Module 1 : Introduction To Contract Drafting

1.1 Introduction

The Contract Act comprises a set of legal principles governing contracts within a specific jurisdiction. A
contract, in essence, is an agreement between two or more parties that establishes enforceable
obligations. This Act outlines the rules for creating, enforcing, and interpreting contracts, as well as the
remedies available in case of a breach.

In many jurisdictions, the Contract Act is rooted in common law principles, where legal rules are shaped
by court decisions. However, some regions adopt a statutory framework, codifying the law within a
statute or legal code.

Key aspects typically covered under the Contract Act include:

 Offer and Acceptance: The process by which agreements are initiated and finalized.

 Consideration: The value exchanged between parties.

 Capacity: The legal ability of parties to enter into a contract.

 Legality: The requirement that agreements must adhere to lawful purposes.

 Interpretation: Understanding and resolving ambiguities in contractual terms.

The Act also addresses issues like breach of contract, available remedies, and the discharge or
termination of contractual obligations.

Understanding the Contract Act is vital for comprehending the legal framework that governs
agreements, ensuring their enforceability, and resolving disputes that may arise in a legal setting.

1.2 General Principles of Contract

A contract is defined under Section 2(h) of the Indian Contract Act, 1872, as “an agreement enforceable
by law.” It is an arrangement between two or more parties to do or refrain from doing something in
exchange for a consideration.

To construct a legally binding contract, the following essential principles must be fulfilled:

1. Intention to Create Legal Relations: The parties involved must intend to enter into a legally
enforceable relationship.

2. Proposal and Acceptance: A valid offer and its unconditional acceptance are essential.

3. Legitimate Consideration: There must be lawful consideration, which forms the basis of the
agreement.

4. Capacity of Parties: The contracting parties must be legally competent, i.e., of sound mind, of
legal age, and not disqualified by law.
 5. Freedom of Will: The consent to the contract must be given freely, without coercion, undue
influence, fraud, misrepresentation, or mistake.

6. Legality of Object: The purpose of the contract must be lawful and not contrary to public policy.

7. Clarity and Potential for Performance: The terms of the agreement must be clear and
achievable to ensure legal enforceability.

Agreement vs. Contract

Not all agreements qualify as contracts. According to Section 10 of the Indian Contract Act, 1872, “All
agreements are contracts if they are made by the free consent of competent parties, for a lawful
consideration and a lawful object, and are not expressly declared void.” This implies that only
agreements meeting all these criteria become legally binding contracts.

Key Elements of an Agreement

An agreement is a pledge between two parties, legally binding them. Section 2(e) of the Indian Contract
Act defines an agreement as “every promise and every set of promises forming the consideration for
each other.” This definition highlights two critical elements:

1. Promise: Section 2(b) defines a promise as the acceptance of an offer, transforming it into a
binding commitment.

Promises can be categorized as follows:

 Expressed Promises: Defined under Section 9, these are explicitly communicated in words,
either verbally or in writing.

 Implied Promises: Also under Section 9, these are inferred from actions or conduct rather than
explicit words.

 Reciprocal Promises: Defined in Section 2(f), these are mutual promises that serve as
consideration for each other.

 Alternative Promises: Defined in Section 58, these involve a choice between two or more
options.

Acceptance

For a contract to be enforceable, the acceptance of a promise must be unconditional. Acceptance can be
communicated verbally, in writing, or through conduct. Section 3 of the Act covers the aspects of
acceptance, communication, and revocation.

Consideration

Section 2(d) defines consideration as “something done or abstained from, or a promise made, at the
desire of the promisor.” It signifies the exchange value in a contract, often referred to as “quid pro quo.”

Key principles of consideration include:

 It must hold legal value and cannot be merely sentimental or emotional.

  Consideration can be past, executory, or executed, but it must be connected to the promise.

 Only the party providing consideration can enforce the promise.

Legal Precedents:

 In Tweddle v. Atkinson, a promise was unenforceable as the party had not provided
consideration.

 In White v. Bluett, sentimental reasons were deemed insufficient as valid consideration.

 In Chappell & Co. Ltd. v. Nestlé, even items of nominal value were recognized as consideration.

 In Pinnel’s Case, partial payment was not considered valid consideration for the discharge of a
debt.

Competence

For a contract to be enforceable, parties must be competent under Section 11 of the Indian Contract Act.
Competence includes being of legal age, sound mind, and not disqualified by law.

Free Consent

As per Sections 13-18 of the Act, consent must be given freely and not be influenced by:

 Coercion (Section 15)

 Undue Influence (Section 16)

 Fraud (Section 17)

 Misrepresentation (Section 18)

 Mistake (Sections 20, 21, and 22)

If consent is obtained under these circumstances, the contract may be voidable or void altogether.

By adhering to these principles, contracts ensure clarity, fairness, and enforceability within the legal
framework.

1.3 Definitions

Section 2 (a): When one person signifies to another their willingness to do or abstain from doing
something, with the intent of obtaining the other's assent to such action or inaction, they are said to
make a proposal.

Section 2 (b): When the person to whom the proposal is made signifies their assent, the proposal is said
to be accepted. A proposal, when accepted, becomes a promise.

Section 2 (c): The person making the proposal is referred to as the promisor, and the person accepting
the proposal is referred to as the promisee.
Section 2 (d): When, at the promisor's request, the promisee or any other person does or abstains from
doing something, or promises to do or abstain from doing something, such an act, abstinence, or
promise is termed as consideration for the promise.

Section 2 (e): Every promise and every set of promises forming the consideration for each other is called
an agreement.

Section 2 (f): Promises that serve as consideration for each other, wholly or partly, are referred to as
reciprocal promises.

Section 2 (g): An agreement that cannot be enforced by law is termed as void.

Section 2 (h): An agreement that is enforceable by law is termed as a contract.

Section 2 (i): An agreement enforceable by law at the option of one or more parties, but not at the
option of the other(s), is called a voidable contract.

Section 2 (j): A contract that ceases to be enforceable by law is termed as void when it ceases to be
enforceable.

1.4 Characteristics of a Contract

A contract is a legally enforceable agreement between two or more parties. It defines the terms of the
relationship, ensuring clarity and preventing misunderstandings. Contracts offer legal security and
ensure that parties fulfill their responsibilities.

To be valid, a contract must meet the following essential characteristics:

1. Offer and Acceptance:

 A contract originates from an offer by one party and its acceptance by the other.

 The offer must be specific, explicit, and communicated to the other party, who must accept it
openly or implicitly.

 Once accepted, the offer becomes a binding agreement.

2. Agreement:

 A mutual understanding between the parties on the terms and conditions of the contract is
essential.

3. Intention to Create Legal Relations:

 Parties must intend to form a legally binding agreement.

 For instance, agreements among friends or family may lack this intention and are generally not
enforceable.

4. Legality of Purpose:
  The purpose of the contract must be lawful. Contracts involving illegal activities are void and
unenforceable.

5. Capacity to Contract:

 Parties must have the legal capacity to enter into a contract, meaning they must be of legal age
and possess mental competence.

 Minors, mentally incapacitated individuals, and those under duress or influence may lack
capacity.

6. Free Consent:

 Consent must be given voluntarily and not influenced by coercion, fraud, or misrepresentation.

7. Writing (when required):

 Certain contracts, such as those involving the sale of real estate or agreements exceeding one
year, must be in writing to be enforceable.

Consideration

Consideration refers to the value exchanged between parties. It could be money, goods, services, or even
refraining from an action.

 For example, in an employment agreement, the employer promises payment (consideration) in

exchange for the employee's work.

 Courts usually do not assess the adequacy of consideration, but it must exist for the contract to
be valid.

Intention to Create Legal Relations

A contract must show a clear intent to establish legal obligations. While formal language like “I agree”
can signify intent, actions can also imply this.

 All terms must be accepted by all parties for the agreement to be enforceable.

Capacity and Certainty

 Capacity: Only parties with the legal authority to enter into a contract can create an enforceable
agreement.

 Certainty: The contract terms must be explicit and specific. Ambiguity in key terms, such as the
subject of the contract or the consideration involved, may render the contract unenforceable.