Contract- Meaning and Classification 1.

3nt1st ESSENTIALS OFA VALID CONTRACT)tlaro3

Section 10 mentions the essentials of a valid contract. According to it, "All
agreements are contracts if they are made by the free consent of
to contract, for a lawful consideration and with a lawful parties
competent
object are not hereby
and
expressly declared to be void")ore 1o ssa bli bonistit astd otf i tot0
Let us now discuss these various essential elements. 0 eor be itoupelb
1.(A Valid Offer and Acceptance. A contract is a valid contract only when
there exists valid offer and its valid acceptance. The terms of the offer
a
must be precise and clear. The offer must be communicated to the person to
whom it is made) The
acceptance of the offer must be absolute and
unconditional. The acceptance must also be given in accordance with the
prescribed mode and before the offer lapses.
2. QIntention to Create Legal Relationship: The intention of the parties to a
valid contract must be to create legal
relationship between them.In a social
or domestic
agreement, the intention of the parties is not to make it legally
binding on them (Balfour vs. Balfour).

Example: R0O A
bola
A agrees to attend B's
birthday party but is unable to attend due to personal
work. B cannot sue A, as the obligation is not a legal one.
algomer
On the other hand, in a business commercial agreement, the presumption
or
is that the parties intend to make it a legally binding agreement.
But even a business agreement may not be enforceable in a Court of law
where the parties specifically agree that the agreement is not legally binding on
them.
Case: Rose & Frank Co. vs. Crompton Bros.
In this case, Crompton Bros. Appointed Rose & Frank co. as their agent by
an agreement that specifically stated that it is not a formal and legal agreement
and shall not be subject to legal jurisdiction in the law courts. The agreement
was held unenforceable on the ground that the parties did not intend to make
it legally binding on them.
3. Lawful Consideration For a contract to be yalid, the agreement between
the parties must be backed by consideration. Considerationmeans'Something
in Returny Both the parties to the agreement must give and get something in
return.
ojd no
Example:
P agrees to sell his bike to Q for Rs. 25, 000. Q's promise to pay is the
consideration for P's promise to sell the bike and P's promise to sell is the
consideration for Q's promise to pay.
 ESSENTIAIS OF A VALID CONTRACT

Ofer& Fulfillment of
Acceptance 0 n S sco bsuntogeA Legal
notge on
Formalities
Legal ot skonetti ssrt balsip fieos
Relationship Possibility of
Performance
Lawful Certainty in
Consideration Terms

Capacity of Not Declared

Parties Void
ghuetaoep
Free Legality of
Consent Object
a 221og Figure 1.2 -
Essentials of a valid contract

aob.noiersbieno
ienos
 Contract- Meaning and Classification 1.11
6.(Legality of Object : The object ofthe agreement must not be illegal, immoral
opposed to public policy.)
or

Examples:
A enters into an agreement with B to supply certain prohibited goods.
Such an agreement is void, as its object is illegal. p y
(i) M lets out his house knowingly to a prostitute who has0 promised a big
(i)
amount as monthly rent. Such an
agreement is illegal as its object is against
the morals of the society. Josoo3 ldsbiov s3n89
7.(Agreement not Declared Void):The agreement between the parties must
not have been declared void expressly by any law in force in the country) For
example, under the Indian Contract Act, an agreement in restraint of marriage
or an agreement in restraint of trade is void
(explained already).0allA
8. Terms of the Agreement must be Certain): The terms of the
agreement
must be clear, precise and certain)If the terms are vague or ambiguous, the
bro agreement cannot be enforced.
Example: odestotag
Siler s toalsitgoceo sdi 221020
There is an agreement between R, a supplier of milk products, and S, a
trader, by which the former would supply to the latter milk products worth
Rs.200 daily. What is not clear in this agreement is the type
of milk
products
to be supplied by R, i.e., milk, buttermilk, curd, butter etc. and the quantity in
respect of each. The agreement, therefore, is not enforceable. l
9. Possibility of Performance)- What is undertaken by the parties to an
agreement must be süch that it can be performed) An agreement to
impossible act cannot be enforced.
Examples:
0 A agrees to prove that two parallel lines can meet ifB pays him Rs. 10, 000.
Such an agreement is incapable of being carried out and is, therefore, void.
() G agrees to.turn iron into gold.if Hpays him Rs. 1lakh. An agreement such
as this cannot be enforced in a
Court of law. tn
10Legal Formalities{For a contract to be enforceable in a Court of law, it
must comply with the
necessary legal formalities as to writing, stamp duty,
registration, certification, witness etc.)
A contract will be a valid contract only when all the essential elements
mentioned above are present in it. e
 22 Business Law
TYPESOF OFFER
Offer may be of the following types: ST33qado
1 Express Offer
o3 mplied Ofer 3 1 f 0

3 SpecificOfer
4. General Offer
9 2 5. Cross Offer nitupo oit gowollet ols bootesbeu sveloW
ged auoiesg srt ni barf ved
6. Counter-Offer
7. Standing Offer noni
Each of these has been
explained below.
Express Offer
An offer made by express
offer. oo
words-spoken or written is known as express
ols1to'nA
Examples:
() Ptells Q "Willyou buy my cycle for Rs.7002 o
kwrites to S "I want to sell my car for Rs 2lakhe" oted
Implied Offer foganwolotsl
An offer that is to be inferred or understood from the conduct of
or the circumstances of each the
particular case is known as implied offer. parties
Examples:
() The offer by a cinema theatre to screen films is lemard
always an implied
offer
(ii) The offer by a bus transport company to carry
u b offer.
is passengers also an implied
aub houor
TYPES OF OFFER

Express Implied Specific General Cross

Offer Offer Offer Counter Standing
Offer Offer Offer Offer

alo tioen
Figure 2.1 s o hoe sd

t oad
 Offer and Acceptance 2.3
Speeific Offer
tha An'offer made to a specific person or group is known as a specific offer.

Examples:00,0eol elacpiolomohne Yab owtnidi nuo

A n offer by X, a very close friend of Y, to sell his bike to the latter for
Rs. 10,000 is a specific offer. Y and nobody else can accept the offer.
Gi) A School Management offers a cash prize of Rs. 1, 000 to its 12th Standard
students who secure cent percent in any subject in the Board Exams.
General Offer uuh 3o2oihoz.a.ol poilaga-coitpp2n
When an offer is made to the
world at large, it is known as
general offer.
a
Any member of the public who is aware of such an offer
may accept it.ted
Example:be 2l Xd ofio ot wt ren oritol bop
X offers a reward of Rs.50, 000 to
anyone who traces out his missing son. Y,
who is aware of the offer, finds theboy. He can claim the reward.
Case: Carlill vs. Carbolic Smoke Ball ove
Company
In this case, the Smoke Ball 1800
Company had produced a medicine for influenza
(an acute virus disease). It had advertised in newspapers that it would
certain sum to anyone who could not get rid of the disease pay a
after consuming the
medicine of the company as per the
given directions.
Mrs. Carlill, who was suffering from the disease, used the
medicine as per
the company's
specifications but could not get any relief. She, therefore, sued
the company for the amount.
The Court gave the verdict in her favour
medicine she had accepted the general offer and
saying that by consuming the
was, therefore, eligible to receive
the amount.
Ueross Offer teog&einl noiegildaeiftolgbmucg slhgo
bot o lo
Cross offers take place when two
persons make identical offers to each
other with respect to the same
of the other.
subject matter and without knowing the intention
Example: wolod e s to bilava o geletenlun Jostiognioft
A, by a letter, offers to sell his car to B. Without
and before receiving his letter, B too writes to A
knowing A's intention to sell
expressing his willingness
to buy A's car. Thus, both A andB have only made an identical offer and
neither of them has given acceptance. It is, therefore, clear that there is no
binding contract between them.ntokaog ovao
atul a d otto ts
gounter-Offerarw
Counter offer takes
9voob uluoinkg&Ro loto6s ronib zo1 bngit
of place when the person to whom the offer is made, instead
accepting the terms of the offeror, desires modification of the same.
aiougidne 10 o0gny ons aetol sabu
 2.4 0Or oBusiness Law
Example
X offers his motorcycle to Y for Rs.30, 000 and wants Y to
pay the full
amount with in two days. Y wants the motorcycle for
Rs.20, 000 and also
st two weeks time to pay. There is no
acceptance of the offer by Y and it only
amountsto a counter -offerdon brte Y 19ho oftiooge s ai 000.01.2
Standing Offer o0 1e3o sshsq rlano n 216Tto inomogtnsM loorlo2A )
A standing offer is of acontinuous nature. It is not restricted to a single
transaction. It applies to a series of future transactions 19110Jerono
Example: sgoufi ogs 18 bliow arls ot obam al nsf1o ue norl
X, edible oil merchant, offers to supply edible oils to a hotel as and
an
when required for the next two years. The offer by X is a standing offer.