UNIT

Indian Contract Act 1872

11 Meaning & Definition of Agreement:

Agreement is apromise which results from acceptance of a proposal. An
agreement comes into existence when one party accepts a proposal put forward by
other. Thus agreement is apromise /set of promises is an acoepted proposal.
Section (b) states that "When the person to whom the proposal is made
signifies his assent there to the proposal is said to be accepted.
Aproposal, when accepted, becomes a promise."
As per section 2 (e) "Every promise and every set of promises, forming the
Consideration for each other, is an agreement."
An agreement, therefore, comes into existence only when one party makes a
proposal or offer to the other party and that other party signifies his assent (Le.,
gIves his acceptance) thereto. In short, an agreement is the sum total of 'offer and
acceptance'.
Agreement =Offer + Acceptance

1.2 Meaning & Definition of Contract:

An agreement enforceable by Law is a contract.
 Learn Legal Aspects of
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According to Section 2(h) of the Indian Contact Act. 1872, "A
agreement entorceable by law". A contract therefore, is an agreernent Contract
the
which is to create a legal obligation ie, a duty enforceable by law.
From the above definition, we find that a contract essentially
clenments: consists of te
(1) An agreement and
(2) Legal obligation i.e. a duty enforceable by law.
According to Pollock,
"Every agreement and promise enforceable at law is a contract."
According to Salmond,
"A contract is an agreement creating and
parties." defining obligation between he
According to Halsbury,
"A contract is an agreement
between tWo or
intended to be enforceable by law &is contracted more persons which is
by the acceptance by one
party of an offer made to him by the other party to do or abstain from doite
Some act."

Section 2(h) of the Indian Contract Act, 1872

defines a contract as "An
agreement enforceable by law. "

Offer + Acceptance = Promise

+

Consideration
Agreement
+

Enforceability by Law
Contract
 Indian Contract Act 1872 3

1.3 Difference between Contract & Agreement:

Agreement Contract

An agreement is defined under Sec.2(e) A

Contract is defined under Sec.2(h).

Every promise or sct of promises forming A Contract is an agreement enforceable

consideration for each other is an at law.
agreement.

Its scope is very wide. Its scope is limited.

An agreement and be both legal or Only valid agreement are called as
illegal Contract

An agreement may or may not be A contract is enforceable.

enforceable.

An agreement does not arise out ofa A contract arises out of an agreement.
contract. Therefore, an agreement does Therefore, a contract includes an
not include a contract agreement.

Anagreement has only an offer and its acceptance. It need not have other
essentials. A contract must have all the essentials of a valid contract like
consideration, capacity, free consent.

1.4 Essential Elements of Valid Contract:

In order to become acontract an agreement must have the following essential elements,
they are follows.
1. At least two person: There must be two or nmore persons to make an agreemernt
because one person cannot enter into an agreement with himself.
2. Agreement: As already mentioned, to constitute a contract there must be an
agreemernt. An agreement is composed of two elements - offer and acceptance.
The party making the offer is known as the offeror, the party to whom the
offer is made is known as the offeree. Thus, there are essentially to be two
parties to an agreement. They both must be thinking of the same thing in the
same sense. In other words, there must be consensus-ad-idem.
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Learn Leaa Asoects o

sell car r for Rs. 30 0

&y wishes to
Example: Where 'A' who owns 2ccarsknow thatA owns car 'r also He thir
not the stated prie
"B, an acquaintane of 'A' does offeringto sellthe same for
that 'A' owns onhv car 'v and is cOntract because t
buy the sane. There is no the
He gives his acceptance to ageed on the same thing at same time,
There
ontracting parties have not to buy car
'v.
offering to sell his car ''and B agreing
ad-idem.
step towards creating a contract is h
The tirst
3. P'roposal and acceptance: make proposal or offer tothe other, with isa vew mad
One pesnshall
signitv or person to whom the offer
of that another
Obtaining the aceptane becomesa promise.
A prosalwhen
avpted
When the two parties enter into
relationship: oth
Intention to create legal intention by both parties to legallv bind thenathr
agreemnt. there must be an Thus, agreements of social or household
agement.
as a result ot such
are not contracts. element of contrac
Consideration is the most important
5.
Consideration: price paid by one party for the promie
Consideration has been defined as the
means "something in return" (quid pro quo).
of the other. Consideration for a promise, e.g. a buyer realizes the goc
promise is often made in return goods is consideration. The promise for
for the price. Therefore price for
Consideration.
promise in return is for a lawtul consideration
an
contract only if it is made
Anagreement is a consideration or object of an agreement is unlawu
with a lawful object. The
if
it is forbidden by law; or
would defeat the provisions o
is of such a nature that, if permitted it
any law; or
is fraudulent; or
another; or
involves or implies injury to the person or property of
is immoral; or is opposed to public policy.
unlawtul is void.
Every ageement of which the object or consideration is
6.
must be capab
Capacity of parties (competence): The parties to the agreement everv peson
of entering into a valid contract. According to Section 11,
competent to contract if he or she,
is of the age of majority;
is of sound mind; and
is not disqualified from contracting by any law to which he is subjext.
 Indian Contract Act 1h72

7. I'ree consent: lo onsfitute a valid onta the partise muef

e shit free
And genuine consent 'Consent means that the partie Het ha
the samne thing in the same oense, Mere nent is d nigh 1
be obtained by mnisrepresentation, fraud, tettin, unlue
ahunild tuA
influe ijetnhe
II the agreement is vitiated by any of the first fur fa tuts, th ttnttart wns
be voidable and cannot be enforced by the party guilty f
influence etc. The other party (ie. the aggrieved party) an tw, un
eithr rept he
contract or accept it, subject to the rules laid down in the n If the aypeteth
is induced by mutual mistake which is
aterial to the agreerent, if n t
void
8. Lawful object: For the formation of avalid contract it is al* s at
that
the parties to an agreement must agree for a lawful object, The cbpt fn whuh
the agreement has been entered into must not be fraudulent r illezzl t
immoral or opposed to public policy or must not irnply injury to
the other of the reasons mentioned above the agreetnent is void, thee pTNM H
Thus, wtet
a landlord knowingly lets a house to a prostítute to carry on
cannot recover the rent through a court of law or a contract forprstitutik,
ctnrnitting a
murder is a void contract and unenforceable by law.
9. Writing and registration: A contract may be oral or in writing, If, hrswevet,
the law requires for aparticular contract, it should cormply with all the legzl
formalities as to writing, registration and attestation.
10. Certainty: Section 29 of the contract Act provides that "Agreements, the
meaning of which is not certain or capable of being made certain, are void."
The terms of contract should be clear. In other words the Contract must be
not vague. Contracts which are vague cannot be enforced. Such a contract
can be avoided by showing that there is ambíguity. In such a case there is
nothing which either party can enforce. Illustration. A, agrees to sell B "a
hundred ton of oil" there is nothing whatever to show what kind of oil was
intended. The agreement is void because of uncertainty.
11. Possibility of performance: Contracts based on impossibility of performance
are not valid. Section 56 lays down that "An agreement to do an act irnpos6ible
in itself is void". If the act is impossible in itself, physically or legally, the
agreement cannot be enforced at law. Illustration. A agrees with B, to dicUver
treasure by magic. The agreement is not enforceable.
12, Not expressly declared void: The agreement must not have been expressly
declared to be void under the Act. Por example, an agreernent in restraint of
marriage, an agreement in restraint of trade, and an agreement by way of
wager have been expressly declared void.
 iri Vsty

1.5 Types of Contracts:

Vodable
Valdity

Unenfoeable

Types of (ontiacts lFomatiol lnphed

Ezecnte

PerfornaIce Executor
Uulatetal
Bilkte1al

A. According to Validity:
1. Valid Contract: A contract to constitute a valid contract must have all the
ebHential elements discussed earlier. If one or more of these clements is/are
missing, the contract is voidable, void, illegal or unenforceable.
2. Void Contract: (Section 2()| Acontract which ceases to be enforceable by law
becomes vojd hen it ceaes to be enforceable"
3.
Voidable Contract: An agreement which is enforceable by law at the option
of one or more the parties but not at the option of the other or others is a
voidabl Contract.
4. Wegal Contract: The contract which the law forbids to be made. The cour
willnot enforce such a contract also other connected contracts. Allillegal
agreements void but allvoid agreements or contracts are not necessarily illega
5.
Unenforceable Contract: Where a contract is good in substance but
because of some technical defect ie. abnence in writing, barred by limitation
etc, one or both the parties cannot sue upon it.
indian Contract Act 1872 7

B. According to Formation:
1. Express Contract: Which is made by words wither spokenor written. [Section
9]As the proposal or acceptance of any promise is made in words, the promise
is said to be express.
Example: Awrites a letter to B, Ioffer to sell mycar for Rs. 200000 to you. B
sends a letter to A, Iam ready to buy you car for Rs. 200000. It is an express
contract made in writing.
2. Implied Contract: (Section 9] When a proposal or acceptance is made
otherwise than in words.
3. Quasi Contract: In acontract, a promisor voluntarily undertakes an obligation
in favour of the promisee. When a similar obligation is imposed by law upon
a person for the benefit of another even in the absence of acontract. Such
contracts are the quasi-contracts.

C. On the basis of performance:

1. Executed Contract: If the consideration for the promise in acontract is given
or executed, such contracts are known as contract with executed
consideration.
2. Executory Contract: When the reciprocal promises or obligation which serves
as consideration is to be performed in future.
3. Unilateral Contract: It is a one-sided contract in which only one party has to
perform his promise or obligation to do or forbear.
4. Bilateral Contract: Where the obligation or promise in a contract is outstanding
on the part of both the parties.

1.6 Performance of Contract:

16.1 Meaning of Performarnce of Contract:
Parties to the contract must either perform or offer to perform their
respective promises unless such performance is dispensed with or excused under
the provisions of the Contract Act or of any other law. Promises bind the
representatives of the promisor in case of death of such promisor before
pertormance, unless a contrary intention appears from the contract. So it may
promise made
De concluded that it is necessary for a party who wants to enforce the
to him, to perform his promise for himself or offer to perform his promise. Only after
that he can ask the other party to carry out his promise.