Q. How an Agreement become a Contract?

Or
Every contract is an agreement but every agreement is not contract,
discuss?

Ans: A contract is an agreement which gives rise to obligations which are

recognized by law. Thus, the course of dealings between the contracting
parties would be governed by stipulations contained in the agreement which is
enforceable if it is not repugnant to law of the land.

Anson- A contract is an agreement enforceable at law made between two or

more persons by which rights are acquired by one or more to acts or
forbearance on the part of the other or others.

Fredrick Polllock- Every agreement and promises enforceable by law is a

contract.

Salmond- Contract is an agreement, creating and defining obligations

between the parties.
Section 2(h) of Indian Contract Act 1872 defines-
An agreement enforceable by law is a contract.

Section 10 of Indian Contract Act 1872 defines-

An agreement is a contract when it made for some consideration, between
parties who are competent, with their free consent and for a lawful object.
The analysis of above definitions- A contract is an agreement the object of
which is to create an obligation i.e. a duty enforceable by law. For example –
if there is an agreement between A and B that A will make a furniture for B,
and B will pay a Rs 1,000/ to A, the agreement is a contract.

Section 10 defines a valid contract-

1. All agreements are contract which are made by the-
2. Free consent of parties.
3. Competent to contract.
4. A lawful consideration.
5. With a lawful object.

Thus every contract is an agreement, but every agreement is not a contract.

An agreement becomes a contract when it fulfills the following conditions:
1. Consideration.
2. Competent parties to contract.
3. Free consent.
4. Lawful object.

There are some agreements which literally satisfy the requirements of a

contract, such as proposal, acceptance, consideration etc. but which do not
catch its sprit and they are not enforced because it does not sound to be
reasonable to do so.
Q. “Acceptance to a proposal is what is a lighted match to a train of gun
– powder”. Discuss and state essentials of a valid acceptance. (12 –
Marks)

Ans: The position relating to revocation of proposal and acceptance has been
described by Anson in the following words, “Acceptance is to offer what a
lighted match is to a train of gunpowder. It produces something which cannot
be recalled or undone.”

This statement primarily holds good under English law.

Here, Gunpowder = offer and lighted match = acceptance

When a lighted match is shown to a train of gunpowder, it explodes and

something happens which cannot be undone. Similarly, and offer once
accepted cannot be revoked. But so long a lighted match is not shown, the
gunpowder remains inert and can be removed, similarly an offer can be
revoked before it is accepted.

Similarly, once acceptance is given it cannot be revoked. But under Indian

Contract Act, acceptance can be revoked by resorting to quicker means of
communication, so that the offerer learns about it before acceptance. Thus,
the above statement doesn’t hold in relation to revocation of acceptance
under Indian law.

Essential of a Valid Acceptance –

Must be absolute and unqualified :
In order to be binding, there must be an unqualified acceptance to all the
terms of the offer, whether material or immaterial, major or minor. If the
parties are not ad idem on all the matters concerning the offer can
acceptance, there is no contract. The proposal, therefore, must be accepted
into.

Must be communicated to the offeror:

The communication of acceptance may be express or implied. A mere resolve
or mental determination on the part of the offeree to accept an offer, when
there is no external manifestation of the intention to do so, is not sufficient. A
communication to any other person is an ineffectual as if no communication
has been made.

Must be according to the mode prescribed:

The offer must be accepted according to the mode prescribed and if no mode
is prescribed , the offeror may intimate to the offeree within a reasonable time
that the acceptance is not according to the mode prescribed and may insist
that the offer must be accepted in the prescribed mode only. If he does not
inform the offeree, he is deemed to have accepted the acceptance.

Note :
Acceptance must be given within a specified time; if time is not mentioned
then it should be given within a reasonable time.
Acceptance cannot precede an offer.
It must show an intention on the part of the acceptor to fulfill the terms of the
promise.
Acceptance must be only by the party or parties to whom the offer is made.
Acceptance must be made before the offer lapse or before the offer is
withdrawn.
Silence cannot be the mode of acceptance.
Acceptance may be expressed or implied.

Q. Acceptance must be absolute and unqualified, Explain?

Ans: Acceptance must be clear,unambigious,unequivocal and assent to the

offer and all of its terms. An acceptance occurs when the oferee to whom an
offer is made agrees to the proposal of the offeror. Acceptance may be made
by verbal contract, or written in a contract, or implied and the manner
indicated by the offeror. There is no magic formula of words when a contract
is formed. Acceptance is important in formation of contract because once
acceptance takes place,an agreement is formed. At the same time,a contract
come into existence. Besides that,it is different from other response to an offer
such as counter-offer,inquiry or cross-offer. Counter-offer is modification or
variation of an offer. It creates a new offer to be considered and destroy the
original offer. As a result,offeree cannot accept the original offer therefore
there is no contract for the first offer .When cross-offer come into
existence,there is no acceptance because the party does not give final and
unqualified assent to the term of an offer . However,request for more
information does not destroy the original offer but it is clarify for more
information and inquiry about terms of an offer.The original offer still open for
acceptance.

The first rule of acceptance must be final and unconditional.The mirror image
of the rule is final means cannot only accept some part of offer and reject
some part of the offer.Acceptance must be unconditional means cannot
suggest or given subject to a conditions or else it would be treated as a
counter offer.

The cardinal principle in the light of section 7 of the Act is that the offer and
acceptance of an offer must be absolute without giving any room of doubt. It is
well settled that the offer and acceptance must be based or founded on three
components—Certainty, commitment and communication. If any one of three
components is lacking either in the offer or in the acceptance there cannot be
a valid contract.

Hyde v Wrench (1840)

The defendant offered to sell a farm to the claimant for £1,000. The claimant
in reply offered £950 which the defendant refused. The claimant then sought
to accept the original offer of £1,000. The defendant refused to sell to the
claimant and the claimant brought an action for specific performance.

Held:
There was no contract. Where a counter offer is made this destroys the
original offer so that it is no longer open to the offeree to accept.

Q. Define proposal. also explain different legal rules relating to it with

the help of a case law.

Ans: As it is known under the English Law, formation of a contract is initiated

with a proposal or offer. The term proposal in Indian Contract law is defined
under Section 2(a) of the Indian Contract Act, 1872.

When one person signifies to another his willingness to do or to abstain from

doing anything with a view to obtain the assent of that other to such act or
abstinence, he is said to make a proposal.
The essential aspect of an offer is that, it must be made with a view to obtain
the assent of the person to whom it is made. But in many cases it is difficult to
understand, whether the actual offer is made or it was just an invitation to
offer.

In this regard, it is essential to differentiate an Offer and invitation to

treat OR a proposal and invitation to proposal.
Offer and invitation to treat
This may be explained with the help of an example;

You have come across a brochure of a law book seller where it provides the
details of books including the author’s name, book title, publisher name and
price of each title. In that, brochure, you have noticed a book
titled; Arbitration, Conciliation and Mediation authored by Mr. Vishnu S
Warrier and published by LexisNexis India.

Cost of said book is quoted as Rs. 395.00/- Only.You are very much concern
about purchasing said book. You cannot just go to said shop, which issued
the brochure and demand the book for Rs. 395/-. The seller may refuse to sell
the book to you.

You cannot hold him responsible for the breach of contract because, the
brochures or the catalogue issued by the book seller are merely an invitation
to offer.But, when you have gone to the shop and made an offer to purchase
the book titled Arbitration, Conciliation and Mediation authored by Mr. Vishnu
S Warrier, it is the actual offer.

Said offer may either accept or reject by the book seller. However, once the
book seller accepts your offer, he is bound to give you a copy of the book
titled Arbitration, Conciliation and Mediation authored by Mr. Vishnu S Warrier
and you are bound to pay him the price.

Similarly, a notice for tenders OR auction is an invitation to offer and the

lowest OR highest bidder (as the case may be) has no legal right to insist that
the tender OR the article kept for auction must be awarded OR sold to him.
ESSENTIAL OF VALID PROPOSAL :-
Following are the important conditions :

1. Legal Relationship :-
It is essential for a valid proposal that it must be made with the intention of
creating legal relationship otherwise it will be only invitation. A social invitation
may not create legal relationship.

Example :- Mr. Jhon invites Mr. Robbin at dinner and he accepts. It does not
create any legal relations.

2. Clear Terms and Conditions :-

Proposal should be certain clear, understandable and simple. It may not
create any confusion in the mind of proposee should be precised and definite.

Example :- Mr. Agha offers to sell his house to Miss. Peenu for Rs. 10 lac she
agrees. It is a contract and create legal relationship.

3. General and Specific Offer :-

When proposal is opened to the general public it is called general proposal on
the other hand when it is made to the specific person, it is called specific offer.
In case of general proposal contract is made with person who accepts the
offer.

4. Must be Communicated :-
It is also an important rule for the validity of proposal. Without communication
acceptance of proposal by the proposee is not possible. How an offer can be
accepted unless it has been bought to the knowledge of a person to whom it
is made.

5. Assent Must be an Object :-

Proposal without object will not be valid. The object of the proposal must be to
get the assent of the other party to whom the offer has been made.

6. Distinction Between Proposal and Invitation :-

Proposal is different than the invitation of tenders. Price list of goods and
quotation. These are only invitation of an offer and not the proposal.

7. Communication Method :-
There are three methods of communication proposal can be made orally, in
writing or by conduct. Generally proposals are made orally or writing.

8. Acceptable Proposal :-
If the acceptance of the proposal is not possible then it will be not a valid
proposal. It is essential that acceptance must be possible.

Q. Define contract. Explain essential elements of a valid contract.

Ans: It is defined in the following words "A contract is an agreement
enforceable by law".
Salmond defines the contract in the following words "An agreement creating
and defining obligations between the parties". So there are two conditions for
the contract.

1. An Agreement.
2. Enforceable by law.

Any agreement which enables a man to compel another to do something or

not do something, it is called contract. Agreement becomes a contract when it
is enforceable by law.

Example :- Suppose there is an agreement between Mr. Khan and Miss.

Lucy that Mr. Khan will bring the car from Washington for Miss. Lucy and Miss
Lucy will pay Rs. 10 lac to Mr. Khan. Now this agreement is a contract
because it enables Mr. Khan to compel Miss. Lucy for purchase of car. It also
compels to Mr. Khan for the sale of car. So agreement is a contract because it
is at law.

Explanation :-
Promise = Proposal + Acceptance.
Agreement = Promise + Consideration of both the parties
Contract = Agreement enforceable at law.

Important Note :- All agreements are not contract but all contract are
agreement. Because agreement is not enforceable by law. It may exist
without any legal obligation.

An agreement becomes legally enforceable when it fulfills the conditions laid

down in Section 10 of the Contract Act which states, All agreements are
contracts if they are made by the free consent of parties, competent to
contract, for a lawful consideration and with a lawful object, and not hereby
expressly declared to be void. In order to become a contract, an agreement
must have the following essential elements:

Offer and Acceptance : In order to create a valid contract, there must be an

agreement between two parties. An offer from one party to do or abstain from
doing a particular act and its acceptance by the other party are two basic
elements of an agreement. Therefore, the offer is the starting point of a
contract. Unless there is an offer from one party and it is accepted by other,
no agreement can arise. Not only this the offer must be certain and must be
communicated to the, Similarly, acceptance must be absolute and
unconditional, it must be given in the mode prescribed and should be
communicated.
Intention to create Legal Relationship: There should be an intention on the
part of the parties to the agreement to create a legal relationship. A contract is
a valid agreement which is enforceable by law Agreement should not be
social, otherwise it will not create a legal obligation and will not become a
contract.

Lawful consideration: The agreement must be supported by a lawful

consideration on both sides. Consideration means something in return.
Section 25 provides that an agreement without consideration
is not enforceable barring certain exceptions. Each party to an agreement
must give and receive something in return. This something in return for the
promise is the consideration for the promise. Consideration May consist of
some act or abstinence or a promise to do or abstain from doing something. It
need not be adequate but must have some value in the eyes of law. Not only
this it should be lawful also, i.e., it should not be forbidden bylaw, should not
be fraudulent, or immoral or opposed to any public policy. It may be past,
present or future.

Parties competent to contract: The parties to a contract must be capable of

entering into a valid contract. According to Section 11, every person is
competent to contract if he
 is the age of majority,
 is of sound mind, and
 is not disqualified from contracting by any law to which he is subject.
Contracts entered into by a minor are void initiation.

Free consent: The contract must have been made with the free consent of
the parties. Consent implies agreeing upon the same thing in the same sense
and consent is said to be free if it is not induced by coercion, undue influence,
fraud, misrepresentation or mistake. If the consent is obtained by any of the
above four factors except mistake, the agreement is voidable at the option of
the party whose consent is not free. The party can either reject the contract or
accept it. If the agreement is induced by mutual mistake, the agreement is
void.

Lawful object: The object of the agreement should be lawful and not one of
which the law disapproves. The object would be unlawful if it is forbidden by
law, is fraudulent, or causes injury to the person or property of another, or is
immoral or opposed to any public policy.

Not expressly declared void agreement: The agreements must not have
been expressly declared to be void by any law. There are certain agreements
which have been expressly declared void by the Indian Contract Act like,
agreements in restraint of marriage, trade or legal proceedings, and
agreements with uncertain meaning. In such cases even if the agreement
possesses all the elements of a valid agreement, it will not be enforceable by
law.

Q. Differentiate between Void and Voidable contracts?

Ans: When an agreement is enforceable at law, it becomes a contract. Based

on validity, there are several types of contract, i.e. valid contract, void
contract, illegal contract, etc. Void contract and voiadable contract are quite
commonly miscontrued, but they are different. Void Contract, implies a
contract which lacks enforceability by law, whereas Voidable Contract,
alludes to a contract wherein one party has the right to enforce or rescind the
contract, i.e. the party has the right to put the contract to end.

The major differences between void contract and voidable contract are as
under:
1. A contract which lacks enforceability is Void Contract. A contract which
lacks the free will of one of the parties to the contract is known as
Voidable Contract.
2. Void Contract is defined in section 2 (j) while Voidable Contract is
defined in Section 2 (i) of the Indian Contract Act, 1872.
3. A void contract was valid at the time when it is created, but later on, it
becomes invalid. Conversely, the voidable contract is valid until the
aggrieved party does not revoke it within stipulated time.
4. When it is impossible, for an act to be performed by the parties, it
becomes void, as it ceases its enforceability. When the consent of the
parties to the contract is not free, the contract becomes voidable at the
option of the party whose consent is not free.
5. In void contract, no party can claim any damages for the non-
performance of the contract. On the other hand, the aggrieved party
can claim damages for any loss sustained.

Examples
 A promises B to sell his horse after one month to B for Rs. 50,000.
Before the completion of one month, the horse died. Now, the contract
becomes void as the contract cannot be performed, i.e. the object on
which the parties agreed is no more, so there is an impossibility of
performance of the contract. This type of Contract is known as Void
Contract.
 X says to Y, that he should sell his new bungalow to him at a nominal
price otherwise, he will damage his property and Y enters into a
contract due to fear. In this situation, the contract voidable as the
consent of Y is not free, so he has the right to avoid the performance of
his part. As well as he can claim for any damages caused to him.

Q. Differentiate between illegal and unenforceable contracts?

Ans.
Illegal Contract - It is better to term it as illegal agreement. Illegal
agreement is that which is against the legal provisions of Law of the
country, therefore it is Void. Illegal agreements are Void but all Void
agreements are not necessarily illegal, e.g., wagering agreements are
void but not illegal. If a contract is illegal the Court at his own motion
will refuse to enforce it even if illegality has not been pleaded by the
defendant.

Unenforceable Contract - Certain Contracts are perfect having all the

elements of a Valid Contract, yet Courts do not enforce them because
of the lack, of some formality or some technical defect. For example, A
 document containing a contract immovable property must be stamped,
if it is unstamped it cannot be enforced by law.

Difference between Illegal Contract and Unenforceable Contract –

(1) Illegal agreement is a void agreement and it can never take place of
a contract, whereas an unenforceable contract is a valid contract but it
lacks some technical requirement, if that requirement is supplied, the
contract becomes enforceable.

(2) If a contract is illegal, the Court can refuse to enforce it at his own
motion, for an unenforceable contract Court may ask the defendant to
remove the defect and then it may enforce the contract.

Q. Difference Between Void and Illegal Agreement?

Ans: The Indian Contract Act, 1872 has made it clear that there is a thin line
of difference between void and illegal agreement. A void agreement is one
which may not be prohibited under law, while an illegal agreement is strictly
prohibited by law and the parties to the agreement can be penalized for
entering into such an agreement.

A void agreement has no legal consequences, because it is null from the very
beginning. Conversely, illegal agreement is devoid of any legal effect, since it
is started. All illegal agreement are void, but the reverse is not true. If an
agreement is illegal, other agreements related to it are said to be void.

The difference between void and illegal agreement can be drawn clearly on
the following grounds:

 An agreement which loses its legal status is a void agreement. An

illegal agreement is one which is not permissible under law.

 Certain void agreements are void ab initio while some agreements

become void when it loses its legal binding. On the other hand, an
Illegal agreement is void since the very beginning.

 A void agreement is not prohibited by Indian Penal Code (IPC), but IPC
strictly prohibits an illegal agreement.

 The scope a void contract is comparatively wider than an illegal

contract as all agreements which are void may not necessarily be
illegal, but all illegal agreements are void from its inception.
  A void agreement is not punishable under law whereas an illegal
agreement is considered as an offence, hence the parties to it are
punishable and penalised under Indian Penal Code (IPC).

 Collateral agreements of a void agreement may or may not be void i.e.

they may be valid also. Conversely, collateral agreements of an illegal
agreement cannot be enforceable by law as they are void ab initio.

Q. Differentiate between Proposal and Invitation to offer?

Ans: An offer/Proposal is an expression of a person showing his willingness

to another person to do or not to do something, to obtain his consent on such
expression. The acceptance of the offer by such person may result in a valid
contract. An offer must be definite, certain and complete in all respects. It
must be communicated to the party to whom it is made. The offer is legally
binding on the parties. There are following types of offer:

General offer: The type of offer which is made to the public at large.
Specific offer: The type of offer made to a particular person.
Cross offer: When the parties to the contract accept each other’s offer
in ignorance of the original offer, it is known as the cross offer.
Counter offer: This is an another type of offer in which the offeree does
not accept the original offer, but after modifying the terms and
conditions accept it, it is termed as a counter offer.
Standing offer: An offer which is made to public as a whole as well as it
remains open for a specific period for acceptance it is known as
Standing offer.
Example:

A tells to B,”I want to sell my motorcycle to you at Rs. 30,000, Will you
purchase it?”

X says to Y,”I want to purchase your car for Rs. 2,00,000, Will you sell it to
me?”

Definition of Invitation to offer (treat)

An Invitation to Offer is an act before an offer, in which one person induces
another person to make an offer to him, it is known as invitation to offer. When
appropriately responded by the other party, an invitation to offer results in an
offer. It is made to the general public with intent to receive offers and
negotiate the terms on which the contract is created.

The invitation to offer is made to inform the public, the terms and conditions
on which a person is interested in entering into a contract with the other party.
Although the former party is not an offeror as he is not making an offer
instead, he is stimulating people to offer him. Therefore, the acceptance does
not amount to a contract, but an offer. When the former party accepts, the
offer made by the other parties, it becomes a contract, which is binding on the
parties.
Example:

Menu card of a restaurant showing the prices of food items.

Railway timetable on which the train timings and fares are shown.
Government Tender
A Company invites application from public to subscribe for its shares.
Recruitment advertisement inviting application.

The principal points of difference between offer and invitation to offer are as
follows:

An offer is the final willingness of the party to create legal relations. An

invitation to offer is not the final willingness but the interest of the party to
invite public to offer him.

An offer is defined in section 2 (a) of the Indian Contract Act, 1872.

Conversely, an invitation to offer is not defined in the Indian Contract Act,
1872.

An offer is an essential element to make an agreement between the parties,

but an invitation to offer is not an important element until it becomes an offer.

An offer becomes an agreement when accepted. On the other hand, an

invitation to offer becomes an offer when the public responds to it.

The main objective of making an offer is to enter into the contract, whereas
the main objective of an invitation to offer is to negotiate the terms on which
the contract can be made.

Q. how is communication of an offer or acceptance complete and how

and when their revocation are made, explain?

Ans: offer in order to be binding must be communicated. Similarly, acceptance

of an offer should also be communicated.

Communication of Offer :

Communication of an offer is complete as soon as it comes to the knowledge

of the person to whom it is made.

Examples:

A and B are sitting together. A offers his scooter for Rs. 5,000 to B. reach the
ears of B, the offer of A is complete.

A of Agra by a letter to M of Mumbai offers his scooter for Rs. containing the
offer on 9th January. This letter reaches M at Mumbai is complete on 11th
January.

Communication of Acceptance :
It has two parts:

(a) As against the proposer:

Communication of acceptance is complete as against the proposer when it is

put in a course of transmission so as to be out of the power of the acceptor.
For example, when it is posted in the letter box, duly stamped and addressed.
B posts his acceptance on 12th January which reaches A on 14th January.
Communication of acceptance as against A is complete on 12th January.

(b) As against the acceptor:

Communication of acceptance is complete as against the acceptor when it

comes to the knowledge of the poposer, i.e., when he receives the latter. In
the above example, it is complete against B on 14th January.

Revocation of Offer and Acceptance :

Revocation means withdrawing or taking back the offer or acceptance.

Revocation of an offer or Proposal:

According to Sec. 5, an offer may be revoked at any time before the

communication of its acceptance is complete as against the proposer and not
afterwards.

In our illustration above, the offer can be revoked by A at any time before or at
the moment B posts his letter of acceptance in the letter box i.e., before 12th
January and not afterwards.

Revocation of Acceptance :

According to Sec. 5, an acceptance can be revoked at any time before the

communication of acceptance is complete as against the acceptor and not
afterwards.

Continuing our above illustration, B may revoke his acceptance at any time
before the letter of acceptance reaches A i.e., before 14th January.

Communication of revocation of offer and acceptance is also necessary,

otherwise it will not be effective.

Communication of Revocation :

The communication of revocation is complete:

(i) As against the person who makes it when it is put into the course of
transmission to the person to whom it is made so as to be out of the power of
the person who makes it.
(ii) As against the person to whom it is made when it comes to his knowledge.

Example:

A offers his car to B for Rs. 10,000 by a letter which he posts on 10th March.
B receives this letter on 12th March. A revokes his offer by a telegram which
he sends on 10th March. This telegram reaches B on 11th March.

Communication of revocation as against A is complete when he sent the

telegram i.e. on 10th March. Communication of revocation as against B is
complete when it reached A i.e. on 11th March.

Q. An agreement enforeable by law is contract, comment?

Ans: Section 2 (h) of the Indian Contract Act, 1872 defines a contract as an
agreement enforceable by law. In other words, an agreement which can be
enforced in a court of law is known as a contract. According to Salmond, a
contract is an agreement creating and defining obligations between the
parties’. Sir William Anson defines a contract as a legally binding agreement
made between two or more persons by which rights are acquired by one
or more to acts or forbearances on the part of the other or others’. Hence,
a contract is an agreement between two or more persons which

is intended to have legal consequences.

It is clear from the above definition of the contract that there are two elements
of a contract;

(i) An agreement, and

(ii)Legal obligation.

We will now discuss these two elements:

Agreement : According to Section 2(e) every promise and set of promises

forming the consideration for each other is agreement’. This means that in an
agreement there can be one or more than one promises given in return for
eachother. Promise is defined in Section 2 (b) in these words: 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’. Therefore
every agreement, is composed of a proposal from one side and its acceptance
from the other.

To sum up: Agreement = Offer or Proposal+ Acceptance of Offer

The agreement must give rise to legal obligation : i.e., it should be
enforceable by law: An agreement to become a contract must be coupled with
obligation. An obligation is the legal duty to do or abstain from doing something.

Here a distinction needs to be made between legal and social obligations.

Agreements creating social or moral obligations do not make a contract. Thus
an agreement to have lunch together or to go to a movie is not legally binding.

In such agreements no legal duty is imposed on any party. Such agreements

are social agreements which do not give rise to legal consequences. To make
a contract, an agreement must be enforceable by law. This means that the
agreement must give rise to legal obligation. It is clear from the above
discussion that: All contracts are agreements but all agreements are not
contracts. All agreements are not contracts. An agreement may or may not
create a legal obligation. If no legal binding is intended, a contract does not
arise. Agreements of moral or social nature do not make contracts because
parties never intend to create binding legal obligation. In such cases no one
can sue the other party in case of default. On the other hand, all contracts are
necessarily composed of agreements because for making a contract there
must be an agreement first and then it should be enforceable by law.

Illustrations. 1. X agrees to sell his car to Y for Rs. 80,000. It is an agreement

which is legally enforceable, and in case of any breach of promise, the other
party will be at liberty to file a suit to recover, the damages.

2. X agrees to come to the house of Y for a tea party at Y’s request, there is an
agreement, but it cannot be termed as a contract but it does not attract any
legal enforceability.

Thus, all contracts are agreements but all agreements are not contracts. Only
that agreement which is enforceable by law is a contract, and that which
is not enforceable by law cannot be a contract.

Q. under what circumstances the object and consideration of a contract

is deemed unlawful? Explain.

Ans: According to Section 23, every agreement of which the object or

consideration is unlawful is void, and the consideration or the object of an
agreement is unlawful in the following cases:

1. If it is forbidden by law.

This clause refers to agreements which arc declared illegal by law. If the
consideration or object for a promise is such as is forbidden by law, the
agreement is void. An act or an undertak-ing is forbidden by law:

a. When it is punishable by the criminal law of the country, or

 b. When it is prohibited by special legislation or regulations made by a
competent authority under powers derived from the legislature.

2. If it is of such a nature that, if permitted, it would defeat the provision of any

law. This clause refers to cases where the object or consideration to an
agreement is of such a nature that, though not directly forbidden by law, it
would indirectly lend to a violation of law, whether enacted or otherwise (e.g.,
Hindu and Mohammedan Laws). Such an agreement. is also void.

3. If it is fraudulent. An agreement whose object or consideration is to defraud

others, is unlawful and hence void.

4. If it involves or implies in fury to the person or property of an-other. If the

object or consideration of an agreement is injury to the person or property of
another, it is void, being an lawful agreement.

5. If. the court regards it as immoral. An agreement whose object or

consideration, is immoral, is illegal and therefore void. The scope of the word
‘immoral’ here extends to the following:

Sexual immorality e.g., illicit cohabitation or concubinage or prostitution.

6. If the court regards it as opposed to public policy. An agreement is unlawful if

the court regards it as ‘opposed to public policy.’ It is not possible to give a
precise or exact definition of the term ‘public policy.’ It is rather an elastic term
and its connotation may vary with the social structure of a state. Public policy is
a principle of law which holds the no citizen can lawfully do that which is
injurious to the public or is against the interests of the society or the state.
Broadly speaking, an agreement which tends to promote corruption or injustice
or immorality is said to be opposed to public policy. It is interesting to note that
‘opposed to public policy’ and ‘immoral,’ both are very much similar in nature
because what is ‘immoral’ must be ‘opposed to public policy’ and reverse is
also true in most cases.

7. Traffic in public offices. Agreements for sale or transfer of public offices or for
appointments to public offices in consideration of money are -illegal, being
opposed to public policy. Such agreements, if enforced, would lead to
inefficiency and corruption in public life.

8. Agreements unduly restraining personal liberty: Agreements which unduly

restrict personal freedom have been held to be void and illegal as being against
public policy.

9. Agreements interfering with parental duties. A father, and in his absence the
mother, is the legal guardian of his/her minor child. This right of guardianship
cannot be bartered with any agreement.

10. Marriage brokerage agreements

Q. Define consideration. A contract without consideration is void. Are there any
exceptions to this rule? If so, Explain.

Ans: A promise without consideration cannot create a legal obligation. The

general rule is that an agreement made without consideration is void. This rule
is contained in Section 25 of the Indian Contract Act, which declares that ‘an
agreement made without consideration is void’. This means that consideration
is a must in all cases. But this Section provides certain exceptions where an
agreement is valid even without ‘consideration.

These cases are:

Agreement made on account of natural love and affection [Section 25 (1)]: An

agreement without consideration is enforceable if, it is (i) expressed in writing
and (ii) registered under the law for the time being in force for the registration of
documents, and is made on account of natural love and affection, (iii) between
parties standing in near relation to each other.

The following conditions must be’ satisfied for the application of the exception:

(a) The agreement is in writing

(b) It is registered.

(c) It is made on account of natural love and affection

(d) It is between parties standing in near relation to each other.

Example: A, out of natural love and affection, promises to give his son B
Rs.5,000. A puts his promise to B in writing and registers it. This is a valid
contract. It will be interested to know that the, expressions ‘near relations’ and
‘natural love and affection’ have not been defined in the Indian Contract Act.
However, the expression ‘near relations’ will include parties related by blood or
marriage. And some kind of natural love and affection is also implied. But love
and affection may be sometimes be overruled by external circumstances. For
example, in Raj Lucky Dabee vs. Bhootnath, husband promised to pay his wife
a fixed sum of money every month for her separate residence and
maintenance. The agreement was contained in the registered document which
mentioned certain quarrels and disagreements between the two. The court
refused to hold the agreement valid as it could not find any love and affection
between the parties whose quarrels had compelled them to separate.

Agreement to compensate for past voluntary services [Section 25 (2)]: An

agreement without consideration is enforceable, 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.

Example: A finds B’s purse and gives it to him. B promises to give him Rs. 500.
This is a contract. In order that a promise to pay for past voluntary services be
binding, the following conditions must be satisfied:

(a) The services should have been rendered voluntarily.

(b) The services must have been rendered for the promisor and not anybody
else.

Agreement to pay time-barred debt [Section 25 (3)]: According to the exception

a promise to pay a time barred debt is enforceable if such promise is in writing
and signed by the debtor. A time barred debt cannot be recovered and
therefore a promise to repay such debt is without consideration.

The following conditions must be satisfied for the application of this exception

(a) The promise should be in writing.

(b) It should be signed by the promisor or his agent.

(c) The debt must be time-barred i.e., the limitation period for the recovery of
the debt must have expired.
(d) There must be an express promise to pay. The intention should not be
unexpressed. It may be to pay whole or part of the debt.

Example: A owes B Rs.20,000 but the debt is barred by the Limitation Act. A
signs a written promise to pay B Rs.10,000 on account of the debt. This is a
contract.

Completed gift: The gift actually made by a donor and accepted by the donor
are valid even without the consideration. So in case of a gift actually made
consideration is not necessary.

Example: If A receives a gift on his birthday from B, it cannot be taken back by

B. It is valid inspite of the fact that it is without consideration.

Contract of agency: Section 185 specifically states that no consideration is

necessary to create an agency. Thus, when a person is appointed as an agent,
his appointment is valid even if there is no consideration. Although generally an
agent gets remuneration by way of commission for the services rendered, but
no consideration is immediately necessary at the time of appointment.