ON THE COURSE OF BUSINESS ENVIRONMENT

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Contract
A contract is defined as: "an agreement made between two or more parties which is enforceable
by law to provide something in return for something else from a second party". Contracts can be
very simple or they may be very long and complicated legal documents. When a contract is
properly set-up it is legally binding upon.
The two partiesare expected to perform the various obligations they have undertaken, as
expressed in amutually agreed set of contract documents. A contract therefore, is necessary to
protectboth client and contractor. According to its simple definition, a contract is an
agreementenforceableat law, but not all agreements are contracts. Some elements must be present
before an agreement becomes a contract.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
All agreements are contracts if they are made by free consent of parties, competent to contract, for a
lawful consideration and with a lawful object and are not hereby expressly declared to be void‖.
The essential elements of a valid contract are:
Agreement: To constitute a contract there must be an agreement. There must be two parties to an
agreement, i.e. one party making an offer (offeror) and the other party accepting the offer
(offeree). The terms of the offer must be definite and acceptance must be absolute and
unconditional. The acceptance must be according to the mode prescribed and must be
communicated to the offeror.
Consensus-ad-idem (meeting of minds): To constitute a valid contract, there must be meeting of
minds i.e. consensus-ad-idem. The parties should agree to the same thing in the same sense and at
the same time.
Intention to create legal relationship: When the two parties enter into an agreement, there must be
an intention by both parties to legally bind the other as a result of such agreement. Thus,
agreements of social or household nature are not contracts.
Capacity of parties (competence): The parties to the agreement must be capable of entering into a
valid contract. According to Section 11, every person is competent to contract if he or she,
1. is of the age of majority;
2. is of sound mind; and
3. is not disqualified from contracting by any law to which he is subject.
Lawful Consideration: An agreement to form a valid contract should be supported by consideration.
Consideration means ―something in return‖ (quid pro quo). It can be cash, kind, an act or
abstinence. It can be past, present or future. However, consideration should be real and lawful.
Free consent: To constitute a valid contract there must be free and genuine consent of the parties to
the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or
mistake.
Lawful object: The object of the agreement must not be illegal or unlawful. consideration or object
of an agreement is lawful, unless-
• It is forbidden by law; or
• Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent;
or
• Involves or implies, injury to the person or property of another; or
• The court regards it as immoral, or opposed to public policy.
Agreement not declared void or illegal: Agreements which have been expressly declared void or
illegal by law are not enforceable at law; hence does not constitute a valid contract.

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Certainty and possibility of performance: The terms of agreement must be certain and not vague.
If it is not possible to ascertain the meaning of the agreement, it is not enforceable at law. Also,
agreements to do impossible acts cannot be enforced.
Legal formalities: A contract may be oral or in writing. If, however, the law requires for a particular
contract, it should comply with all the legal formalities as to writing, registration and attestation.
NATURE OF CONTRACT
The law of contract is that branch of law which determines the circumstances in which promise made
by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts
everyday knowingly or unknowingly. Each contract creates some right and duties upon the
contracting parties. Indian contract deals with the enforcement of these rights and duties upon the
parties. Indian Contract Act, 1872 came into effect from 1
st
September, 1872. It extends to the whole
of India except the state of Jammu and Kashmir.
Types of contracts
On the basis of On the basis of On the basis of
Validity Formation Performance
1. Valid contract 1. Express contract 1. Executed contract
2. Void contract 2. Implied contract 2. Executory contract
3. Voidable contract 3. Quasi Contracts 3. Unilateral contract
4. Void agreement 4. Bilateral contract
On the basis of validity:
1. Valid contract: An agreement which has all the essential elements of a contract is called a
valid contract. A valid contract can be enforced by law.
2. Void contract: A void contract is a contract which ceases to be enforceable by law. A contract
when originally entered into may be valid and binding on the parties. It may subsequently
become void. – There are many judgments which have stated that where any crime has been
converted into a "Source of Profit" or if any act to be done under any contract is opposed to
"Public Policy" under any contract—than that contract itself cannot be enforced under the law-
3. Voidable contract: An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of other or others, is a voidable contract. If the essential
element of free consent is missing in a contract, the law confers right on the aggrieved party
either to reject the contract or to accept it. However, the contract continues to be good and
enforceable unless it is repudiated by the aggrieved party.

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4. Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if
permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury
to a person or property of another, or court regards it as immoral or opposed to public policy.
These agreements are punishable by law. These are void-ab-initio.
―All illegal agreements are void agreements but all void agreements are not illegal.‖
5. Unenforceable contract: Where a contract is good in substance but because of some technical
defect cannot be enforced by law is called unenforceable contract. These contracts are neither
void nor voidable.
On the basis of formation:
1. Express contract: Where the terms of the contract are expressly agreed upon in words (written
or spoken) at the time of formation, the contract is said to be express contract.
2. Implied contract: An implied contract is one which is inferred from the acts or conduct of the
parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise
than in words, promise is said to be implied.
3. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not
contracts as there is no intention of parties to enter into a contract. It is legal obligation which is
imposed on a party who is required to perform it. A quasi contract is based on the principle that a
person shall not be allowed to enrich himself at the expense of another. examples
claim for necessaries supplied to person incapable of contracting or on his account
Reimbursement of person paying money due to another, in payment of which he is
interested
obligation of person enjoying benefit of non-gratuitous act
Responsibility of finder of goods
Liability of person to whom money is paid or thing delivered
On the basis of performance:
1. Executed contract: An executed contract is one in which both the parties have performed their
respective obligation.
2. Executor contract: An executor contract is one where one or both the parties to the contract
have still to perform their obligations in future. Thus, a contract which is partially performed or
wholly unperformed is termed as executor contract.
3. Unilateral contract: A unilateral contract is one in which only one party has to perform his
obligation at the time of the formation of the contract, the other party having fulfilled his
obligation at the time of the contract or before the contract comes into existence.

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EXAMPLE;MrX promises to pay $ 1000 to anyone who finds his lost cellphone. MrY finds and
returns it to MrY. From the time MrY found the cell phone, the contract came into existence
Now MrX has to perform his promise, i.e., the payment of $1000.
4. Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the
contract is outstanding at the time of the formation of the contract. Bilateral contracts are also
known as contracts with executor consideration.
EXAMPLE: A promises to sell his car to B for 1 lakh and agrees to deliver the car on the receipt
of the payment by the end of the week. The contract is bilateral as both the parties have
exchanged a promise to be performed within a stipulated time.

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Reference
1,THE INDIAN CONTRACT ACT, 1872
2, THE INDIAN MERCANTILE LAW
3, The Indian deference and logistics agency report.