NATURE AND

DEFINITION OF LAW OF
CONTRACT
LAW – ITS DEFINITION
According to SALMOND “Law is the body of principles
recognised and applied by the state in the administration of
justice.”
There are various branches of law concerning specific aspects
e.g., civil, administrative, business, labour laws etc.

LAW OF CONTRACT
The law of contract is “what has been promised shall be
performed.”
HISTORY OF INDIAN
CONTRACT ACT 1872
• The law relating to the contracts in India is contained in
the Indian Contract Act, 1872.
• The Act came in to force with effect from September 1,
1872.
• It is applicable to the whole of India except the State of
Jammu & Kashmir.
CONTRACT
 A contract is an agreement to do or not to do act. It
is legally binding agreement, which is, enforceable
at law.
 Section 2 (h) of the Contract Act defines a
Contract as “an agreement enforceable by law.”
 There are two essential elements of a contract :
(1) An Agreement
.
(2) Its enforceability at law
AGREEMENT
An agreement is defined in Section 2 (e) as “every promise or
every set of promises forming the consideration for each
other.”
A promise is defined in section 2 (b) as “a proposal when
accepted becomes a promise.”
An agreement involves offer by one party and acceptance of
the same by the other party. It requires existence of two or
more persons.
Agreements are of two types :
(1)Un-enforceable agreements- In these agreements
aggrieved party cannot go to the court. These agreements
remain only agreement and they never become a Contract
in the eyes of law.
(2) Enforceable agreements-In these agreements the
aggrieved party can go to the court to get the agreement
enforced. All these agreements are Contracts
Therefore we can conclude that :
“All contracts are agreements but all agreements are
not contracts.”
Thus, Agreement = Offer + Acceptance

ENFORCEABILITY BY LAW
An agreement to become a contract must give rise to a
legal obligation. The common acceptance formed and
communicated between the two parties must create legal
relations and not the social or domestic relations.
Example: A invites B to a dinner at a hotel. B accepts the
offer. But for some reasons B could not come. Then A
cannot sue B as it was a social agreement.
Contract = Agreement + Enforceability at law
 CLASSIFICATION OF
CONTRACTS
Contracts can be classified on the basis of their
(a) Creation (Formation)
(b) Execution (Performance)
(c) Validity (Enforceability)
On the basis of Creation (Formation)
1. Express contract. An express contract is one
entered into by words which may be either spoken or
written. In it offer and acceptance is made in words.
2. Implied contract. Implied contracts are made by
the circumstances and the conduct of the parties who
made them.
3. Quasi contract. It is a contract in which there is no
intention on either side to make a contract, but law
imposes a contract. For e.g., a finder of a lost good is
under the obligation to find out the true owner and return
the good.
4. E-com contract. These contracts are entered into
between the parties using internet.
On the basis of (Execution)
performance
1. Executed contract. An executed contract is one where both the
parties have performed their obligations. In other words it is a
complete contract.
2. Executory contract. where the contract is yet to be performed
by one or both the parties, the contract is executory contract.
Executory contracts may be
(a) Unilateral contract. A unilateral contract is a one sided
contract in which only one party has to perform his promise.
(b) Bilateral contract. Where the promise is outstanding on the
part of both the parties, it is known as the bilateral contract.
On the basis of validity
(Enforceability)
1. Valid contract. An agreement enforceable by law is
a valid contract. An agreement becomes contract
when all the essential of a valid contract as laid down
in Section 10 are fulfilled.
2. Void contract. An agreement which was legally
enforceable when entered in to the but becomes void
due to impossibility of performance. A void contract is
not necessarily unlawful, but is destitute of legal
effects.
Difference between void agreement and voidable
contracts
1. Legal effects. A void agreement has from the very
beginning no legal effects. A voidable contract is one in
which one party can affirm or reject at his option.
2. Curability. The defect of a voidable contract is curable. But
a void agreement is void ab initio and its defects are
incurable.
3. Compensation. There is no compensation in a void
agreement. But in case of voidable contract, a person is
entitled to compensation for loss suffered by him due to
non-performance of the contract.
Difference between illegal and void agreements
1. Void agreements may be void for a reason other than
illegality. All illegal agreements are void.
2. parties to a void agreements may not be punished but
parties to an illegal agreements are punished.
3. Void agreement. According to Section 2 (g), “an
agreement which is not enforceable by law is void.” For
e.g., an agreement with a minor.
4. Voidable contract. According to Section 2 (i), “ an
agreement which is enforceable by law at the option of
one party but not at the option of the other is a voidable
contract.
5. Unenforceable contracts. It is a contract which
is otherwise valid, but cannot be enforced because of
some technical defects like absence of a written form, or
absence of proper stamp.
6. Illegal agreements. A contract which is either
prohibited by law or otherwise against the policy of law is
an illegal agreement. It is void ab initio.
ESSENTIAL ELEMENTS OF
A VALID CONTRACT
All agreements are not contracts. Only that agreement
which is enforceable at law is a contract. An agreement, to
be enforceable by law , must possess the essential
elements of a valid contract as contained in Section 10 of
the Indian Contract Act . These are :
(1)Offer and Acceptance. In order to create a
valid contract, there must be a ‘lawful offer’ by one party
and ‘lawful acceptance’ of the same by the other party
(2) Intention to create legal relationship. In
case there is no legal relationship between the parties,
there is no contract . Agreements of social or domestic
nature do not contemplate legal relations.
’.
(3) Lawful Consideration. Consideration means
‘something in return’. It may be in the form of money, service,
goods . Agreements made without consideration are
unenforceable. And the consideration must be lawful.
(4) Capacity of parties. The parties to an
agreements must be able to contract. The following are not
capable to contract:
• Minors
• Person of unsound mind
• Person disqualified by law.
(5) Free Consent. Consent means the parties must
have agreed upon the same thing in the same sense.
Consent is said to be free when it is not caused by-
(a) Coercion (b) Undue influence e) Mistake
(c) Fraud (d) Misrepresentation
(6) Lawful object. The object of an agreement must
be lawful. Object means the purpose or design of the
contract. The object is said to be unlawful if-
• It is forbidden by law.
• It is fraudulent
• It is opposed to public policy
• It involves injuries to the person
(7) Certainty of meaning. According to Section 29
“Agreements the meaning of which is not certain or capable
of being made certain are void”. The terms of the contract
must be precise and certain. The meaning should not be
vague. A contract may be void on the ground of uncertainty.
(8) Possibility of performance. If the act is
impossible in itself, physically or legally, it can not be
enforced at law. For e.g., A agrees with B to discover
treasure by magic. Such agreement is void.
(9) Not declared to be void or illegal. The
agreement though satisfying all the condition for a valid
contract must not have been expressly declared void by any
law in force in the country . For e.g., Agreements in restraint
of trade, marriage etc, are void.
(10) Legal formalities. An oral contract is a valid
contract, except in those cases where writing, registration etc.
is required by some statute. In India writing is required in case
of sale, mortgage, lease, etc.