Contracts

Law of
Contracts (I)
Goods in storage or held as assets without being
sold have no value per se
Ability to perform a service without actually

Unlocking performing it also has no value
value Contracts must have some value attached –

whether monetary or otherwise
For a buyer of goods or of services, the value of

the goods or service will always be more than
that of the seller
Consent
Free will is at the heart of all agreements and contracts
Consent implies that parties to an agreement are exercising their free will in being bound
by the agreement
Consent cannot be obtained by

• Coercion or Force
• Undue Influence
• Mistake
• Misrepresentation
• Fraud
Essential Elements of a Valid Contract (I)
Intention to Lawful object Valid Offer
Not expressly
create a Legal and and
void
Relationship consideration Acceptance
Capacity of Certainty of Possibility of

Free Consent
parties meaning Performance
Legal
formalities
Essential Elements of a Valid Contract (II)
Intention to create a legal relationship
• Excludes social and domestic relationships
• Settlement deed in case of a divorce?
• Excludes commercial relationships which did not intend to have legal consequences
Lawful Object and Consideration

• An agreement to do something prohibited by law will not amount to a contract
Certainty of Meaning
• A contract must expressly outline rights and obligations of all parties to the contract.
Cannot be vague or ambiguous.
Essential Elements of a Valid Contract (III)
Free consent
• Consent isn’t free when obtained through
• Coercion
• Undue Influence
• Misrepresentation
• Fraud
• Mistake
Capacity of parties
• Parties to a contract must be mentally and psychologically capable of understanding the ramifications of
the contract
• Minors and persons of unsound mind do not therefore, have a capacity to contract
• Capacity of a partnership? Of a company?
Essential Elements of a Valid Contract (IV)
Possibility of Performance
• Contracts that require an impossible action are not enforceable
Legal formalities
• Contracts aren’t required to be in written form, they can be oral too.
• However, some contracts such as those related to transfer of
property, or arbitration agreements must be in written form,
sometimes registered with a government authority
Willingness to do or to abstain from doing anything
Against valid consideration (payment in monetary

value or kind). Consideration must be communicated.
Offer With a view to create a legally binding commitment
Can be express or
Communication implied
Revocation
Cancellation of offer
Lapse
Willingness to be bound by the
terms of the offer
No further negotiation
Acceptance Creates a legally binding

commitment which both parties
must carry out
Failure to carry out commitments

may lead to a breach in the
contract
Contract Formation
Counteroffer
Counteroffer Rejection
Counteroffer Rejection Acceptance
Offer Rejection Acceptance

Invitation to
Offer
Rejection Acceptance
Contract Formation Examples
“I agree to sell my car for INR 2
lakhs, kindly let me know your
decision in the next two weeks”
”Now offering the latest line
of laptops. Hurry while
stocks last!”
“Mega Sale is ON
this week! Discounts
upto 50%!!!
“Ek chaai
dena (one
tea please)”
20% off on
Chetan
Bhagat
books.
• Self service
supermarkets
• Self service checkout?
• Ordering from a
vending machine
Contracts when breached, are
enforceable by a court
Agreements Agreements that are not

v. Contracts contracts are not enforceable
Specific
How does a court performance
enforce contracts? Restitution

Compensation
Prohibited by law
When are Trying to circumvent the law
Agreements Restraint of marriage
not Restraint of trade (exceptions – restraint of

employment, exclusive dealerships)
Contracts? Restraint of legal proceedings
One of the parties is incapable of providing free

consent or does not provide free consent
Contracts form the bedrock of all trade. Without contracts, no
goods or services could be traded.
The law of contracts creates a regulatory environment where

businesses can be guaranteed that promises once made, will be
upheld.
Summing Invitations to offer, offers and counteroffers could go back and
up
forth. The acceptance is the 'point of no return'
If promises are broken, the court will step in to ensure

compliance or will provide compensation
However, contracts have to be created in a manner that is

enforceable.

Contracts

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Contracts

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Law of

Ability to perform a service without actually

value Contracts must have some value attached –

For a buyer of goods or of services, the value of

Consent cannot be obtained by

Capacity of Certainty of Possibility of

Lawful Object and Consideration

Against valid consideration (payment in monetary

Offer With a view to create a legally binding commitment

Acceptance Creates a legally binding

Failure to carry out commitments

Counteroffer Rejection Acceptance

Offer Rejection Acceptance

Agreements Agreements that are not

enforce contracts? Restitution

When are Trying to circumvent the law

Agreements Restraint of marriage

not Restraint of trade (exceptions – restraint of

Contracts? Restraint of legal proceedings

One of the parties is incapable of providing free

The law of contracts creates a regulatory environment where

Summing Invitations to offer, offers and counteroffers could go back and

If promises are broken, the court will step in to ensure

However, contracts have to be created in a manner that is

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