Business Law

The Contract Act 1872

Part I of VI
CA. Manish Dafria

Coverage

Introduction

Definitions

Legal Meaning of Certain Everyday Terms

Classifications of Contracts

Essential Elements of a Valid Contract

Performance of a Contract

An Introduction

Indian Contract Act

Introduction

We enter into contracts so many times in a

day that contract has become an
indispensable part of our life.
People purchasing newspaper in the
morning or catching a bus in the noon or
going to movie in the evening, or a company
purchasing a whole business, all are
examples of contract.
Any business is, in essence, a series of
contracts made on a regular basis.

Introduction

Basically, a person is free to contract on any

terms he chooses.
The rights and duties of parties and terms of
agreement are decided by the contracting
parties themselves.
A valid contract binds all the parties to the
contract, howsoever unfavorable the terms
may be.

Introduction

The Contract Act consists of limitations subject

to which contract may be entered and executed.
The act basically identifies ingredients of a
legally enforceable valid contract in addition to
dealing with certain special types of contracts
like indemnity, guarantee, bailment, pledge etc.
The court of law intervenes only to enforce the
contract in case of non-performance, if the
contract was a valid contract i.e. has been
entered into in accordance with the provisions of
the Contract Act.

Definitions

Some Every Day Terms

Some Every Day Terms

Contract

Agreement

Promise
Offer

Definitions : What is a contract ?

An Agreement enforceable by law is a

CONTRACT . [Sec. 2(h)]
Therefore CONTRACT = Agreement +
Enforceability by Law.
So what is an agreement?

Definitions : What is an agreement

Every promise and every set of promises, forming the

consideration for each other, is an AGREEMENT. [Sec.
2(e)]

A agrees to pay Rs 100 to B and B agrees to give him a

book which is priced at Rs 100. This is a set of promises
which form consideration for each other and hence an
agreement.
So what is a promise?

Definitions : Promise

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 have made a PROPOSAL or OFFER.
When a person to whom the proposal is made, signifies his
assent thereto, the PROPOSAL is said to be ACCEPTED.
A proposal, when accepted, becomes a PROMISE. [Sec.
2(b)]
The person making the proposal is called the
"PROMISOR", and the person accepting the proposal is
called "PROMISEE

Definitions : Consideration

PAST
Consideration

FUTURE
When, at the PRESENT
desire of the promisor, the promisee
or
Consideration
Consideration
any other person has done or abstained from doing,
or does or abstains from doing, or promises to do or to
abstain from doing, something, such act or
abstinence
or
promise
is
called
a
CONSIDERATION for the promise;
Every promise and every set of promises, forming
the consideration for each other, is an
AGREEMENT. [Sec. 2(e)]

An agreement enforceable by law is a contract. [Sec.

2(h)]

Contract : Flow of events