Law of Contract

MODULE 1
 Nature of Contractual Obligations:

The Indian Contract Act as applied by today was originally drafted by the Indian Law Commission in the year 1862 in
England.
The act came into effect in 1872.
According to Section 2(h) of the Act, Contract is defined as – “an agreement enforceable by law”.
Section 2(e) of the Act defines agreement as – “every promise and every set of promises, forming the consideration
for each other”.
Section 2(b) of the Act defines promise as - “when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. Proposal is accepted becomes a promise”.
Contract = Accepted proposal + Enforceability by law
Person making the promise = Promisor
Person accepting the promise = Promisee
 Types of Contract:
Oral Contract
Verbal Contract
Implied Contract: Terms and conditions are inferred by the actions of the parties involved
Express Contract: Terms and conditions are spelled out, verbally or in writing.
Quasi-Contract: A contract which does not exist by virtue of any agreement between the parties, but due to certain
special circumstances, the law recognizes it as a contract.
Valid Contract: It is an agreement that is legally binding and enforceable. It also must qualify all essentials of a
contract.
Void Contract: A void agreement is not enforceable at the option of either party. Section 2 (j) – “a contract which
ceases to be enforceable by the law becomes void when it ceases to be enforceable”
Voidable Contract: An agreement which is enforceable at the expense of one or more parties thereto, but not at the
option of the other is called a voidable contract. Section 2 (i) – “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 or others, is a voidable contract”.
Unenforceable Contract: An agreement which is good in substance, but because of some technical effect, one or both
the parties cannot enforce it.
Illegal or Unlawful Contract: An agreement whose object or consideration is forbidden by law are called illegal
contracts. All illegal agreements or contracts are void, but all void agreements are not illegal
Void ab initio Contract: A contract which is void from the beginning.
Executed Contract: When the parties have completely performed their respective obligations under the contract, it is
said to be executed contract.
Executory Contract: When the parties are yet to perform their obligations under the contract, it is said to be executory
contract.
Partly Executed and Partly Executory Contract: When one party has already performed their duties and the other party
is yet to execute their promise.
 Introduction to the rules of interpretation of contracts:

A. Offer or Proposal Section 2 (a): 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 person either to such act or abstinence, he is
said to make a proposal.
B. Acceptance Section 2 (b): when the person to whom the proposal is made, signifies his assent thereto, the
proposal is said to be accepted.
C. Promise Section 2 (b): when an offer is accepted it becomes promise.
D. Promiser and Promisee Section 2 (c): when the proposal is accepted, the person making the proposal is called
promiser and the person accepting the proposal is called a promisee.
E. Consideration Section 2 (d): when the promisee, at the request of the promiser either:
1. Does something or abstains from doing something
2. Done or abstained from doing something
3. Promises to do or abstain from something
Then that is called consideration for the promise.
F. Quid-Pro-Quo or something in return: price paid by the one of the party for the promise of the other.
G. Agreement Section 2 (e): Every promise and set of promises forming the consideration for each other.
H. Contract Section 2 (h): an agreement by law is a contract is enforceable.
I. Void Agreement Section 2 (g): an agreement not enforceable by law is void.
J. Voidable Agreement Section 2 (i): an agreement is voidable contract if its enforceable by either one or more
party thereto and is not enforceable by law at the option of the other or others.
MODULE 2
All contracts are agreements, but all agreements are not contracts.
 Essentials of Contracts:
Valid Offer: In case of social agreement there is no intention to create legal relationship and there is no
contract.
A. In case of commercial agreements, the law presumes that the parties had the intention to create legal
relation.
B. An agreement of a purely domestic or social nature is not a contract.
Valid Acceptance: person who is given acceptances must understand
A. What the offer is
B. Repercussions of the offer
Persons must accept the offer completely.
Lawful Considerations: should be absolute, unconditional as an acceptance. Section 2 (d)
Competency of the Parties: person must be major.
A. Should not be disqualified by law
B. Sound minded individual
Free Consent: Consent of the parties must be genuine consent.
Lawful Object: Object of the contract must be lawful. Contract cannot be made on illegal grounds.
Possibility of performances: there should be scope of performance available with the contract
Terms of agreement are certain: if not completely certain, then at least should possess the ability of being
completely certain or have capabilities of the same.
Not declared void:
Necessary legal formalities:
 Meaning of offer:
Section 2 (a): when one person signifies to another
a. His willingness to do or to abstain from doing anything.
b. With a view to obtaining the assent of that other to such act or abstinence.
Section 2 (c): the person who makes the offer/proposal is known as the offeror/proposer
Th person to whom the offer is made is called the offeree or the proposee.
 How can a offer be made:

A. Express Offer: an offer can be made by express words spoken or written
B. Implied Offer: an offer may also be implied from the conduct of the parties or the circumstances of the case.
C. Specific Offer: when an offer is made to a definitive person.
D. General Offer: when the offer is made to world at large - Carlill v. Carbilic Smoke Ball co., 1893
 Tender:
A tender (is response to an invitation to offer) is an offer and may be either –
A. A definite offer to supply specified goods or services:
B. Standing offer/ floating offer:
C. Cross Offer:
 What constitutes as an offer:

A. The offer must show an intention on the part of the offeror to be bound by it.
B. The offeror must make the offer with a view to obtain the assent of the offeree.
C. The offer must be definite
D. It must be communicated to the offeree.
 Legal rues as to offer:

A. Offer must be such as in law is capable of being accepted and giving rise to legal relationship.
B. Terms of the offer must be definitive - Taylor v. Portington (1855)
C. An offer must be distinguished from:
1. A declaration of intention and an announcement - executive engineer, sundargarh v. mohan Prasad Sahu,
AIR, 1990 and second case law - Re Ficus (1990) 1 Ch. 331
2. An invitation to make an offer or do business -
D. Offer must be communicated - Fitch v. Snedakar (1868) and Lalam v. Gauri Dutt (1913)
E. Offer must be made with a view to obtain the assent
F. Offer should not obtain a term, the non-compliance of which may be assumed to amount to acceptance:
G. A statement of price is not an offer – Harvey v. Facey (1983)
Legal rules to acceptance -
Must be communicated to offeror.
The offer should be communicated by offeror to offeree for acceptance.
Acceptance has to be done in time limit.
Acceptance should not be in silence.
It should be communicated.

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MODULE 1

 Nature of Contractual Obligations:

 Introduction to the rules of interpretation of contracts:

 How can a offer be made:

 What constitutes as an offer:

 Legal rues as to offer:

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