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âLaw Masterâs Publicationâ
âIntroduction to Contractâ
Prof. Santosh D. Bhosale
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INTRODUCTION TO CONTRACT
Question Bank.
Q.1. What agreements are contracts according to the Law of Contract in India?
Q.2. âAll contracts are agreements, but all agreements are not contractsâ Explain
Q.3. What are all essential elements of a valid contract?
Table of Contents
I. Introduction:- ------------------------------------------------------------------------------------2
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âLaw Masterâs Publicationâ
âIntroduction to Contractâ
Prof. Santosh D. Bhosale
I.
Introduction:-
From dawn to dusk, every man has to enter into one or the other form of contract,
from buying toothpaste to nightdress. Manâs contract-making activities increase with the
increase in trade, commerce, and industry. In this way, living in modern society is
impossible if the law does not recognise the contract-making power of a person. âContractâ
is the most usual method of defining the âgive and takeâ rights and duties in a business
transaction. The contract is the matter left greatly to an individualâs agreement. Law
exercises the least control over a personâs agreement and contract-making capacity. The
law of Contract is different from all other branches of law. It does not prescribe so many
rights and duties which the law protects or enforces; rather, it contains several limiting
principles subject to which the parties may create rights and duties for themselves. In this
sense, the parties to the contract are the makers of the law for themselves.
Indian Contract Act, 1872, from Ss. 1 to 75 (i.e. General Contract), lays down the
minimum requirements of the contract. These requirements are general in that they apply
to all contracts, including contracts mentioned under special contracts like Partnership.,
Sale of Goods, Agency, Bailment etc.
In part 1 of the Indian Contract Act from Ss. 1 to S. 75, we will discuss the general
principles of contract formation, such as proposal, acceptance, competency of parties,
consideration, free consent, lawful object, etc., which apply to all forms of contracts.
II.
Historical Background of the Act: Introduction of English Law into India:-
The Regulating Act of 1773 and the Charter of 1774 were silent as to the law of
contracts, which the Supreme Court was to apply to Indians. Consequently, S.17 of the Act
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âLaw Masterâs Publicationâ
âIntroduction to Contractâ
Prof. Santosh D. Bhosale
of Settlement, 1781 directed that questions of inheritance and succession, and all matters
of contract and dealings between the parties should be determined, in the case of
Mohammedans and Hindus by their respective personal laws, and where only one of the
parties should be a Mohammedan or Hindu, by the laws and usages of the defendant. This
system continued up to the enactment of the Indian Contract Act of 1872 (hereinafter called
âthe Actâ). The Act applies to the whole of India except the state of Jammu and Kashmir.
III.
What is a Contract?
S. 2 (h) of the Act defines the term âcontractâ. It provides that âan agreement
enforceable by law is a contract.â.
Thus, from the above definition, for the formation of a contract, there must be:-
A)
B)
An agreement, and
Such an agreement should be enforceable by law.
A)
An Agreement:-
An agreement is nothing but a meeting of minds (consences ad- idem). An
agreement is defined by S. 2 (e) as âevery promise and set of promises forming the
consideration for each otherâ. Thus, a promise and set of promises wherein a provision of
consideration is made to each other are called an agreement. In other words, in agreement,
there is a promise from both sides. E.g. A promises to sell his house to B. In return, B
promises to pay ten lakh rupees; it is said to be an agreement between A and B.
It is important to know the meaning of âpromiseâ. The latter part of S. 2 (b) defines
âPromiseâ as a âproposal when accepted becomes a promiseâ.
Thus, a contract is an agreement; an agreement is a promise, and a promise is an
accepted proposal. Therefore, we may put it in the form of an equation as-
Proposal + Acceptance = Promise (Set of promises) = Agreement.
1)
Proposal:-
S. 2 (a) defines proposal as âwhen one person signifies to another his willingness to
do or to abstain from doing anything, to obtain the assent of the other to such act or,
abstinence, he is said to make a proposalâ, e.g. A says to B that he wants to sell his house
for twenty lakh rupees. Here, A is said to have made a proposal.
2)
Acceptance:-
S. 2 (b) defines acceptance as âwhen 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.
Thus, when B assents to A's offer to purchase a house for twenty lakh rupees, he is
said to have accepted the offer.
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âLaw Masterâs Publicationâ
âIntroduction to Contractâ
Prof. Santosh D. Bhosale
The Court held:- It is a general rule that an offer is not accepted by mare silence;
however, under certain circumstances, the offerorâs silence coupled with his conduct,
which takes the form of a positive act, may constitute an acceptance (an agreement sub-
silentio). The terms of the contract between parties can be proved not only by their words
but also by their conduct.
B)
Enforceable by Law:-
Every agreement is not a contract unless it is enforceable by law. Thus, an
agreement not intended to be enforceable by law is not a contract..
In Balfour V/s Balfour
Facts: The husband promised to pay his wife a maintenance allowance every month so
long as they remained separate. When he failed to perform this promise, she brought action
to enforce it.
The Court held that it is a domestic agreement that does not contemplate creating any
legal obligation.
Thus, all family and social nature agreements, which are not intended to be
enforceable by law, are not legally enforceable, e.g., if A called B at a dinner party but B
could not remain present, due to which the food made for him got spoiled. A cannot sue B
for the breach of an agreement to come to dinner.
What Agreements are Enforceable by Law?
To be enforceable by law, an agreement must fulfil the conditions laid down under
S. 10. Viz.
(i)
Parties should be competent to make a contract.
There should be free consent to the contract.
There should be a consideration to the contract.
The object should be lawful.
(ii)
(iii)
(iv)
The absence of any of these conditions makes the contract invalid. Thus, to
constitute a valid contract, there shall be an agreement (i.e. proposal and acceptance)
accompanied by the above four requirements. Therefore, it is being said that âAll contracts
are agreements, but all agreements are not contractsâ.
1)
Competent Parties:-
For the formation of a valid contract, there shall be at least two parties, and they
must be capable of entering into a contract. A contract entered into with an incapable
person is void.
Every person is competent to contract who is of an age of majority and who is of
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2008 (1) All MR 424 (SC).
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âLaw Masterâs Publicationâ
sound mind and is not disqualified from making a contract by any law.
2) Free Consent:-
Consent means âwhen two or more persons agree upon the same thing in the same
âIntroduction to Contractâ
Prof. Santosh D. Bhosale
senseâ. In other words, consent should not be affected by coercion, undue influence, fraud,
misrepresentation, or mistake.
3)
Consideration:-
Consideration is the price paid by the promisee for the obligation of the promise.
Consideration is âquid pro quo,â i.e., something for something. S. 2 (d) defines
consideration as âwhen at the desire of the promisor, the promisee or any other person has
done or abstained from doing or does or abstains from doing or promises to do or to abstain
from doing something, such act or abstinence or promise is called a consideration for a
promiseâ.
4)
Lawful Object:-
The object of the agreement should not be against the law of the land, or the law of
the land should not prohibit it. Thus, the object of an agreement should not be illegal,
fraudulent, immoral or against public policy. Moreover, agreements for the objects
mentioned under Ss. 23 to 30 are declared void by the Act.
IV. Conclusion:-
All contracts are agreements, but all agreements are not contracts. In General
Principles of Contract from Ss. 1 to 75, we will study the above basic concepts, i.e.
proposal, acceptance, competency of parties, consideration, free consent, lawful object and
some other concepts like a contingent contract, quasi-contract, etc. Broadly speaking, the
study of these concepts in detail is the study of general principles of contract. These
principles are general in that they are necessary for all types of contracts. There are some
special types of contracts like the sale of goods, partnership, bailment, agency, indemnity,
etc., but all these special types of contracts also need the principles mentioned above as
minimum requirements.
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