Unit-1: Nature of Contracts

• In ancient medieval time, there was no specific law for contracts, so different sources of Hindu law like Vedas, Dharmashastras, Smritis, and Shastras were referred to
• During the period of Mauryas, contracts were in the form of "unilateral transactions"
• During the Mughal rule in India, contracts were governed by Mohammedan Law
• Proposal and Acceptance


  Ijab and Qabul were used
• During the British period, before the advent of the Indian Contract Act, the English law was applied under the Charter issued by King George to the East India Company in 1726
• Contract


  An agreement enforceable by law
• Agreement


  Promise + Consideration
• Promise


  When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted
• Essentials of a Valid Contract

  • Two Parties - Offer & Acceptance
  • Intention to create legal relationship
  • Legal formalities
  • Certainty of meaning
  • Possibility of performance
  • Free Consent
  • Competent parties
  • Consideration
  • Lawful object
  • Agreement not void
• Consent is said to be not free when it is induced by coercion, undue influence, fraud, misrepresentation or mistake
• In such cases, the contract becomes voidable at the option of the party whose consent is not free
• Every person is competent to contract provided they are of the age of majority, of sound mind, and not disqualified from contracting by any law
• Consideration means an advantage or benefit moving from one party to the other
• The object of the agreement must be lawful, i.e. not illegal, immoral or opposed to public policy
• An illegal agreement is an agreement expressly prohibited by law
• An agreement can be made orally or in writing.
• Types of Contracts


  • Valid contracts
  • Void contracts
  • Voidable contracts
  • Illegal agreements
  • Unenforceable contracts
  • Express contract
  • Implied contract
  • Quasi-contract
  • E-contracts
  • Executed contract
  • Executory contract
  • Unilateral contract
  • Bilateral contract
• Valid Contract


  Contains all the essential elements
• Void contract (sec 2(j))


  A contract which ceases to be enforceable by law
• Void contract


  • Agreement without consideration
  • Unlawful consideration
• Voidable Contract [see 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 others
• When a Voidable Contract becomes voidable


  • When the consent of a party is not free due to coercion, undue influence, misrepresentation or fraud
  • When a person promises to do something for another person, but the other person prevents them from performing their promise
  • When a promise to perform a work within a specified time cannot be performed within that time
• Illegal agreements


  Contracts which are forbidden by laws
• Illegal agreements


  • Contracts that are immoral or opposed to public policy
  • Contracts to commit a crime
• Unenforceable Contract


  A contract which is good in substance but cannot be sued upon due to some technical defect
• Unenforceable Contracts


  • Unsigned cheque
• Express Contract


  Contract formed by spoken or written words
• Implied Contract


  Contract formed where the proposal or acceptance is other than in words
• Quasi-contracts


  Contracts not created by words spoken or written, but created by law under certain circumstances
• 1. E-contracts

  Contracts entered into by two or more parties using electronic means, such as emails, e-commerce, EDI, mouse/cyber/click contracts
• Executed contract


  Both parties have performed their respective obligations
• Executory contract


  Both parties have yet to perform their obligations
• Unilateral contract


  Only one party has fulfilled its obligation
• Bilateral contract


  Both parties have to perform
• Proposal


  A person's willingness to do or abstain from doing anything with a view to obtaining the assent of another to such act or abstinence
• Offer


  The expression of the willingness of the party making it, 'to do' or 'not to do' something
• Parties to a contract

  • Promisor/Offerer - The person making the proposal or offer
  • Promisee/Offeree - The person to whom the offer is made
  • Acceptor - The person accepting the offer
• Types of offer


  • General offer - Offer made to the world at large
  • Specific offer - Offer made to a definite person
  • Cross offer - Identical offers made by two parties to each other
  • Counter offer - Conditional acceptance modifying the original offer
  • Standing/Continuing/Open offer - Offer to the public for acceptance for a certain time
• Essentials of a valid offer

  • Must be capable of creating legal relations
  • Must be certain, definite and not vague or indefinite
  • Must be communicated to the person to whom it is made
  • Must be made with a view to obtaining the consent/assent of the offeree
  • May be conditional but the offeree must accept all the terms
  • Should not contain a term the non-compliance of which is a condition precedent to acceptance
  • May be specific or general
  • May be express or implied
• Offer must be distinguished from a statement of intention, an invitation to offer, a mere communication of information, a prospectus and an advertisement