I. INTRODUCTION

The Indian Contract, 1872 came into on 1st September, 1872. The Act is applicable to whole of India except the state of Jammu and Kashmir. According to section 2 (h) of the Indian Contract Act, 1872 a Contract is defined as below:

“A Contract is an agreement enforceable before law”

Accordingly the terms Agreement, Promise and Offer are also defined in the Act as below:

According to section 2 (e) of the Act,

“An Agreement is every promise or set of promises forming consideration for each other”

According to section 2 (b) of the Act,

“A Promise is when a person has made a proposal to another to whom proposal is made, if proposal is assented there to”

According to section 2 (a) of the Act,

“An offer is when a person has made a proposal, when he signifies to another his willingness to do or to abstain from doing something”

Thus from the above we can say that an Agreement is an accepted proposal and consideration means something in return. Thus, Agreement=Offer+ Acceptance.

II. CONTRACT

A Contract is an agreement enforceable before law. An agreement is not a contract unless it can be enforceable by law. A contract is only enforceable at Law when all the essential elements of a valid contract are fulfilled as per Section 10 of the Act.

As per Section 10 of the Act,

The Essential Elements of a valid contract are as below:

• Offer and Acceptance;
• Legal Relationship;
• Lawful Object;
• Free consent of the parties;
• Lawful Consideration;
• Capacity of the parties;
• Possibility to perform;
• It should be written and registered;
• Certainty or Consensus- ad- idem;
• Void-ab-initio.

Thus from the above it is clear that all contracts are agreements but all agreements are not contract as for an agreement to be a contract it should be written and registered to be enforceable at law.

TYPES OF CONTRACT

The Types of Contract can be understood in brief as below:

• Valid Contract: A Valid contract is a contract which contains all essential elements of as per section 10 of the Act.
• Void Contract [sec 2 (j)]: A contract which is enforceable by law becomes void when it ceases to be so enforceable. It is a contract which is valid at the time of entering into the contract but becomes void after some time due to one or other reason.
• Void Agreement [sec 2(g)]: An agreement which is not enforceable by law is a void agreement. It is void ab initio. It is a contract which is not valid even at the time of entering into the contract and is void from the very beginning.
• Voidable Contract [sec 2 (i)]: A contract which is enforceable by law at the option of one party but not at the option of other(s). In this type of Contract only one party can go to the court, other party cannot go to the court to take legal action for the enforcement of the Contract.
• Executory contract: An Executory contract is a contract which is to be performed in future.
• Executed Contract: An Executed contract is a contract which is completed and where all the obligations under the contract are duly performed by all the parties to the contract.
• Illegal Agreement [sec 23]: An Illegal agreement is an agreement in which Unlawful and is forbidden by Law.
• Unenforceable contract: An unenforceable contract is a contract which is good in substance but due to some technical defect such as defect in writing, signing one or more parties cannot sue upon it.
• Unilateral Contract: A Unilateral contract is a contract in which any obligation as per the terms of the contract is pending on the part of one of the parties to the contract.
• Bilateral Contract: A Bilateral Contract is a contract in which the any obligation as per the terms of the contract is pending on part of both the parties.

III. OFFER

An offer is when a person has made a proposal, when he signifies to another his willingness to do or to abstain from doing something. The person who is giving the offer or making the promise is called “promisor” or “offeror” and the person to whom such offer is made is referred to as the “offeree”.

The Essential Elements or Rules of a valid Offer are as below:

• The Offer must be made with an intention to create a legal relationship between the Offeror and Offeree;
• The Offer must be expressed or implied;
• The Offer must be must be clear and definite;
• There should be a difference between the “Offer” and “invitation to the Offer”;
• The Offer must be communicated to the Offeree;
• The Offer can be general or specific;
• The Offer can be conditional but all the special terms related to an offer must be communicated to the Offeree.

TYPES OF OFFER

The types of Offer can be understood briefly as under:

• General Offer: An Offer which is made to the general public as a whole is said to be a general offer. Any individual who comes to know about the offer can accept the offer by complying with the terms and conditions of the contract.
• Specific Offer: An Offer which is made to a specific person is said to be a specific Offer. Such offer must be accepted by the person to whom such offer is made.
• Express Offer: When an offer is made to another person in writing or orally then such offer is called an Express offer.
• Implied Offer: Implied offer is an offer which is given to another person but is not written or oral.
• Cross Offer: When both the parties make identical offers to each other but are not aware of the same are said to be cross offer.
• Counter Offer: When both the parties make offer to each other but the offer are non-identical to each other and are not aware of the same is called Counter Offer.
• Standing Offer: An Offer which remains enforceable for a certain period of time is called a Standing Offer.

IV. ACCEPTANCE

Acceptance means an assent given by a person to whom the offer is made. For this purpose it is essential that the acceptance must be communicated to consider it to be a valid acceptance. Mere silence is not an acceptance.

The Essential Elements of a Valid Acceptance are as below:

• The Acceptance must be made by the person to whom the offer is made;
• The Acceptance must be absolute and unconditional;
• The Acceptance must be communicated, mental acceptance is no acceptance;
• Acceptance must be given as per the mode which is prescribed in the offer;
• The Acceptance should be made before the completion of the offer i.e. the offer must be accepted within reasonable time.

Important Terms of Offer and Acceptance:

• Offeror: The person by whom the offer is made;
• Offeree: The person to whom the Offer is made;
• Promisor: A person who makes the promise;
• Acceptor: The Person who accepts the Offer;
• Promisee: The person to whom the promise is made.

V. COMMUNICATION OF THE OFFER AND ACCEPTANCE

It is very essential that an offer and acceptance of the offer is communicated properly. The Offer and Acceptance is considered to be completed when it satisfies the below mentioned criteria:

• When the Letter of offer or the oral offer reaches to the person to whom the offer is intended to be made;
• And the Communication of the acceptance (Letter of acceptance or oral acceptance) reaches the offeror.

Important points relating to offer and acceptance are:

• A bid put in an auction is also considered to be an offer to buy;
• In case of death or incapability of the offer to enter into a contract the offer stands to be revoked automatically if the knowledge of death or incapability of the offer comes before accepting of the offer by the acceptor.
• Also if an offer for agreement is made for agreeing to some point in future is made, then such offer is void.

VI. CONSIDERATION

The term consideration means when the promisor at his desire or promisee or any other person promises to the other party to do or abstain from doing something in return for the promise made.

Thus Consideration means when any party to the agreement promises to do something he must get something in return. The term “something in return” is called consideration.

The Essential Elements of a Valid Consideration are as below:

• The consideration must be transferred at the desire of the promisor;
• The consideration may be given by the transferee or any other person on behalf of the transferee;
• Consideration can be paid in past, present or future;
• Consideration should always be real and it cannot be illusionary;
• It is not required to be adequate;
• It should not be illegal, immoral or against the public policy;
• The performance of some duty under the agreement which is bound o be performed by either of the parties is not consideration.

TYPES OF CONSIDERATION

• Executed Consideration: The Consideration which is paid in past is known as executed consideration.
• Executory Consideration: The Consideration which is yet to be paid in future is known as executory Consideration.

Section 25: If there is No Consideration, there is no Contract

Any agreement or contract without valid consideration is void. There are exceptions to this clause given in the act, the same are summarised below:

• An Agreement is done between two parties in the below cases:
  • Out of natural love and affection between the two parties; or
  • The agreement is done between the parties who have near relation;
  • The agreement must be written and registered;
• A gift;
• Charity or donation;
• Promise to be an old debt or time barred debt;
• Contribution towards compensation paid for a voluntary service given.

The Right to Sue under a Contract

The Right to sue under a contract is only available to the parties to the contract. Any third party r stranger cannot sue or be sued under a contract. This is a general rule and is called the “Doctrine of privity”.

There are certain exceptions to the above rule and the same are explained below:

• A relationship of trust: Beneficiary can sue;
• A Family settlement or partition;
• Partition of a HUF;
• Marriage Settlement;
• In case of an Assignment the assignee can enforce the performance of a contract;
• The Covenants running with a land;
• Estoppel.

VII. CAPACITY TO CONTRACT

For an Individual to enter into a Contract it is mandatory that he is capable to contract. The necessary conditions for an individual to enter into a contract are as below:

• He should be Major (Majority shall be determined as per the Indian Majority Act, 1875 i.e. a person who has completed 18 years of age);
• He should be of sound mind and not a lunatic;
• He should not be disqualified under any Law or act to enter into a contract.

The disqualifications for entering into a contract are as below:

• A minor;
• A person of unsound mind;
• A drunkard or lunatic person;
• Others: Alien enemy or a person who is convicted by law or a statutory corporation or Municipal bodies or Sovereign states or Ambassadors or Diplomats or Insolvent person.

MINOR

According to section 3 of the Indian Majority Act, 1875 a minor is defined as any person who is under the age of 18 years. Also, under the following two circumstances a person is considered minor until he completes the age of 21 years:

• Any person under the Guardian & Wards Act, 1890 is considered to be minor until he completes the age of 21 years;
• Also, if any person comes under the superintendence of law/ legal representative then he is considered to be minor until he completes the age of 21 years.

Rules Governing a Contract entered with a Minor:

• Any Contract or agreement entered into with a Minor is Void-ab-initio.
• A minor can be the beneficiary to a contract or agreement;
• A minor cannot enter into a partnership agreement however, he can be admitted as a partner for benefits with the consent of all the partners of the partnership firm;
• A minor can always plead for minority;
• Any agreement entered into by a minor cannot be ratified by him after attaining majority;
• A Contract entered by the Minor’s Guardian for the benefit of the minor is considered to be valid and covers under the scope of the authority of the guardians authority;
• Minor can be an agent in an agency contract however, he cannot be held personally liable for breach of any duty under the agency agreement or negligence caused by him while performing his duties;
• A minor can never be held personally liable to supply the necessities of goods or services in any case however, his property is liable for the same;
• A minor cannot be declared insolvent as he cannot enter into a contract;
• A minor cannot be held liable for estoppel.

UNSOUND PERSON

According to section 12 of the act a person who is generally sound but occasionally unsound can enter into a contract when he is of unsound mind. Also, a person who is generally unsound but occasionally of sound mind can enter into a contract when he is of sound mind.

Who is considered to be a person of unsound mind?

The following persons are considered to be of unsound mind:

• Lunatic;
• Idiots;
• Drunkard;
• Intoxicated person.

VIII. CONSENT

According to section 13 of the Act, when two or more persons agree upon something with the same sense and meeting of their minds is attained then such a situation is said to be consent between them.

FREE CONSENT

Consent is said to be free when it is not caused by:

• Coercion: According to section 15 of the Act, Coercion means threatening a person to commit any act which is forbidden by Law or detaining some person or threatening some person to detain other persons property with a view to enter into agreement with such person. An Agreement entered into with any person by coercion or threat is a void agreement.
• Undue Influence: When any person is compelled to enter into an agreement against his will as a result of unfair persuasion by the other party then such agreement is a void agreement and such act is said to be undue influence. In case of undue influence one party is in a condition to dominate the other party against his will and by taking advantage of the same he enters into an agreement with the other party.

  Undue Influence can be claimed in the following circumstances:

  • The two persons are in such relation that such relationship can dominate the will of other person;
  • The person who is doing undue influence must have taken unfair advantage in the agreement;
  • There must be moral pressure involved in the same.

  Undue influence can be there between the following persons:

  • Superior and Subordinate
  • Doctor and patient
  • Father and son
  • Teacher and student
  • Principal and agent
  • Master and servant
  • Promoter/ Director and Company

  Undue influence cannot be claimed between the following persons:

  • Wife and husband
  • Debtor and creditor
  • Landlord and tenant
• Misrepresentation: According to section 18 of the act when any person represent any fact in a wrong manner or different manner than the reality due to which any party enters into an agreement or contract with him then such representation is a false representation and an agreement so entered is void;
• Fraud: As per section 17 of the act when any party to the contract does some act with his convenience or through his agent to deceive or induce any person to enter in to a contract then such act of inducement is said to be fraud. Such an agreement or contract entered with such intention of fraud is void.

  An agreement is said to be made with fraud intentions when:

  • The presentation of a fact that it is true when it is not true and the person who is making such presentation does not believe in it to be true;
  • Disguise of a fact by a person having knowledge or belief of the fact;
  • A promise made by a person without any intention of fulfilling it;
  • Any other act with an intention to deceive the other person;
  • Any other act or omission which the law specially declares to be fraudulent

  The Essential elements of fraud are as below:

  • There must be a false representation;
  • The representation made must be relating to a fact;
  • There must be an intention to induce other person;
  • The person making such false representation must himself know that he is making a false representation;
  • The person to whom such inducement is made should suffer some loss.
• Mistake: A mistake can be mistake of Law or a mistake of fact. Types of mistake can be understood as under:

IX. UNLAWFUL AGREEMENTS

• As per section 23 of the Act, an agreement which is forbidden by law is an unlawful agreement;
• Also, as per section 24 of the Act, an agreement which defects any provisions of law is also an unlawful agreement.
• An Agreement which is immoral is also an unlawful agreement;
• An agreement which is fraudulent is also an unlawful agreement.

X. VOID AGREEMENTS

• An agreement without consideration is a void agreement;
• An uncertain agreement is a Void agreement;
• An agreement with illegal objects is a void agreement;
• An agreement which has a condition which is impossible to perform is a void agreement;
• An agreement with incompetent party is a void agreement;
• Wagering Agreements are void agreements;
• Agreements which are against public policy are void agreements;

XI. WAGERING AGREEMENT OR CONTRACT

As per Section 30 of the Act an agreement or contract in which one person promises to the other person to pay money or some consideration with a condition to occurrence of an uncertain event in future in consideration for the other person’s promise to pay if the event does not occur. A wager agreement is a Void agreement.

Essential Elements of a Wagering contract are as below:

• There should be two persons to such contract;
• There must be a condition for an uncertain future event;
• There should not be control over the occurrence of the event by any party;
• There should be a reciprocal promise;
• No other party should be interested in the agreement.

XII. AGREEMENT AGAINST PUBLIC POLICY

• Agreement in restraint of trade;
• Agreement in restraint of marriage;
• Agreement entered for trading with an alien enemy;
• Agreement in restraint of any legal policy or proceeding;
• Agreement for sale of a public/ government office without the knowledge of the government;
• Marriage brokerage agreement;
• Agreement for creating monopoly trade.

XIII. CONTINGENT AGREEMENT

As per section 31 of the act, a contingent agreement is an agreement to do or not to something if any event collateral to such agreement does or does not occur. Thus it can be said that a contingent agreement is a conditional agreement. A contingent agreement is a valid agreement.

Essential Elements of a Contingent contract are as below:

• There should be two persons to such contract;
• There must be a condition for an uncertain future event;
• There should be some control over the uncertain event but it should not be absolute control;
• There are not reciprocal promises made by either parties;
• Any other person can be interested in the agreement.

Rules governing a Contingent agreement are as below:

• As per Section 32 of the act a Contingent agreement is dependent on occurrence of an uncertain future event cannot be enforced until the event has occurred;
• As per section 33 of the Act, when a contingent agreement is to be performed if a particular event does not occur, its performance can be enforced when the occurrence of such event becomes impossible;
• As per section 34 of the Act, If an agreement is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which makes it impossible that he would so act within any definite time, or otherwise than under further contingencies.
• As per section 35 of the act, Contingent agreement to do or not to do something, if a specified uncertain event does not occur within a fixed time, may be enforced if the event does not occur or its occurrence becomes impossible before the expiry of such fixed time.
• As per section 36 of the Act, contingent agreements to or not to do something, if an impossible event occurs are void, whether or not the fact of such occurrence of event is known to the parties or not.

XIV. DISCHARGE OF AN AGREEMENT OR CONTRACT

The Discharge of an agreement or a contract can be made by the following ways:

• Discharge by completion of all the duties and obligations under the contract;
• Discharge of the contract by consent of all the parties to the contract;
• Discharge of the contract by impossibility of the performance of the duties and obligations under the contract;
• Discharge of the contract due to lapse of the time;
• Discharge of the contract by operation of Law;
• Discharge of the contract due to breach of the contract by either of the parties to the contract.

XV. BREACH OF CONTRACT

Types of the Breach of a contract are as below:

• Actual Breach of Contract: Actual breach of contract means a breach done at the time of the actual performance of the contract or during the performance of the contract.
• Anticipatory Breach of Contract: Anticipatory breach of contract means the breach done by either party to the contract before the time of performance of the contract. This kind of breach can be an implied breach or an expressed breach.

Remedies which are available to the injured party in case of breach of contract are as below:

• General Damages: Compensation for any loss or damage which arises in normal course of event of breach of a contract;
• Special Damages: Any damages over and above the general damages which are specified in special circumstances are special damages and they can be recovered only if it is specified;
• Suit for injunction;
• Suit for specific performance;
• Exemplary Damages: A Breach of contract of promise to marry or for false dishonour by banker of his customer cheque.
• Nominal Damages: A breach of contract where the plaintiff has proved that there is breach of contract but he has not suffered any loss.
• Remote Damage: A breach of contract in which indirect loss is caused due to the breach. Remote Damages cannot be recovered.

XVI. QUASI CONTRACT

Types of Quasi contract are as below:

• According to section 68 of the Act, a contract for supply of necessities;
• According to section 69 of the Act, for payment by an interested party;
• According to section 70 of the Act, obligation to pay for non-gratuitous acts;
• According to section 71 of the Act, responsibilities of the finder of the goods;
• According to section 72 of the Act, Mistake or coercion.

XVII. INDEMNITY CONTRACT

According to section 124 of the Act, a contract in which one party promises to another party to save him from any losses caused by him by the conduct of the promisor himself or by the conduct of any other person is said to be an indemnity contract.

According to section 125 of the Act, the liability of the indemnifier begins when the event of loss occurs or when the event saving the indemnified from the loss becomes impossible.

XVIII. CONTRACT of GUARANTEE

According to section 126 of the Act, when one person promises to pay off the damages in case of default made by any other person or party then such promise to perform is called a contract of Guarantee.

There are two types of Guarantee:

• Specific Guarantee: When a guarantee is given for performance of a specific duty or transaction or debt then such guarantee is called a specific guarantee;
• Continuing Guarantee: When a guarantee is giving for a series of transactions then such guarantee is called continuing guarantee.

- Written by our Associate Advocate Noopur K. Dalal while pursuing the NUJS M.A. in Business Laws