A contract is defined as 'an agreement in which one party offers to do something for a consideration and the other party accepts that offer'. The bulk of the transactions in trade, commerce and industry are based on these contracts. In India, the Indian Contract Act,1872 is the governing legislation for contracts, which lays down the general principles relating to formation, performance and enforceability of contracts and the rules relating to certain special types of contracts like Indemnity and Guarantee; Bailment and Pledge, and Agency.

As per the Act, a "contract" is an agreement enforceable by law. The agreements not enforceable by law are not contracts. An "agreement" means 'a promise or a set of promises' forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an 'offer' and its 'acceptance'.

An "offer" is the starting point in the process of making an agreement. Every agreement begins with one party making an offer to sell something or to provide a service, etc. When one person who desires to create a legal obligation, communicates to another his willingness to do or not to do a thing, with a view to obtaining the consent of that other person towards such an act or abstinence, the person is said to be making a proposal or offer.

An agreement emerges from the acceptance of the offer. "Acceptance" is thus, the second stage of completing a contract. An acceptance is the act of manifestation by the offeree of his assent to the terms of the offer. It signifies the offeree's willingness to be bound by the terms of the proposal communicated to him. To be valid an acceptance must correspond exactly with the terms of the offer, it must be unconditional and absolute and it must be communicated to the offeror.

An "agreement" is a contract if 'it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void'. The contract must be definite and its purpose should be to create a legal relationship. The parties to a contract must have the legal capacity to make it. According to the Contract Act, " Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of a sound mind, and is not disqualified from contracting by any law to which he is subject". Thus, minors; persons of unsound mind and Persons disqualified from contracting by any law are incompetent to contract.

The main provisions of the Act are:-

• Atleast two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'. There must be an 'offer' and an 'acceptance' to the offer, resulting into an agreement. Both offer and acceptance should be lawful.
  



• The parties must intend to create a legal obligation. The agreement sought to be enforced should contemplate legal relations between the parties to it.



• A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful.



• The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity.



• The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be free if it is not induced by coercion, undue influence, fraud, misrepresentation or mistake. The absence of free consent would affect the legal enforceability of a contract.



• The object of the agreement must be lawful. An agreement is unlawful, if it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.



• An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements.



• The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also, the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law.



• Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing.



• Contracts are of various types:- (i) Express Contract; (ii) Implied Contract; (iii) Quasi Contract; (iv)Valid Contract; (v) Void Agreement; (vi) Void Contract; (vii) Voidable Contract.



• When a contract is entered into, the parties must perform their respective obligations under the contract. Where a promisor dies before performance of a contract his legal representative is bound to perform the contract unless a contrary intention appears from the words in the contract or the nature of the contract.

A promisor must either actually perform or offer to perform his obligation under the contract, to the promisee. This offer is called `tender of performance'. The essentials of a valid tender of performance are:-

• It must be unconditional;



• It must be at a proper time and place, since a tender made before the due date is not effective;



• It must be made to the proper person;



• It must be of proper quantity and as to the whole of obligation;



• It must be made by a person willing and able to perform there and then;



• It must give a reasonable opportunity to the promisee, for inspection of goods or articles.
  
  

• Once the promisor makes a valid tender of performance, it is then for the promisee to accept the performance. If the tender of performance is rejected by the other party, the promisor is not responsible for non-performance and is entitled to sue the promise for breach of the contract.
  
  



• Contracts which need not be performed are:-
  
  
• Agreement to do impossible acts, are void and need not be performed.



• When a contract is substituted by a new contract, or is rescinded or altered, the original contract need not be performed.



• Contracts discharged by operation of law need not be performed.



• Contracts which have lapsed by time.
  
  
• The principles with regard to time and place for performance of a contract:-
  
  
  • Where a contract states the time and place for its performance, the parties must perform accordingly.
  
  
  
  • Where the contract does not specify any time for its performance, and the promisor has undertaken to perform without a request from the promisee, then it must be carried out within a reasonable time.
  
  
  
  • Where the contract is to be performed on a certain day and the promisor has undertaken to perform without a request from the promisee, the promisor may perform it at any time during the usual hours of business on such day, at the specified place.
  
  
  
  • When the promise is to be performed on a certain day, and the promisor has not undertaken to perform without a request from the promisee, the promisee must make a request for the performance at a proper place and within the usual hours of business.
  
  
  
  • When a promise is to be performed without a request by the promisee, and no place is fixed for its performance, the promisor must request the promisee to fix a reasonable place for the performance and perform the promise at such place.
    
    



• Contracts of Indemnity and Guarantee

A contract of indemnity is one whereby a person promises to save the other from loss caused to him by the conduct of the promisor himself or of any third person. For example, a shareholder executes an indemnity bond favouring the company thereby agreeing to indemnify the company for any loss caused as a consequence of his own act. The person who gives the indemnity is called the 'indemnifier' and the person for whose protection it is given is called the 'indemnity-holder' or 'indemnified'. A contract of indemnity is restricted to cover the loss caused by the promisor himself or by a third person. The loss must be caused by some human agency. Loss arising from accidents like fire or perils of the sea are not covered by a contract of indemnity.

A contract of 'guarantee' is a contract, whether oral or written, to perform the promise, or discharge the liability, of a third person in case of his default. A contract of guarantee involves three persons, viz. a person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given called the 'principal debtor'; and the person to whom the guarantee is given is called the 'creditor'. A contract of guarantee is a conditional promise by the surety that if the principal debtor defaults he shall be liable to the creditor.

• Contracts of Bailment and Pledge

A 'bailment' is the delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished,be returned or disposed of according to the directions of the person delivering them. The person delivering the goods is called the 'bailor' and the person to whom the goods are delivered is called the 'bailee'. The examples of a contract of bailment are:- delivering a watch or radio for repair; leaving a car or scooter at a parking stand; leaving luggage in a cloak room; delivering gold to a goldsmith for making ornaments; leaving garments with a dry cleaner,etc. The essence of bailment is the transfer of possession. The ownership remains with the owner. There cannot be a bailment of immovable property.

A 'pledge' is a bailment of goods wherein the goods are delivered as a security for payment of a debt or performance of a promise.The bailor is called the 'pledgor' or 'pawnor' and the bailee is called the 'pledgee' or 'pawnee'. Thus, pledge is a special kind of bailment. Pledge can be made only of movable properties. In order to make the pledge legally valid it is essential that the pledgor has the legal right or title to retain the goods.

• Contracts of Agency

An 'Agent' is a person employed to do any act or to represent another in dealings with third persons. The person who employs the agent and for whom such act is done,or who is so represented,is called the 'principal'. The relation between the agent and the principal is called 'Agency'. It is only when a person acts as a representative of the other in the creation,modification or termination of contractual obligations,between that order and third persons,that he is an agent. The essence of a contract of agency is the agent's representative capacity coupled with a power to affect the legal relations of the principal with third persons.

Contracts of agency are based on two important principles:-

• Whatever a person can do personally shall also be allowed to be done through an agent except in case of contracts involving personal services such as painting, marriage, singing, etc.



• He who does an act through a duly authorised agent does it by himself i.e. the acts of the agent are considered the acts of the principal.

• A contract is said to be discharged when the liabilities of the parties thereto, come to an end or are determined. A contract may be discharged by any of the following modes:-
  
  
  • By Performance:- when both parties perform their promises and nothing remains thereunder, to be done the contract is discharged.
  
  
  
  • By Impossibility of Performance:- the impossibility may be initial or subsequent.
  
  
  
  • By Mutual Agreement:- where the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract stands discharged.
  
  
  
  • By Remission:- where a party to a contract dispenses with, either wholly or in part, the performance of a contract by the other party, or extends the time for performance, or accepts any other satisfaction instead of performance, the contract stands discharged to the extent remitted.
  
  
  
  • By Operation of Law:- a contract is said to be discharged by operation of law under the following circumstances:-
    
    
    • Material alteration or loss of a written document;
    
    
    
    • Merger of an inferior contract into a superior contract;
    
    
    
    • Discharge of an insolvent;
      
    
    
    
    • When rights and liabilities under the same contract become vested in the same person.
      
      
  
  
  
  • By Breach or Non-Performance:- when a party to a contract has refused to perform or is disabled from performing, his promise, the promisee may put an end to the contract on account of breach by the first party.
    
    



• Where a party to a contract refuses to perform it or becomes disabled to perform it, it amounts to breach of contract and the promisee may set aside the contract unless he has signified by words or conduct, his intention to continue it. The remedies available to the aggrieved party, in case of breach of contract by the other party are:-
  
  
  • Suit for rescission of the contract :- Rescission is the revocation of a contract. When a contract is broken by one party, the other party may sue for rescission and refuse further performance. In such a case, the aggrieved party is absolved of all its obligations under the contract.
  
  
  
  • Suit for damages:- the party who is injured by the breach of a contract may bring an action for damages. Damage is the monetary compensation allowed by the court to the aggrieved party for the loss or injury suffered by him as the result of breach by the other party.
  
  
  
  • Suit for injunction:- An injunction is an order of the court requiring a person to refrain from doing some act which has been the subject matter of contract. The power to grant injunction is discretionary and it may be granted temporarily or for an indefinite period.
  
  
  
  • Suit upon 'Quantum Meruit':- The term "quantum meruit" means, 'as much as is merited' or 'as much as earned'. A suit of quantum meruit is a claim for the value of the material used or supplied under a contract that has become void on account of breach by the other party. When a contract becomes void, any person who has received any advantages under such contract is bound to restore it, to the person from whom he received it.
  
  
  
  • Suit for specific performance:- When the loss suffered by breach of contract cannot be compensated by damages or where there are no standards to ascertain the quantum of damages, the aggrieved party may approach the Court for the grant of a decree for specific performance of the contract. Specific performance is granted when:-
    
    
    • Money is an adequate remedy
    
    
    
    • It will be inequitable to either party
    
    
    
    • The contract is of a personal nature
    
    
    
    • The court cannot supervise its execution
      
      



• The principles with regard to time and place for performance of a contract:-
  
  
  • Where a contract states the time and place for its performance, the parties must perform accordingly.
  
  
  
  • Where the contract does not specify any time for its performance, and the promisor has undertaken to perform without a request from the promisee, then it must be carried out within a reasonable time.
  
  
  
  • Where the contract is to be performed on a certain day and the promisor has undertaken to perform without a request from the promisee, the promisor may perform it at any time during the usual hours of business on such day, at the specified place.
  
  
  
  • When the promise is to be performed on a certain day, and the promisor has not undertaken to perform without a request from the promisee, the promisee must make a request for the performance at a proper place and within the usual hours of business.
  
  
  
  • When a promise is to be performed without a request by the promisee, and no place is fixed for its performance, the promisor must request the promisee to fix a reasonable place for the performance and perform the promise at such place.
    
    



• Contracts of Indemnity and Guarantee

A contract of indemnity is one whereby a person promises to save the other from loss caused to him by the conduct of the promisor himself or of any third person.For example,a shareholder executes an indemnity bond favouring the company thereby agreeing to indemnify the company for any loss caused as a consequence of his own act.The person who gives the indemnity is called the 'indemnifier' and the person for whose protection it is given is called the 'indemnity-holder' or 'indemnified'. A contract of indemnity is restricted to cover the loss caused by the promisor himself or by a third person.The loss must be caused by some human agency.Loss arising from accidents like fire or perils of the sea are not covered by a contract of indemnity.

A contract of 'guarantee' is a contract,whether oral or written,to perform the promise,or discharge the liability,of a third person in case of his default. A contract of guarantee involves three persons,viz. a person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given called the 'principal debtor'; and the person to whom the guarantee is given is called the 'creditor'. A contract of guarantee is a conditional promise by the surety that if the principal debtor defaults he shall be liable to the creditor.

• Contracts of Bailment and Pledge

A 'bailment' is the delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished,be returned or disposed of according to the directions of the person delivering them. The person delivering the goods is called the 'bailor' and the person to whom the goods are delivered is called the 'bailee'. The examples of a contract of bailment are:- delivering a watch or radio for repair; leaving a car or scooter at a parking stand; leaving luggage in a cloak room; delivering gold to a goldsmith for making ornaments; leaving garments with a dry cleaner,etc. The essence of bailment is the transfer of possession. The ownership remains with the owner. There cannot be a bailment of immovable property.

A 'pledge' is a bailment of goods wherein the goods are delivered as a security for payment of a debt or performance of a promise.The bailor is called the 'pledgor' or 'pawnor' and the bailee is called the 'pledgee' or 'pawnee'. Thus, pledge is a special kind of bailment. Pledge can be made only of movable properties. In order to make the pledge legally valid it is essential that the pledgor has the legal right or title to retain the goods.

• Contracts of Agency

An 'Agent' is a person employed to do any act or to represent another in dealings with third persons. The person who employs the agent and for whom such act is done,or who is so represented,is called the 'principal'. The relation between the agent and the principal is called 'Agency'. It is only when a person acts as a representative of the other in the creation,modification or termination of contractual obligations,between that order and third persons,that he is an agent. The essence of a contract of agency is the agent's representative capacity coupled with a power to affect the legal relations of the principal with third persons.

Contracts of agency are based on two important principles:-

• Whatever a person can do personally shall also be allowed to be done through an agent except in case of contracts involving personal services such as painting, marriage, singing, etc.



• He who does an act through a duly authorised agent does it by himself i.e. the acts of the agent are considered the acts of the principal.

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