Download DEFINITION AND NATURE OF CONTRACT

COMMERCIAL
AND LABOUR
LAWS
NATURE AND
DEFINITION OF LAW OF
CONTRACT
LAW – ITS DEFINITION
According to SALMOND “Law is the body of principles
recognised and applied by the state in the administration of
justice.”
There are various branches of law concerning specific aspects
e.g., civil, administrative, business, labour laws etc.
LAW OF CONTRACT
The law of contract is “what has been promised shall be
performed.”
HISTORY
OF
INDIAN
CONTRACT ACT 1872
The law relating to the contracts in India is contained in the
Indian Contract Act, 1872. The Act came in to force with
effect from September 1, 1872. It is applicable to the whole
of India except the State of Jammu & Kashmir.
The Act as enacted originally had 266 Sections.
CONTRACT
A contract is an agreement to do or not to do act. It is legally
binding agreement, which is, enforceable at law.
Section 2 (h) of the Contract Act defines a Contract as “an
agreement enforceable by law.”
There are two essential elements of a contract :
(1) An Agreement
.
(2) Its enforceability at law
AGREEMENT
An agreement is defined in Section 2 (e) as “every promise or
every set of promises forming the consideration for each
other.”
A promise is defined in section 2 (b) as “a proposal when
accepted becomes a promise.”
An agreement involves offer by one party and acceptance of
the same by the other party. It requires existence of two or
more persons.
Agreements are of two types :
(1)Un-enforceable agreements- In these agreements
aggrieved party cannot go to the court These agreements
remain only agreement and they never become a Contract
in the eyes of law.
(2) Enforceable agreements-In these agreements the
aggrieved party can go to the court to get the agreement
enforced. All these agreements are Contracts
Therefore we can conclude that :
“All contracts are agreements but all agreements are
not contracts.”
Thus, Agreement = Offer + Acceptance
ENFORCEABILITY BY LAW
An agreement to become a contract must give rise to a
legal obligation. The common acceptance formed and
communicated between the two parties must create legal
relations and not the social or domestic relations.
Example: A invites B to a dinner at a hotel. B accepts the
offer. But for some reasons B could not come. Then A
cannot sue B as it was a social agreement.
Contract = Agreement + Enforceability at law
RIGHTS IN PERSONAM
‘Rights in personam’ means a right against or in respect
of a particular person/persons. For example; A entitled to
receive a sum of money from B. this right can be
exercised by A only and that too against B only. This is
right in personam.
RIGHTS IN REM
‘Right in rem’ means a right against or in respect of a
thing. This right is available against the whole world. For
example; If A owns a land and B is his neighbour, A has a
right of complete possession of land not only against B
but against the whole world. This is right in rem.
ESSENTIAL ELEMENTS OF
A VALID CONTRACT
All agreements are not contracts. Only that agreement
which is enforceable at law is a contract. An agreement, to
be enforceable by law , must possess the essential
elements of a valid contract as contained in Section 10 of
the Indian Contract Act . These are :
(1)Offer and Acceptance. In order to create a
valid contract, there must be a ‘lawful offer’ by one party
and ‘lawful acceptance’ of the same by the other party
(2) Intention to create legal relationship. In
case there is no legal relationship between the parties,
there is no contract . Agreements of social or domestic
nature do not contemplate legal relations.
’.
(3) Lawful Consideration. Consideration means
‘something in return’. It may be in the form of money, service,
goods . Agreements made without consideration are
unenforceable. And the consideration must be real and
lawful.
(4) Capacity of parties. The parties to an
agreements must be able to contract. The following are not
capable to contract:
• Minors
• Person of unsound mind
• Person disqualified by law.
(5) Free Consent. Consent means the parties must
have agreed upon the same thing in the same sense.
Consent is said to be free when it is not caused by(a) Coercion
(b) Undue influence
(c) Fraud
(d) Misrepresentation
(6) Lawful object. The object of an agreement must
be lawful. Object means the purpose or design of the
contract. The object is said to be unlawful if• It is forbidden by law.
• It is fraudulent
• It is opposed to public policy
• It involves injuries to the person
(7) Certainty of meaning. According to Section 29
“Agreements the meaning of which is not certain or capable
of being made certain are void”. The terms of the contract
must be precise and certain. The meaning should not be
vague. A contract may be void on the ground of uncertainty.
(8) Possibility of performance. If the act is
impossible in itself, physically or legally, it can not be
enforced at law. For e.g., A agrees with B to discover
treasure by magic. Such agreement is void.
(9) Not declared to be void or illegal. The
agreement though satisfying all the condition for a valid
contract must not have been expressly declared void by any
law in force in the country . For e.g., Agreements in restraint
of trade, marriage etc, are void.
(10) Legal formalities. An oral contract is a valid
contract, except in those cases where writing, registration etc.
is required by some statute. In India writing is required in case
of sale, mortgage, lease, etc.
CLASSIFICATION OF
CONTRACTS
Contracts can be classified on the basis of their (a) validity,
(b) formation, (c) performance
On the basis of validity
1. Valid contract. An agreement enforceable by law is
a valid contract. An agreement becomes contract when all
the essential of a valid contract as laid down in Section 10
are fulfilled.
2. Void contract.
An agreement which was legally
enforceable when entered in to the but becomes void due
to impossibility of performance. A void contract is not
necessarily unlawful, but is destitute of legal effects.
3. Void agreement.
According to Section 2 (g), “an
agreement which is not enforceable by law is void.” For
e.g., an agreement with a minor.
4. Voidable contract.
According to Section 2 (i), “ an
agreement which is enforceable by law at the option of
one party but not at the option of the other is a voidable
contract.
5. Unenforceable contracts. It is a contract which
is otherwise valid, but cannot be enforced because of
some technical defects like absence of a written form, or
absence of proper stamp.
6. Illegal agreements.
A contract which is either
prohibited by law or otherwise against the policy of law is
an illegal agreement. It is void ab initio.
Difference between void agreement and voidable
contracts
1. Legal effects. A void agreement has from the very
beginning no legal effects. A voidable contract is one in
which one party can affirm or reject at his option.
2. Curability. The defect of a voidable contract is curable. But
a void agreement is void ab initio and its defects are
incurable.
3. Compensation. There is no compensation in a void
agreement. But in case of voidable contract, a person is
entitled to compensation for loss suffered by him due to
non-performance of the contract.
Difference between illegal and void agreements
1. Void agreements may be void for a reason other than
illegality. All illegal agreements are void.
2. parties to a void agreements may not be punished but
parties to an illegal agreements are punished.
On the basis of formation
1. Express contract. An express contract is one
entered into by words which may be either spoken or
written. In it offer and acceptance is made in words.
2.
Implied contract. Implied contracts are made by
the circumstances and the conduct of the parties who
made them.
3.
Quasi contract. It is a contract in which there is no
intention on either side to make a contract, but law
imposes a contract. For e.g., a finder of a lost good is
under the obligation to find out the true owner and return
the good.
4.
E-com contract. These contracts are entered into
between the parties using internet.
On the basis of performance
1. Executed contract. An executed contract is one
where both the parties have performed their obligations. In
other words it is a complete contract.
2. Executory contract. where the contract is yet to be
performed by one or both the parties, the contract is
executory contract.
Executory contracts may be
(a) Unilateral contract. A unilateral contract is a one
sided contract in which only one party has to perform his
promise.
(b) Bilateral contract. Where the promise is outstanding
on the part of both the parties, it is known as the bilateral
contract.
STANDARD CONTRACTS
Many big organisations like the Life Insurance Corporation
of India, Indian Railway, etc., enter into thousands of
contracts everyday. It would be difficult for such
organisations to draw out a separate contract with every
individual. They have, therefore, Standard Contracts. Such
contracts contain many terms and conditions. The
individual who signs the contract are bound by those terms
and conditions.
CLASSIFICATION OF CONTRACTS UNDER
ENGLISH LAW
1. Formal contracts. These contracts are those which
are made without consideration. These include (a)
Contracts of record and (b) Contracts under seal
(a) Contract of record – Such contracts exist by the
reason of the entry in the records of the court in which
proceedings are brought.
(b) Contract under seal – these are created by sealed
documents. It is written and signed by the parties.
2. Simple contracts.
Contracts which are not formal
are known as simple contracts. They may be in writing, or
made orally, or they may be implied from the conduct of
the parties.