Business Law

(Hassan Chattha )

Essentials of Contract
 Introduction

 All agreements are not contracts. Only that

agreements which are enforceable under the
law are contracts. [Section 2 (h)]
 SRO statutory regulatory orders
Express and Implied terms

 Express Contracts/Terms:
– what the parties said or wrote

 Implied Contracts/Terms:
– Through conduct, gestures
Essentials for a valid contract
 For a contract to be legally enforceable the contract must
contain the following essentials:
(1) Offer
(2) Acceptance of the offer
(3) Consideration
(4) Free Consent
(5) Capacity of Parties
(6) Lawful Object
(7) Certainty of Terms
(8) Possibility of Performance
(9) Intention to Create Legal Relations
1. OFFER :

 Offer/ Proposal: [Section 2(a)]

– When one person signifies to another his willingness
to do or 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.

– Example:
A say to B that he wants to sell his car to him for Rs. 8 lacs.
–
Offers v. Invitations to Treat

 Followings are Invitation to treat and not an

Offer
– Display of Goods.
– Advertisements.
– Tenders
– Auctions
Termination of an Offer

(1) Revocation
(2) Lapse
(3) Rejection By Offeree
(4) Implied rejection : counter offer
 Hyde v. Wrengh
Facts: The defendant offer to sell his farm for £1000. The
plaintiff made an offer of £950 in response which the defendant
refused. The plaintiff then agreed to £1000 and attempted so
enforce the contract of sale.
Held: There was no longer an offer which the plaintiff could
accept since he had with his counter offer destroyed the original
offer of £1000.
2. ACCEPTANCE

Acceptance: [Section 2(b)]

When the person to whom the proposal is

made signifies his ascent there to, the
proposal is said to be accepted. A proposal,
when accepted becomes promise.’
Case Laws:

 Bryen & Langley Ltd v Boston 2005

 The facts: A tender for building work
was not signed, but on the basis of an
agreement made, the building work was
started.
 Decision:A binding contract existed as the
commencement of the building work was a
positive act, enough to imply acceptance
3. Consideration

 Consideration [Sec.2(d)]
– When at the desire of promiser, the promise or
any other person has done or abstained 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 consideration
for the promise.
Rules of Consideration

 Consideration does not have to be adequate

 Consideration must not be illegal
 Consideration must move from the promise
 Past consideration is not good consideration
4. Free Consent:

Consent is said to be free when it is not caused by:

(Section 14)
1. Coercion - Section 15.
2. Undue Influence - Section 16.
3. Fraud - section 17.
4. Mis-representation - section 18.
5. Mistake - sections 20, 21 & 22
a. Mistake of fact / Uni- Lateral or Bi-Lateral
5. Capacity of Parties:

Every person is competent to contract if

– Age of majority
– Sound mind.
– Must not disqualified from contracting by any law
to which he is subject
6. Lawful Object.

 The object of an agreement must be valid.

– Thus, when one hires a house for use as a

gambling house, the object of the contract is to
run a gambling house.
Following objects are Unlawful.

 The Object is said to be unlawful if-

(a) it is forbidden by law;
(b) it is fraudulent;
(c) it involves an injury to the person or property
of any other;
(d) the court regards it as immoral or opposed to
public policy.
7 Certainty of Terms.
Agreement the meaning of which is not
Certain or capable of being made certain are
void.
– Example: A agrees to sell B his horse for rupees 5000 or
10,000, there is nothing to show which of two prices were
given, hence not enforceable
– If A agrees to sell to B to sell 100 tons of Oil, there is
nothing to show what kind of oil A intended to sell, the
agreement is void due to absence of certainty.
8. Possibility of Performance.

If the act is impossible in itself, physically or

legally, it is not enforced under law.

Example: Mr. A agrees with B to discover

treasure by magic. Such Agreements is not
enforceable.
9. Intention to create legal
relationship

• In case, there is no such intention on the part

of parties, there is no contract.

• In Commercial and Business Agreements

there is a presumption that the parties intend
to create legal relations: Edwards v Skyways.
Case Laws:

 Balfour v. Balfour Case:

A husband promise to pay his wife, a
domestic allowance of $30 per month. Later
the parties separated and the husband
defaulted the payment, Held, the wife could
not recover since there was no intention to
create legal relations at the time of entering
into the agreement.
Case Laws:

 Husband & Wife Agreements

The courts consider domestic arrangements
between husband and wife to be social agreements
and not legally enforceable: Balfour v Balfour.

Exceptions:
If the agreement between husband and wife involves
essentially a commercial matter then the agreement
will be enforceable : Milliner v Milliner.