PART ONE-GENERAL PRINCIPLES OF LAW OF CONTRACT

CHAPTER

1 Nature of Contract

CHAPTER CONTENTS
OObject of the law of contract
OThe Indian Contract Act, 1872
oEssential Elements Of AValid Contract
O Classification of Contracts
Classification according to validity
Classification according to formation
" Classification according to performance
OClassification of Contracts in English Law
OSummary
OObjective Type Questions
O Test Questions
OPractical Problems

OBJECT OF THE LAW OF CONTRACT

contract is that branch of law which determines the circumstances in which
The law of define the
made by the parties to a contract shall be legally binding on them. Its rules
promises and
a person who fails to perform his contract,
remedies that are available in acourt of law against branch of business
are available. It is the most important
the conditions under which the remedies however, of particular importance to people
law. affects all of us in one way or the other. It is,
are based on
in trade. commnerce and industry as bulk of their business transactions
engaged
contracts. observes
in business transactions. Sir William Anson
The law of contract introduces definiteness to
connection that the law of contract is intended to ensure that what a man has been led
in this promised to him shall be performed. In simple
expect shall come to pass, and that what has been
 CONTRACT
LAWOF
PRINCIPLESOF
6 GENERAL realisation of
ensure the
contract isto
Words, it may be said that the of
of the law contract.
resonable expectation purpose enter into a
of the parties who

CONTRACT ACT, 1872 deals with

THE INDIAN 1872. The Act
Contract Act, special contracts only
The law relating to the Indian some
(1) the general contracts is contained in
(Secs. 1 to 75), and (2) principles) deal with
principles
of the law of contract the general breach
(Secs. 124 to 238). The first six chapters of the Act (which embodyelements, its
performance or
the different stages in the formation of a contract, its essential with some of the special
and the remedies for breach of contract. The remaining chapters deal pledge
124 to 147), bailment and
contracts, viz., indemnity and guarantee [Chapter VIlI(Secs.
(Chapter lX (Secs. 148 to 181)), and agency(Chapter X(Secs. 182 o 20
The Act does not affect any usage or custom of trade. (Sec. I, para
Indian Contract Act, l874 uess
Ihe reterences to Sections in Chanters 1to 12 are to the
otherwise stated.

The Act is not exhaustive

The Indian Contract Act does not profess to be a complete and exhaustive code. It deals with
the general principles of the law of contract and with some special contracts only. Some of the
contracts not dealt with by the Act are those relating to partnership, sale of goods, negotiable
instruments, insurance, bill of lading, etc. There are separate Acts which deal with these contracts.
Nature of the law of contract
Thelauw of contract differs from other branches of law in an important respect. It does not lay
don a number of rights and duties which the law wll entorce; it consists rather of a
numbor of
limiting principles, subject to which; the parties may create rights and duties for themelko
the law will uphold. The parties to a contract, in a sense, make the law for
they do not infringe some legal
prohibition, they can make themselves.
what rules they So
like in respectlong as
subject-matter of their agreement, andthe law will give effect to
their decisions (The of the
p. 3].
Contract by Anson, 22nd ed. 1964, English Law of
whole law of
Law of contract is not the
of obligations
agreements which do not give rise
agreements nor the whole law
There are several to legal
Similarly, there are certain obligations
not contracts. (i) torts or civil wrongs, (ii) which dooblnotigations. They are,
agreement, e.g.,
obligations are not
contractual in nature. But even then
they necessaris lyof springtherefore,
quasi-ocontractares, (iii) judgment from an
observedthat the law of
Salmond has rightlyobligations. It is the law of contract is "not
enforceabl
the
e. Courts. These
those
whole law of
it is theobligations which have theirinsources in agreements," It
contractual nature and agreements w agreements whiwholche lawcreateof agreements, nor
whichexclareudes oblits igpurvi
ations,ew andall
those are not
socialfromn
obligations which
in
author's rra
nature.
subject, refer to
SIUay of the
or
NATURE OF. CONTRACT 7

Law of contract creates jus in personam asdistinguished from jus in rem

Jus in rem means right against or in respect of a thing; jus in personam means aright
against the world at large; a jus
against or in respect of a specific person. A jus in rem is available
in personam is available only against particular persons.
this amount
Examples. (a) Aowes a certain sum of money to B. B has a right to recover
A. This right of B is a
from A. This right can be exercised only by Band by none else against
jus in personam.
and enjoyment
(b) X is the owner of a plot of land. He has a right to have quiet possession
of that land against every member of the public. Similarly every
member of the public is under
X is a jus in rem.
an obligation not todisturb X's possession or enjoyment. This right of
DEFINITION OF CONTRACT
parties which the law will enforce. Sec.
A contract is an agreement made between two or more
by law. This definition is based on Pollock's
2 (h) defines contract as an agreement enforçiable
law is a contract. ")
definition which is as follows: "Every agreement and promise enforceable at
agreement between two or more
Sir William Anson defines a contract as "a legally bindingforbearances (abstaining from doing
to acts or
persons bywhich rights are acquired by one or more
something) onthe part of the others."
defining obligations between
According to Salmond, a contract is "an agreement creating and
the parties." that a
definitions of contract we find
Agreement and its enforceability. If we analyse the
agreement, and (2) its enforceability by law.
contract essentiallyconsists of two elements, viz., (1)
every set of promises, forming consideration for
An agreement is defined as "every promise and
"When the person to whom the proposal is made
each other" (Sec. 2 (e)l. A promise is defined thus:
be accepted. A proposal, when accepted,
.signifies his assent thereto, the proposal is said to means that an agreement is an accepted
words,
becomes a promise" (Sec. 2 (b)). This, in other
imust be a proposal or offer by one party
proposal. In order, therefore, to form an agreement, there
and its acceptance by the other. To sum up :
Agreement = Offer + Acceptance.

ConsensUs ad idem and final

essence of an agreement is the meeting of the minds of the parties in full
in
idem. The expression 'agreement' as defined
The
agreement: there must, in fact, be consensus ad A.JR. (1980)
2(e) is essentially and exclusively consensual in nature (Sunnam Sattiahv. State,
Sec. consensus ad
agreement between tWo parties, there must be
A.P. 16], i.e., before there can be an have agreed about the subject-matter of
that the parties to the agreement must
idem. This means ad idem. there
the same time. Unless there is consensus
the agreement in the same sense and at
can be no contract.
Hansraj, is selling horse Rajhans
Example. A, who owns two horses named Rajhans andis no consensus ad idemn and
There
to B. Bthinks he is purchasing horse Hansraj.
consequently no contract.
 00

CONTRACT
OF LAW OF
GENERAL PRINCIPLES
In
idem, order
it is
to
determine there is existence ot
consensus ad

purchase myusual for Rs.whether,

in given agreement,
anyand Bsays "yes" to B, "Will you
bluetocaremploy the10,000?"
language to it, there
of offer and acceptance. is
Thus if A says ad
consensus idem and an
agreement comes into existence
Obligation
An
agreement,
'obligation' to
is defined asbecome obligation or duty. The term
alegal tie which imposes upon adefinite person or persons the necessity of
a contract, must give rise to a legal
doing or abstaining from doing a definite act or acts. It may relate to social or legal matters. An
agreement which rise to a legal
obligation in order.togives rise to a social obligation is not a contract. It must give
become a contract.
Examples. (a) Aagrees to sell his car toBfor Rs. agreement gives rise toan
the partTheof Bto pay Rs. 50,000 to A.
obligation on the part of Ato deliver the car to Band on50,000.
This agreement is a
contract.
promises to sell his car to Bfor Rs. 50.000 received by him as the price of the car.
Ine agreement gives rise to an obligation on the nart of Ato deliver the car to B. 1 his agrement
is also a
contract.
Agreement is a very wide term
An agreement may be asocial agreement or a legal agreement. If Ainvites B to a dinner and B
accepts the invitation, it is a social agreenent. Asocial agreement does not give rise to
obligations and is not enforceable in a Court of law. It is only those agréements contractual
which are
enforceable in a Court of law which are contracts.
Examples. (a) Ainvites his friend B to come and stay with him for a week. B accepts the
invitation but when he comes to A, A cannot accommodate him as his wife had died the dau
before. B cannot claim any compensation trom A as the agreement is a social one.
(b) A father promises to pay his son Ks. 100every month as pocket
allowance. Iater be
rofuses to pay. The son cannot recOver as it is a domestic agreement and thero is no f t ,
on the part of the parties to create legal relations.
Toconclude: Contract = Agreement + Enforceability at law.
Thus all contracts are agreements but al agreements are not necessarily contracte
ESSENTIAL ELEMENTS OF A VALID CONTRACT
10, all agreements are contracts if they
According to Sec.contract, are made by the
for a lawful consideration
competent to and with a lawful free consent of
parties
to be void. In order to become a
expressly declared Contract, agreement mustobject
an
have
and are not
essential elements : the following
acceptance. There must be two parties to
an
1. Offer and party accepting it. The terms of the offer must be
other unconditional. The agreement,
definite
i.e., one party
and the makingof
the offer and be absolute communicated to the offeror.acceptance must also be
and
the offer must
be
prescribed and must create legal relationship. When the according acceptance
to the
mode
Intention to two
create legal relationship between them. If parties enter into an
2. be to there is no such
their
intention must
agreement,
intention
on the
author's Handbook
subject, refer to
b stuay of the
NATURE OF CONTRACT
9
art of the parties, there is no contract between them.
notcontemplate legal relationship, as such they are notAgreements
of a social or domestic nature do
contracts.
Example. A husband promised to pay his wife a
month. Later the parties separated and th¹ husband failed tohousehold allowance of £30 every
pay the amount. The wife sued for
the allowance. Held, agreements such as these were outside the
realm of contract altogether
|Balfour v. Balfour, (1919) 2 K.B. 571].
In commercial and business agreements, the presumption is usually that the
create legal relations. But this presumption is rebuttable which means that it must parties intended to
be shown that the
parties did not intend to be legally bound.
Examples. (a) There was an agreement between R Company and C Company by means
of which the former was appointed as the agent of the latter. One clause in the
agreement was :
"This agreement is not entered into.....as a formal or legal agreement, and shall not be subject
to legal jurisdiction in the lawcourts." Held, there was no binding contract as there was no
intention to create legal relationship [Rose & Frank Co. v. Corruption Bros. (1925) A.C. 445].
(b) In an agreement, a document contained a condition "that it shall not be attended by or
give rise to any legal relationship, rights, duties, consequences whatsoever or be legally
enforceable or be the subject of litigation, but all such arrangements, agreements and
transactionsare binding in honour only." Held, the condition was valid and the agreement was
not binding |Jones v. Vemon's Pools. Ltd. (1938) 2.
3. Lawful consideration. An agreement to be enforceable by law must be supported by
consideration. 'Consideration' means an advantage or benefit moving from one party to the other. It
the essence of a bargain. In simple words, it means 'something in return'. The agreement is
legally enforceable only when both the parties give something and get something in return. A
promise to do something, getting nothing in return is usually not enforceable by law. Consideration
need not necessarily be in cash or kind. It may be an act or abstinence (abstaining from doing
something) or promise to do or not to do something. It may be past, present or future. But it must
be real and lawful (Secs. 2 (d), 23 and 25].
4. Capacity of parties--competency. The parties to the agreement must be capable of
entering into avalid contract. Every person is competent to contract if he (a) is of the age of
majority, (b) is of sound mind, and (c) is not disqualified from contracting by any law to which he is
subject (Secs. 11 and 12). Flaw in capacity to contract may arise from minority, lunacy, idiocy,
drunkenness, etc., and status. If a party suffers trom any flaw in capacity, the agreemnent is not
enforceable except in some special cases.
5. Free and genuine consent. It is essential to the creation of every contract that there must
is said to be
be free and genuine consent of the parties to the agreement. The consent of the parties
parties are said
free when they are of the same mind on all the material terms of the contract. The
to be of the same mind when they agree about the subject-matter of the
contract in the same sense
is induced by
and at the same time (Sec. 13). There is absence of tree consent if the agreement
Coercion, undue influence, fraud, misrepresentation, etc. (Sec. 14). it means that
6. Lawful obiect. The object of the agreement must be lawtul. In other words,
the object must not be (a) illegal, (b) immoral, or (c) opposed to public policy (Sec. 23). If an
enforceable bylaw.
agreement suffers from any legal flaw, it would not be expressly declared
7. Agreement not declared void. The agreement must not have been
56).
void by law in force in the country (Secs. 24 to 30and
8. Certainty and possibility of performance. The agreement mustmeaning, be certain and not
it cannot be
vague or indefinite (Sec. 29). If it is vague and it is not possible to ascertain its
enforced.
10 CONTRACT
PRINCIPLES OF LAW OF
GENERAL
nothingwhatever to
showExamples.
what kind of(a)oilAwas intended. The agreement is void for uncertainty.
oil". There is
agrees to sell toB"a hundred tons of
(b) O agreed to hire-purchase terms". The hire-purchase
price was to be paid purchase a motor van from S "onno contract as the terms were not certain
about rate of over two years. Held, there was could be attributed to
the
interest since
and
words "on hire-purchase" modethere
of payment.
was a wide precise meaning
No variety of hire-purchase terms (Scammel v.
Ouston, (1941) A.C. 251).
(c) A company agreed with V that on the expiration of V's existing contract, it would
favourably consider an contract. Held, the agreement was
not intended to bind application by V for a renewal of his and imposed no obligation on it
the
to review it [Montreal GasCompany to renew its contract with V
Co. v. Vasev, (1900) A.C. 595|.
The terms of the agreement must also be such as are capable of performance. Agreement to do
mpossible in itself cannot be enforced ISec. 56 (1. For example, where Aagrees with B to
Put lite into B's dead wife, the agreement is yoid as it is
impossible of pertormaice
iegal ettects, there is no difference betwyeen a contract inwords
gal formalities. A contrct may be made by spoken or written. As regards the
writing and a contract made by word o
noutn. It is, however, in the interest of the narties that thecontract should be in writing. l here are
Some other formalities also which have to be complied with in order to make an agreement
entorceable. ln some cases, the document in which the contract is incorporated is to be stamped. In
legally
SOme other cases, a contract, besides being a written one, has to be registered. Thus where there is
a statutory requirement that a contract should be made in writing or in the
registered, the required statutory formalities must bee complied with (Sec. 10,presence
of
para 2). witnesses or
CLASSIFICATION OF CONTRACTS
Contracts may be classified according to their (1) validity, (2) formation, or (3) performance.
1.Classification
A
according to validity
COntract is based on an agreement. An agreement becomes a contract
oloments referred to above are present. n Sucn a case, the when all the essential
moO of these elements is/are misSsing, tne contract is contract is a valid contract. If ono or
either avoidable, void. ilengt .
unenforceable.
Voidable contract. An agreenment which is enforceable by
the other or law at the option of
the parties thereto, but not at the option of free others, is a one or nmore of
This happens when the essential element of Consent in a contract isvoidable contract (Sec. 2 (i)).
of a party to a contract is not free, i.e., it is caused by
coercion, undue missing. When the consent
or fraud, the contract is
voidable at his option (Secs. 19 and influence,
free may either rescind
(avoid or repudiate) the contract if he so
continues to be valid till it is avoided
19-A).
bythe party
The
desires,
party whose
or
misconsent
representation
elect to be bound byisit.not
voidablecontract entitled to do so. A
Example. A promises to sell histhecar to B for Rs. 20,000. His
force. The contract is
avoidable at option of A. He consent obtained
may avoid the is by
bound by it. contract or elect use
to
of
be
becomes voidable in the following two cases also:
Acontract
person promises to do something for
(1) When a
prevents him from performing his another person
promise, for a
other person
option (Sec. 53).
the
consideratvoidable
contract becomes ion butthe
at his
authors Tiam
of the subject, refer to
SIudy
NATURE OF CONTRACT
11

Example. A and Bcontract that B shall execute certain work for A for Rs. 1,000. B is
ready and willing to execute the work accordingly but A prevents him from doing so. The
contract is voidable at theoption of B andif heelects to rescind it, he is entitled to recover from
Acompensation for any loss which he has incurred by its non-pertormance.
(2) When a party to a contract promises to perform an obligation within a specified ime, any
failure on his part to perform his obligation within the fixed time makes the contract voidable at the
option of the promisee (Sec. 55, para 1).
When aperson at whose option a contract is voidable rescinds it, the other party thereto need
not perform any promise therein contained in which he is promisor. If the party rescinding the
contract has received any benefit under the contract from another party to such contract, he shall
restore such benefit, so far as may be, to the person from whom it was received (Sec. 64). The party
rightfully rescinding the contract is also entitled to compensation for any damage which he has
sustained through the non-fulfilment of the contract (Sec. 65).

Void agreement and void contract

to be void (Sec. 2 (g)]. A void
Void agreement. An agreement not enforceable by law is said
nullity and is destitute of legal
agreement does not create any legal rights or obligations. It is a as, for example, an agreement
effects, altogether. It is void ab initio, i.e., from the very beginning
consideration.
with a minor or an agreement without
enforceable by law becomes void when it ceases
Void contract. Acontract which ceases to be
originally entered into, may be valid and binding on
to be enforceable [Sec. 2 (g)]. A contract, when foreign country. It may subsequently become
contract to import goods from a
the parties, e.g., a between the importing country and the exporting
country.
void, e.g., when awar breaks out
of avoid contract originally entered into, for what is supposed to be, a
It is illogical to talk talk of such a contract as avoid agreement.
contract is no contract at all. WVe may
detailed discussion of void contracts, refer to Chapter 7.
For a transgresses some rule of basic public
illegal agreement is one which and has
Illegal agreement. An or which is immoral. Such an agreement is a nullity
nature agreernents
policy or which is criminal in contract. Allillegal agreements are void but all void
between the
much wider import than a void illegal. An illegal agreement is not only void as
or contracts are not
necessarily
even the collateral transactions to it become tainted
further effect that incidental or auxiliary to the
immediate parties but has this transaction is one which is subsidiary,
with illegality. A collateral
principal or original contract. enters into a contract with an alien to imnport
A and
Example. B borrows Rs. 5,000 from
the loan. The transaction between B and Ais
the purpose of
prohibited goods. AknoOws of It is illegal since the main agreement is illegal.
agreement. case
collateral tothe main transactions to it are not affected. In the above
is void, the collateral between Band A would not have
If the main agreement agreement with a minor. the contract
if Bhad entered into a void in a
been affected. contract is one which cannot be enforced
unenforceable
Unenforceable contract. An such as absence of writing or where the remedy has
defect but in the
Court of law because of some
technical
may be carried out bythe parties concerned;
contract not be entitledto the legal
been barred by lapse of time. Thesuch a contract, the aggrieved party will
event of breach or repudiation of
remedies.
 2
GENERAL PRINCIPLES OF LAW OF CONTRACT
2. Classification according to or bu word of mouth, or (b) inferred from the conauCt O
4 contract may be (a) made in writingformation
e parties or the circumstances of the case These are themodes of formation of a conract
ontracts may be classifled accordinato the modeof thcir formation as folloWS :
Express contract. If the terms of a contract are expressly agreed upon (whether by words
spoken or written) at the time of formation of the contract, the contract is sald to be an express
COntráct. Where the offer or accentance of any
eXpreSs (Sec. 9). An express promise results in anpromise Is made in words, the promse is s
expresscontract.
npied contract. An implied contract ls one whlch is inferred from the acts or conduct of the
Partes or course of dealings between them. lt is not the result of any express prormise or promises
e parties but of their particular acts. It may also result from acontinuing course of the parties.
ere the proposal or acceptance of any promise is made otherwise than in words, the promise 15
said to be implied (Sec. 9), An implied promise results in an
implied contract.
Examples. (a) There is an implied contract when A
() gets into a public bus, or
(ii) takes a cup of tea in
restaurant, or
(iii) obtains a ticket from an automatic
weighing machine, or
(iv) lifts B's luggage to be carried out of the railway
station.
(b) A fire broke out in P'sfarm, He called upon the Upton Fire Brigade to put out the
the latter did. P's farm did not come under the free service zone although he fire which
he was liable to pay for the service rendered as the service was believed to be so. Held,
rendered on an implied promise to
pay [Upton Rural District Council v. Powell, (1942) All E.R. 220].
Quasi-contract. Strictly speaking, a quasi-contract is not a contract at all. Acontract is
intentionally entered into by the parties. A quasi-contract, on the other hand, is created by law. It
resembles a contract in that a legal obligation is imposed on a party who is required to perform it. It
rests on the ground of equity that "a person shall not be allowed to enrich himself uniustlu at tho
expense of another.'
Example. T, a tradesman, leaves goods at C's house by mistake. C treats the g0ods as hic
own. Cis bound to pay for the goods.
E-Commerce contract. An E-commerce contract is one which is
different individuals or entered into
between two
parties via Internet. In Internet, expands the area of companies create networks which are linked
This
to numerous other networks. operation in commercial transactions for any
persorn.

according to performance
3. Classificationwhich the contracts have been
To the extent
to performed, these may be
contract. 'Executed' means that which is done. An classified as
(1) Executed performed their respective executed contract is one in
which both the
parties have
paint a picture for B for obligations.
Example. Aagrees toboth the parties perform Rs. 100. When A
when
price, i.e., their obligations, thepaints the picture and
B
pays the contract is said to be
executed. though a contract may appear to
cases, even person buys a bun containing a be completed at
In some
Thus when a
stone and once, its effects may still
Continue. subsequently breaks one of his
Hana
author's
to
Chand& Sons. subject, refer
NATURE OF CONTRACT 13

teeth, he has a right to recover damages from the seller (Chaproniere v. Mason, (1905) 21 TL.R.
633).
(2) Executory contract. 'Executorv' means that which remains to be carried into effect. An
executory contract is one in which both the parties have yet to perform their obligations. Thus in
the above example, the contract is executory if A has not yet painted the picture and B has not paid
the price. Similarly, if Aagrees to engage B as his servant from the next month, the contract is
executory.
Acontract may sometimes be partly executed and partly executory. Thus if Bhas paid the
price to A and A has not yet painted the picture, the contract is executed as to B and executory as
to A.
Another cassification ofcontracts according to the performance is as follows:
Unilateral or one-sided contract. A unilateral or one-sided contract is one in which only one
party has to fulfil his obligation at the time of the formation of the contract, the other party having
fulfilled his obligation at the time of the contract or before the contract comes into existence. Such
contracts are also known as contracts with executed consideration.
Example. A permits a railway coolie to carry his luggage and place it in a carriage. A
that time
contract comes into existence as soon as the luggage is placed in the carriage. But by
pay
the coolie has already performed his obligation. Now only A has to fulfil his obligation, i.e.,
the reasonable charges to the coolie.
on the part of both the
Bilateral contract. A bilateral contract is one in which the obligations contract. In this sense,
formation of the
parties to the contract are outstanding at the time of the
also known as contracts with executory
bilateral contracts are similar to executory contracts and are
consideration.

CLASSIFICATION OF CONTRACTS IN ENGLISH LAW

formal contracts, and (2) simple contracts.
In English Law, contracts are classified into (1)
contractsof record, and (b) contracts under seal.
1. Formal contracts. These include (a)
Contracts of record. Acontract of record is either a judgment of a Court or a
(a) favour
by a Court upon one or more persons in
recognisance. A judgment is an obligation imposed not a contract which rests upon agreement. A
or others. Strictly speaking, it is with in
of another debt due to the Crown. It is usually met
recognisance is a written acknowledgment of a when a person is arrested, he may be released
example,
connection with criminal proceedings. For behaviour, subject to a money penalty if the
or to be of good
on apromise to appear in a Court recognisance.
obligation is broken. This obligation is a in fact.
from the authority of the Court. They are,enforced
Contracts of record derive their binding force consensus. They are
lack the essential element of
not real contracts because they
conpulsorily by the Court. force from
seal. A contract under seal is one which derives its binding
(b) Contracts under
is signed, sealed and delivered by the parties. It is also called a
itsform alone. It is in writing andconsideration is, however, necessary in the case of
contracts under
deed or a speciality contract. No
seal. consideration.
must be made under seal, include (i) contracts made without
The contracts. which in land or any interest in
corporations, (iii) conveyances of the legal estate
()contracts made by
 CONTRACI
OF
LAW
OF
PRINCIPLES any
14 ship,or
GENERAL British
of a their
transter
(iv)a because
land, including leases of land for
and contracts
share therein. morethan three years,
formal They
knownas
contracts.
Contracts of record and contracts under seal are simple supported by
validity depends on the form in which they are seal are mustbe
made. under
contracts
2. Simple contracts. All
contracts which are not madesimple
-parolcontracts. laws
may be in writing or may be made by word of mouth. All Law. Our
Indian
English
consideration. These contracts are also known by the older name the
according contractsunder
to
the
be in
The classification of contracts as formal and simple is exceptions, allcontracts which must
know nothing of the formal contracts. Subject to certain types of
Law must be supported by consideration. But there are certain
writing. In certain cases Contracts have also to be registered.

Summary
2(h), a
DEFINITION OF CONTRACT Accordingto Sec.
enforce. party and its
parties which the law will process of offer by one
A contract is an agreement made between twO or more existence bythe
An agreement Comes into
Contract is an agreement enforceable by law. same time,
sense and at the
unqualified acceptance by the other party. in the same
upon the subject-matter
The parties who enter into an agreement must agree rise to
must be consensus ad idem. agreement is that which does not give
i.e., there A social
agreement or a legal agreement. agreement is that
An agreement may be a social to the law Court to
enforce a right. A legal
parties cannot go
case of its breach the breach.
iegal consequences. ln consequences and'remedies in the law Court in case of its making the offer and
which gives rise to legal an agreement. This involves two parties, one party be capable of
There must be relationship. (3) The parties must
Essentials of contract. (1) must intend to create legal consideration on
accepting it. (2) The parties agreement must be supported by lawful (7) The
the other party understanding. (4) The
as regards age and the agreement must be
entering into an agreement the parties must be free and genuine. (6) The object of exnressl,
consent of agreement must not have been
both sides. (5) The of periormance. (8) The
must be certain and capable
terms of the agreement
declared as void. CLASSIFICATION OF CONTRACTS
()l.
enforceable by law (Sec. 2
agreement-Anagreement not law (Sec 2 (1
Void which ceases to be enforceable by
contract enforceable by law at the option of one party thereto, but not at the option of
Void contractA contract which is
contract-A
Voidable
of some rule of basic public policy and is criminal in
the other
[Sec 2(4). agreemnent which involves the transgression
agreement-An between the immediate parties but it also taints the collateral transactions with
legal only void as
immoral. Itis not
nature or
terms are stated in words (written or spoken) by the parties.
illegality. contract in whichthe
contract-A inferred from the circumstances of the case or from the conduct of the parties.
Express contract which is
contract-A
Implied created bylaw, regardless of agreement.
obligation
Quasi-contract-An which is wholly performed by
both the parties.
contract
contract-A promises of both the parties have yet to be performed.
Executed
contract-A
contractin which the
party has performed his
Executory executed-A contractin which one obligation,
but the other party has
excutory, partly
Partly obligation. has yet to perform his obligation.
perform his contract in which only one party
yet to
contract--A both the parties have yet to perform their obligations.
Unilateral contract in which
contract-A
Bilater¡l
NATURE OF CONTRACT 15

Objective Type Questions

Multiple Choice Questions :
obligations. (b) the whole law of
1. Lawof contract is-a) not the whole law of agreements nor is it the whole law of
agreements. (c) the whole law of obligations. (d) none of the above.
obligations. (d) only obligations
2. A contract createsa) rights in personan. (b) rights in rem. (c) only rights and no
and no rights.
certain conditions are fulfilled. (b) enforceable by
3. An agreement is a voidable contract when it is--a) enforceable if
at all.
law at the option of the aggrieved party. (c) enforceable by both the parties. (d) not enforceable
void. (b) voidable. c) valid. (d) unenforceable. (e) illegal.
4. An agreement not enforceable by law is said to be-a)
subsequent to its formation. (c) cannot
5. A contracta) may be void as originally entered into. (b) may become void
become void under any circumstances. (d) may become void at the will of a party.
manner. (b) also tainted with illegality.
6. The transactions collateral to an illegal agreement are--a) not affected in any
(c) voidable at the option of the plaintiff. (d) void.
ad idem. (d) an agreement
7. A contract isa) a legal obligation. (b) an agreement plus a legal obligation. c) consensus
plus a legal object.
8. Flaw in capacity to contract may arise fromHa) lack of free consent. (b) lack of consideration. (c) minority. (d)
absence of legal formalities.
State whether the following statements are True or False :
1. Allcontracts are agreements but all agreements are not contracts.
2. There can be a contract even without consensus ad idem.
whole law of obligations.
3. Law of contract is not the whole law of agreements nor it is the
agreements which create obligations, and those obligations which have their
4. The law of contract is the lawof those
sOurces in agreements.
party is a voidable contract:
5. An agreement which is enforceable at the option of either
6. A void contract is one which is void ab initio.
7. A void agreement does not create any legal obligations.
immediate parties but even the collateral transactions to it
8. An illegal agreement is not only void as between the
become tainted with illegality.
enforceable in a Court of law.
9. Allagreements between parties are
to be çompleted at once, its effects may continue.
10. In some cases, even though a contract mayappear
11. All void agreements are illegal.
to fulfil their obligations.
12. In an executed contract both the parties have yet
[Answers : MCQ-1. a: 2. b: 3. b; 4. a; 5. b; 6. b; 7. b; 8. c.
11. F; 12. F.]
T/F-1. T; 2. F; 3. T; 4. T; 5. F; 6. F; 7. T; 8. T; 9. F; 10. T;

Test Questions
?
1. What is the object and nature of the law of contract Comment.
code dealing with all branches of the law of contract."
2. "The Indian Contract Act, 1872 is not a complete
law for themselves." Comment.
3. "The parties to acontract, in a sense, make the essential
are agreements." Discuss the statement explaining the
4. "All agreements are not contracts but all contracts
elements of a valid contract
agreement become void ?
5. Describe the essentials of a valid contract. When does an
nor is it the whole law of obligations. " Discuss.
6. (a) "The law of contract is not the whole law of agreements,
is a contract ?
(b) What tests would you apply to ascertain whether an agreement
obligations arising from a contract.
7. Make up an example to illustrate the correlative nature of rights and
Discuss the validity of agreements collateral-to
8. llustrate the distinction between void, voidable and illegal agreements.
such aqreements.
9. Distinguish between the following classes of contracts :
and voidable contracts. (d) Void
(a) Express and implied contracts. (b) Executed and executory contracts. (c) Valid, void
.agreements and void contracts.
 PRINCIPLESOF
LAW OF COONTRACT
l6
GENERAL
creae legal relations.
intendedto
10 In the parties
Discuss11. commercial and business agreements, he
presumptionisthat
writing and a
contract made by word of
"As regards the a contract
in
mouthh."12.Discuss. legal effects, there 1S O
dillerence between
Obligation,
Consensus ad
idem.
Unilateral
Write short notes on: Executed contract.
Contract, quasi-contract. Unenforceable Contract,
PracticalProblems
Attempt
1. Over a
the following
problems,
cup of coffee giving reasons : dinner at his house on a Sunday. B hires a taxi and reaches A's
house at the appointed time, inbuta restaurant,
Afails to pertom
A nnteshisBpromise.
to a Can Brecover any damages from A?
[Hint: No,
2. State (Belfour v. Balfour).]
(a) A whether there is any contract in the following cases :
(b) A engages fixed by C.B does the work.
B for a
and B promise to certain work and promises to pay such remuneration as shall be
(c) Atakes a seat in a mamy each other.
(d) A invites B to a public vehicle.
card party. B accepts the
(a) Tnere is a contract between A andinvitation.
R andA is bound to nau the remuneration as shall be tixed by C. If Cdoes
; O rAreruses to fix the remuneration. Ais bound to nay a
reasonable remuneration. (b) and (c) There is a contract
between and B. (d) There is no
O.A TOrced B contract.)
bound by the contractto?enter into acontract at the point of pistol. What remedy is available to B. if he does not want to be
[Hint : He can repudiate the contract as his
4. Mmows L's lawn without consent is not free.]
bound to pay anycharges to M? being asked by L to do so. L watches Mdo the work but does not attempt to stop him. Is L
(Hint: Yes, L is bound to pay Ma
5. Corally reasonable remuneration.]
Savod andtestedoffered to pay A, an auto
the car. Cpaid A Rs. mechanic, Rs. 50 tor testing a used car which C
was about to
50 in cash tor
(b) executed or executory, (c) valid, void, voidable or hs services. Is the
unenforceable ? agreement between C and A (a)purchase from D. A
express or
[Hint : The agreement is (a) express, (b) executed, and (c) valid.] implied,
6. A promises to pay B Rs. 500 if he(B) beats C. Bbeats C, but A
[Hint : No as the agreement is illegal .J refuses to pay. Can B
7. Asent in a foottball pools coupon containing a condition recover the
amount ?
that it "shall not be
relationship, rights, duties, consequences." He sued for £4.335 which he claimed to attended by or give
(No. (Appleson v. Littlewood Ltd., (1939) 1 AllE.R 464)) have won, Is the rise to any legal
8. Dlived as a paying boarder with a family. He agreed with claim enforceable ?
newspaper competition. The entry sent by Dwon a prize of{$ 750. Hethe members of the
of the family recover their share ?
IHint: Yes, as there was a"mutuality in the agreernent
refused to share the
amount
family.to
share prize money of a
between the parties" and the won. Can the members
(Simpkins v. Pays, (1955) 3 All E.R 10).J
parties had
intended to be bound

authors
to