Essential of contracts

The term contract is defined under section 2(h) of the Indian Contract Act,
1872 as- “an agreement enforceable by law”.
The contract consists of two essential elements:
i) an agreement and
ii) its enforceability by law.
Contract = Accepted proposal/Agreement + Enforceability by law
Offer: An offer is a proposal by one party to another, indicating a willingness to
enter into a contract under specific terms. It must be communicated to the offeree
and demonstrate an intention to be bound by those terms upon acceptance.
Acceptance: Acceptance is the unconditional agreement to the terms of the offer.
It must be communicated to the offeror in the manner specified (or implied) by
the offer and must mirror the terms of the offer.
Legal Relationship: A contract creates a legal relationship between the parties
involved. This means that the parties intend to be legally bound by the terms of
the contract and can enforce those terms through legal action if necessary.
Capacity: Capacity refers to the legal ability of parties to enter into a contract.
This includes being of legal age, mentally competent, and not under the influence
of drugs or alcohol. Minors, mentally incapacitated individuals, and those under
duress typically lack capacity.
Free Consent: Consent must be freely given without coercion, undue influence,
fraud, or mistake. Both parties must enter into the contract voluntarily and with a
clear understanding of its terms and consequences.
Object: The object of the contract refers to the subject matter or purpose of the
agreement. It must be lawful, possible, and not against public policy. Contracts
with illegal or impossible objectives are void.
Lawful Consideration: Consideration is something of value exchanged between
the parties, such as money, goods, services, or promises. It must be lawful and
sufficient but need not be of equal value. Consideration distinguishes a contract
from a gift.
Not Void: The contract must not be expressly declared void by law. Void
contracts are those that have no legal effect from the beginning and cannot be
enforced by either party. Examples include contracts involving illegal activities
or those entered into under duress.
Capable of Performance: The terms of the contract must be capable of being
performed. If a contract is impossible to perform or becomes impossible after
formation due to unforeseen circumstances, it may be discharged.
Legal Formalities: Some contracts require certain formalities to be valid and
enforceable. These may include written documentation, signatures, or specific
language dictated by law. Failure to meet these formalities may render the
contract unenforceable.

Define An Offer. State the types of an offer. Also explain the

Essentials of aValid Offer?
Definition of Offer/Proposal:
According to Section 2(a) of the Indian Contract Act, 1872, “when one person
signifies to another his willingness to do or to abstain from doing anything with
a view to obtaining the assent of that other to such act or abstinence, he is said
to make a proposal”.
Types of Offer
(a) General offer: It is an offer made to public at large and hence anyone can
accept and do the desired act
Case Law: Carlill VS Carbolic Smoke Ball Co. (1893)
(b) Special/Specific offer: When the offer is made to a specific or an ascertained
person, it is known as a specific offer. Specific offer can be accepted only by that
specified person to whom the offer has been made
(c) Cross offer: When two parties exchange identical offers in ignorance at the
time of each other’s offer, the offers are called cross offers. There is no binding
contract in such a case because offer made by a person cannot be construed as
acceptance of the another’s offer.
(d) Counter offer: When the offeree offers to qualified acceptance of the offer
subject to modifications and variations in the terms of original offer, he is said to
have made a counter offer. Counter-offer amounts to rejection of the original
offer. It is also called as Conditional Acceptance.
(e) Standing or continuing or open offer: An offer which is allowed to remain
open for acceptance over a period of time is known as standing or continuing or
open offer. Tenders that are invited for supply of goods is a kind of standing offer.

Essential of a valid offer

1) Offer may be expressed or implied- An offer may be expressed or may be
implied from the conduct of the parties or circumstances of the case.
2) Offer may be specific or general
a) A specific offer is one which is made to a particular person. It can be accepted
by the person to whom it has been made, no one else can accept such an offer.
b) A general offer is an offer made to the public at large.
3) Offer must create Legal Relations
An offer to be valid must create legal relationship between the parties. Say for
example a dinner invitation extended by A to B is not a valid offer.
4) Offer must be Clear, not Vague
The terms of an offer should not be vague (not clear / confusing)For e.g. - A offers
to sell B fruits worth Rs 5000/-. This is not a valid offer since what kinds of fruits
or their specific quantities are not mentioned.
5) Offer must be Communicated to the Offeree – No offeree can accept the
proposal without knowledge of the offer (Lalman Shukla v. Gauri Dutt.)
6) A statement of price is not an offer.
7) Offer cannot contain a Negative Condition –The non-compliance of any
terms of the offer cannot lead to automatic acceptance of the offer
Example: A offers to sell his cow to B for 5000/-. If the offer is not rejected by
Monday it will be considered as accepted. This is not a valid offer.
8) A mere statement of intention is not an offer: Thus, a person who attended
the advertised place of auction could not sue for breach of contract if the auction
was cancelled
9) Offer must be distinguished from an invitation to offer.
Acceptance
Define an Acceptance Also explain the Essentials of A Valid Acceptance?
Definition of Acceptance: In terms of Section 2(b) of the Act, ‘the term
acceptance’ is defined as follows: “When the person to whom the proposal is
made signifies his assent thereto, proposal is said to be accepted.The proposal,
when accepted, becomes a promise”.

Essentials of valid Acceptance –

1) Acceptance must be absolute and unqualified –
a) There must be an absolute and unqualified acceptance of all the terms of the
offer.
b) Qualified acceptance would amount to rejection of the offer.

2) Acceptance must be communicated – Acceptance must be communicated by

the acceptor.

3) Acceptance must be in a prescribed or reasonable mode:

a) Offer should be accepted in a prescribed mode.
b) If the offer or prescribes no mode of acceptance, the acceptances must be
communicated according in any reasonable mode such as in writing or oral.

4) Acceptance must be given within a reasonable time and before the

Offer lapses:
a) Acceptance must be given within specified time.
b) If no time is specified, then acceptance may be made within reasonable time.
c) Acceptance should be made before offer lapses (expires).

5) Acceptance cannot precede an offer:

a) Acceptance must be given after receiving the offer.
b) It should not precede the offer.
6) Acceptance must be given only by the person to whom the offer is made:
a) An offer can be accepted only by the person or persons to whom it is made
b) It cannot be accepted by another person without the consent of the offeror.

7) Rejected offer can be accepted only on renewal – Rejected offer can be

accepted only, on renewal; offer once rejected can’t be accepted again unless
a fresh offer is made.
Q2 Differentiate between: Void Agreement and a Voidable
Contract
Discharge
State the ways of Discharge of Contract?
A contract is discharged when the obligations created by it come to an end. A
contract may be discharged in any one of the following ways:
1. Discharge by performance: It takes place when the parties to the contract
fulfil their obligations arising under the contract within the time and in the
manner prescribed. Discharge by performance may be (1) Actual performance;
or (2) Attempted performance.
2. Discharge by mutual agreement: The Indian Contract Act provides if the
parties to a contract agree to substitute a new contract for it, or to rescind or
remit or alter it, the original contract need not be performed. The principles of
Novation, Rescission, Alteration and Remission are already discussed in
previous question.
3. Discharge by impossibility of performance: The impossibility may exist
from the very start. In that case, it would be impossibility ab initio.
Alternatively, it may supervene. Supervening impossibility may take place
owing to: Change in law Destruction of the subject-matter essential to that
performance Non-existence or non-occurrence of particular state of things
Declaration of a war
4. Discharge by lapse of time: A contract should be performed within a
specified period as prescribed by the Limitation Act, 1963. If it is not performed
and if no action is taken by the promisee within the specified period of
limitation, he is deprived of remedy at law.
5. Discharge by operation of law: A contract may be discharged by operation
of law which includes by death of the promisor, by insolvency etc.
6. Discharge by breach of contract: Breach of contract may be actual breach
of contract or anticipatory breach of contract. If one party defaults in
performing his part of the contract on the due date, he is said to have committed
breach thereof. On the other hand, a person repudiates a contract before the
stipulated time for its performance has arrived, he is deemed to have committed
anticipatory breach. If one of the parties to a contract breaks the promise the
party injured thereby, has not only a right of action for damages but he is also
discharged from performing his part of the contract.
Consent
A) Meaning – Section 13 ‘Two or more persons are said to consent when they
agree upon the same thing in the same sense.’
1. Coercion (Section 15): - Coercion involves the use of force or threats to obtain
consent. - It renders the agreement voidable at the option of the party subjected
to coercion. - Coercion may involve physical force, threat of harm, or any other
form of pressure that compels one party to enter into a contract against their will.
2. Undue Influence (Section 16): - Undue influence occurs when one party
takes advantage of a position of power or trust to manipulate the will of another.
- This could include a dominant party exploiting a weaker party’s vulnerability
or dependency to gain an unfair advantage in the contract. - Contracts entered
into under undue influence are voidable at the option of the influenced party.
3.Fraud (Section 17): Fraud involves intentional deception or misrepresentation
of facts by one party to induce the other party to enter into the contract. - The
deceived party enters into the contract based on false information provided by the
fraudulent party. - Contracts obtained through fraud are voidable at the option of
the deceived party.
4. Misrepresentation (Section 18): - Misrepresentation occurs when one party
makes a false statement of fact or law that induces the other party to enter into
the contract. - Unlike fraud, misrepresentation may not involve an intention to
deceive but still leads to a misconception. - Contracts based on misrepresentation
are voidable at the option of the misled party.
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5. Mistake (Section 20, 21, 22): - Mistake refers to an erroneous belief held by
both parties regarding a fundamental aspect of the contract. - Mistakes can be of
two types: mutual mistake, where both parties are mistaken about the same thing,
or unilateral mistake, where only one party is mistaken.
Contracts affected by mutual mistake are voidable, while those affected by
unilateral mistake may be voidable if certain conditions are met. These provisions
aim to ensure that consent in a contract is obtained freely and without any undue
influence or deception. They protect the interests of parties entering into
agreements and uphold the principles of fairness and justice in contractual
relationships.
Capacity
Capacity in the context of business law, refers to the legal ability of parties to
enter into a contract. It involves understanding whether the parties involved have
the mental competence and legal authority to make a binding agreement. Here's
a detailed explanation of capacity in business law:
1. Legal Age: - One aspect of capacity is the legal age requirement. In most
jurisdictions, individuals must reach a certain age to be considered legally capable
of entering into contracts. This age varies depending on the jurisdiction but is
typically 18 years or older. - Minors, those who have not reached the age of legal
majority, are generally not considered to have the capacity to contract. However,
there are exceptions, such as contracts for necessities like food, clothing, and
shelter.
2. Mental Capacity: - Capacity also includes mental competence. This means
that parties must be of sound mind at the time of entering into a contract. A person
who lacks mental capacity, such as due to mental illness or impairment, may not
have the ability to understand the nature and consequences of the contract. -
Contracts entered into by individuals who lack mental capacity may be voidable
at the option of the incapacitated party.
3. Intoxication: - Intoxication, whether by alcohol or drugs, can impair a person's
judgment and understanding. Contracts entered into while under the influence of
intoxicants may be voidable if the intoxication was severe enough to prevent the
individual from comprehending the terms of the contract. - The degree of
intoxication and its impact on the individual's ability to understand the contract
are crucial factors in determining capacity.
4. Legal Authority: - Capacity also extends to legal entities such as corporations,
partnerships, and other business entities. These entities must have the legal
authority to enter into contracts. - This authority is typically outlined in the
entity's governing documents, such as articles of incorporation or partnership
agreements. Contracts entered into beyond the scope of the entity's authority may
be void or voidable.
5. Capacity to Contract: - Capacity to contract ensures that parties have the
requisite understanding and freedom to enter into a legally binding agreement. It
protects vulnerable individuals from exploitation and ensures that contracts are
entered into voluntarily and with full comprehension of their implications. -
Contracts entered into by parties lacking capacity may be voidable, meaning they
can be rescinded by the incapacitated party.