Unit I : The Indian Contract

Act

Chapter 1
introduction to Law &
Establishing Contractual Relationship

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Introduction to LAW

Ignorance of Law is no excuse

Concept of Law:
• Statute- A law enacted by a legislative body
• Rule- very specific and restricted application of law, e.g., judgment
of the court which is also called ruling.
• Regulation- Prescription by authority to control an organization,
e.g., SEBI is a statutory body to regulate securities on the stock
exchange.
• Canon- normally in religious context; however, in legal terms, it
refers to a principle of law which the court interpret.

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Introduction to LAW

Famous Definitions of the concept of law:

Thinkers Definition Remarks

Manu ( c. 1500 BCE), the Hindu Dharmashashtra- the sacred law of duty. Religious
law giver
Bible The reveled laws of god in the sacred Religious
scripture are to be obeyed as divine
commands.
Sharia The law as endowed by Allah Himself Religious
through His prophet Mohammad
Aristotle (384- 324 BCE) The law is natural justice. Natural

Immanuel Kant (1724- 18) Its duty to seek universal justice. Idealistic

John Austin ( 1797- 1859) Command of the sovereign Positivistic

Ehrlich Norms to govern social life Sociological

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Introduction to LAW

Scope of Law:
• There is law about everything: births, deaths, taxes, marriage,
divorce, business, crime, rights & duties, and so on.
• The scope or the context of law is society.
• Law is an instrument devised by society to manage its affairs and
administer justice.
Classification of Law
Structure of judiciary in India
Business Law

• Business law is that portion of the legal system which guarantees an

orderly conduct of business affairs and the settlement of legitimate
disputes in a just manner.
• Business law establishes a set of rules and prescribes conduct that
enables us to avoid misunderstanding and injury in our business
relationship.
Sources of Business Law: constitution, Legislation/ statute, custom,
case law/ common law, natural law, English law, ordinances,
administrative law, Dharma.
The Indian Contract Act-1872

• The Indian Contract Act came into force on the first day of September
1872. prior to this there was an English Common Law which applied
to Indians indiscriminately.
• The main objective of the Contract Act is to ensure that the rights
and obligations are honored, that the expectations created by the
promises of parties to an agreement are fulfilled.
• Every agreement and promise enforceable at law is contract.

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Contract: Inseparable Part of One’s Life

You………….
Buy groceries
Board a train
Hire a cab
Consult a doctor or solicitor
Give any household gadget for repair
Ever realised!
In each of the above and numerous such situations you enter into a
contractual obligation.
 Contract Defined Under The Act

An agreement enforceable by law is a contract.

[Section 2(h)]

Agreement: Every promise and every set of promises, forming the consideration for
each other.
A proposal (offer) when accepted becomes a promise.
Thus, a promise implies an accepted proposal.
Mutuality is the very base of an agreement.
Legal obligation: To become a contract, an agreement must be enforceable by law.
Forming a Contract: Essential Steps

1. A contract, essentially , is an agreement.

2. An agreement is a set of two promises, one flowing from the offeror and the
other from the offeror’s counterpart, i.e., acceptor.
3. A promise is an accepted offer or proposal.
4. An offer is a promise of performance, which is, however, contingent upon a
return promise or an act of forbearance being received in exchange of it.

Offer → Acceptance → Promise → Agreement → Contract

Contract vs. Agreement
Elements: An agreement consists of an offer and its
subsequent acceptance, whereas a contract is
composed of an agreement and its legal enforceability.
Essence of a legal relationship: An agreement may not
create legal relationship. Parties entering into a contract
essentially have a common intention of entering into
legal obligation.
Scope: All agreements may not be contracts but all
contracts are primarily agreements.
Enforceability by law: A contract is legally enforceable,
whereas an agreement is not necessarily so.
Essential Elements of Establishing a Valid
Contract

• Agreement
• Intention to create legal relations
• Legitimate consideration
• Capacity of parties
• Genuineness of consent
• Lawful object
• Certainty
• Possibility of performance
• Agreements not expressly declared void
Types of Contracts

Valid contracts, void contracts, and voidable

contracts

Unenforceable contracts and illegal contacts

Executed contracts and executory contracts

Express contracts and implied contracts

Unilateral contracts and bilateral contracts

Quasi contracts
Void vs. Voidable Contract
S. Point of Void contract Voidable contract
No. difference

1 Definition A contract, which ceases to be enforceable by A voidable contract is an agreement which is

law, becomes void when it ceases to be enforceable by law at the option of one or more of

enforceable. the parties thereto.

2 Nature & A void contract is valid and binding upon the A voidable contract is repudiatble at the option of
validity
parties when entered into, but subsequent to the aggrieved party. It remains a valid contract until

its formation, it becomes unenforceable due it is set aside or rescinded by the party entitled to

to certain reasons. do so.

3. Factors A valid contract may become void due to Coercion, undue influence, error, fraud,
responsible
supervening impossibility; change of law etc. misrepresentation are the main factors responsible

for rendering a contract voidable.

4 Enforceability It cannot be enforced by either party.

It may be enforced or set aside at the option of the

aggrieved party.
5. Relationship A void contract under no When a voidable contract is rejected by the

circumstances results in a voidable aggrieved party it results in a void contract.

contract.

6. Rights of third party A void contract confers no rights or Rights acquired under voidable contract by an

legal remedies to the third party. innocent third party are not wiped out by such

subsequent avoidance of the contract.

7. Compensation In case of void contract question of In case of voidable contract, the party rescinding

compensation or damages does not the contract can also claim damages.

arise on the non-performance of such

contract.

8. Effect of lapse of time Lapse of reasonable time does not If a voidable contract is not rescinded by the

render a void contract enforceable. It aggrieved party within reasonable time it may

always remains void i.e., become enforceable at the option of the other

unenforceable. party (i.e, who induced the contract).

 Offer and Acceptance

A contract is an agreement which is reducible to an offer by

one party and its valid acceptance by the other.
 Defining an Offer

An offer is a medium through which a person expresses his intention to enter into a
contractual obligation against a promise or an act of forbearance.
When one person signifies to another person his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to such an act of
abstinence, he is said to have made a proposal. [Section
2(a)]
Three Properties of an offer

Expression of readiness ‘to do’ or ‘not

to do’ something. Thus, an offer may
involve a positive act or forbearance.

Presence of second party. An offer by

a person to himself will ne a nullity.

Intention of obtaining a response. It is

made with the intention that the other
person accepts it. Mere expression of
willingness will constitute no offer.
Characteristics of a Valid
Offer
Must intend to create and be capable of
creating legal obligations

Its terms must be certain

Must be made to obtain the assent of the

other party

Must be communicated

May be conditional

Must be distinguished from a query

Firm Offer vs. Invitation to
Treat
Examples of Invitations to Treat

Auctions
Display of goods for sale
in shelf
An invitation for tenders
Red herring prospectus

General advertisement
of goods
Termination of Offer

Revocation/withdrawal/cancellation of offer
before the offeree accepts it

Failure to fulfil a condition precedent to

acceptance

Death or insanity of either party

Refusal or counter-offer

Acceptance differs from the prescribed one

Subsequent illegality or destruction of subject

matter
 Acceptance

An acceptance is a manifestation of assent to the terms of

the offer.
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. [Section
2(b)]
Acceptance to an offer is what a lighted match to is to a train
of gunpowder.
Thus, an offer becomes irrevocable upon its acceptance.
 Legal Rules Leading a Valid
Acceptance
• Must be made by the offeree
• Must be unconditional
• Must be communicated to the offeror
• May be in any form, oral or written
• Must be in the mode prescribed by the offeror
• Must be given within a reasonable time, if no time limit is set
• Must be given while the offer is in force