Chapter No 2

ESSENTIAL ELEMENTS OF CONTRACT

 As we know the valid contract is 100% legal
contract.
 Following are the six main essential elements
which are to be considered in a contract
then contract will be a valid.
 Offer and acceptance
 Contractual competencies

 Free consent of parties

 Consideration / legal object

 Not declared void agreement

 Agreement should be in written form

 1. Offer and Acceptance
A contract is an agreement between two parties imposing rights
and obligations which may be enforced by law. The courts need
some kind of evidence of this agreement, so they look, through the
eyes of a reasonable person, for external evidence of it. To help
identify evidence of agreement, it is conventionally analysed into
two aspects: offer and acceptance.

Offer + Acceptance Contract

An Offer Can be Defined as follows:
 An expression of willingness to contract on certain

terms, made with the intention that it shall become

binding as soon as it is accepted by the person to whom
it is addressed.
 A person who shows his willingness to do or not to do or

abstain from doing some thing that is to be said as an

offer
 Offers can be of two types:

 Specific – made to one person or group of people. Then only

that particular person or group of people can accept.

 General – made to ‘the whole world’ (or people generally),

particularly seen in the cases of rewards and other public
advertisements.
 Rules of an offer
 An offer may be expressed, which is either
expressed in spoken word or in written form
 An offer creates legal consequences
 Terms of an offer must certain
 An offer may be specific or general
 An offer can be made subject to way of terms
and conditions
 Termination of an offer
 
The various ways in which an offer may terminate:

Refusal
An offeree may refuse an
offer, in which case the
offer ends, so it cannot
be accepted later by the
offeree.
Counter-offer
Sometimes a reply from an
offeree comes in the form of a
new proposal, or counter-offer.
It may simply be that the
offeree is not happy with one
or more of the terms and Lapse of time
makes changes accordingly. An offer may lapse due to the passing of
Since this is not an agreement time. This can occur when:
to all the terms of the offer, it a)      It is stated in the offer that it is open
is not acceptance, and is for a specific time
known as a counter-offer b)      No specific time limit is stated in the
offer. In this case the offer is open for a
‘reasonable time
 Revocation
 An offer can be revoked, or withdrawn, by the offeror at any time
before it is accepted. This must be communicated to the offeree
before acceptance takes place. The offeror has taken the
responsibility of starting the negotiations, and cannot simply change
his mind. This is illustrated in the following case.

 Failure of a precondition
  If a main term of an offer, which is vital to the contract,
is not fulfilled or is substantially altered, then the offer is
no longer capable of acceptance. This arose in the
following case.
Lapses / Revocation of an offer
 An offer lapses after a reasonable time
 An offer lapses by rejection
 An offer lapses by death of an offerer
 An offer lapses by revocation
 Revocation by non fulfillment of a
condition
 Acceptance
Acceptance is the second ‘half’ of a contract. If AYAZ offers POOJA a
bag of sweets for 20.RS, and POOJA says ‘I accept’, clearly a
contract has been made. The law explains that there must be
evidence from both sides of genuine agreement between parties –or
meeting of minds.
 
Acceptance can be defined as:
 _____________________________________________
 Agreement to all terms of an offer by words or conduct.
 When proposal is accepted it is said to be as a acceptance
 Any person who signifies his consent or assent the proposal is said
as acceptance

 _____________________________________________
 Prescribed acceptance
If the offeror stipulates that an offer must be accepted in a certain
way, then he is not bound unless acceptance is made in that way.
If he request acceptance in writing, oral acceptance will not bind.
However, it may be different if the offeror only suggests a method
of acceptance. The principle arose from the following case.

 No prescribed acceptance
If no method of communicating acceptance is stipulated, the
starting-point is that acceptance is made using the same method of
communication as the offeror. However, any reasonable way of
replying will normally forma contract, the responsibility being on
the person accepting to ensure that communication is effective.
Lord Denning gave some examples in the following case.
 Acceptance via the post
 Firstly it should always be considered whether it is reasonable to use the post to accept.
Each case is different but the following factors should be considered:

 Whether the offer was made by post. If so, it is usually acceptable to reply by letter,
unless the offer specifically says that the post may not be used.
 Whether the offeror states acceptance can be made by post, even though the offer may
have been made in some other way
 Whether previous negotiations, or ‘course of dealings’, between the parties have
established that it is normal to reply by post.

 It should be noted regarding acceptance, that:

 Acceptance generally should be communicated to be valid (this applies to
communications in person and telephone calls).
 The postal rule is an exception to this general rule
 An offeror is always free to say specifically that the postal rule will not operate in a
particular contract, or in some words which lead

 When is acceptance ‘received’?

 
 Cheshire and Fifoot, the authors of a leading textbook on contract law,
suggest that, at least in a business context, it is reasonable to assume that a
letter which arrives in office hours is ‘received’ when it arrives, whether or not
it is opened immediately, that it is the responsibility of the recipient to look for
messages which are delivered during normal office hours.
 Rules of valid acceptance
 Acceptance must be given only by the
person to whom offer is made.
 It must be absolute (perfect)
 It must be expressed / communicated
 It must be expressed in reasonable time
 Acceptance must succeed an offer
 Rejected offer can be accepted only if it is
renewed.
 2. Contractual capacity / competent
parties
 Contractual Capacity is the legal ability to
enter into a contract. Minors have particular
rights and obligations established by the
court when it comes to contracts. Once a
person reaches age 18, they are considered
a legal adult in every state in the nation. In
addition to minors, other persons are able
to avoid contracts.
 Every person can enters into a valid
contract he / she must fulfill the following
conditions
1. Majority
2. Soundness of mind
3. Not disqualification

Those persons who cannot enter into a valid

contract are:
1. Minor
2. Unsoundness of mind
3. Disqualified person
1. Alien enemy
2. Sovereign / ambassadors
3. convict
 Minor
The person who have not attain the age of 18
years is called minor. He cannot enter into a valid
contract. If he wants to enter in a contract then
his representatives will do contract on behalf of
his.
 Unsoundness mind
 If both parties have not knowledge about the contract or they have
not understand the terms and conditions of the contract so they are
not capable to enter in the contract. ( or at the time of drinking)

 Disqualified person
 Alien enemy: alien is the person when declares the war between
two countries. Suppose like India and Pakistan when going to be
enter in war condition then their alien cannot be able to make any
contract. When there is peace between in both countries then they
can make any type of contract
 Ambassador / sovereign
 The personalities are the representatives of a

country. Due to their high status or privilege they

are not called in the court of law. If they enter in
contract, they must take permission from their
own country.
 Convict:
 A person who is found guilty is called convict. We

can not make a contract with convict persons.

 A convict is "a person found guilty of a crime and

sentenced by a court" or "a person serving a

sentence in prison"
 convicts are often called prisoners or inmates.
 3. Free consent of parties
 Tow or more persons are said to consent when they agree upon the same
thing in the same thing in same sense." Thus, consent involves identity of
minds in respect of the subject matter of the contract
according to section 14, consent is said to be free when it is not
caused by
(a) Coercion,
(b) Undue influence,
(c) Fraud,
(d) Misrepresentation,
(e) Mistake.
 Coercion:
 It means compelling a person to enter into a contract, by use of
physical force/activities forbidden by Indian penal code, OR
threatens to do activities forbidden by P.P.C, OR threatens to
damages the property.
EXAMPLE: KIDNAP, SUICIDE, THREAT ETC.

 UNDUE INFLUENCE:
The term 'undue influence' means dominating the will of the other
person to obtain an unfair advantage over the other. According to
section 16(1), a contract is said to be induced by undue influence
 where the relations subsisting between the parties are such that one of
them is in a position to dominate the will of the other, and
 the dominant party uses that position to obtain an unfair advantage over
the other.

When two-partner are in relation, and one of them is dominant and other
is in weaker position and dominant person takes undue-Advantage, then
it is called "Undue- influence."

EXAMPLE: TEACHER --------- STUDENT

MASTER------------ SLAVE
 FRAUD:
The term 'fraud' means a false representation of fact made willfully with
a view to deceive the other party. Fraud includes following:
1. Wrong suggestion about a fact, knowing that it is not-true;
2. Active concealment (Hide) of defect in goods:
3. Promise made without intention to perform:
4. Any activity declared fraud as per other law;

Misrepresentation

The term "misrepresentation" means a false representation of fact

made innocently or non-disclosure of a material fact without any
intention to deceive the other party. Section 18 defines the term
"misrepresentation" as follows
"Misrepresentation" means and includes-
 The positive assertion, in a manner not warranted by the information of
the person making it, of that which is not true, though he believes it to
be true;
 Any breach of duly which, without an intent to deceive, gains an
advantage to the person committing it, or anyone claiming under him,
by misleading an other to his prejudice or to the prejudice of anyone
claiming under him;
 Causing, however innocently, a party to an agreement, to make a
mistake as to the substance of the thing which is the subject of the
agreement.
Mistake

 A mistake is said to have occurred where the parties intending to do one

thing by error do something else. Mistake is "erroneous belief" concerning
something.
 Mistake is used in contract law to describe a situation in which one or both
parties to an agreement acted under an untrue belief about the existence
or nonexistence of a material fact.”


Classification of Mistake of Law:

(a) Mistake of Indian Law (In sense of penalty): The contract is not
voidable because everyone is supposed to know the law of his country. e.g.
disobeying traffic rules“

(b) Mistake of Foreign Law (void): A mistake of foreign law is treated as

mistake of fact, i.e. the contract is void if both the parties are under a
mistake as to a foreign law because one cannot be expected to know the
law of other country.
 CONSIDERATION
 A contract without consideration is wagering contract and is void.

 The consideration is the price of promise which brought from the

other party at the desire of the promiser.
 Essential of the valid consideration:
 Consideration must move at the desire of the promiser.

 Consideration may be performed by the promiser or any other

person.
 Consideration may be depend on past present and future
 Present = it moves simultaneously
 Past = something is already done
 Future = on both sides is to be moved for future
AGREEMENTS WHICH ARE DECLARED VOID
 According to act 1872 section (23) agreements which are
not enforceable at law are said to be void. Because these
agreements don’t have a legal consequences.

 Following are the void agreement:

 Agreement with minor

 Agreement with unsound mind person
 Agreement with disqualified person
 Agreement with an alien enemy
 Agreement with convict (guilty person)
 Agreement with ambassador
 Agreement without consideration
 Agreement forbidden by law
 Agreement restraint of marriage
 Agreement restraint of legal proceeding
 Agreement by way of wager
 Agreement should be in writing
 Every agreement made between two or
more than two parties, it is necessary that
the agreement should be in written form
at all conditions and terms satisfied,
otherwise the contract will be termed as
void.
 All contracts of sale and purchase
mortgage, property must be in written
form.

 Chapter No 3
contracts ( 2nd part)
Performance of contract
 After making a contract second step is the
performance of a contract that means to
fulfill the respective commitment of legal
obligation created under the contract by
both parties.
 When contract is duly performed by the
parties it comes to a happy ending and
nothing remains more.
 Rules regarding performance of contract
1. By the promiser himself / herself
it appears from the nature of the contract and
depends upon the intention of the parties.
Such as in case of personal skill and taste etc.
or when the parties intend that the promise
must be performed by the promiser himself
because he / she posses some special
personal skills which other don’t posses. So
the promiser is bound to perform the contract
himself.
ex: paint a picture / marriage
2. By the agent
 Contract is performed by the agent of promiser only
when promiser and promisee both are consent upon
the performance by the agent. In this contract a sales
of goods and to lend credit to company.
3. By his legal representatives
 In this case the death of promiser before
performance the liability falls on his legal
representatives.
4. By a third person
 in the contract of warranty or surety the third person
who gives his warranty he is bound to perform a
contract within a reasonable time. On a working day
or on usual hours of business.
 Ex: time and place performance
 Discharge of contract
 Discharge of contracts means completion of contract. The
parties enters in to the contract but performance of the
contracts brings its termination. A contract may be
discharged at any one of the following case.
 Discharge by performance: when a contract is duly performed by
both parties, the contract comes to an end nothing remains
more.
 Discharge by consent or mutual agreement: since a contract is
created by means of an agreement it also may be discharged by
another agreement by the same parties. Or a contract may be
discharged by the mutual consent of parties.
 Discharge by lapse of time
 Discharge by breach of contract: when one party breaks the
contracts by non performance of the promise and party b has
right to action against breach of contract.
 Discharge by operation of law: due to death and insolvancy
 Remedies for breach of contract
 Recession ( with draw)
 Recession means turn down or withdraw of contract, Example: Mr. Ali wants to sell
his property in 5 lacs to Mr. Baqar within 7 days. For this purpose they have made a
contract and baqar has given 2 lacs as an advance and remaining amount will give
at the time of possession but unfortunately baqar could not arrange remaining
amount in given time period so both may with draw from the contract and the
advance will not be returned to Mr baqar.
 Suit for damages:
 If there is a contract between Mr. Ali and Baqar that Mr. Ali will supply goods of
values 6 lacs to Mr. Baqar with in ten days. Mr Ali has transported the goods to
Baqar but after reaching the goods Baqar refuses to purchase them due to which Ali
has right to suit against Baqar for losses.
 Suit for quantum merit:
 Mr. A wants to construct a 4 story plaza in 2 years. For this purpose he made a
contract with Mr. B who is a builder. After the contract Mr, B started work according
to contract and constructed the ground floor of the plaza but then Mr. A says that he
has no money to provide for construction work, now Mr B has right to file suit
against Mr. A in the court.
 Suit for specific performance: if Mr. A who is an actor sign a film of a producer
to Mr. B. Mr A sign film with an other producer where as Mr. B is also under
preparation so Mr. B can file a suit against Mr B and then the film of the
producer and stop to act film and theater. \
 Suit for Injuction:
 If Mr. A is constructing a building on Mr. B plot without his consent. Mr B right to file
a suit for injuction against Mr. A and court of law gives stay order that MR. A cannot
construct the building on Mr. Plot.