Lecture 01: Law of Contract

Rowshonara Akter Akhi

Lecturer
Department of Finance & Banking
Jahangirnagar University
 Definition of Contract

 An agreement enforceable by law is a contract.

 In a contract there must be a) an agreement and b)

the agreement must be enforceable by law.

 An agreement which can be enforced through the

courts of law, is called a contract.
 The Essential Elements of Contract

 Offer and Acceptance: There must be a lawful offer

by one party and a lawful acceptance of the offer by
the other party or parties. Lawful means the offer
should be confirmed by law by the court of the
certain country.

 Intention to create Legal Relationship: There must

be an intention (among parties) that the agreement
shall result in or create legal relations.
 The Essential Elements of Contract (Cont’d)

 Lawful Consideration: Subject to certain exceptions, an

agreement is legally enforceable only when each of the
parties to it gives something and gets something. An
agreement to do something for nothing is usually not
enforceable by law.

 Capacity of Parties: The parties of an agreement must be

legally capable of entering into an agreement. Want of
capacity arises from minority, lunacy, drunkenness, and
similar other factors. If any of the parties to the
agreement suffers any such disability, the agreement is
not enforceable by law, except in some special cases.
 The Essential Elements of Contract (Cont’d)

 Free Consent: In order to be enforceable, an

agreement must be based on the free consent of all
parties.

 Legality of the Object: The object for which the

agreement has been entered into must not be
illegal, or immoral or opposed to public policy.

 Certainty: The agreement must not be vague. It

must be possible to ascertain the meaning of the
agreement, for otherwise it cannot be enforced.
 The Essential Elements of Contract (Cont’d)

 Possibility of Performance: The agreement must be

capable of being performed.

 Void agreements: An agreement so made must not

have been declared to be void.

 Writing, Registration, and Legal Formalities: An oral

contract is a perfectly good contract, except in
those cases where writing or registration is
required by some statute.
 Classification of Contract( Method of Formation)

 Express contract: Express contract is one which is expressed

in words spoken or written. When such a contract is formed,
there is no difficulty in understanding the rights and
obligations of the parties.

 Implied Contract: The conditions of an implied contract is to

be understood from the acts, the conduct of the parties and
the course of dealing between them.

 Quasi Contract: There are certain dealings which are not

contracts strictly, though the parties act as if there is
contract. The contract act specifies various situations which
come within what is called Quasi Contract.
Classification of Contract ( Legality or Validity
of the Contract)

 Valid
 Void
 Voidable
 Illegal
 Unenforceable
 Elements of Contracts

 Offer:
A proposal is called an offer. The promisor or the
person making the offer is called the offeror. The
person to whom the offer is made is called the
offeree.

 Acceptance:
An offer can be accepted only by the persons for
whom the offer is intended.
 Communication of Offer and Acceptance

 How is an Offer to be Communicated?

 An offer may be communicated to the offeree or offerees by

word of mouth, by writing or by conduct.
 A written offer may be contained in a letter or a telegram.
 A circular or advertisement or a notice may be written in
such a language that it amounts to an offer.
 A tramway car and a bus going along a street and picking
up passengers are examples of offers by conduct.
 Section 4 states : "The communication of a proposal is
complete when it comes to the knowledge of the person to
whom it is made,"
Communication of Offer and Acceptance (Cont’d)

 How is an acceptance to be Communicated?

1. Offer and Acceptance by Post:

An offer may be made by post. An offer may also be accepted by
post, if there is no other mode of acceptance specially
prescribed by the' proposer. When a proposal is made through
the post, the post office is by implication the agent of the
proposer. Therefore a letter of acceptance duly addressed and
posted is sufficient acceptance even though the letter does not
actually reach the proposer. (Notice to an agent is considered to
be notice to the principal). The letter must however, be correctly
addressed. The letter must be actually posted. It is not enough
to give it to somebody to post.
Communication of Offer and Acceptance (Cont’d)

 How is an acceptance to be Communicated?

2. Offer and Acceptance through Telephone:

Offer and acceptance can be communicated through the

telephone. But there are certain rules regarding oral
communication. It has been held that the offer and acceptance
must be audible, heard and understood. If these conditions are
satisfied and the other essential elements of contract exist, the
parties are bound through a telephone conversation.
 Intention of Contract

 To create Legal Relationship

A contract, however, is defined as an agreement

enforceable by law. An agreement which does not create
any legal obligation will not be enforced by law.

Examples: (i) D, agrees to go to a cinema with B. This is

not a contract enforceable by law because going to a
cinema is not a legal matter. (ii) marriage vs. relation
 Lawful Consideration

Consideration was defined as, 'some right, interest, profit

or benefit accruing to one party, or some forbearance,
detriment, loss or responsibilities suffered or undertaken
by the other."

Examples , (1) P agrees to sell a house to Q for Rs. 80,000.

For P’s promise, the consideration is Rs. 80,OOO. For Q's
promise, the consideration is the house.

2) H engages Q as a clerk in his office for Rs 1000 a

month. The monthly wage is the consideration received by
Q; the services of Q constitute the consideration received
by H.
"No consideration no contract"- exceptions to the rule

 Consideration is essential for the validity of a contract. "A

promise without consideration is a gift; one made for a
consideration is a bargain".-Salmond and Windfield, Law of
Contracts. A promise without consideration is a gratuitous
undertaking and cannot create a legal obligation.

 Under Roman law an agreement without consideration was

called a nudum pactum and was unenforceable.

 Under English law simple contracts must be supported by

consideration.

 Under Indian law the presence of consideration is, as a rule,

essential to the validity of contracts.
Thank You!

Any Question?