NATURE OF CONTRACTS

(MEANING OF CERTAIN TERMS)

Proposal When one person signifies to
(i.e., offer)another his willingness
to do or to abstain from doing
[Sec. 2(a)]
anything,
with a view to obtaining the
assent of that either to such act; or
Abstinence,
he is said to make a
proposal(i.e. offer)

Promise
[Sec. 2(b)]

Agreemen
t
[Sec. 2(e)]

When the person to whom

the proposal is made,
signifies his assent thereto,
the proposal is said to be
accepted.
A Proposal, when accepted,
becomes a promise.
Every promise and every
set of promises, forming
consideration for each other,
is an agreement.

Contract
[Sec. 2(h)]

Promisor
and
Promisee
[Sec. 2(c)]

An agreement enforceable by
law is a contract.

When the proposal is

accepted, the person making the proposal
is called a promisor; and
the person accepting the
proposal is called as
promisee.

Considerati
on
[Sec.
2(d)]

When, at the desire of the

promisor,
the promisee or any other
person has done or abstained from
doing something; or
does or abstains from doing
something; or
Promises to do or abstain from
doing something,
such act, abstinence or
promise is called a consideration
for the promise.

 Following are the two basic

Basic
Elements
of a
Contract

elements of a contract:
a)There must be an agreement
b)The agreement must be
enforceable by law.
In other words,
Contract = Agreement
+
Enforceability of
Agreement

What There must be an agreement

Agreeme between the parties
The parties must have an
nts
intention to create legal
are
contracts relations
The parties must freely
?
consent to enter into the
(Sec.
agreement
10)
The parties must be
competent to contract
There must be consideration

What
Agreeme
nts
are
contracts
?
(Sec.
10)

The consideration must be lawful

The object of the agreement must

be lawful
The agreement is not expressly
declared to be void
The legal formalities of entering
into such a contract are
completed
It is possible to perform the
agreement
The terms of the agreement are
certain or are capable of being
made certain.

Case
Father promised to pay his son a sum of Rs. One lakh

if the son passed Bank PO Exam in the first attempt.

The son passed the examination in the first attempt,
but father failed to pay the amount as promised. Son
files a suit for recovery of the amount. State along
with reasons whether son can recover the amount
under the Indian Contract Act, 1872.
Solution:There is no contract between the father and son
because there is no intention to create legal relations,
as it is a domestic or social agreement;
Since the father does not receive any consideration.

DISTINCTION BETWEEN AN AGREEMENT

AND A CONTRACT
Agreement

Agreement = offer
+ acceptance

Contract

Contract =
agreement +
enforceability

An agreement does
not create a legal A contract
necessarily creates
obligation.
legal obligations

DISTINCTION BETWEEN AN AGREEMENT

AND A CONTRACT
Agreement

The term
agreement is wider
than contract.
Every agreement is
not a contract, i.e.,
an unenforceable
agreement is not a
contract

Contract

Every contract
is an
Agreement.

AGREEMENT TO DO IMPOSSIBLE ACT

Agreement
to do
an
impossible
act

If - an agreement is made to
do
a particular act;
- at the time of making of
agreement, it is certain
that
such an act is impossible;
Then - the agreement is void.

AGREEMENT TO DO IMPOSSIBLE ACT

Agreement to
do
An act which
Subsequently
Becomes
Impossible

If - a contract is made to do a
particular act;
at the time of making of
contract,
such an act is not impossible;
after the contract is made,
such
an act becomes impossible
Then - the contract has become
void.

AGREEMENT TO DO IMPOSSIBLE ACT

Agreement to
do
an act known
to
be impossible
or
unlawful

If - one person promises to do a

particular act;
at the time of making such promise,
he knows that such an act is impossible
or unlawful;
the person to whom such promise is
made did not know that such an act is
impossible or unlawful;
Then - the promisor must make
compensation for any loss which
the promisee has sustained due
to non-performance of the
promise.

ILLUSTRATIVE CASES
Situations
A agrees with B to discover
treasure by magic.
A and B contract to marry each
Other. Before the time fixed for
the
Marriage, A becomes Mad.
A contracts to marry B, being
already
Married to C, and being forbidden
By the law to which he is subject
to
Practice polygamy.

Results
The agreement is void.

The contract has become

void.
The agreement is void. A
must
make compensation to B
for
the loss caused to her by
non-performance of his
Promise.

ILLUSTRATIVE CASES
Situations

Results

A contract to take in cargo for B

at an
American port. As Government
Afterwards declares war against
America.

The contract has become

void

A contracts to act at a theatre

for 6
Months in a consideration of a
sum
paid in advance by B. On
several
occasions A is too ill to act.

The contract to act on

such
occasions, on which A is
Unable to act because he
is ill,
becomes void.

AGREEMENTS VOID FOR

UNCERTAINITY
An agreement is void, if the meaning
of such
Agreement is
not certain; or
not capable of being made certain.

ILLUSTRATIVE CASES
Situations

A agrees to sell B a
hundred tons of Oil

Results

The agreement is void

for uncertainty since
the description of oil
is not
specified.

A agrees to sell B 100 There is no uncertainty

tons of Kerosene Oil
and therefore the
at the rate of Rs. 15
agreement is not
per litre
void.

ILLUSTRATIVE CASES
Situations

Mr. A, who is a
dealer in coconut
oil only, agrees to
sell to B 100 tons
of
Oil at the rate of
Rs. 300 per Litre

Results

The nature of As
trade implies that
A Intends to sell
100 tons of
coconut oil. So,
there is no
uncertainty.

ILLUSTRATIVE CASES
Situations

A agrees to sell to B all

the grain in his
Granary at Laxmi
Nagar at the rate of
Rs. 15 per Kg

A agrees to sell to B his

white horse for Rs.
500 or Rs. 1,000

Results

There is no uncertainty
since it is Possible to
determine the quantity
of grain lying at Bs
granary at Laxmi Nagar.
There is nothing to show
which of the two prices
was to be given.
Therefore, the
agreement is void.

CLASSIFICATION OF CONTRACTS
(On the basis of Creation)
Express
Contract

Implied
Contract

A contract made by words

spoken or Written.
A contract inferred by
the conduct of a person;
or
the circumstances of the
case.

CLASSIFICATION OF CONTRACTS
(On the basis of AExecution)
contract in which both the
Executed
Contract

parties
have fulfilled their obligations
under
the contract.

Executory
Contract

A contract in which both the

parties
have still to fulfill their obligations

A contract in which one of the

Partly executed parties has fulfilled his obligation
and Partly
but the other party is yet to fulfill
executory
his obligation.

CLASSIFICATION OF CONTRACTS
(On the basis of An
Enforceability)
agreement which satisfies
Valid Contract

Void Contract

Void
Agreement

all the
requirements prescribed by
law.

A contract which ceases to be

enforceable by law becomes
void when it ceases to be
enforceable
An agreement not
enforceable by law is said to
be void.

CLASSIFICATION OF CONTRACTS
(On the basis of An
Enforceability)
agreement is a voidable
Voidable
contract if It is enforceable
Contract
by law at the option of one
party,
It is not enforceable by
law at the option of the
other party.
Illegal
Agreement

An agreement the object of

which is
Unlawful.