ASSIGNMENT

BOBIN JOSEPH VARGHESE

MBA- B
1373
ESSENTIALS OF A CONTRACT
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BOBIN JOSEPH VARGHESE

CONTRACT
A contract in simple words is defined as an agreement which is enforceable by
law. An agreement is defined as a promise or a set of promises providing
consideration for each other. While a promise is an accepted proposal by the
person to whom the proposal was initially offered.
Now agreement can be written as an accepted proposal consisting of 2
elements :
1) Offer or a proposal.
2) Acceptance.
An agreement becomes a contract only when the agreement is enforceable by
law and therefore all contracts are agreements but all agreements need not be a
contract (there are social agreements with no legal obligations and consequences
and they do not form a contract). A contract consists of 2 elements:
a) An agreement.
b) Legal obligation.
ESSENTIALS OF A CONTRACT
For a contract to be valid, the following elements are essential:
1) Agreement.
2) Intension to create a legal relationship.
3) Free and genuine consent.
4) Parties competent to contract.
5) Lawful consideration.
6) Lawful object.
7) Certainty of meaning.
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BOBIN JOSEPH VARGHESE

8) Possibility of performance.
9) Necessary legal formalities.
AGREEMENT:
To constitute a contract, there must be an agreement. An agreement comes into
existence when there is an offer and an acceptance in return to that offer.
Agreement includes essentially 2 parties :- an offeror and an offeree.
Offeror is the party making the offer and offeree is the party
to whom the offer is made. A contract becomes valid only when there is
consensus-ad-idem i.e,there must be meeting of minds. Both the parties must
be thinking of same thing in the same sense.
EX: A owns 2 cows x and y and wishes to sell x for 15,000 rupees. B a friend
of A is not aware that A is also having another cow x and thinks that he is
offering to sell y for the stated price and gives his acceptance. Eventually there is
no contract over here as both the parties have not agreed on the same thing at
the same time, as a result there is meeting of minds.
INTENTION TO CREATE LEGAL RELATION:
During an agreement there should be an intention on the part of the parties to
create a legal relationship. Social agreements do not form a contract however in
case of agreements which are social or domestic in nature, there may be
intention of the parties to create legal obligations and this becomes a contract.
EX: Balfour v. Balfour case (1960).
A husband agreed to pay a certain amount of money to his wife every month
while he was abroad .But he failed to make the payments and his wife sued him
for the recovery of the amount. But she could not recover the amount as it was
just a social agreement and there was no intention to create legal relations.

EX: parker v. clark case (1960)
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BOBIN JOSEPH VARGHESE

An aged couple promised by correspondence to a young couple that they would
leave them a portion of his estate in his will if the young couple would sell their
house and start living with them. The young couple does so but in the long run
both the couples end up quarrelling and the old couple ask the young couple to
stay somewhere else. Eventually the young couple files a case against them for
the breach of promise. Since the intention was to create a legal relation the old
couple had to pay compensation.
FREE AND GENUINE CONSENT:
The consent of the parties to agreement must be free and genuine and the
consent should not be obtained by misrepresentation, fraud ,undue influence
,coercion or mistake. The contract becomes invalid if any of these are involved.
Coercion means committing or threatening to commit any act which is
forbidden by the Indian penal code or unlawful detaining or threaten to
detaining any other persons property with a view to enter into an
agreement. It is immaterial whether IPC is or is not in force where the
coercion is employed.
EX: A threatens to kill B if he doesnt transfer his properties in As favour for a
very low price. This agreement becomes void as it involves coercion.
Undue influence consists of improper exercise of a power over the mind of
one of the contracting parties by the other. Here the situation is such that
one of the parties is in a position to dominate the will of the other and uses
that position to take advantage of the other.
Examples of undue relation : a) spiritual advisor and devotee.
b) promoter and company.
c) doctor and patient.
Fraud includes any of the following acts committed by a party to a contract
with an intention to deceive the other party or to induce him to enter into
the contract.
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BOBIN JOSEPH VARGHESE

1. The suggestion that a fact is true when it is not true and the person making it
does not believe in it to be true.
2. The active concealment of a fact by a person having knowledge or belief of
the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudulent.
Mis-representation is incorrect or false statement and is similar to fraud
but here the falsity or inaccuracy is not due to any desire to deceive or
defraud the other party.
PARTIES COMPETENT TO CONTRACT:
Both the parties involved in a contract should be competent to enter into a
contract. Conditions which make a person competent are:
a) The person involved in the contract must be a major A major is a person who
has completed 18 years of age.
b) The person must be mentally sound A person is said to be of unsound mind if
at the time of making a contract, he is incapable of understanding it and of
forming a rational judgement as to its effect upon his interests.
Contract with a lunatic- A person can enter into a contract with a lunatic
when he is in the state of sound mind , however he is not liable to contracts
when he is of unsound mind.
Contract with an idiot An idiot is a person who is permanently of unsound
mind and he is incapable of entering into a contract.
Contract with drunken or intoxicated person such persons are incapable
of understanding the contract take a rational decision and so they are
incapable to enter into contracts during this state of mind.
c) The person must not be disqualified by any other law.
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LAWFUL CONSIDERATION:
A contract becomes valid only when the agreement is supported by consideration
on both sides. Both the parties entering into a contract must give or promise
something and receive something or a promise in return i.e, both the parties have
to be benefitted in some way or the other(it need not be in terms of money
always).
Rules to consideration:
1) must move at the desire of the promisor.
2) may move from the promisee or any other person.
3) consideration need not be adequate.
4)must be real and competent.
5)must be legal.
LAWFUL OBJECT:
An agreement will not be enforceable if the object of agreement is unlawful or if
the law disapproves.
EX: A ,B and C enter into an agreement for the division of gains among them
which they acquired through fraud. This agreement is void as its object is
unlawful.
CERTAINTY OF MEANING:
The meaning of the agreement must be certain or capable of being made certain
or else the agreement will not be enforceable by law.
EX: If Ravi agrees to supply Ram 10 barrels of oil, then this will not be a valid
contract as the agreement between them is not specific in terms of what type of
oil to be supplied and on which day and hence is not enforceable by law.

ESSENTIALS OF A CONTRACT
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BOBIN JOSEPH VARGHESE

POSSIBILITY OF PERFORMANCE:
The terms entered in an agreement should be capable of performing it and
impossibility of performing it makes it void and is not enforceable by law.
NECESSARY LEGAL FORMALITIES:
Contracts can be oral or written and if the law requires a particular type of
contract to be written ,it must comply with the necessary formalities as to writing,
registration and attestation. If these legal formalities are not carried out in the
required manner then the contract can not be enforced by law.