LAB

UNIT-1

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Contract
A contract is an agreement, either written or spoken, between two or more
parties that creates a legal obligation.
The terms of a contract are enforceable by law, with clearly defined
penalties and remedies should the contract be breached. A breach of
contract is a failure, without legal excuse, to perform any parts of the
contract.
A contract is created when there is an offer, consideration, and acceptance
between two or more parties.

Agreement
An agreement is an understanding between parties. That understanding
should take into account the responsibilities and obligations of both parties.
An agreement is not always legally binding however and not always
enforceable. They are sometimes more informal than contracts and may
even be unwritten on many occasions. That being said, an agreement can be
a contract if it has all the elements of a contract which make it enforceable
and legally binding.
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Difference between
Basis Agreement and Contract
Agreement Contract

The meaning of agreement can be understood as an A contract can be defined as an agreement that is enforced by
Meaning
acceptance of an offer given by one party to another. law.

Section 2(e) of the Indian Contract Act, 1872 defines an

Section 2(h) of the Indian Contract Act, 1872 defines a contract
Definition agreement as, “Every promise and every set of promises,
as, “an agreement enforceable through the law.”
forming the consideration for each other, is an agreement.”

Elements Agreement = Offer + Acceptance Contract = Agreement + Enforceable by Law

Written Form The agreement can not necessarily be in written form. A contract is normally written and registered.

Scope An agreement has a wider scope than a contract. A contract has a narrower scope as compared to an agreement.

It involves a higher risk factor because it is not enforceable

Risk A contract is abided by the law, so it ensures a low-risk factor.
by law.

One in Another All agreements cannot be considered a contract. All contracts can be considered an agreement.

Legal Obligation An agreement does not create a legal obligation. Contracts are meant to create a legal obligation.

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Essentials of a Valid Contract
A contract that is not a valid contract will have many problems for the
parties involved. For this reason, we must be fully aware of the
various elements of a valid contract. In other words, here we shall ponder
on all the ramifications of the definition of the contract as provided by The
Indian Contract Act, 1872.
1] Two Parties
A Valid Contract must involve at least two parties identified by the contact.
One of these parties will make the proposal and the other is the party that
shall eventually accept it.
2] Intent Of Legal Obligations
The parties that are subject to a contract must have clear intentions of
creating a legal relationship between them. What this means is those
agreements that are not enforceable by the law e.g. social or domestic
agreements between relatives or neighbors are not enforceable in a court of
law and thus any such agreement can’t become a valid contract.

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4]Certainty of Meaning
Consider this statement “I agree to pay Mr. X a desirable amount for his
house at so and so location”. Is this a valid contract even if all the parties
agree to this term? Of course, it can’t be as “desirable amount” is not well
defined and has no certainty of meaning. Thus we say that a valid contract
must have certainty of Meaning.

5] Possibility Of Performance Of an Agreement

Suppose two people decide to get into an agreement where a person A
agrees to bring back the person B’s dead relative back to life. Even when all
the parties agree and all other conditions of a contract are satisfied, this is
not valid because bringing someone back from the dead is an impossible
task. Thus the agreement is not possible to be enforced and the contract is
not valid.

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6] Free Consent
Consent is crucial for an agreement and thus for a valid contract. If two
people reach a similar agreement in the same sense, they are said to
consent to the promise. However, for a valid contract, we must
have free consent which means that the two parties must have reached
consent without either of them being influenced, coerced,
misrepresented or tricked into it.

7] Competency Of the Parties

Section 11 of the Indian Contract Act, 1872 is:
“Who are competent to contract — Every person is competent to
contract who is (1) of the age of majority according to the law to which
he is subject, and who is (2) of sound mind and is (3) not disqualified
from contracting by any law to which he is subject.”

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8] Consideration
Quid Pro Quo means ‘something in return’ which means that the parties
must accrue in the form of some profit, rights, interest, etc. or seem to
have some form of valuable “consideration”.
For example, if you decide to sell your watch for Rs. 500 to your friend,
then your promise to give the rights to the watch to your friend is a
consideration for your friend. Also, your friend’s promise to pay Rs. 500
is a consideration for you.

9] Lawful Consideration
In Section 23 of the Act, the unlawful considerations are defined as all
those which:
it is forbidden by law.
is of such a nature that, if permitted, it would defeat the provisions of any
law, or is fraudulent.
involves or implies, injury to the person or property of another
the Court regards it as immoral or opposed to public policy

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Types of Contracts On The Basis Of Validity
Indian Contract Act, 1872 discusses the voidable contracts and void agreements. On the
basis of validity or enforceability, we have five different types of contracts as given below.
Valid Contracts
The Valid Contract as discussed in the topic on “Essentials of a Contract” is an agreement
that is legally binding and enforceable. It must qualify all the essentials of a contract.

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Void Contract Or Agreement
The section 2(j) of the Act defines a void contract as “A contract which
ceases to be enforceable by law becomes void when it ceases to be
enforceable”. This makes all those contracts that are not enforceable by a
court of law as void.
Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan
of Rs. 8,000. A dies of natural causes in 4 years. The contract is no longer
valid and becomes void due to the non-enforceability of the agreed terms.
Voidable Contract
These types of Contracts are defined in section 2(i) of the Act: “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 other or others, is
a voidable contract.”
Suppose a person A agrees to pay a sum of Rs. 10,0000 to a person B
for an antique chair. This contract would be valid, the only problem
is that person B is a minor and can’t legally enter a contract.

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Illegal Contract
An agreement that leads to one or all the parties breaking a law or not
conforming to the norms of the society is deemed to be illegal by the court.
A contract opposed to public policy is also illegal.
The illegal contracts are deemed as void and not enforceable by law. As
section 2(g) of the Act states: “An agreement not enforceable by law is said
to be void.”

Unenforceable Contracts
Unenforceable contracts are rendered unenforceable by law due to
some technical. The contract can’t be enforced against any of the
two parties.
For example, A agrees to sell to B 100kgs of rice for 10,000/-. But
there was a huge flood in the states and all the rice crops were
destroyed. Now, this contract is unenforceable and can not be
enforced against either party.

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Types of Contract on the basis of formation
A contract is classified on the basis of the following:
On the Basis of Formation
Express Contract
Implied Contract
Quasi Contract
E-Contract

Express Contract
A contract is said to be “Express” if the proposal or acceptance of any
promise is made in words, be it in the written or oral form. The provision is
subject to the condition that the offer so made gains the acceptance of the
acceptor.

Implied Contract
An implied contract is in stark contrast to an express contract, i.e. it isn’t
expressed in written or oral form.
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Quasi Contract
Quasi Contracts, unlike others, hold no contractual relations between the
partners but are created by virtue of law. The court may form a Quasi-
Contract under any of the following circumstances:
Upon the supply of essentials
Where the expenses of one person are met by another.
Where one party gains by the activity of another.
In the case of the finder of lost tools.
Upon mistaken payments/supply of goods

E-Contract
Electronic, Cyber or Electronic Data Interchange contracts are formed by
electronic means. The means and devices that aid in such formation
include email, telephone, digital signatures, and the likes of it. The
contractual terms here are listed by electronic means or implied by the
actions of the users.

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Tacit Contract
A tacit contract is an agreement or understanding between two parties that
is not explicitly stated in writing or verbally expressed. Rather, it is implied
or understood through the actions or behaviour of the parties involved.

For example, when you enter a store and pick up a product, there is an
implicit understanding that you will pay for it at the checkout counter.
Similarly, when you work for an employer and receive regular paychecks,
there is an unspoken agreement that you will perform your job duties in
exchange for compensation.

Tacit contracts can be legally binding and enforceable in certain situations,

particularly if there is a history of behaviour or practices that suggest an
agreement between the parties. However, they can also be more difficult to
prove or enforce compared to explicit contracts that have clear terms and
conditions.
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Types of Contract – Based on Performance
There are various types of contract, one such type are contacts based on
their performance. The basis for this type is whether the contract is
performed or still to be performed. Accordingly, the two types are known
as executed contracts and executory contracts.

• Executed Contract
A contract between two or more parties is said to be executed when
the act or forbearance promised in the contract has been performed
by one, both or all parties. Basically, it means that whatever the
contract stipulated, has been carried out. Thus the contract has been
executed.
Let us see an example of an executed contract. Alex goes to the local
coffee shop and buys a cup of coffee. The barista sells her the coffee
in exchange for the cash payment. So it can be said that this is an
executed contract. Both parties have done their part of what the
contract stipulates.
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Executory Contracts
In an executory contract, the consideration is either the promise of
performance or an obligation. In such contracts, the consideration can only
be performed sometime in the future, hence the name executory contract.
Here the promises of consideration simply cannot be performed
immediately.
The best example of an executory contract is that of a lease. All the
conditions of a lease cannot be fulfilled immediately. They are performed
over time. Similarly, say Alex decides to tutor some students in Physics.
They pay her Rs 2500/- at the start of the month. But here the contract isn’t
executed since Alex has to still carry out her promise. So such a contract is
an executory contract.

Unilateral Contracts
As the name suggests these are one-sided contracts. It usually comes
into existence when only one party makes a promise, which is open
and available to anyone who wishes to or can fulfil the said promise.
The contract will only be fulfilled once someone fulfils the promise.
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Let us see an example. Alex lost his bag pack on the metro. So he decided to
announce a reward of Rs 1000/- to anyone who finds and returns his bag
with all its contents. Here the is only one party to the contract, namely Alex.
If someone finds and returns his bag he is obligated to pay the reward. This
is a unilateral contract.

Bilateral Contracts
By contrast, a bilateral contract is one that has two parties. It is a traditional
type of contract most commonly known and occurring. Here both parties
agree to the terms of the agreement and thus enter into a contract. Hence it is
also known as a reciprocal contract
In bilateral contracts, both parties have usually agreed to a time frame to
carry out the said contract. Say for example the contract of sale of a house.
The buyer pays a down payment and agrees to pay the balance at a future
date. The seller gives possession of the house to the buyer and agrees to
deliver the title against the specified sale price. This is a bilateral contract.

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Proposal or offer

The entire process of entering into a contract begins with the

proposal or an offer made by one party to another. The proposal
must be accepted to enter into an agreement.

According to the Indian Contract Act 1872, proposal is defined in

Section 2(a) as “when one person will signify to another person his
willingness to do or not do something (abstain) with a view to obtain
the assent of such person to such an act or abstinence, he is said to
make a proposal or an offer.”

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Features of a valid offer

• The person making the offer/proposal is referred to as the “promiser”

or the “offeror”. And the person who accepts an offer is referred to as
“promisee” or the “acceptor”.

• The offeror must express his willingness to do or abstain from doing

an act. Only willingness is not adequate. Or just an urge to do
something or not to do anything will not be an offer.

• An offer can either be positive or negative. It can be a promise to do

some act, and can also be a promise to abstain from doing any
act/service. Both are valid offers.

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Element of a valid offer
Here are some essentials which make the offer valid

• There must be two parties

There have to be at least two parties a person making the proposal and the
other person agreeing to it. All the persons are included i.e, Legal persons
as well as artificial persons.

• Every proposal must be communicated

Communication of the proposal is mandatory. An offer is valid if it is
conveyed to the offeree. The communication can either be express or
implied. It can be communicated by terms such as word of mouth,
messenger, telegram, etc. Section 4 of the Indian Contract Act says that the
communication of a proposal is complete when it comes to the awareness
of the person to whom it is made.
Example
‘A’ proposes, to sell a car to ‘B’ at a certain price. Once ‘B’ receives the
letter, the proposal communication is complete.
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• It must create Legal Relations
An offer must be such that when accepted it will result in a valid contract. A
mere social invitation cannot be regarded as an offer, because if such an
invitation is accepted it will not give rise to any legal relationship.
Example
‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social
invitation. And ‘A’ will not be liable if he fails to provide dinner to B.

• It must be certain and definite

The terms of the offer must be certain and clear in order to create a valid
contract, it must not be ambiguous.

• It may be specific or general

The specific offer is an offer that is accepted by any specific or particular
person or by any group to whom it is made. Whereas, The general offers are
accepted by any person.

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Classification of offer
Some types of offers can be based on the design, timing, purpose, etc. Let
us look at the offer’s classification.

Express Offer
An offer may be made by express words, spoken or written. This is known
as Express offer.
Example
When ‘A’ says to ‘B’, “will you purchase my car for Rs 2,00,000”?

Implied Offer
An offer may be derived from the actions or circumstances of the parties.
This is known as Implied offer.
Example
There is an implied offer by the transport company to carry passengers for a
certain fare when a transport company operates a bus on a particular route.

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General Offer
A general offer is not made by any specified party. It is one that is made
by the public at large. Any member of the public can, therefore, accept
the offer and have the right to the rewards/consideration.
Example
‘A’ advertises in the newspaper that whosoever finds his missing son
would be rewarded with 2 lakh. ‘B’ reads it and after finding the boy, he
calls ‘A’ to inform about his missing son. Now ‘A’ is entitled to pay 2
lakh to ‘B’ for his reward.

Specific Offer
It is the offer made to a specific person or group of persons and can be
accepted by the same, not anyone else.
Example
‘A’ offers to sell his house to ‘B’. Thus, a specific offer is made to a
specific person, and only ‘B’ can accept the offer.

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Cross offer
Two parties make a cross-offer under certain circumstances. It means
that both make the same offer at the exact time to each other. However,
in either case, the cross-offer will not amount to accepting the offer.
Example
‘A’ and ‘B’ both send letters to each other offering to sell and buy B’s
house at the same time. This is the cross offer made where one party
needs to accept the offer of another.

Counter-offer
A counter-offer is an answer given to an initial offer. A counter-offer
means that the original offer has been refused and replaced by another.
The counteroffer offers three choices to the original offerer; accept,
refuse, or make another offer.

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Lapses and revocation of an offer

• An offer lapses after a defined or reasonable time.

• An offer lapse by not being accepted in the specified mode

• An offer lapses by rejection.

• An offer lapses by the offeror or the offeror’s death or insanity

until acceptance.

• An offer lapses by revocation before acceptance.

• An offer lapses by subsequent illegality or destruction of the

subject matter.

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ACCEPTANCE
The Indian Contract Act 1872 defines acceptance in Section 2 (b) as
“When the person to whom the proposal is made signifies his assent
thereto, the offer is said to be accepted. Thus the proposal when
accepted becomes a promise.” An offer can be revoked before it is
accepted.

As specified in the definition, if the offer is accepted unconditionally

by the offeree to whom the request is made, it will amount to
acceptance. When the offer is accepted it becomes a promise.

Example
‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an
offer. Now, it has become a promise.

When an offer is accepted and it becomes promise it also becomes

irrevocable. No legal obligationRahul
created
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Types of Acceptance

• Expressed Acceptance
If the acceptance is written or oral, it becomes an Expressed Acceptance.
Example
‘A’ offers to sell his phone to ‘B’ over an email. ‘B’ respond to that email saying
he accepts the offer to buy.

• Implied Acceptance
If the acceptance is shown by conduct, It thus becomes an Implied acceptance.
Example
The Arts Museum holds an auction to sell a historical book to collect charity
funds. In the media, they advertise the same. This says that a Mere Invitation to an
Offer as per Indian Contract Act, 1872.

The invitees offer for the same. Offer is expressed orally, so the offer to buy is an
Express Offer, but by striking the hammer thrice the final call is made by the
auctioneer. This is called Implied Acceptance.

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Conditional Acceptance

A conditional acceptance also referred to as an eligible

acceptance, occurs when a person to whom an offer has been
made tells the offeror that he or she is willing to accept the offer
provided that certain changes are made to the condition of the
offer. This form of acceptance operates as a counter-offer. The
original offeror must consider a counter-offer before a contract
can be established between the parties.

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Legal Rules and Conditions for Acceptance

• Acceptance must be absolute and unqualified

The offeree’s approval cannot be conditional.For example, ‘A’
wants to sell her car to ‘B’ for Rs 2 lakh, ‘B’ can’t come back and
says that she accepts the offer but will buy the same for Rs. 1 lakh.

• Acceptance must be told to the offeror

If the acceptor just accepts the offer in his head and he does not
mention the same to the offeror, it can not be called an Acceptance,
whether in an express manner or an implied manner.

• Acceptance must be recommended in the following mode

Acceptance is sometimes required in a prescribed/specified
communication mode.
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In a reasonable amount of time, the acceptance is given
It’s very rare that an offer is always to get acceptance at any time and at
all times. Therefore, the offer defines a time limit. If it does not, it
should not be acknowledged forever.

Mere silence is not acceptance

If the offeree fails to respond to an offer made to him, his silence can
not be confused with acceptance. But, there is an exception to this rule.
It is stated that, within 3 weeks of the date on which the offer is made,
the non-acceptance shall be communicated to the offeror. Otherwise,
the silence shall be communicated as acceptance.

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When communication is complete?

Communication of acceptance (Section 4)

Communication of acceptance is complete when it is put in the course
of transmission to him as to be out of the power of the acceptor to
withdraw the same and when it comes to the knowledge of the
proposer.

Time of revocation of acceptance

An acceptance may be revoked at any time, but not afterward, before
the communication of the acceptance is complete as against the
acceptor.

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