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Updated: Jul 21, 2021


Definition and Essentials :

Sn.2(h),Contract Act defines a contract. According to it, a contract is an agreement enforceable by law. It is thus an agreement between two or more persons, to do or not to do some act. In fact, every promise, forming the consideration for each other, is an agreement. If the agreement is not enforceable, the contract is void. Hence, all contracts are agreements, but not all agreements, contracts.

Essentials : Sn.10. Contract Act The essentials of a valid contract are :

i) Consent of the parties i.e., Consensus ad idem

ii) Legal capacity or competence of the parties

iii) Consideration and

iv) Lawful object and lawful consideration

i) Consent:

It is defined in Sn. 13 : Two or more persons are said to give consent, when they agree on the same thing in the same sense i.e., consensus ad idem. It is not free, when there is coercion, undue influence, fraud or misrepresentation. In such a case, the contract becomes voidable. But, when there is no consent, the contract becomes void.

ii) Legal capacity :

Sec. 11 of the Contract act, states that the parties to the contract must be competent to contract. There is no capacity, when a party is a minor or insane, an idiot or when he is disqualified according to any special law to which he is subject.

A contract with a minor is void ab initio.[from the beginning] A person below 18 years of age is a minor (21 years for a ward under a guardian). The leading case is Mohori Bibi V. Dharmadas Ghosh.

iii) Consideration :

An agreement without consideration is void. (Sn. 25 Contract Act). Consideration is defined in Sn. 2(d). When at the desire of the promisor, the promisee or any other person has done or abstains from doing, or does or abstains from doing, or promises to do or abstains from doing, something, such act or abstinence or promise, is called a consideration for the promise.

1. The rule is "ex nudo pacto, non oritur actio" [On naked pact (contract),no action arises ].i.,e. without consideration, no action arises. Consideration must be clear, specific and not illusory. It may be inadequate, if parties agree to the contract. By that itself contract will not become void. But, the general rule is "no consideration, no contract". But there are exceptions.

1. When agreement is made on account of natural love and affection (e.g.Gift by father to daughter), it should be in writing and to be registered.

2. Compensation, promised for services rendered.

3. Past consideration is good consideration,

iv) Lawful object :

According to Sn.23 of the Contract Act, the consideration or object of the agreement must be lawful otherwise the contract is void.

The consideration or object is not lawful :

i) it is forbidden by law

ii) It is of such a nature that if permitted it would defeat the provision of any law

iii) it is fraudulent

vi) it involves or implies injury to the person or property of another

v) it is immoral or opposed to public policy.

e.g. (1) A, B & C agree to divide their earnings got by fraud. (2) lease agreement of a house for immoral purposes.

Offer and invitation to treat: Sn. 2(a) :

Offer or proposal is defined in Sn.2(a) of the contract act. "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 make a proposal (offer). The person who makes the proposal is called a "promisor", the person accepting the proposal is called a promisee. When the promisee gives his assent, it becomes "Acceptance", (i) The

offer must be definite and give rise to legal consequences.

Invitation to treat:

According to Anson, as offer is different from an "invitation to treat". A catalogue of goods for sale is not an offer but only an invitation to offer. A shopkeeper who keeps his goods in the shop window with label of price attached, is making an invitation to offer. Similarly, a mere reply to a letter quoting prices will not constitute a proposal to sell.

(a) Harvey V. Facey :

H telegraphed, "Will you sell us Whiteacre? Telegraph lowest price". F replied : "Lowest price £ 900". H telegraphed "We agree to buy for £ 900 asked by you". Held : There is only an offer, by H to buy. It is for F to accept or not. Here, F has not accepted. Hence, there was no acceptance.

(b) Balfor V. Balfor :

Husband H, promised to send £ 23 a month to his wife W, as long as she remained away from him. Held : W cannot sue. The promise of H was never intended to give rise

to legal consequences.

(ii) General & Specific offer :

An offer may be general or specific. It is a specific offer when it is made to a definite individual or to a definite group of individuals. It is, considered as a General offer when it is made to an unascertained group of individuals i.e., to the public at large. Here, offer can be accepted by any individual. Hence, if a reward is fixed, any person who fulfils the conditions may claim the award. The leading case is Carlill Vs. Smoke Ball Company. In this case, the defendant advertised that they would pay 100 pounds to anyone who gets influenza, after using their smoke-ball. This smoke-ball is to treat the nostrils with a kind of carbolic acid snuff. This is to be used as per directions of the defendant company. The company had deposited money in a bank to show their sincerity. Carlill got influenza after using it. She claimed the reward. The court held that the company was liable to she was entitled to the reward. Jude Bowen held, the advertisement was not an invitation to offer, but a general offer which was accepted by the lady and hence, it became a binding contract. She had used on the faith of the advertisement. Her acceptance of the smoke-ball needs no communication to defendant. Her performance that is by using as per direction was sufficient acceptance.This case shows that offer, if it is to be capable of acceptance, must have a promise by offeror that he will bind himself, if conditions are followed. Similarly, Railway time-table is an invitation to offer.

Acceptance of offer :

According to Anson "An acceptance is to an offer what a lighted match is to a train of gun powder". This means when the offer is accepted it becomes a contract. According to Contract Act Sn.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 becomes a promise.

According to Sn.7, in order to convert a proposal into a promise, the acceptance must be :

i) Absolute and unqualified

ii) Be expressed in some usual and reasonable manner. But if a particular mode is prescribed, it must be accepted in that mode. Otherwise, the proposer may insist on such a mode. If he does not insist, he is said to have accepted.

Acceptance should be absolute :

Hyde V. Wrench : W offered to sell his farm to H for £ 1000. H said he would buy for £ 950. W did not agree, later H agreed for £ 1000. Question was whatever there was acceptance.

Held : there was no acceptance, as it was qualified, i.e., to buy for £ 950.

Communication of a proposal when complete :

i) It is complete, when it comes to the knowledge of the person to whom it is made.

ii) The communication of an acceptance is against the proposer, when it is in communication to him, so as to be out of the power of the acceptor.

a) as against the acceptor, when it comes to the knowledge of the proposer.

i) A proposes by letter to sell his house to B for Rs.50,000/-The communication is complete when B receives it.

ii) B accepts A's proposal by a letter by post. The communication of acceptance is complete, as against A, when the letter is posted, and as against B, when A receives the letter.

Revocation of proposal and acceptance :

Sn.6 The communication of revocation is complete :

i) as against the person who makes the revocation, when it is put into communication to the person to whom it is made, so as to be out of the power of the person who makes it.

ii) as against the person, to whom it is made, when it comes to his knowledge.

e.g. A revokes his proposal to sell his house to B, by a telegram. The revocation is complete as against A, when the telegram is despatched. It is complete as against B, when B receives it. B revokes his acceptance by telegram. B's revocation is complete as against B, when the telegram is despatched, and as against A, when it reaches him.

Revocation of a proposal:

1) By issuing notice of revocation by the proposer to the other party.

2) By efflux of time prescribed. If no time is prescribed, by the lapse of a reasonable time.

3) By the failure of the acceptor to fulfil some condition precedent (prior condition).

4) By the death or insanity of the proposer.

Leading case : Dickinson V. Dodds. On 10th June, Dodds made an offer to sell his dwelling house for £ 800 to Dickinson. "The offer was left open upto 9 a.m. 12th June". But, on 11th itself he contracted to sell the house to A'. Dickinson handed over hisletter of acceptance before 9 a.m. on 12th. Dodd said "you are too late. I have sold my property". Dickinson sued Dodds. Held, there was no contract.

Comment: Anson has doubted this decision. This is no longer good law in India. In India, a proposal is revoked by notice of revocation by the proposer to the other party, or on the efflux of time if time is prescribed , or by lapse of a reasonable time if no time is fixed.

Stranger to a contract :

A stranger is not a party to the contract and hence cannot sue. Consideration is defined in Sn. 2(d). When at the desire of the promisor, the promisee or any other person had done something ...such act consideration for the promise. Hence, consideration may flow from the promisee or any other person. Hence, the question is whether a stranger can sue ?

Tweddle V. Atkinson :

Here H & W were husband and wife. H's father and W's father agreed to pay money to H and that H could sue. When both parties to agreement died, H sued W's father's executors for the money. Held that H was stranger and hence, cannot sue. Hence, it is a settled law that a stranger cannot sue.

Exceptions :

1. When a contract confers benefit on third party, such a beneficiary, as in trust may sue.

2. Trust in favour of a stranger is valid.

3. When money is due under a family arrangement or partition, to a stranger. In the above circumstances, stranger can sue.

Valid, void, voidable and unenforceable contracts :

a) Valid contract: It is an agreement which has all the requisites of a contract.

i) Free consent ii) Consideration iii) Lawful object iv) Legal capacity of the parties. Hence, such a contract is valid and is enforceable in a court of law .

b) Void contract : It is an agreement without any legal effect. It is a nullity. It is not enforceable in a court of law. An agreement not enforceable by law is void.Eg.

1) Contract with a minor Sn.ll.

2) Contract without consideration Sn. 25.

3) Contract with object unlawful Sn. 23

4) Wagering contract Sn. 30.

5) Contract in restraint of trade Sn. 27. or in restraint of marriage. Sn. 26.

c) Voidable contract: This is an agreement which is enforce able by law at the option of one of the parties thereto but not at the option of the other. Voidable contract is a valid contract until it is set aside by the court. The person who has the right to rescind must do so within a reasonable time, ie., 3 years. Any agreement made under undue influence, coercion, fraud,

misrepresentation is voidable. Hence, when the court sets aside the contract the contract becomes void. Undue influence . Fraud . Misrepresentation. Coercion , Unenforceable.


It is a contract which is otherwise valid in all respects but cannot be enforced on account of some technical defects like insufficient stamps, not written in a particular form, etc.



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