Law of contracts

The essentials

A contract is an agreement enforceable by law (Section 2(h), Indian Contract Act, 1872). Every contract is an agreement, but not every agreement is a contract – social promises, such as agreeing to go for dinner, usually lack an intention to create legal relations. Section 10 lists the essentials: free consent of competent parties, lawful consideration and lawful object, and not being expressly declared void.

Key points

• Offer and acceptance: a proposal becomes a promise when accepted. An advertisement or a shop display is normally an invitation to offer. A general offer can be accepted by anyone who performs its conditions (Carlill v. Carbolic Smoke Ball Co.).
• Consideration: something in return (quid pro quo); in India it may move from the promisee or any other person.
• Capacity: parties must be of the age of majority, of sound mind and not disqualified by law. An agreement with a minor is void ab initio (Mohori Bibee v. Dharmodas Ghose, 1903).
• Free consent: consent is not free if caused by coercion, undue influence, fraud, misrepresentation or mistake. Contracts induced by the first four are generally voidable at the option of the aggrieved party.
• Void agreements: for example, agreements in restraint of trade and wagering agreements.
• Remedies for breach: damages (for losses arising naturally or reasonably foreseeable – Hadley v. Baxendale), specific performance, injunction and quantum meruit.

Exam tips

• Distinguish void (no legal effect at all) from voidable (valid until the aggrieved party sets it aside).
• In fact situations, first check offer, acceptance, consideration and capacity in that order.

Common mistakes

• Treating an advertisement price tag as an offer.
• Thinking a minor's contract is merely voidable – in India it is void.