Unit- 1 (10 Hours)
Law of Contract: Definition, essentials and types of contracts, offer-definition, types,
acceptance-definition, essentials, consideration –definition, essentials, exceptions to the rule , capacity
to contract-meaning, parties competent to contract, free consent-meaning, elements constituting free
consent (meaning only), performance of contract-meaning and modes, Discharge of contract-
meaning and modes, remedies for breach of contract.
Law of Agency: Essentials, kinds of agents, rights and duties of agent and principal Bailment -
definition, essential elements, rights and duties of bailer and bailee Pledge – essentials, rights and
duties of pledger and pledgee.
Contract
Definition Sec.2 (h) “An agreement enforceable by law is a contract.” Therefore, a contract has two important
elements, one is the agreement, and the other is the obligation, which is enforceable by law.
Pollock- “Every agreement and promise enforceable by law is a contract”.
Essentials of a Valid Contract:
1. Offer and Acceptance
2. Intention to create a Legal relationship
3. Lawful Consideration
4. Competent parties
5. Free consent
6. Lawful Object
7. Not expressly declared void
1. Offer and Acceptance: There must be a lawful offer and acceptance for the formation of an agreement. The
adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the contract act in
relation thereto. Offer means 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. When the person to whom the proposal is made signifies his assent thereto, the proposal is
said to be accepted. A proposal, when accepted, becomes a promise.
2. Intention to create a legal relationship: There must be a clear intention among the parties that the
agreement should be attached by legal consequences and create a legal obligation.
Agreements of a social or domestic nature do not contemplate a legal relationship, and as such, they do not give
rise to a contract.
Case Laws.
Balfour v. Balfour– In this case, it was held that if an agreement is domestic in nature then that agreement is
not enforceable by law.
3. Lawful Consideration- (Quid Pro Quo)– Third essential element of the valid contract is a consideration.
The term consideration has been defined under section 2(d) of the act.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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the
promise.
4. Competent parties: Section 11 of the act declares that who are competent to contract. According to this
section the contracting parties
, • Must attain the age of majority ( an agreement with a minor is void ab initio – Mohri bibi v.
Dharmodas Ghose,1903 )
• Person of sound mind.
• The person should not be disqualified by law.
5. Free consent- Free consent of the parties is another essential of the contract. Section 14 of the Act defined
the term free consent as follows- consent is said to be free when it is not caused by –
a. Coercion (S.15)– Committing any act forbidden by The Indian Penal Code 1860 or unlawful detaining
of property, or threatening to commit these acts. Chickam Amiraju v. Chickam Sheshamma – Threat to
suicide amounts to coercion
b. Undue influence (S.16)– The use by one party to the contract of his dominant position for obtaining an
unfair advantage over the other party.
c. Fraud (S.17)
d. Misrepresentation (S.18)– It means a false representation.
e. Mistake (S. 20, 21 and 22): there are two types of mistakes i.e. mistake fact and mistake of law.
6. Lawful object – For the formation of a contract, it is also necessary that the parties to an agreement
must agree to a lawful object. The object must not be fraudulent or illegal or immoral or against the
public policy or must not imply injury to the person or the other of the reason mentioned above the
agreement is void. If A forces B to sign a contract for murdering C. This is not a lawful
object. Hence, the contract will be void.
7. Not expressly declared void- An agreement must not be one of those, which have been expressly
declared void.
Types of Contracts on the basis of its enforcement
A. Valid Contract
An agreement enforceable by the law is a contract (Section 2(h)). To be enforceable it has to satisfy the
requirements under Section 10 of the Indian Contract, 1872. They are:
▪ There is some consideration for it.
▪ The parties are competent to contract
▪ Their consent is free.
▪ Their object is lawful
B. Voidable Contract
Section 2(i) of the Act defines a voidable contract. An agreement, which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of the other, is a voidable contract.
Where consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
A voidable contract remains valid until rescinded. A voidable contract can be made valid by the party who has a
right to rescind it by giving up his right of rescinding it.
C. Void Contract
A void agreement is not enforceable at the option of either party. Section 2(g) of the Act explains the meaning
of a void agreement.
No obligation or right arises from a void contract. They are not covered by the law. Such contracts cannot be
made valid by the parties to the contract by giving their consent.
Sections 24-30 of the Act deals with void agreements. The following types of Agreements are declared to be
void:
▪ Agreements unlawful in part(S. 24)[7]
, ▪ Agreements without consideration(S. 25)
▪ Agreements in restraint of marriage(S. 26)
▪ Agreements in restraint of trade(S.27)
▪ Agreements in restraint of legal proceedings(S. 28)
▪ Unmeaning agreements(S. 29)
▪ Wagering agreements(S. 30)
D. Unenforceable Contract
It is one which is good in substance, but because of some technical defect, one or both parties cannot be sued on
it. These defect may be the absence of writing, registration, time-barred by the law of limitation, etc.
E. Illegal/unlawful Contract
Section 23 of the Act describes some condition’s when an agreement may be unlawful or illegal. A distinction
has to be made between void contracts and illegal contacts. Agreements whose object or consideration is
forbidden by law are called illegal contracts. In the case of void agreements, the law may merely say that if it is
made, the courts will not enforce it.
II. Types of Contracts on the basis of mode of creation
Depending on the way in which a contract is created, Types of Contracts may be classified into three. They are:
A. Express Contracts
The first part of Section 9 of the Indian Contract deals with promises which are expressly made. Contracts
arising from expressly made promises are called express contracts.
According to Section 9 “insofar as the proposal or acceptance of any promise is made in words, the promise is
said to be express”. Thus contracts entered into between the parties by words, spoken or written, are known as
express contracts.
B. Implied Contracts
The second part of Section 9 of the Act deals with implied contracts. It says “insofar as such proposal or
acceptance is made otherwise than in words, the promise is said to be implied.” Thus contracts entered into
between parties by virtue of their conduct are called implied contracts.
The terms of the agreement are not expressed in written or oral form but are inferred from their conduct.
C. Quasi-Contract
A contract which does not arise by virtue of any agreement between the parties, but due to certain special
circumstances, the law recognizes it as a contract. Such contracts come into existence because of interference
from courts in the interest of justice.
There are many several situations in which law, as well as justice, require that a certain person is required to
conform to an obligation, although he has neither broken any contract nor committed any tort. The principle is
that there should not be “unjust enrichment” i.e., enrichment of one at the cost of another.
III. Types of Contracts on the basis of the extent of execution
A. Executed Contracts
When both the parties have completely performed their respective obligations under the contract, it is said to be
executed contract. It means that whatever was the object of the contract has been carried out. In most executed
contracts the promises are made and then immediately completed.
The buying of goods and/or services usually falls under this category. There is no confusion about the date of
execution of the contract since in most cases it is instantaneous.
B. Executory Contract
An executory contract is one, which is one in which one, or both parties are still to perform their obligations.
Such controls are future contracts. In such contracts, the consideration is the promise of performance or
obligation. In executory contracts, the consideration for the promise made is carried out sometime in the future.
For example – Delivery and payment are to be made after 15 days. The contract is executory. Another good
example of an executory contract is that of a lease.
C. Unilateral Contract
They are one-sided contracts. A unilateral promise is a promise from one side only and intended to induce some
action by the other party. The promisee is not bound to act, for he gives no promise from his side. But if he
carries out the act desired by the promisor, he can hold the promisor to his promise.
His act is simultaneously acceptance of and consideration for the promise. “An act done at the request of the
offeror in response to his promise is a consideration, and consideration in its essence is nothing else but the
response to such a request.”
D. Bilateral Contracts
A bilateral contract is a legally binding contract formed by the exchange of reciprocal promises. Here both
parties are outstanding at the time of formation of the contract. In such a case, each party is a promisor and
Law of Contract: Definition, essentials and types of contracts, offer-definition, types,
acceptance-definition, essentials, consideration –definition, essentials, exceptions to the rule , capacity
to contract-meaning, parties competent to contract, free consent-meaning, elements constituting free
consent (meaning only), performance of contract-meaning and modes, Discharge of contract-
meaning and modes, remedies for breach of contract.
Law of Agency: Essentials, kinds of agents, rights and duties of agent and principal Bailment -
definition, essential elements, rights and duties of bailer and bailee Pledge – essentials, rights and
duties of pledger and pledgee.
Contract
Definition Sec.2 (h) “An agreement enforceable by law is a contract.” Therefore, a contract has two important
elements, one is the agreement, and the other is the obligation, which is enforceable by law.
Pollock- “Every agreement and promise enforceable by law is a contract”.
Essentials of a Valid Contract:
1. Offer and Acceptance
2. Intention to create a Legal relationship
3. Lawful Consideration
4. Competent parties
5. Free consent
6. Lawful Object
7. Not expressly declared void
1. Offer and Acceptance: There must be a lawful offer and acceptance for the formation of an agreement. The
adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the contract act in
relation thereto. Offer means 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. When the person to whom the proposal is made signifies his assent thereto, the proposal is
said to be accepted. A proposal, when accepted, becomes a promise.
2. Intention to create a legal relationship: There must be a clear intention among the parties that the
agreement should be attached by legal consequences and create a legal obligation.
Agreements of a social or domestic nature do not contemplate a legal relationship, and as such, they do not give
rise to a contract.
Case Laws.
Balfour v. Balfour– In this case, it was held that if an agreement is domestic in nature then that agreement is
not enforceable by law.
3. Lawful Consideration- (Quid Pro Quo)– Third essential element of the valid contract is a consideration.
The term consideration has been defined under section 2(d) of the act.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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the
promise.
4. Competent parties: Section 11 of the act declares that who are competent to contract. According to this
section the contracting parties
, • Must attain the age of majority ( an agreement with a minor is void ab initio – Mohri bibi v.
Dharmodas Ghose,1903 )
• Person of sound mind.
• The person should not be disqualified by law.
5. Free consent- Free consent of the parties is another essential of the contract. Section 14 of the Act defined
the term free consent as follows- consent is said to be free when it is not caused by –
a. Coercion (S.15)– Committing any act forbidden by The Indian Penal Code 1860 or unlawful detaining
of property, or threatening to commit these acts. Chickam Amiraju v. Chickam Sheshamma – Threat to
suicide amounts to coercion
b. Undue influence (S.16)– The use by one party to the contract of his dominant position for obtaining an
unfair advantage over the other party.
c. Fraud (S.17)
d. Misrepresentation (S.18)– It means a false representation.
e. Mistake (S. 20, 21 and 22): there are two types of mistakes i.e. mistake fact and mistake of law.
6. Lawful object – For the formation of a contract, it is also necessary that the parties to an agreement
must agree to a lawful object. The object must not be fraudulent or illegal or immoral or against the
public policy or must not imply injury to the person or the other of the reason mentioned above the
agreement is void. If A forces B to sign a contract for murdering C. This is not a lawful
object. Hence, the contract will be void.
7. Not expressly declared void- An agreement must not be one of those, which have been expressly
declared void.
Types of Contracts on the basis of its enforcement
A. Valid Contract
An agreement enforceable by the law is a contract (Section 2(h)). To be enforceable it has to satisfy the
requirements under Section 10 of the Indian Contract, 1872. They are:
▪ There is some consideration for it.
▪ The parties are competent to contract
▪ Their consent is free.
▪ Their object is lawful
B. Voidable Contract
Section 2(i) of the Act defines a voidable contract. An agreement, which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of the other, is a voidable contract.
Where consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
A voidable contract remains valid until rescinded. A voidable contract can be made valid by the party who has a
right to rescind it by giving up his right of rescinding it.
C. Void Contract
A void agreement is not enforceable at the option of either party. Section 2(g) of the Act explains the meaning
of a void agreement.
No obligation or right arises from a void contract. They are not covered by the law. Such contracts cannot be
made valid by the parties to the contract by giving their consent.
Sections 24-30 of the Act deals with void agreements. The following types of Agreements are declared to be
void:
▪ Agreements unlawful in part(S. 24)[7]
, ▪ Agreements without consideration(S. 25)
▪ Agreements in restraint of marriage(S. 26)
▪ Agreements in restraint of trade(S.27)
▪ Agreements in restraint of legal proceedings(S. 28)
▪ Unmeaning agreements(S. 29)
▪ Wagering agreements(S. 30)
D. Unenforceable Contract
It is one which is good in substance, but because of some technical defect, one or both parties cannot be sued on
it. These defect may be the absence of writing, registration, time-barred by the law of limitation, etc.
E. Illegal/unlawful Contract
Section 23 of the Act describes some condition’s when an agreement may be unlawful or illegal. A distinction
has to be made between void contracts and illegal contacts. Agreements whose object or consideration is
forbidden by law are called illegal contracts. In the case of void agreements, the law may merely say that if it is
made, the courts will not enforce it.
II. Types of Contracts on the basis of mode of creation
Depending on the way in which a contract is created, Types of Contracts may be classified into three. They are:
A. Express Contracts
The first part of Section 9 of the Indian Contract deals with promises which are expressly made. Contracts
arising from expressly made promises are called express contracts.
According to Section 9 “insofar as the proposal or acceptance of any promise is made in words, the promise is
said to be express”. Thus contracts entered into between the parties by words, spoken or written, are known as
express contracts.
B. Implied Contracts
The second part of Section 9 of the Act deals with implied contracts. It says “insofar as such proposal or
acceptance is made otherwise than in words, the promise is said to be implied.” Thus contracts entered into
between parties by virtue of their conduct are called implied contracts.
The terms of the agreement are not expressed in written or oral form but are inferred from their conduct.
C. Quasi-Contract
A contract which does not arise by virtue of any agreement between the parties, but due to certain special
circumstances, the law recognizes it as a contract. Such contracts come into existence because of interference
from courts in the interest of justice.
There are many several situations in which law, as well as justice, require that a certain person is required to
conform to an obligation, although he has neither broken any contract nor committed any tort. The principle is
that there should not be “unjust enrichment” i.e., enrichment of one at the cost of another.
III. Types of Contracts on the basis of the extent of execution
A. Executed Contracts
When both the parties have completely performed their respective obligations under the contract, it is said to be
executed contract. It means that whatever was the object of the contract has been carried out. In most executed
contracts the promises are made and then immediately completed.
The buying of goods and/or services usually falls under this category. There is no confusion about the date of
execution of the contract since in most cases it is instantaneous.
B. Executory Contract
An executory contract is one, which is one in which one, or both parties are still to perform their obligations.
Such controls are future contracts. In such contracts, the consideration is the promise of performance or
obligation. In executory contracts, the consideration for the promise made is carried out sometime in the future.
For example – Delivery and payment are to be made after 15 days. The contract is executory. Another good
example of an executory contract is that of a lease.
C. Unilateral Contract
They are one-sided contracts. A unilateral promise is a promise from one side only and intended to induce some
action by the other party. The promisee is not bound to act, for he gives no promise from his side. But if he
carries out the act desired by the promisor, he can hold the promisor to his promise.
His act is simultaneously acceptance of and consideration for the promise. “An act done at the request of the
offeror in response to his promise is a consideration, and consideration in its essence is nothing else but the
response to such a request.”
D. Bilateral Contracts
A bilateral contract is a legally binding contract formed by the exchange of reciprocal promises. Here both
parties are outstanding at the time of formation of the contract. In such a case, each party is a promisor and
