Contract Law

Contract Law
Introduction
The law of contracts is civil in nature, which means that harms caused are redressed by paying compensation and damages which can be
liquidated or unliquidated. This law is used to enforce rights in personam which means rights that can be claimed only against specific
persons.
Indian Contract Act of 1872 came into effect from 1st September, 1872. It is a codified law in India, governed by the Indian Contract Act,
1872. Section 2 of this act contains the definition of ‘contract’ and other relevant terms.
Elements of Contracts
Contracts are defined as agreements enforceable by law. The essential elements of a contract are as follows:-
 Two or more parties

 Competency to contract
 Free Consent – The parties should not be coerced or misguided into agreeing.
 Lawful consideration and Lawful object – Consideration is what one party agrees to
do or abstain from doing for the other party, while object refers to the purpose for
which the contract is made.
 Agreement must not be expressly declared to be void– Agreements that are prohibited by the law cannot become contracts.
Stages of a Contract
 A contract starts off as a proposal or an offer, when one person expresses their willingness to do or not do something in exchange of
something.
 The person who makes this offer is known as ‘offeror’ and those who accept the offer are called ‘offeree’.
 When an offer is accepted, it becomes a ‘promise’. Person who makes the promise is known as the ‘promisor’, while the person to whom it is
made is known as ‘promisee’.
 When two sets of promises form consideration for each other, it becomes an agreement.
 When an agreement fulfils the essential elements fulfils all requirements of a contract, only then is it becomes a contract.
Offer under Indian Contract Act

 The parties should have an intention to enter into a legally binding relationship. A parent promises to buy a bicycle if the
child scores an A+. Even if the child scores an A+, the parent is not bound by law to buy a bicycle because they did not intend to
create a legal relationship.
 On the contrary, an agreement to start a bakery in partnership will be legally binding. Only a display of goods or supplying of
information or expression of desire is not an offer, but an invitation to offer. An offer should not be vague. It should be made
in specific terms.
 An offer is complete only when it comes to the knowledge of the person it is made to.
 Offer can be of various kinds. A general offer is made to the public at large and is accepted by fulfilling the terms and
conditions. A specific offer is only made to a specific person or group and can be only accepted by them. An implied offer is
made by performing actions accordingly.
Acceptance under Indian Contract Act

 Acceptance is when the offeree accepts the offer. It must be absolute and unconditional.
 Any additional conditions will not be an acceptance but a counter-offer. It can be express, that is said explicitly, or implied,
shown by actions.
 Acceptance can be communicated verbally, electronically or through post.
 When communication of acceptance is completed, it becomes an agreement.
Competency of Parties to Contract

 Only parties competent to contract can enter into a contract. They should understand the nature and consequence of entering
into the agreement.
 A person is competent to contract if they:-
 Are major, that is above the age of 18.
 Are of sound mind.
 Not insolvent or bankrupt.
Free Consent under Indian Contract Act

For an agreement to become a contract, it should be entered into by the free consent of
parties. If that is not the case, then the contract becomes voidable at the option of the
aggrieved party. Consent is both parties agreeing to the same thing in the same sense.
Free consent is that which is not caused by:-
 Coercion– Threatening to commit or committing an act forbidden by the Indian Penal

Code.
 Undue influence– When a party with a dominating position takes undue advantage of
the other.
 Fraud– When a party knowingly supplies false information inducing the other party to
enter into contract.
 Misrepresentation– When a party unknowingly supplies information that is not true
with the intention of inducing the other party to enter into contract
 Mistake– When both the parties make a mistake regarding a material fact of the
contract, it is void. However, a mistake of law is not void.
Void, Voidable and Valid Agreements

 An agreement that cannot be enforced by the court of law is void.
 This includes agreements made by incompetent parties or those with unlawful consideration or object.
 Voidable contracts can be declared void at the option of the party whose consent was not freely obtained.
 Valid agreements fulfil all essential requirements and can be enforced in the
court of law.
Types of Contracts
A contract can be of several types, based on its elements and characteristics:-
 On the basis of the terms of the contract, a contract can be either express or implied. When the terms of a contract are
expressed clearly in either written or oral form, it is known as an express contract.
 When the terms of a contract are assumed and are neither oral nor written, it is
known as an implied contract. For example, going to a restaurant, taking a seat and ordering food is an implied contract to pay
the bill.
 Enforceability in the court of law is another criterion which divides contracts into void, voidable and valid contracts.
 A valid contract is enforceable in the court, whereas in a voidable contract, one party is capable of terminating the contract
while the other party is bound to it.
 A void contract is not enforceable from the beginning and has no validity. A contract to restrain marriage is void, as per the
Indian Contract Act, 1872, while a contract in which the assent of a party is obtained by coercion is voidable at the option of the
wronged
party.
 A bilateral or two-sided contract is one where both parties are obligated to perform an action for each other, like property sale
agreements where one has to transfer possession of property and other has to make the payment.
 In a unilateral or one-sided contract, one party makes a promise to perform an action while not binding another specific party to
the contract. An example can be offering a reward to whoever finds a lost wallet. Here, the offeror is bound to reward the person
who finds and brings the wallet, while no one else is obligated to find the wallet. These are also known as general offers.
Offer under Contract Law

An offer or a proposal is the first step to enter into a contract. It can be of several types :
A common type of offer is a general offer, often seen in television or newspaper advertisements. An extremely famous case
on general offers is Carlill v. Carbolic Smoke Ball Co.
Carbolic Smoke Ball company promised to pay 100 pounds to anyone who contracted
influenza even after taking the medicine according to the instructions. The offer was open to the general public. When Mrs. Carlill
contracted influenza even after using the medicine, the company argued in court that the offer wasn’t made to a specific person
with the intention of enter into legally binding contract. This was refuted by the Court which stated that in general offers whoever
fulfils the condition shall have accepted the offer.
Unlike general offers, specific offers are made to a specific person, who can accept or reject the offer and communicate the
same to the offeror. For example, a film director offering a contract to an actor for a particular role in a movie.
An interesting case regarding this is Boulton v. Jones, where Jones used to do business with a person named Brocklehurst.
Boulton acquired Brocklehurst’s business without Jones’ knowledge. Jones sent an order to the business and consumed the
goods believing that he was doing business with Brocklehurst. When he received the bill, he came to know of the change, but
refused to pay as he had a set off with Brocklehurst.
The Court held that Jones cannot be compelled to pay, because he intended the offer for a specific person, that is Brocklehurst.
Without informing Jones of the change, Boulton had no authority to substitute himself to Jones’ disadvantage.
An express offer is one where the offer is made with words either spoken or written.
However, in an implied offer is assumed and not made with words. An example of an implied offer is calling a fire brigade for
their services, as in Upton v. Powell.
In this case, a man called a fire brigade mistakenly assuming it was a free service. The court held that since the man asked for
the services of the fie brigade and the services were provided, there was an implied promise to pay. This case is also a
throwback to the concept of mistake, and in this case since only one party was mistaken, it is not a void contract.
When both parties make an offer to each other, without knowing, it is called a cross offer. If Jack offers Jill to sell his fridge to her
for 11 lakhs, and Jill offers to buy Jack’s fridge for 11 lakhs at the same time, this coincidence is a cross offer. However, this
coincidence is not a valid, because there is no acceptance. For a contract to be valid there has to be an offer and an acceptance
of the offer.
This was held in Tinn v Hoffman, where two parties made similar offers to each other for buying and selling iron, unknowingly.
The court held that since simultaneous acceptance is not valid, the cross offers will not bind the parties.
A counter offer is when an offeree modifies the terms of the original offer. It is a rejection of the original offer. This was said by
the court in Hyde v Wench where Wrench offered to sell a farm to Hyde for 1000 pounds.
Hyde offered to buy it for 950 but Wrench disagreed. After that Hyde agreed to the original offer of 1000 pounds. When Wrench
refused to comply, Hyde sued him. The Court held that since counter offer is a rejection of the original offer, Wrench is not bound
to sell his land, as Hyde did not agree to the original offer.

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Contract Law

 Two or more parties

Offer under Indian Contract Act

Acceptance under Indian Contract Act

Competency of Parties to Contract

Free Consent under Indian Contract Act

Free consent is that which is not caused by:-

 Coercion– Threatening to commit or committing an act forbidden by the Indian Penal

Void, Voidable and Valid Agreements

Offer under Contract Law

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