The Indian Contract Act 1872

UNIT 1 (Commercial Law)

Contract - Definition
According to the section 2(h) of the Indian
Contract Act : An agreement enforceable by law is a
contract
Contract - Introduction
Contract is an agreement made
between two or more parties which
the law will enforce. It has two
elements
1. Agreement
2. Its enforceable by law
Agreement = offer + Acceptance
Contract = Agreement +
Enforceability by law
Contract - Introduction

A person makes a proposal (Offer). When it is accepted by
other it becomes a promise.
Every Promise and every set of promises, forming a
consideration for each other, is an agreement. (Sec 2(e))
Promise cannot be one sided Only a mutual promise
forming consideration for each other is an agreement.

Example : A agrees to pay Rs 100 to B and B agrees to give
him a Book


Offer
Promise
Agreement
Meaning
1. Proposal/Offer : When one person signifies to
another his willingness to do or to abstain from
doing anything. A proposal can be both positive act
or negative act.
2. Promise : 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. Sec 2(b)
3. Promisor and Promisee : The person making the
proposal is called the Promisor and the person
accepting the proposal is called the Promisee.
Sec 2(c).
4. Reciprocal Promises : Promise which form the
consideration for each other.

Meaning
5. Consideration for promise :
The definition of agreement itself states that
mutual promise should form the consideration
for each other.
The Consideration is essential for an
agreement.
A Promise without consideration is not an
agreement and hence naturally not a
contract
Steps involved in a contract
1) Proposal and its communication
2) Acceptance of the proposal and its
communication
3) Agreement by mutual promises
4) Contract
5) Performance of contract


Essentials Requirements of a valid contract
a) An offer and its acceptance
b) Free Consent of both parties
c) Mutual and lawful consideration for an
agreement
d) It should be enforceable by Law.
e) Parties should be competent to enter contract
f) Object should be lawful
g) Certainty and possibility of performance
h) Contract should not have been declared as
void under Contract Act or any other law
Must Know
Express Contract - A proposal
or acceptance of any promise is
made in words
Implied Contract - A proposal or
acceptance of any promise is
made otherwise in words.
Must Know
Voidable Contract 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.
when a consent is obtained by coercion, undue
influence, misrepresentation or fraud it is voidable
when a contract contains reciprocal promises and
one party prevents the other from performing his
promise, the contract becomes voidable.
when the time is essence of contract and party fails
to perform in time it is voidable at the option of
other party.

Must Know
Void Contract A contract which ceases to be
enforceable by law becomes void.
void ab initio : It is not a contract at the
beginning itself.
Consensus ad- idem Both the parties to an
agreement must agree about the subject matter
of the agreement in the same sense and at the
same time.

Essential elements of a valid contract
(Important 16 marks)
1. Offers and Acceptance
2. Intention to create legal relation
3. Lawful consideration
4. Capacity of parties
5. Free Consent
6. Lawful Object
7. Writing and Registration
8. Certainty
9. Possibility of performance
10.Not expressly declared void