties are bound.
A is bound to deliver the goods to B and B is bound to accept them to pay the price.
3. Valid, Void and Voidable Contracts
A valid contract is an agreement enforceable by law. An agreement becomes enforceable by law
when all the essentials of a valid contract discussed above are present. A void contract is an
