BLS LLB 5 Years Sem 5 Contract I 2023-24 - ATKT 60/40 Question Paper with Solutions

Substituted performance was introduced by the Specific Relief (Amendment) Act, 2018, which substituted a new Section 20 in the Specific Relief Act, 1963.

Where a contract is broken, the party who suffers is entitled to have the contract performed by a third party or by his own agency, and to recover the expenses and other costs actually incurred from the party in breach.

The conditions are:

1. Written notice of not less than thirty days must be given to the party in breach, calling on him to perform within that time;
2. only on his refusal or failure may substituted performance be procured; and
3. having obtained substituted performance, the party cannot claim specific performance, though he may claim compensation.

The doctrine of privity of contract means that only a person who is a party to a contract can sue or be sued upon it. A stranger acquires no rights under it and incurs no liabilities, even if the contract was made for his benefit.

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge and Co. Ltd. (1915): Lord Haldane said that only a person who is a party to a contract can sue on it. In India, M.C. Chacko v. State Bank of Travancore (1970 SC).

It must be distinguished from privity of consideration, which is not required in India, since Section 2(d) allows consideration to move from "the promisee or any other person": Chinnaya v. Ramayya (1882 Mad).

Exceptions: a beneficiary under a trust or a charge on immovable property (Khwaja Muhammad Khan v. Husaini Begum, 1910 PC); a marriage settlement or family arrangement; acknowledgement or estoppel; agency; and covenants running with land (Tulk v. Moxhay, 1848).

Section 29 of the Indian Contract Act, 1872: "Agreements, the meaning of which is not certain, or capable of being made certain, are void."

So an uncertain agreement is void: it creates no rights and no obligations, and no suit lies upon it. Certainty of terms is one of the essentials of a valid contract under Section 10, because a court cannot enforce a promise whose content it cannot ascertain.

Illustrations to Section 29:

• A agrees to sell to B "a hundred tons of oil". There is nothing to show what kind of oil was intended. The agreement is void for uncertainty.
• A, who is a dealer in coconut oil only, agrees to sell to B "one hundred tons of oil". The nature of A's trade affords an indication of the meaning, and A has entered into a contract for the sale of one hundred tons of coconut oil.

The remedies available to a party injured by a breach of contract are:

1. Rescission of the contract. Under Section 39 the promisee may put an end to the contract where the other party has refused to perform or disabled himself from performing in entirety, and under Section 75 a party who rightfully rescinds may claim compensation for damage sustained.
2. Damages, under Section 73 for loss naturally arising or within the parties' contemplation, and under Section 74 where a sum is named in the contract, the court awarding reasonable compensation not exceeding it.
3. Suit upon quantum meruit, for the value of work actually done, supported by Sections 65 and 70.
4. Suit for specific performance, under Chapter II of the Specific Relief Act, 1963, now the rule under Section 10 since the 2018 Amendment.
5. Suit for injunction, under Sections 36 to 42 of that Act, particularly Section 42 to enforce a negative covenant.

Section 11 of the Indian Contract Act, 1872: "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 sound mind, and is not disqualified from contracting by any law to which he is subject."

The three requirements are:

1. Age of majority, which is 18 years under Section 3 of the Indian Majority Act, 1875, and 21 where a guardian has been appointed by a court;
2. Soundness of mind, defined by Section 12 as being capable, at the time of contracting, of understanding the contract and forming a rational judgment as to its effect upon his interests;
3. Not disqualified by any law, which excludes alien enemies, foreign sovereigns and diplomats, convicts, insolvents, and corporations acting ultra vires.

For full marks, cover: Section 27, the goodwill exception in full, the three Partnership Act exceptions, the judicial exceptions with the during and after employment distinction, and the contrast with English law.

Section 27 of the Indian Contract Act, 1872: "Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."

The basis of the rule is public policy: every person has a right to earn a living by any lawful means, and the public has an interest in the free exercise of trade and skill. Freedom to contract cannot be used to destroy freedom to trade.

• Section 54: partners may make a like agreement upon or in anticipation of dissolution.
• Section 55(3) makes similar provision on the sale of the firm's goodwill.

Judicial exceptions

1. Trade combinations that regulate business, fix prices or pool profits without restraining any member from trading are valid; those that create a monopoly are not.
2. Exclusive dealing, sole selling agency and sole supply agreements are valid where they promote trade rather than restrain it.
3. Restraints operating during employment are valid. Niranjan Shankar Golikari v. The Century Spinning and Manufacturing Co. Ltd. (1967 SC): a negative covenant restraining an employee from serving a competitor during the term of his employment is not in restraint of trade, because he is bound to serve his employer exclusively during that period.

For full marks, cover: the definition and essentials, Section 30 in both its limbs with its two exceptions, the effect on collateral transactions and the Maharashtra position, and the distinction from a contingent contract and from insurance.

A wager is a promise to pay money or money's worth on the determination of an uncertain event, where each party stands to win or lose according to how it turns out, and neither party has any interest in the event other than the sum he will win or lose.

Section 30 of the Indian Contract Act, 1872: "Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made."

Essentials

1. An uncertain event. It is usually future, but may be a past event whose result is unknown to the parties.
2. Mutual chances of gain and loss. Each party must stand to win or lose; if only one can win, it is not a wager.

• The second limb also bars a suit to recover anything entrusted to a stakeholder to abide the result. But a depositor may recover his own stake from the stakeholder if he demands it back before it has been paid over to the winner, because as between depositor and stakeholder there is no wager at all, only a revocable authority.
• A wager is void but not illegal under Section 23, so collateral transactions are enforceable: Gherulal Parakh v. Mahadeodas Maiya (1959 SC), where a partnership formed to enter into wagering transactions was held lawful.
• Exception: Maharashtra and Gujarat. Under the Bombay Wagers (Amendment) Act, 1865, wagers are illegal, and collateral transactions fall with them.

Distinguished from

For full marks, cover: Section 26 in all four sub-sections, the conditions, what rectification is and is not, and the contrast with cancellation and rescission.

Rectification is the correction by the court of a written instrument which, through fraud or mutual mistake, does not express the real intention of the parties. It is dealt with in Chapter III of the Specific Relief Act, 1963, in Section 26.

Section 26(1). When, through fraud or a mutual mistake of the parties, a contract or other instrument in writing, not being the articles of association of a company to which the Companies Act applies, does not express their real intention, then:

• (a) either party or his representative in interest may institute a suit to have the instrument rectified; or
• (b) the plaintiff may, in any suit in which any right arising under the instrument is in issue, claim in his pleading that the instrument be rectified; or
• (c) a defendant, in any such suit, may, in addition to any other defence open to him, ask for rectification.

5. the remedy is discretionary;
6. third parties in good faith and for value are protected; and
7. the relief must be specifically claimed, with liberty to amend.

"Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech."

Illustration (a): A sells, by auction, to B a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A.

The rule rests on caveat emptor, let the buyer beware. Parties to a commercial bargain are adverse, each is expected to look after his own interests, and there is no general duty to volunteer information.

The first exception: a duty to speak

A duty to disclose arises in these situations.

1. Contracts uberrimae fidei, of the utmost good faith, where one party alone knows the material facts:

• contracts of insurance, where the insured must disclose every material fact affecting the risk;
• contracts of family settlement;
• contracts of guarantee, where Section 143 makes a guarantee invalid if obtained by the creditor's concealment of a material circumstance;

Illustration (c) to Section 17: B says to A, "If you do not deny it, I shall assume that the horse is sound." A says nothing. Here A's silence is equivalent to speech.

Effect and limit

Where silence does amount to fraud, the contract is voidable at the option of the party deceived under Section 19, who may rescind, or affirm and be put in the position in which he would have been if the representation had been true, and who may also sue in tort for deceit.

But the proviso to Section 19 applies: where consent was caused by silence amounting to fraud, the contract is not voidable if the party "had the means of discovering the truth with ordinary diligence". Shri Krishan v. The Kurukshetra University (1976 SC): a candidate's failure to disclose a shortage of lectures was not fraud, because the University had the means of discovering the truth with ordinary diligence.

To reclaim the dog 'A' filed suit against the shop attendant. (a) Whether 'A' will succeed in his claim?

Give reasons. (b) What is required in the above case to enforce a contract between 'A' and 'B'?

For full marks, cover: that this is Felthouse v. Bindley with a dog in place of a horse, that silence is not acceptance, that an intention not communicated is no acceptance either, and then what would have been required to make the contract.

This problem is Felthouse v. Bindley (1862) with the names and the animal changed. Say so, and the marks follow.

Step 3. B's instruction to his attendant was not a communicated acceptance either.

This is the more subtle half of the case, and it is where the marks are. B did intend to accept: he told his shop attendant not to sell Tomy. But an uncommunicated intention is not an acceptance. Section 4 provides that the communication of an acceptance is complete as against the proposer only when it is put in a course of transmission to him, and B never communicated anything to A at all. He merely acted on his own intention internally.

Step 4. Consequence. No contract came into existence between A and B. Therefore:

• No property in the dog passed to A, and he was never the owner;
• his suit against the shop attendant must fail, because a claim for wrongful sale, whether framed as conversion or as a suit for recovery of specific movable property under Section 7 or 8 of the Specific Relief Act, 1963, requires the plaintiff to prove a right to possession, and A has none;

4. Once B posted or otherwise despatched his acceptance, the contract would have been complete as against A under Section 4, and A could no longer have revoked under Section 5.
5. Alternatively, acceptance by conduct under Section 8, that is by performing the conditions of the proposal. If B had delivered the dog to A, or set it aside and told A it was his, that conduct would have been an acceptance. Merely keeping it back within his own shop is not, because it is not directed at A.
6. There must also be consideration, which is present in the price of Rs. 20,000, and an intention to create legal relations, which the commercial setting supplies notwithstanding the friendship.

Section 43, paragraph 1. Any one of joint promisors may be compelled to perform. "When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise."

Section 43, paragraph 2. Each promisor may compel contribution. "Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract."

Section 43, paragraph 3. Sharing of loss by default in contribution. "If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares."

Two neighbouring sections complete the scheme:

Section 42. Devolution of joint liabilities. All the joint promisors must fulfil the promise during their joint lives; after the death of any of them, his representative jointly with the survivors; and after the death of the last survivor, the representatives of all jointly.

3. Equal contribution. Under paragraph 2, each joint promisor may compel every other to contribute equally. There are three promisors and the debt is Rs. 15,000, so each share is Rs. 5,000.
4. X has paid Rs. 15,000, that is Rs. 10,000 more than his own share. He may therefore recover Rs. 5,000 from Y and Rs. 5,000 from Z.
5. Contribution is equal, not proportionate to benefit, "unless a contrary intention appears from the contract". If the promise had allocated the liability in different shares, that allocation would govern instead.

Two further points that complete the answer:

• If Y or Z defaults, for example by becoming insolvent, paragraph 3 applies: the remaining joint promisors bear the loss in equal shares. So if Z paid nothing and had nothing, his Rs. 5,000 would be borne equally by X and Y, that is Rs. 2,500 each, and Y's total liability to X would become Rs. 7,500.
• If A had released Y, that release would not discharge X and Z, who would remain liable for the whole (Section 44), and Y would still owe contribution to them.

Step 1. The contract is void ab initio.

Raju is 16, and by Section 3 of the Indian Majority Act, 1875, majority is attained at 18. By Section 11 of the Contract Act he is not competent to contract, and following Mohori Bibee v. Dharmodas Ghose (1903 PC), a minor's agreement is void ab initio, not merely voidable. There is therefore no contract of sale on which Maganlal can sue for the price.

Step 2. Raju's misrepresentation of age does not help Maganlal.

There is no estoppel against a minor. A minor who falsely represents himself as a major is not estopped from later pleading minority, because:

• there can be no estoppel against a statute, and the statute makes him incompetent; and
• to allow estoppel would let the protection be defeated by the very misrepresentation it anticipates.

Sadik Ali Khan v. Jai Kishori; Gadigeppa v. Balangowda; and Mohori Bibee itself, where the moneylender's agent knew of the minority and still failed.

Step 3. The suit on the cheque also fails against Raju.

• A criminal complaint. This is a separate matter from contract, and it is where minority does not protect Raju. Forgery and cheating are offences, and under Section 83 of the Indian Penal Code, now Section 21 of the Bharatiya Nyaya Sanhita, 2023, only a child above seven and under twelve who has not attained sufficient maturity is excused. At sixteen, Raju is fully criminally responsible, and would be dealt with under the Juvenile Justice (Care and Protection of Children) Act, 2015, as a child in conflict with law. A minor's immunity is contractual, not criminal, and that distinction is worth stating.
• No claim against the father, unless he authorised or ratified the cheque, or unless the computer can be shown to be a necessary supplied to a person whom the father is bound to support, which a computer costing Rs. 35,000 would be very difficult to establish under Section 68.

(b) Can Maganlal claim back the computer?

Yes, very probably. This is his real remedy, and it is the strongest case for restitution.

Step 1. The doctrine of restitution against a minor.

Section 33(2) is the provision directly in point: where a defendant successfully resists a suit on the ground that the instrument sought to be enforced against him is voidable, the court shall require him to restore, so far as may be, such benefit as he has received, and to make compensation. So if Raju defends Maganlal's suit by pleading minority, the court may condition that defence on his returning the computer.

Step 3. The limits of restitution.

• Restitution is available only so far as the property is traceable. If Raju had sold the computer and spent the proceeds, the claim would be far weaker, and on the Ajudhia Prasad view it would fail.
• Restitution stops where it would amount to enforcing the void contract. A court will order the computer to be returned; it will not order Raju to pay Rs. 35,000, because that is the contract price and awarding it would enforce the very agreement the law declares void.

Conclusion: Maganlal cannot recover the price, but he should sue for recovery of the computer, and may support the claim under Section 7 or 8 of the Specific Relief Act, 1963, on the footing that no property ever passed to Raju under a void agreement, as well as by the doctrine of restitution.

• a contract is voidable at the option of the party whose consent was caused by coercion, undue influence, fraud or misrepresentation (Sections 19 and 19A), and he may rescind it;
• Section 39: where a party refuses to perform, or disables himself from performing, in entirety, the promisee may put an end to the contract;
• Section 62: the parties may rescind by mutual agreement;
• Section 64: the party rescinding a voidable contract must restore any benefit received under it;
• Section 66: rescission may be communicated or revoked in the same manner as a proposal;
• Section 75: a party who rightfully rescinds may claim compensation for damage sustained.

Under the Specific Relief Act, 1963:

• Section 27(1): rescission may be adjudged by the court at the instance of any person interested, (a) where the contract is voidable or terminable by the plaintiff, or (b) where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff;

Step 2. Ordinarily a party to an unlawful transaction cannot get relief.

The maxim is in pari delicto potior est conditio defendentis: where both parties are equally at fault, the defendant is in the stronger position and the court will not assist either. On the face of it Y, having joined in a scheme to defraud her own creditors, would be met with that rule.

Step 3. But Section 27(1)(b) is the express exception, and it fits exactly.

Section 27(1)(b) allows the court to adjudge rescission "where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff."

Both limbs are satisfied:

• The contract is unlawful for causes not apparent on its face. The deed of transfer looks like an ordinary conveyance; nothing in the document reveals that its purpose was to defeat creditors. The illegality lies in the surrounding purpose, not in the instrument.

Y should sue for:

• rescission under Section 27 of the Specific Relief Act;
• cancellation of the instrument under Section 31, since it is voidable against her and, if left outstanding, may cause her serious injury, with the cancellation noted by the registering officer under Section 31(2);
• restoration of the property, subject to Section 30, under which the court may require her to do equity.

A caution worth adding. Rescission restores the property to Y, but it does not protect it from her creditors, who may still proceed against it and may themselves avoid any further transfer under Section 53 of the Transfer of Property Act. Y recovers the property; she does not escape her debts.

For full marks, cover: the nature of the remedy, the reversal effected by the 2018 Amendment, Section 10 as it now stands, Sections 11 to 13, who may sue and against whom under Sections 15 and 19, substituted performance under Section 20, the bars in Sections 14, 16 and 17, and the ancillary reliefs in Sections 21 to 24.

The nature of the remedy

Specific performance is an equitable remedy by which the court directs a party to a contract to perform it according to its terms, instead of leaving the aggrieved party to a claim for damages. It is governed by Chapter II of the Specific Relief Act, 1963.

Its justification is that damages are not always an adequate substitute. Money will buy another consignment of wheat; it will not buy the particular plot of land, the particular painting, or shares in a private company for which there is no market.

The reversal effected by the 2018 Amendment

Section 12. Specific performance of part of a contract.

• 12(1): the court shall not direct specific performance of a part of a contract.
• 12(2): where the unperformed part bears only a small proportion to the whole in value and admits of compensation in money, the court may direct performance of the rest with compensation for the deficiency.
• 12(3): where the unperformed part is considerable or does not admit of compensation, the party in default cannot sue, but the other party may, if he relinquishes all claim to further performance and compensation.
• 12(4): a separate and independent part, capable of separate performance, may be enforced by itself.

Section 13. Rights of a purchaser or lessee against a person with no title or an imperfect title: to compel him to make good the title out of any interest he later acquires, to compel him to procure the concurrence of necessary persons, to have a charge discharged, and to recover his deposit and costs.

Section 14A, inserted in 2018, empowers the court to engage experts.

Substituted performance

Section 20 (substituted in 2018). Where a contract is broken, the aggrieved party may have it performed by a third party or by his own agency and recover the expenses and costs from the party in breach, after written notice of not less than thirty days. Having obtained substituted performance, he cannot claim specific performance, though he may claim compensation.

When specific performance is refused

Section 14. Contracts not specifically enforceable:

• (a) where a party has obtained substituted performance under Section 20;
• (b) a contract involving the performance of a continuous duty which the court cannot supervise;
• (c) a contract so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms;
• (d) a contract which is in its nature determinable, such as a partnership at will or an agency.

• Section 23. A liquidated damages clause does not bar specific performance unless the contract shows the sum was to give the option of paying money instead of performing.
• Section 24. The dismissal of a suit for specific performance bars a later suit for compensation for the same breach.
• Sections 20A, 20B and 20C: no injunction impeding an infrastructure project; Special Courts; and disposal within twelve months.

What consideration is

Section 2(d): "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

Currie v. Misa (1875): "some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."

Essentials, with their cases:

1. It must move at the desire of the promisor. Durga Prasad v. Baldeo (1880 All): a shopkeeper's promise to pay commission to a person who had built a market at the Collector's desire, and not the promisor's, was unenforceable.
2. It may move from the promisee or any other person. Chinnaya v. Ramayya (1882 Mad): an old lady gifted land to her daughter on condition that the daughter pay an annuity to the lady's brother; the brother's suit succeeded, the consideration having moved from the lady. Privity of consideration is not required in India.

2. Compensation for past voluntary service. Section 25(2). A promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do. No writing is needed.

• Illustration: A finds B's purse and gives it to him. B promises to give A Rs. 50. This is a contract.
• Conditions: the act must have been voluntary, done for the promisor, who must have been in existence and competent to contract at the time.

3. Promise to pay a time barred debt. Section 25(3). A promise in writing and signed by the person to be charged, or by his authorised agent, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law of limitation. The promise must be express and relate to a specific debt.

4. Completed gift. Explanation 1 to Section 25. "Nothing in this section shall affect the validity, as between the donor and the donee, of any gift actually made."

Elsewhere in the Act:

5. Agency. Section 185: "No consideration is necessary to create an agency."

10. A negotiable instrument is presumed to have been made for consideration under Section 118 of the Negotiable Instruments Act, 1881.

Two riders

Adequacy. Explanation 2 to Section 25: an agreement is not void merely because the consideration is inadequate, but the inadequacy may be taken into account by the court in deciding whether the promisor's consent was freely given.

Privity. Privity of consideration is not required in India (Section 2(d), Chinnaya v. Ramayya), but privity of contract is: only a party to a contract can sue on it (Dunlop v. Selfridge, 1915; M.C. Chacko v. State Bank of Travancore, 1970 SC), subject to the recognised exceptions of a trust or charge on immovable property (Khwaja Muhammad Khan v. Husaini Begum, 1910 PC), family arrangement, acknowledgement, agency, and covenants running with land.

Kinds of proposal

1. Express and implied. Section 9: so far as a proposal or acceptance is made in words, the promise is express; so far as it is made otherwise than in words, it is implied. Boarding a bus is an implied proposal.
2. Specific and general. A specific offer is made to a definite person and can be accepted only by him; a general offer is made to the world at large and is accepted by whoever performs its conditions: Carlill v. Carbolic Smoke Ball Co. (1893).
3. Cross offers, where two parties make identical offers in ignorance of each other. There is no contract, neither being an acceptance of the other: Tinn v. Hoffman and Co. (1873).
4. Counter offer, a fresh proposal which destroys the original: Hyde v. Wrench (1840).
5. Standing or continuing offer, as in a tender for supply over a period, accepted each time an order is placed.

2. It must be communicated to the offeree. Section 4: the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. There can be no acceptance in ignorance of the offer: Lalman Shukla v. Gauri Dutt (1913 All), where a servant who traced his master's missing nephew before hearing of the reward could not claim it. Contrast Harbhajan Lal v. Harcharan Lal (1925 All), where the finder knew of the offer and recovered.

3. It must intend to create legal relations. Balfour v. Balfour (1919): a husband's promise to pay his wife a monthly allowance while he was abroad was not intended to be legally binding. The presumption is rebuttable: Merritt v. Merritt (1970), where a written agreement made after separation was enforceable.

4. Its terms must be certain, or capable of being made certain. Section 29. Illustration: an offer to sell "a hundred tons of oil" without saying what kind is uncertain; but if the offeror deals only in coconut oil, the nature of his trade makes it certain.

5. It must not contain a term the non compliance with which amounts to acceptance. Felthouse v. Bindley (1862): "if I hear no more about him, I consider the horse mine" did not bind the nephew who said nothing. Silence is not acceptance.

Communication, revocation and lapse

Section 3: communication of proposals, and of the acceptance and revocation of proposals, is deemed to be made by any act or omission by which a party intends to communicate, or which has the effect of communicating it.

Section 4: a proposal is communicated when it comes to the knowledge of the offeree; a revocation is complete as against its maker when put into a course of transmission, and as against the person to whom it is made when it comes to his knowledge.

Section 5: "A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards." Byrne and Co. v. Van Tienhoven and Co. (1880): a revocation posted before the acceptance but arriving after it is too late.

Section 6. A proposal is revoked:

1. by the communication of notice of revocation;
2. by the lapse of the time prescribed, or of a reasonable time: Ramsgate Victoria Hotel Co. v. Montefiore (1866);

For full marks, cover: the chain of definitions from 2(a) to 2(h), why every contract must be an agreement, why only some agreements are contracts by reference to Section 10, the classes of agreement that are not contracts, and the diagram of the relationship.

The statement, and where it comes from

The proposition is Sir William Anson's, and it states the relationship between two defined terms of the Indian Contract Act, 1872. The Act builds its definitions in a chain, and the statement is simply a description of that chain.

• Section 2(a). Proposal: when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other, he makes a proposal.
• Section 2(b). Acceptance and promise: when the person to whom the proposal is made signifies his assent, the proposal is accepted, and a proposal when accepted becomes a promise.
• Section 2(d). Consideration.

Where there is no agreement, there is nothing for the law to make enforceable. So every contract is necessarily an agreement, and the class of contracts lies wholly inside the class of agreements.

Part two: all agreements are not contracts

An agreement becomes a contract only if it satisfies the further requirements in Section 10: "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 are not hereby expressly declared to be void."

Agreements therefore fail to become contracts in the following ways.

1. Agreements not intended to create legal relations. Social, domestic and moral arrangements are agreements in the ordinary sense, but the parties never meant them to be enforceable. Balfour v. Balfour (1919): a husband's promise of a monthly allowance to his wife. An invitation to dinner is an agreement and is not a contract.

2. Agreements by persons not competent to contract. Sections 10 and 11. Mohori Bibee v. Dharmodas Ghose (1903 PC): a minor's agreement is void ab initio. So is one by a person of unsound mind (Section 12) or by a person disqualified by law.

7. Agreements lacking a required legal formality. The saving clause in Section 10 preserves any law requiring a contract to be in writing, attested or registered, for example Section 25(1) of the Act, the Transfer of Property Act, 1882, and the Registration Act, 1908. Such an agreement may be valid in substance but unenforceable for want of form.

The relationship in one line

Every contract is an agreement, but only those agreements that satisfy Section 10 are contracts. Agreements form the larger class, and contracts a circle inside it. The remainder of the larger class consists of agreements that are void, voidable and subsequently avoided, unenforceable for want of form, or not intended to create legal relations at all.

The related classification

For completeness, agreements and contracts are classified as follows.

On the basis of enforceability:

• Valid contract, satisfying all the requirements of Section 10;
• Void agreement, Section 2(g), not enforceable by law, and a nullity from the start;