GOVERNMENT COLLEGE ROPAR
PRESENTATION ON BUSINESS LAWS
 TOPIC: 1. DEFINITION AND NATURE OF
CONTRACT
2. CONSIDERATION
SUBMITTED TO:
MRS. KULDEEP
MAM
SUBMITTED BY:
JATINDER SOOD
B.COM FIRST YEAR
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ABOVE STATEMENT IS TRUE THAT “ALL AGREEMENTS ARE NOT
CONTRACTS ,BUT ALL CONTRACTS ARE AGREEMENTS .” BECAUSE
AGREEMENT IS JUST A KIND OF PROMISE OR PROPOSAL WHICH IS
MADE BETWEEN TWO PARTIES.IN CASE OF AGREEMENT, IF ANY OF
THE PARTY FROM BOTH DOES NOT FULFILL THE OBJECTIVE THE
INJURED PARTY DOES NOT SUE AND IT IS NOT IN THE POSITION TO
TAKE CLAIM. BUT, IN CASE OF CONTRACT BOTH PARTIES HAVE THE
RIGHT TO SUE IF ANY DISPUTE OCCUR BETWEEN THEM.
IN SIMPLE WORDS,CONTRACT IS ENFORCEABLE BY LAW BUT
AGREEMENT IS NOT ENFORCEABLE BY LAW.IT CAN BE SAID THAT
AGREEMENT IS THE ORIGIN OF CONTRACT BUT AGREEMENT BECOME
CONTRACT ONLY WHEN ESSENTIALS LAID DOWN BY INDIAN
CONTRACT ACT 1872 ARE FULFILLED.
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THE LAW RELATING TO CONTRACTS IS CONTAINED IN THE INDIAN CONTRACT ACT, 1872.THIS
ACT CAME INTO FORCE ON THE FIRST DAY OF SEPTEMBER,1872,AND IT APPLIES TO THE WHOLE
OF INDIA EXCEPT THE STATE OF JAMMU AND KASHMIR.
ACCORDING TO SECTION 2(H) OF THE CONTRACT ACT 1872 A CONTRACT AS, " an agreement
enforceable by law.”
THUS, THERE ARE TWO ESSENTIAL ELEMENTS OF A CONTRACT:
1. AN AGREEMENT
2. ITS ENFORCEABILITY AT LAW.
1. AGREEMENT: AN AGREEMENT IS DEFINED IN SECTION 2(E) AS, "a proposal when accepted
becomes a promise.”
IT IMPLIES THAT THERE MUST BE EXISTENCE OF TWO OR MORE PERSONS i.e., PRURALITY OF
PERSONS BECAUSE A PERSON CANNOT ENTER INTO AN AGREEMENT WITH HIMSELF.BOTH
PARTIES HAVE A COMMON INTENTION ABOUT THE SUBJECT MATTER OF THEIR AGREEMENT.
THEY SHOULD BE THINKING OF THE ‘SAME THING IN THE SAME SENSE AT SAME TIME ‘
THUS, AGREEMENT =OFFER+ACCEPTANCE
2.ENFORCEABLE AT LAW: AN AGREEMENT TO BECOME A CONTRACT MUST GIVE RISE TO LEGAL
OBLIGATION.THE COMMON ACCEPTANCE FORMED AND COMMUNICATED BETWEEN TWO
PARTIES MUST CREATE LEGAL RELATIONSHIP AND IN CASE THE RELATIONS ARE SOCIAL &
DOMESTIC THE PARTIES HAVE TO SPECIFY THE CIRCUMSTANCES INDICATE THAT THE PARTIES
INTEND TO CREATE LEGAL RELATIONSHIP.
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THUS, CONTRACT = AGREEMENT + ENFORCEABILITY AT LAW
VALID CONTRACT
OFFER & ACCEPTANCE
LEGAL RELATIONSHIP
CERTAIN THING
CAPACITY OF THE PARTIES
LAWFUL
CONSIDERATION
LAWFUL OBJECT
FREE CONSENT
NOT TO BE DECLARED VOID
LEGAL FORMALITIES
POSSIBILITY OF PERFORMANCE
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1. OFFER AND ACCEPTANCE: IN ORDER TO CREATE A VALID CONTRACT,THERE MUST BE A
‘LAWFUL OFFER’ BY ONE PARTY AND ‘LAWFUL ACCEPTANCE’ OF THE SAME BY OTHER PARTY.
IN SIMPLE WORDS,’LAWFUL’ MEANS ‘OFFER AND ACCEPTANCE‘ AND ‘COMMUNICATION’
MUST CONFIRM TO THE RULES LAID DOWN IN THE INDIAN CONTRACT ACT 1872.
2. INTENTION TO CREATE LEGAL RELATIONSHIP: IN CASE, THERE IS NO SUCH INTENTION ON
THE PART OF PARTIES,THERE IS NO CONTRACT.TO MAKE VALID CONTRACT THE INTENTION &
WILL MUST BE THERE AND BOTH PARTIES ARE IN FAVOUR TO CREATE LEGAL RELATIONSHIP
WHETHER IT IS DOMESTIC OR SOCIAL.LEADING CASE ON THIS POINT IS:
BALFOUR v. BALFOUR (1919):
FACTS OF FIGURE: MR.BALFOUR WAS EMPLOYED IN CEYLON. MRS.BALFOUR OWING
TO ILL HEALTH,HAD TO STAY IN ENGLAND AND COULD NOT ACCOMPANY HIMTO CEYLON.
MR.BALFOUR PROMISED TO SEND HER £30 PER MONTH WHILE HE WAS ABROAD. BUT
MR.BALFOUR FAILED TO PAY THAT AMOUNT. SO MRS.BALFOUR FILED A SUIT AGAINST HER
HUSBAND FOR RECOVERING THE SAID AMOUNT.
DECLARATION: THE COURT HELD THAT IT WAS MERE DOMESTIC AGREEMENT AND THAT
THE PROMISE MAID BY THE HUSBAND IN THIS CASE WAS NOT INTENDED TO BE A LEGAL
OBLIGATION.
3. LAWFUL CONSIDERATION: CONSIDERATION IS KNOWN AS “quid-pro-quo” or “something
in return.” IT IS AN ESSENTIAL ELEMENT OF A CONTRACT. THE LAW ENFORCES ONLY THOSE
PROMISES WHICH ARE MADE FOR CONSIDERATION. BASICALLY , CONSIDERATION BASED
UPON ‘GIVE & TAKE’ PRINCIPLE.WHETHER IT IS IN THE FORM OF CASH OR PROMISE. 5
4. LAWFUL OBJECT: THE OBJECT OF AN AGREEMENT MUST BE LAWFUL. OBJECT HAS
NOTHING TO DO WITH CONSIDERATION. IT MEANS THE PURPOSE OR DESIGN OF THE
CONTRACT.
5. CAPACITY OF THE PARTIES: THE PARTIES TO AN AGREEMENT MUST BE COMPETENT TO
CONTRACT.THE FOLLOWING PERSONS ARE INCOMPETENT TO CONTRACT:
a.
b.
c.
MINORS
PERSONS OF UNSOUND MIND
PERSONS DISQUALIFIED BY LAW TO WHICH THEY ARE SUBJECT(E.G.,INSOLVENT
PERSONS,REPRESENTATIVE OF OTHER COUNTRIES OR NRI’S ETC.)
6.LEGAL FORMALITIES: AN ORAL CONTRACT IS A PERFECTLY VALID CONTRACT,EXCEPT IN
THOSE CASES WHERE WRITING,REGISTERATION ETC. IS REQUIRED BY SOME STATUTE.IN
INDIA WRITING IS REQUIRED IN CASE OF SALE,MORTGAGE,LEASE,M.O.A AND A.O.A ETC.IT
IS WRITTEN UNDER SECTION 17 OF THE REGISTERATION ACT.FOR E.G.,FILLING UP FORM
FOR ADMISSION TO COURSE.
7. POSSIBILITY OF PERFORMANCE: IF THE ACT IS IMPOSSIBLE IN ITSELF, PHYSICALLY OR
LEGALLY IT CANNOT BE ENFORCED AT LAW. FOR E.G., MR.A AGREES WITH B TO DISCOVER
TRASURE BY MAGIC. SUCH AGREEMENT IS NOT ENFORCEABLE.
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8. FREE CONSENT: ‘CONSENT’ MEANS THE PARTIES MUST HAVE AGREED UPON THE ‘SAME
THING IN THE SAME SENSE AT THE SAME TIME’.THIS IS CALLED “CONSENSUS AD IDEM” IN
ENGLISH LAW.THUS, CONTRACT IS THE OUTCOME OF ‘TWO CONSENTING MINDS.’ ACCORDING
TO SECTION 14,CONSENT IS SAID TO BE FREE WHEN IT IS NOT CAUSED BY FOLLOWING:
A. BY FRAUD (INTENTIONALLY)
B.
COERCION (BY FORCE)
C. UNDUE INFLUENCE (e.g., TEACHER – STUDENT,
EMPLOYER – EMPLOYEE)
A. MIS REPRESENTATION (UN INTENTIONALLY)
B. MISTAKE
9. CERTAINITY OF MEANING: THE TERMS OF THE CONTRACT MUST BE PRECISE AND
CERTAIN.IT CANNOT BE LEFT VAGUE. A CONTRACT MAY BE VOID ON THE GROUD OF
UNCERTAINITY. BOTH THE PARTIES MUST KNOW WHAT TYPE OF AGREEMENT THEY ARE
FORMING AND WHAT IS TO BE PERFORMED STEP BY STEP.
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10. NOT DECLARED TO BE VOID OR ILLEGAL: THE AGREEMENT THOUGH
SATISFYING ALL THE CONDITIONS FOR A VALID CONTRACT MUST NOT HAVE BEEN
EXPRESSLY DECLARED VOID BY ANY LAW IN FORCE IN THE COUNTRY.
AGREEMENTS MENTIONED IN SECTIONS 24 TO 30 OF THE ACT HAVE BEEN
EXPRESSLY DECLARED TO BE VOID.THESE ARE FOLLOWING:
• AGREEMENTS MADE BY INCOMPETENT PARTIES [SEC.11]
1.
2.
3.
• AGREEMENT MADE UNDER A MUTUAL MISTAKE OF FACT
[SEC.20]
• AGREEMENTS IN RESTRAINT OF MARRIAGE [SEC.26]
• AGREEMENTS IN RESTRAINT OF TRADE [SEC.27]
• AGREEMENTS BY WAY OF WAGER [SEC.30]
• AGREEMENTS TO DO IMPOSSIBLE ACTS [SEC.56]
ETC.
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DIFFERENCE BETWEEN CONTRACT &
AGREEMENT
CONTRACT
•
•
•
•
•
CONTRACT IS AN AGREEMENT
WHICH IS ENFORCEABLE BY
LAW.
IN THIS INJURED PARTY CAN
SUE OTHER AND TAKE CLAIM.
IT IS TO BE DECLARED VALID
CONTRACT WHEN ESSENTIALS
ARE FULFILLED.
IT’S SCOPE IS NARROW.
CONTRACT=AGREEMENT +
ENFORCEABILITY AT LAW
AGREEMENT
•
•
•
•
•
AGREEMENT IS JUST A KIND
OF PROMISE OR A SET OF
PROMISE FORMING THE
CONSIDERATION FOR EACH
OTHER.
IN THIS INJURED PARTY CAN’T
SUE AND DOES NOT TAKE ANY
CLAIM.
IT DOES NOT REQUIRE ANY
ESEENTIAL EXCEPT OFFER &
ACCEPTANCE.
IT’S SCOPE IS WIDER
AGREEMENT= OFFER +
ACCEPTANCE
CONCLUSION:
HENCE, IN END IT IS CONCLUDED THAT
AGREEMENT IS TERMED AS THE ORIGIN OF CONTRACT BUT WITH THIS IT
ALSO STATE THAT “ALL AGREEMENTS ARE NOT CONTRACTS & ALL
CONTRACTS ARE AGREEMENTS”.BECAUSE SOME POINTS MAKE DIFFERENCE
BETWEEN THESE TWO TERMS LIKE: ENFORCEABILITY,SCOPE,FILING A
SUIT,POSSIBILITY OF CLAIM IN DISPUTE BETWEEN TWO PARTIES ETC.
ESEENTIALS LAID DOWN BY INDIAN CONTRACT ACT 1872 PLAY A
IMPORTANT ROLE IN PROVING THIS STATEMENT . TO CONVERT
AGREEMENT INTO A VALID CONTRACT RULES AND REGULATIONS LAID
DOWN BY ICA 1872 ARE DISCUSSED CLEARLY.AFTER CONVERSION OR
FORMING A CONTRACT BY FULFILLING ALL THE ESSENTIALS BOTH PARTIES
PROCEED THEIR WORK & TAKE BENEFITS AND ALSO ACCOMPLISH THEIR
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OBJECTIVE FOR WHICH THE CONTRACT IS FORMED.
ABOVE STATEMENT IS TRUE THAT ‘NO CONSIDERATION, NO CONTRACT’
PREVAILS. CONSIDERATION IS VERY MUCH ESSENTIAL IN FORMATION
OF A CONTRACT.IT ACT AS A FOUNDATION OF EVERY CONTRACT.THE
LAW ENFORCES ONLY THOSE PROMISES WHICH ARE MADE FOR
CONSIDERATION.WHERE ONE PARTY PROMISES TO DO SOMETHING ,IT
MUST GET SOMETHING IN RETURN.THIS ‘SOMETHING IN RETURN’ OR
‘QUID-PRO –QUO’ IS CALLED “CONSIDERATION”.IN THE ABSENCE OF
CONSIDERATION A PROMISE OR UNDERTAKING IS PURELY
GRATUTIOUS.IT IS SOMETHING WHICH IS OF SOME VALUES IN THE EYES
OF LAW.IT MAY BE IN THE FORM OF MONEY OR A PROMISE FOR
ANOTHER PROMISE ETC..BUT THERE ARE SOME EXCEPTIONS TO THIS
STATEMENT THAT IN SOME SITUATIONS CONTRACT ARISES WITHOUT
CONSIDERATION .
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ACCORDING TO SECTION 2(D) OF THE INDIAN CONTRACT
ACT 1872 CONSIDERATION IS DEFINED ASa) WHEN AT THE DESIRE OF THE PROMISOR ,
b) THE PROMISEE OR ANY OTHER PERSON,
c) HAS DONE OR ABSTAINED FROM DOING, OR DOES OR ABSTAINS
FROM DOING, OR PROMISES TO DO OR ABSTAIN FROM DOING,
d) SOMETHING, SUCH ACT OR ABSTINENCE OR PROMISE IS CALLED A
CONSIDERATION FOR THE PROMISE.
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DESIRE OF
PROMISOR &
PROMISEE
MOVE TO
OTHER
PERSON
PAST,PRESENT
& FUTURE
CONSIDERATION
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FOUNDATION OF CONTRACT:
CONSIDERATION ACT AS A FOUNDATION OF CONTRACT LIKE TREE AND
IT’S ROOTS . WITHOUT CONSIDERATION THE CONTRACT DOES NOT
FORMED OR DECLARED TO BE VOID BUT IN SOME SITUATIONS
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CONSIDERATION IS NOT REQUIRED WHICH ARE FOLLOWING:
NO CONSIDERATION NO CONTRACT EXCEPTIONS
EVERY AGREEMENT TO BE ENFORCEABLE AT LAW MUST BE SUPPORTED BY VALID
CONSIDERATION. SECTION 25 SPECIFIES THE CASES WHERE AN AGREEMENT THOUGH
MADE WITHOUT CONSIDERATION WILL BE VALID. THESE ARE AS FOLLOWS:
EXCEPTIONS
NATURAL LOVE AND AFFECTION
COMPENSATION FOR SERVICES RENDERED
TIME – BARRED DEBT
COMPLETED GIFTS
AGENCY
GURANTEE
REMISSION
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1. NATURAL LOVE AND AFFECTION [SEC. 25(1)]: AN
AGREEMENT THOUGH MADE WITHOUT CONSIDERATION WILL BE
VALID IF IT IS IN WRITING AND REGISTERED AND IS MADE ON
ACCOUNT OF NATURAL LOVE AND AFFECTION BETWEEN PARTIES
STANDING IN A NEAR RELATION TO EACH OTHER. AN AGREEMENT
WITHOUT CONSIDERATION WILL BE VALID PROVIDED1.
• IT IS EXPRESSED IN WRITING
2.
• IT IS REGISTERD UNDER THE LAW FOR THE TIME
BEING IN FORCE
3.
• IT IS MADE ON ACCOUNT OF NATURAL LOVE AND
AFFECTION AND
4.
• IT IS BETWEEN PARTIES STANDING IN A NEAR
RELATION TO EACH OTHER.
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2. COMPENSATION FOR SERVICES RENDERED [SEC. 25(2)]:
AN AGREEMENT MADE WITHOUT CONSIDERATION MAY BE VALID IF IT IS A
PROMISE TO COMPENSATE WHOLLY OR IN PART A PERSON WHO HAS ALREADY
VOLUNTARILY DONE SOMETHING FOR THE PROMISOR OR SOMETHING WHICH
THE PROMISOR WAS LEGALLY COMPELLABLE TO DO.TO APPLY THIS RULE ,THE
FOLLOWING ESSENTIALS MUST EXIST:
• THE ACT MUST HAVE BEEN DONE VOLUNTARILY ;
1.
2.
• FOR THE PROMISOR OR IT MUST BE SOMETHING WHICH WAS
THE LEGAL OBLIGATION OF THE PROMISOR;
3.
• THE PROMISOR MUST BE IN EXISTENCE AT THE TIME
WHEN THE ACT WAS DONE
4.
• THE PROMISOR MUST AGREE NOW TO
COMPENSATE THE PROMISEE.
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3. TIME – BARRED DEBT [SEC. 25(3)]: A PROMISE TO PAY A TIME-BARRED DEBT IS
ALSO ENFORCEABLE. BUT THE PROMISE MUST BE IN WRITING AND BE SIGNED BY THE
PROMISSOR OR HIS AGENT AUTHORISED IN THAT BEHALF. THE PROMISE MAY BE TO PAY THE
WHOLE OR PART OF THE DEBT. AN ORAL PROMISE TO PAY A TIME BARRED DEBT IS
UNENFORCEABLE.
4. COMPLETED GIFTS [EXP. 1 TO SEC. 25]: EXPLANATION 1 TO SECTION 25 PROVIDES THAT
THE RULE ‘NO CONSIDERATION , NO CONTRACT’ SHALL NOT AFFECT VALIDITY OF ANY GIFTS
ACTUALLY MADE BETWEEN THE DONOR & DONEE. THUS IF A PERSON GIVES CERTAIN
PROPERTIES TO ANOTHER ACCORDING TO THE PROVISIONS OF THE TRANSFER OF PROPERTY
ACT, HE CANNOT SUBSEQUENTLY DEMAND THE PROPERTY BACK ON THE GROUND THAT THERE
WAS NO CONSIDERATION.
5. AGENCY [SEC. 185]: THERE IS ONE MORE EXCEPTION TO THE GENERAL RULE. IT IS GIVEN IN
SECTION 185 WHICH SAYS THAT NO CONSIDERATION IS NEEDED TO CREATE AN AGENCY.
6. GURANTEE [SEC. 127]: A CONTRACT OF GURANTEE IS MADE WITHOUT CONSIDERATION.IN
CASE OF GURANTEE THERE ARE THREE PERSONS – PRINCIPAL DEBTOR, CREDITOR & SURETY.
SURETY HOLDER TAKE GURANTEE OR SURETY OF CREDITOR.
7. REMISSION [SEC. 63] : NO CONSIDERATION IS REQUIRED FOR AN AGREEMENT TO RECEIVE
LESS THAN WHAT IS DUE.THIS IS CALLED REMISSION IN THE LAW.
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DOCTRINE OF PROMISSORY ESTOPPEL: THE
PERSON MAKING THE REPRESENTATION OR PROMISE BECOMES
BOUND BY THE SAME,IF ANOTHER PERSON HAS ACTED ON THE FAITH
OF SUCH PROMISE OR REPRESENTATION. THE PROMISE CAN ASK FOR
ENFORCING THE PROMISE EVEN IF THERE IS NO CONSIDERATION.
CONCLUSION: HENCE IN END IT IS CONCLUDED THAT
CONSIDERATION IS ESSENTIAL BECAUSE IT INDICATE ‘GIVE AND TAKE
RESPONSIBILITY’ BETWEEN CONTRACTING PARTIES. BUT IN SOME
SITUATIONS ONE PARTY SACRIFICE AND OTHER PARTY GAINS AND
SACRIFICED PARTY DOES NOT TAKE ANY RETURN.THESE
CIRCUMSTANCES OR SITUATION ARISES WHEN THERE IS CLOSE
RELATIONSHIP E.G., FATHER AND SON ETC.
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REFERENCES: 1. BUSINESS LAWS B.COM 1ST SEMESTER
WRITTEN BY K.C. GARG, V.K. SAREEN, MUKESH SHARMA
AND R.C. CHAWLA.
2. MERCANTILE LAWS [ C.A. ENTRANCE (CPT) ]
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