Name: Mahad Taimoor

Roll # L1S20BBAM021

Subject: Business Law

Section: A
 Contract Act

1. Question
A. What do you understand by Contract?

A contract is a legally binding agreement or relationship that exists between two or more
parties to do or abstain from performing certain acts. There must be offer and acceptance
for a contract to be formed. An offer must backed by acceptance of which there must be
consideration. Both parties involved must intend to create legal relation on a lawful
matter which must be entered into freely and should be possible to perform.

i. Definition of contract
a. According to section 2(h) of the Contract Act 1872:

” An agreement enforceable by law is a contract.”

A contract therefore, is an agreement which creates a legal obligation i.e., a duty

enforceable by law.

From the above definition, we find that a contract essentially consists of two elements:

(1) An agreement and (2) Legal obligation i.e., a duty enforceable by law.

Example;

A promises to sell a horse to B for Rs.100.000, and B promises to buy horse at that price.

B. “All contract are agreement but all agreement are not contract” illustrate the
statement.
i. All contracts are agreements:

For a Contract to be there an agreement is essential; without an agreement, there can be

no contract. As the saying goes, “where there is smoke, there is fire; for without fire,
there can be no smoke”. It could will be said, “Where there is contract, there is agreement
without an agreement there can be no contract”. Just as a fire gives birth to smoke, in the
same way, an agreement gives birth to a contract.

ii. What is agreement?

 An agreement is a form of cross reference between different parties, which may be
written, oral and lies upon the honor of the parties for its fulfillment rather than being in
any way enforceable.

a. As per section 2 (e) of Contract At 1872:

” Every promise and every set of promises, forming the consideration for each other, is
an agreement.” Thus it is clear from this definition that a ‘promise’ is an agreement.

iii. What is a ‘promise‘?

The answer to this question is contained in section 2 (b) which defines the term.” 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.”

An agreement, therefore, comes into existence only when one party makes a proposal or
offer to the other party and that other party signifies his assent thereto.

iv. All agreements are not contracts

As stated above, an agreement to become a contract must give rise to a legal obligation. If
an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus
an agreement is a wider term than a contract.

Agreements of moral, religious or social nature e.g., a promise to lunch together at a

friend’s house or to take a walk together are not contracts because they are not likely to
create a duty enforceable by law for the simple reason that the parties never intended that
they should be attended by legal consequences

On the other hand, legal agreements are contracts because they create legal relations
between the parties.

v. EXAMPLE:

a- A invites B to dinner. B accepts this invitation but does not attend the dinner. A cannot
sue B for damages. It is social agreement because it does not create legal obligation. So it
is not a contract.
 b- A promises to sell his car to B for one million. It is legal agreement because it creates
legal obligations between the parties. So it is a contract

a. According to section 10 of the contract act 1872,

“All agreements are contracts if they are made by the free consent of the parties,
competent to contract, for a lawful consideration and with a lawful object and not hereby
declared to be void.”

Thus an agreement becomes a contract when at least the following conditions are
satisfied.

a) Free consent
b) Competency of the parties
c) Lawful consideration
d) Lawful object.
C. Conclusion:

In a nut shell, an agreement is the basis of a contract and contract is the structure
constructed on these basis. An agreement starts from an offer and ends on consideration
while a contract has to achieve another milestone that is enforceability. Due to this,
breach of an agreement does not give rise to any legal remedy to the aggrieved party
while breach of contract provides legal remedy to the aggrieved party against the guilty
party. Thus we can say that all contracts are agreements but all agreements are not
contracts.

2. Question
A. What is offer in accordance of contract act?
B. Explain the rules regarding offer.
i. Offer

The entire process of entering into a contract begins with the proposal or an offer made
by one party to another. The proposal must be accepted to enter into an agreement.

According to the Contract Act 1872, proposal is defined in Section 2(a) as “when one
person will signify to another person his willingness to do or not do something (abstain)
 with a view to obtain the assent of such person to such an act or abstinence, he is said to
make a proposal or an offer.”

ii. Features of a valid offer

The person making the offer/proposal is referred to as the “promiser” or the “offeror”.
And the person who accepts an offer is referred to as “promise” or the “acceptor”.

The offeror must express his willingness to do or abstain from doing an act. Only
willingness is not adequate. Or just an urge to do something or not to do anything will not
be an offer.

An offer can either be positive or negative. It can be a promise to do some act, and can
also be a promise to abstain from doing any act/service. Both are valid offers.

iii. The element of a valid offer

Here are some essentials which make the offer valid

There must be two parties

There have to be at least two parties a person making the proposal and the other person
agreeing to it. All the persons are included i.e., Legal persons as well as artificial persons.

a) Every offer must be communicated

Communication of the proposal is mandatory. An offer is valid if it is conveyed to the

offeree. The communication can either be express or implied. It can be communicated by
terms such as word of mouth, messenger, telegram, etc. Section 4 of the Indian Contract
Act says that the communication of a proposal is complete when it comes to the
awareness of the person to whom it is made.

Example

‘A’ proposes, to sell a car to ‘B’ at a certain price. Once ‘B’ receives the letter, the
proposal communication is complete.

b) It must create Legal Relations

 An offer must be such that when accepted it will result in a valid contract. A mere social
invitation cannot be regarded as an offer, because if such an invitation is accepted it will
not give rise to any legal relationship.

Example

‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social invitation.
And ‘A’ will not be liable if he fails to provide dinner to B.

c) It must be Certain and definite

The terms of the offer must be certain and clear in order to create a valid contract, it must
not be ambiguous.

d) It may be specific or general

The specific offer is an offer that is accepted by any specific or particular person or by
any group to whom it is made. Whereas, the general offers are accepted by any person.

iv. Classification of offer

Some types of offers can be based on the design, timing, purpose, etc. Let us look at the
offer’s classification.

i. Express Offer

An offer may be made by express words, spoken or written. This is known as Express
offer.

Example

When ‘A’ says to ‘B’, “will you purchase my car for Rs 2,00,000”?

ii. Implied Offer

An offer may be derived from the actions or circumstances of the parties.

This is known as implied offer.

Example
 There is an implied offer by the transport company to carry passengers for a certain fare
when a transport company operates a bus on a particular route.

iii. General Offer

A general offer is not made by any specified party. It is one that is made by the public at
large. Any member of the public can, therefore, accept the offer and have the right to the
rewards/consideration.

Example

‘A’ advertises in the newspaper that whosoever finds his missing son would be rewarded
with 2 lakh. ‘B’ reads it and after finding the boy, he calls ‘A’ to inform about his
missing son. Now ‘A’ is entitled to pay 2 lakh to ‘B’ for his reward.

iv. Specific Offer

It is the offer made to a specific person or group of persons and can be accepted by the
same, not anyone else.

Example

‘A’ offers to sell his house to ‘B’. Thus, a specific offer is made to a specific person, and
only ‘B’ can accept the offer.

v. Difference between General Offer and Specific Offer

a) General Offer
General Offer is made to the whole world at large.
A general offer can be considered by any person.
b) Specific Offer
A specific Offer is made to some specific person.
A specific offer can be accepted by only a specific person.
vi. Cross offer

Two parties make a cross-offer under certain circumstances. It means that both make the
same offer at the exact time to each other. However, in either case, the cross-offer will
not amount to accepting the offer.
 Example

‘A’ and ‘B’ both send letters to each other offering to sell and buy B’s house at the same
time. This is the cross offer made where one party needs to accept the offer of another.

vii. Counter-offer

A counter-offer is an answer given to an initial offer. A counter-offer means that the

original offer has been refused and replaced by another. The counteroffer offers three
choices to the original offerer; accept, refuse, or make another offer.

viii. Lapses and revocation of an offer

 An offer lapses after a defined or reasonable time.
 An offer lapse by not being accepted in the specified mode
 An offer lapses by rejection.
 An offer lapses by the offeror or the offeror’s death or insanity until
acceptance.
 An offer lapses by revocation before acceptance.
 An offer lapses by subsequent illegality or destruction of the subject matter.
ix. When communication is complete
 Communication of offer (section 4)

The communication of the offer is complete when it comes to the knowledge of the
person to whom it is made.

x. Time of revocation of an offer

 Revocation of the offer (Section 4)

A proposal can be revoked at any time before the communication of its acceptance is
complete as against the proposer but not afterward.

xi. Revocation of the offer by the offeror

The offeror can withdraw his offer before it is accepted “the bidder can withdraw
(revoke) his offer at an auction sale before being accepted by any auctioneer using any of
the customary methods.
 Example

‘A’ agreed to sell the property to ‘B’ by a written document which stated “this offer to be
left over until Friday 9 AM”. on Thursday ‘A’ made a contract to sell the property to ‘C’.
‘B’ heard of this from ‘X’ and on Friday 7 AM he delivered to ‘A’ acceptance of his
offer. Held ‘B’ could not accept A’s offer after he knew it had been revoked by the sale
of the property to C.

3. Question
A. Describe the different types of consideration with examples.
B. Explain the exceptions of the rule “No Consideration no Contract”
i. INTRODUCTION:
Consideration is used in the sense of quid pro quo (something in return). In other
words consideration is a reward accepted or given in return for the promise. A
promise without consideration is no contract and is not enforceable. Consideration
shyuld be good and valuable.
ii. DEFINITION OF CONSIDERATION:
Contract Act Sec 2. Defines consideration in the following words. "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 abstain from doing something
such act, or abstinence or promise is called the consideration for the promise."
 According to Polleck
"Consideration is the price for which promise of another is bought.
 According to Davie
"Consideration is some benefit received by party who gives a promise or
performance of an act".
iii. ILLUSTRATION:
Rabia agrees to sell her car to Ali for Rs 3 Lakh. Now Ali promise-to-pay such
amount is consideration for Rabia's promise.
iv. TYPES OF CONSIDERATION:
Following are the three types of consideration:
a) Past Consideration
 When an act has already been done and subsequently a promise is made to pay
remuneration for that act, the consideration for the promise is past.
b) Present Consideration
If the consideration is given at the same time when the contract is made it is called
present consideration.
c) Future Consideration
If the consideration is given in a later date after making the contract, it will be
called future consideration.
v. ESSENTIALS OF CONSIDERATION:
a. Consideration should be given by the promise.
b. It should be lawful.
c. It should be given at the desire of the promisor.
d. It may be past, present or future.
e. It may consist of an act or abstinence.
f. Consideration must be real.
g. It need not be adequate.
vi. EXCEPTIONS:
It is a fact that without consideration an agreement is void but it has following
exception.
1) LOVE AND AFFECTION:
If an agreement is made between parties for natural love and affection
consideration is not necessary.
2) CONTRACT OF AGENCY:
No consideration is required to create agency.
3) VOLUNTARY SERVICES:
In case of compensation for voluntary services there is no requirement of
consideration.
4) TIME BARRED DEBT:
Where an agreement is a. promise made in writing and signed by the person
to be charged to pay a debt of which the creditor might have enforced
payment but for the law for the limitation of suits.
 5) CONTRACT UNDER SEAL:
Under the English Law a contract made in form of a deed under seal is valid
even though it is made without consideration.
6) EXTEΝΤIΟN IN TIME LIMIT:
There is no need of any consideration 1 agreement is made to extend time for
enforcement of the contract.
vii. UN-LAWFUL CONSIDERATION:
According to Sec. 10 of the Contract Act.
"An agreement is a contract enforceable only If it is made for a lawful consideration
and with a lawful object."
viii. CASES OF CONSIDERATION:
According to sec 23. The consideration or object of an agreement is unlawful in the
following cases.
1) PROHIBITED BY LAW:
If the object of an agreement is prohibited by law the agreement will be void.
2) ELEMENT OF FRAUD:
If there is element of Fraud In the object of agreement, the consideration will
be unlawful.
3) IMMORAL:
In case of Immoral, the consideration will be unlawful.
4) AGAINST PUBLIC POLICY:
If the Object of consideration of an agreement as opposed to public policy,
the consideration will be unlawful.
5) INJURY TO OTHER PERSON OR PROPERTY:
If the object or consideration of agreement is to cause an injury to the person
or property of another is illegal and void
ix. CONCL USION:
To conclude it can be said, that consideration is one of the essential element of valid
contract. An agreement without consideration is void. However sec 23 contains
some exceptions when the agreements even though they are made without
consideration are enforceable and valid.
4. Question
A. Distinguish between (i) void agreement and voidable agreement (ii) Enforceable
and unenforceable agreement and (iii) void agreement and illegal agreement
with examples.
B. How voidable agreement can be voided? Discuss

Essentially, the difference between void and voidable contracts is enforceability: a void
contract is illegal and unenforceable; a voidable contract is legal and enforceable.

i. Void contracts

A contract that is void is unenforceable, meaning that neither party has legal recourse
against the other for a breach. A contract can be void from the beginning or become
void due to certain circumstances, including:

 It involves illegal activity

 It is against public policy
 It is impossible to perform
 It involves a party who is not legally competent

A contract may be valid when it is executed, but later become void due to changes in
the law or the circumstances of either party make fulfilling the contract impossible.
Some issues will make a contract “void on its face,” meaning that the contract as
written is void and cannot be amended to make it enforceable.

ii. Voidable contracts

A voidable contract is a valid agreement between two parties where usually only one of
the parties is bound to the contract terms. A voidable contract can still be performed
under the law; however, one party has the option to cancel the contract if the contract has
one or more legal defects, such as:

 Fraud or misrepresentation
 Terms are unconscionable
 Duress or undue influence
 Mutual mistake
If defects are found in the contract, a party can reject it. If the contract is not rejected, it
remains a voidable contract that can be ratified.
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Williams Mestaz, L.L.P., is a law firm focusing on commercial litigation and business
divorce. Contact us at (602) 256-9400 and schedule a time to meet with us today.
iii. Some Examples of Void and Voidable Contract
A void contract is considered to be unenforceable by law. Even if one party breaches the
contract, the nonbreaching party cannot recover anything due to the fact that there was,
essentially, no valid contract. This can happen for several reasons, such as:
 The contract required one party to perform acts that are impossible or depend on
impossible events;
 The contract is against public policy determinations;
 The subject matter of the contract involves illegal matters such as drug dealing,
gambling, and other types of crimes; and/or
 The contract unreasonably restricts rights and activities, such as the right to work,
or a person’s right to marry someone of their own choosing.
Voidable contracts are valid agreements. However, one or both of the parties to the
contract may void the agreement at any point in time. Factors that might make a contract
voidable, as in not immediately void, often include:
 Agreements in which one party is still a minor;
 Contracts involving fraud, deceit, or other forms of trickery; or
 Contracts made when one party was drunk, incapacitated, or not of legally sound
mind to form a contract.
iv. When Does a Contract Become Void?

A contract becomes void under the circumstances listed above. Should a party need to
void a contract, they may have to file a request with the court to have the contract
reviewed. The court can determine if the contract is void, voidable or if other
remedies are available. Many contracts include sections that instruct parties whether
or not the contract can be voided and how to do so.
 It is important to keep copies of any contract and supporting documentation. It is also
important to keep any bills, receipts or other financial documents that may be
generated as a result of the contract.

Contracts will be voided if there is a mistake or fraud by one of the parties. Contracts
may also be voided if a party entered into a contract under duress.

Another type of contract that can be void is an unconscionable contract. This type of
contract is considered so one-sided that it would be unfair to one party and is
therefore unenforceable under the law. This type of contract results in one party
having no real, meaningful choice, in most cases due to a large difference in
bargaining power between the parties.

In some cases, a contract may be considered a “void ab initio contract.” This means
the contract was invalid from the outset. In many jurisdictions, a contract that is
signed under duress is considered to be void ab initio.

Examples of void contracts include contracts that are entered into by parties that are
not legally competent to contract. These may include individuals who are mentally
incompetent or minors.

v. What Does “Voidable” Contract Mean?

There is a difference between a void contract and a voidable contract. A void

contract, as noted above, is not legally enforceable. A voidable contract is a contract
that is valid, but can be voided at the election of one of the parties to the contract. A
voidable contract is valid and can still be performed unless the non-breaching party
elects to void the contract. Voidable contracts may include issues such as:

 A party to the contract was not of legal age at the time they entered into the
contract;
 A party entered into the contract under condition of coercion or trickery;
and/or
 A party did not have the required mental capacity to enter into a contract, such
as being under the influence or drugs or alcohol.
 A voidable contract can be considered “voidable at the election” of a party to the
contract. In certain cases, the court may allow parts of the contract to be rewritten.
Legal remedies, such as damages for breach of contract, will vary depending on the
circumstances of the contract.

An example of a voidable contract is a contract entered into by a minor. In some

states, an individual is considered a minor until the age of 18, but that age differs. In
those cases, the minor can decide to breach the contract at any time without facing
legal consequences for breach of contract.

There are some instances, such as a minor entering into a contract for necessities like
food, clothing and shelter, where the contract may not be voidable. These exceptions
may also apply to individuals who do not have the mental capacity to enter into a
contract without a guardian or representative present.

vi. What Are the Steps for Voiding a Contract?

If an individual determines a contract they entered into needs to be voided, there are
steps they can take, including:

 Review the contract for terms or factors that may cause it to be invalid;
 Determine a legal reason why the contract should be void, such as duress or a
party being under the influence at the time of signing;
 Collect documents and information supporting the legal reason the contract
should be void; and
 Determine whether an entirely new contract is needed, portions of the contract
should be rewritten or the contract should be abandoned all together.

Each state has different laws regarding contracts, business matters, and the regulation
of commerce because each state has different commercial needs. Should a contract be
voided totally, neither party will benefit from the agreement that was to take place
under the contract terms.