CONTRACT AND ITS ESSENTIAL S

THE INDIAN CONTRACT ACT 1872………………The law of contract in INDIAis contained in INDIAN
CONTRACT ACT 1872.This act is based on English common law which is to a large extent made up of
judicial precedents . It extends to the whole of INDIA except the stste of J &K and came into force on 1st
day of September 1872. The scheme of the act may be divided into 2 main gps……………..

1: GENERAL PRINCIPLES OF THE LAW OF CONTRACT{sec 1-75}

2:SPECIFIC KINDS OF CONTRACT VIZ…

A*Contracts of indemnity and gurantee

B*Contracts of bailment and pledge

C* Contract of agency

Basic assumptions ……………..

1.. Subject to certain limiting principles there shall be freedom of contract to thecontracting parties and
the law shall enforce only what the parties have agreed to be bound. The law shall not lay down
absolute rights and liabilities of the contracting parties . Instead it shall lay down only the essentials of a
valid contract and the rights and obligation it would create b/w the parties in the (-)ce of anything to the
country agreed to by the parties.

2..Exceptions created by promises of the parties shall be fulfilled and there non fulfillment shall give
rise to legal concequences .If the plantiff(person who brings an action in the law court)asserts that the
defendant undertook to do a certain act &failed to fulfill his pro,mise , an action at law shall lie.

DEFINITION OF CONTRACT……………….

(ACCORDING TO SEC 2 {h}of Indian contract act)

“an agreement enforceable by law is contract”……….A contract therefore , is an agreement the object
of which is to create a lega l obligation i.e A duty enforceable by law.

According to the definition : a contract consists of 2 elements:

1..An agreement

2..Legal obligation I,e duty enforceable by law

Agreement: Every promise and every set of promises , forming the consideration for each other is an
agreement. Therefore A promise is an agreement

Promise: When the person to whome yhe proposal is made signifies his assent thereto the proposal
is said to be accepted. ‘A proposal when accepted becomes a promise”

An agreement therefore comes into existence only when ane

party makes a proposal or offer to the other party and that other party signifies his assent i.e gives his
acceptance thereto .therefore an agreement is the sum total of offer and acceptance.

Characteristics of an agreement:
1….Plurality of a person- There must be 2 or more persons to make an agreement becoz one person
cannot enter into an agreement with himself.

2….Consensus –ad-idem-Both the parties to an agreement must agree about the subjectmatter of the
agreement in the same sense and at the same time .

3….Legal obligation-A contract must give rise to a legal obligation i.e a duty enforceable by law. If an
agreement is incapable of creating a duty enforceable by law, It is not a contract.Thus an agreement is a
wider term than a contract.Eg..agreements of moral , religious or social nature-------------A
promise to lunch together are not contracts because they are not likely to create
a duty enforceable by law for the simple reason that the parties nevert intended
that they shld be attended by legal consequences.
In business agreements the presumption is usually that the parties
intended to create legal relations.Thus an agreement to buy certain specific goods at an agreed price
i.e 100 bags/430 Rs per bag is a contract because it gives rise to a duty enforceable by law, and in case
of default on the part of either party an action for breach of contract could be enforced through a court
provided other essential elements of a valid contract is present namely if the contract was made by
free consent of the parties competent to contract, for a lawful consideration and with a lawful object.

Thus it is concluded that-The act restricts the use of the word

“CONTRACT” to only those agreements which give rise to legal obligations b/w the parties.

Essential elements of a valid contract:

1..OFFER AND ACCEPTANCE

2..INTENTION TO CREATE LEGAL RELATION

3..LAWFUL CONSIDERATION
4..CAPACITIES OF PARTIES

5..FREE CONSENT

6.. LAWFUL OBJECT

7..WRITING AND REGISTRATION

8..CERTAINITY

9..POSSIBILITY OF PERFORMANCE

10..NOT EXPRESSLY DECLAIRED VOID

Offer and acceptance;……..There must be a lawful offer and a lawful acceptanceof the
offer, thus relating to an aggrement .Lawful implies……the offer and acceptance must satisfy the
requirements of the contract act in relation thereto.

Intention to create legal relation……..There must be an intention among the

parties that the agreement should be attached by legal consequences and create legal obligations.
Agreement of social and domestic nature do not contemplate legal relations & as such they do not give
rise to a contract.

Eg. 1…….. An agreement to dine at a friends house is not an agreement intended to create legal
relations & therefore is not a contract.

2………agreement b/w husband and wife also lack the intention to create legal relationships & thus

do not result in contract .

CASE……M promises his wife N to get her a saree if she will sing a song. N sang a song but M did
not bring the saree for her.N can not bring an action in a court to enforce the agreement as it lacked the
intention to create legal relations.

In commercial agreements an intention to create legal relation is

presumed.T hus an agreement TO BUY AND SELL GOODS INTENDS TO CREATE ALEGAL
RELATIONSHIPS hence is a contract provided requisites of a valid contract are present.But if the
parties have expressly declaired there resolve that the agreement is not to create legal obligations,
even a business agreement does not amount to a contract..
CASE……THE CASE OF ROSE &FRANK CO VS CROMPTION &BROTHERS LTD……(In the above case R
company entered into an agreement with C company by means of which the former was appointed as
the agent of the latter. One clause of the agreement