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Law of Contracts Topics:


The notion of contract is part of men’s common stock even outside the field of legal science, and to men of law, so familiar and necessary in its various applications, that we might expect a settled and just apprehension of it to prevail everywhere. Nevertheless, we are yet far short of this.

Indian contract Act is the Act which regulates the entire arena of business world which does its business on the basis of contract. Contract Act contains 238 sections. Contract Act covers a wide range of area like: Formation of contracts, contingent contracts, performance of the contract, and consequences of breach of contract, sale of goods, indemnity and guarantee, bailment, agency and so on. Under Section 1 of contract Act says that the Act is applicable to the whole of India, except the state of Jammu and Kashmir.

In the following chapter, some of the important parts of the Contract Act were discussed.

A contract means an agreement which is enforceable by law .An agreement consists of reciprocal between the two parties .In case of contract each party is legally bound by the promise made by him. A contract or an obligation to perform a promise could arise in the following way:

1. By Agreement and Contract
2. By Standard Form Contract and
3. By Promissory Estoppel


The most common way of making contract is through an agreement. The two parties may agree to something through mutual negotiations. When one party makes an offer and the other accepts the same, there arises an agreement ,which may be enforceable by law.


In the modern age some persons , institutions or establishments’ such as the Railway, Insurance Companies, Bank, Manufacturers of various goods, etc., may have to enter into a very large number of contracts with thousands of persons. They cannot possibly negotiate individually with the persons with whom the contracts are to be made. Contract with pre-drafted matters are generally prepared by one party, which the other has to agree to. As a general rule, such standard Form Contract are as much valid as those entered into through due negotiation.


Sometimes there may be no agreement and contract in strict sense of the term, but a person making a promise may become bound because of the application of the equitable doctrine of Estoppel.


According to section 2(h) of the Indian Contract Act, 1872 “ An agreement enforceable by law is a contract.” All agreements are not enforceable by law and, therefore, all agreements’ are not contracts. Some agreements may be enforceable by law and others not. For example, an agreement to sell a radio set may be a Contract, but an agreement to see a movie may be a mere agreement not enforceable by law. Thus all agreements are not contracts. Only those which satisfy the essentials mention in Section 10 becomes contracts. However, all contracts are agreements.


According to Section 2(e);”Every promise and every set of promises forming the consideration for each other is an agreement.” In an agreement there is a promise from both sides, For example ,A promises to deliver his watch to B and in return B promises to pay a sum of Rs.2000 to A, there is said to be an agreement between A and B.

Thus, when there is a proposal from one side and the acceptance of that proposal by the other side, it result s in a promise .This promise from the two parties to one another is known as an agreement.


1. An agreement between the two parties .An agreement is the result of a proposal or an offer by one party followed by its acceptance by the other.
2. Agreement should be between the parties who are competent to contract.
3. There should be a lawful consideration and lawful object in respect of that agreement.
4. There should be free consent of the parties, when they enter into the agreement.
5. The agreement must not be one, which has been expressly declared to be void.

From the point of view of the legality, there are different types of agreements.


According to Section 2(h), Contract is an agreement which is enforceable by law. It has been noted above that in order that an agreement becomes a contract , it has to satisfy all the essentials of a valid contract as mentioned in Section 10.


The contracts can be classified on the basis of formation and enforceability.

On the basis of formation the contracts can be classified as:

*Express or Formal Contracts.
* Implied Contracts.

Express Contracts are those Contracts which are made by words spoken or written implied contracts are those, which are inferred from the conduct of parties or of circumstances. Classification on the basis of enforceability.

On this basis the contracts are classified as:
Valid Contracts.
Void Contracts.
Voidable Contract.

Valid Contracts are those which satisfy all conditions prescribed by Law. Either the party can go to the court for remedy.


According to Section 2(g), an agreement not enforceable by law is said to be void. For instance, an agreement by a minor has held to be void. Sections 24 to 30 make a specific mention about agreements which are void. Those agreements’ include an agreement include an agreement without consideration. An agreement in restraint of marriage and agreement in restraint of trade.


According to Section 2(I), an agreement which is enforceable by law at the option of one or more of the parties there to, but not at the option of the other ,is a voidable contract .Thus, a voidable contract is one which could be avoided by one of the parties to the contract at his option. Even if one of the parties does not avoid the contract ,the contract still becomes void .For instance, when the consent of a party to a contract has been obtained by coercion, under influence ,fraud or misrepresentation, the contract is voidable at the option of the party whose consent has been so obtained.


It has been noted that an agreement between the parties is one of the essentials for creating a contract ,An agreement arises by an “offer” or proposal by one of the parties and the “acceptance” of such offer by the other.


The term proposal has been defined in section 2(a) as follow:

“When one person signifies to another his willingness to do or obtain 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.”

The term proposal used in the Indian Contract Act is synonymous with the term ’offer’ used in English law. The willingness to do or abstain from doing something, i.e., the proposal or the offer may be made with a view to obtaining the assent of the other party thereto.


A proposal, when accepted, results in an agreement .It are only after the acceptance of the proposal that a contract between the two parties can arise.

According to section 2(b): ”when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted , become a promise.”

The Person making the proposal does not become bound thereby until acceptance. As soon as his proposal is accepted that is known as promise whereby both the parties become bound.


In order that acceptance of an offer can result in a contract, the acceptance must satisfy the following requirements.

1. Acceptance should be communicated by the offeree to the offeror.
2. Acceptance should be absolute and unqualified.
3. Acceptance should be made in some usual and reasonable manner, unless the proposal prescribes the manner of acceptance.
4. Acceptance should be made while the offer is still subsisting.


Presence of consideration is one of the essentials of a valid contract. Subject to certain exceptions, the general rule in India is that “an agreement without consideration is void.”

In England, the contracts are divided mainly into two categories:

1. Contracts under seal, or contracts in the form of a deed, such contracts are valid even without consideration.
2. Simple contracts, or patrol contracts. For the validity of such contracts the presence of consideration is needed.

Consideration means something in return for the promise. It may be either some benefit conferred on One party or some detriment suffered by the other.


• By Performance.
• By mutual consent/agreement.
• By lapse of time.
• By impossibility.
• By operation of Law.
• By breach of contract.


Under sec 73 “when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties know, when they made the contract, to be likely or result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Damages may be classified into four categories.

1. Ordinary or general damages.
2. Special damages.
3. Exemplary or vindictive damages.
4. Nominal damages.

Under sec 74, when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled ,whether or not actual damage or loss is proved to have been caused thereby ,to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or as the case may be, the penalty stipulated for.

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Review Questions
  • 1. What is contract?
  • 2. What is offer and acceptance?
  • 3. What are the conditions of a valid contract?
  • 4. Who is an agent?
  • 5. What is free consent?
  • 6. Differentiate between Indemnity and Guarantee.
  • 7. Describe Contract and its essentials.
  • 8. Write a note on contract of agency.
  • 9. Explain the remedies for breach of contracts.
  • 10. Discuss the rights and liabilities of surety.
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