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.
The Act as enacted originally had 266 Sections.
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

Case: Balfour vs Balfour

RIGHTS IN PERSONAM
‘Rights in personam’ means a right against or in respect of a
particular person/persons.
For example; A entitled to receive a sum of money from B.
this right can be exercised by A only and that too against B
only. This is right in personam.

RIGHTS IN REM
‘Right in rem’ means a right against or in respect of a thing.
This right is available against the whole world. For example; If
A owns a land and B is his neighbour, A has a right of
complete possession of land not only against B but against the
whole world. This is right in rem.
ESSENTIAL ELEMENTS OF
A VALID CONTRACT (Sec
10)
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 real and
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
(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.
 CLASSIFICATION OF
CONTRACTS
Contracts can be classified on the basis of their (a) validity,
(b) formation, (c) performance
(A) On the basis of validity or
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
3. Void agreement. According to Section 2 (g), “an
agreement which is not enforceable by law is void.” It is
Void ab initio. 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.
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.Nature: Void agreements may be void for a reason other
than illegality. All illegal agreements are void.
2.Punishment: Parties to a void agreements may not be
punished but parties to an illegal agreements are punished.
(B) On the basis of formation or creation
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.
(C) On the basis of performance or extent of
execution
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.
CLASSIFICATION OF CONTRACTS UNDER
ENGLISH LAW
1. Formal contracts. These contracts are those which
are made without consideration. These include (a) Contracts
of record and (b) Contracts under seal
(a) Contract of record – Such contracts exist by the
reason of the entry in the records of the court in which
proceedings are brought.
(b) Contract under seal – these are created by sealed
documents. It is written and signed by the parties.
2. Simple contracts. Contracts which are not formal
are known as simple contracts. They may be in writing, or
made orally, or they may be implied from the conduct of the
parties.