01. Law Of Contract.ppt

LAW OF CONTRACT AND TYPES

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What is Law…………….. Law is a Body of Rules……….. Purpose To govern the society….. They are made by Governing authorities.. But these Rules can be implemented by Judicial authorities………only.

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Law of Contract

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Meaning The law of contracts is the most important branch of the Business law or commercial laws. Even it is the base of business laws. It has vital significance not only for the business world, but also for every one of us. …..As we all enters into contracts of one kind or the other in all walks of our routine life. 4

Meaning Continues… For example…….When one buys or borrows the essentials as well as luxuries of life, in the form of goods or services from early morning to late evening during the life period, one naturally enters into contracts. Bread, butter, home-appliances, clothes, books, stationery, journey-tickets etc. are some of the goods and services we buy or borrow in our daily life and for that purposes we enter into different kinds of contracts. 5

Meaning Continues…

In business at every moment, there may be a transaction that gives rise to a contract. The law of contracts is fundamental to the existence of the business world. Without this total business world as well as entire economic system may collapse. 6

Legal Meaning A contract is an Agreement between two or more persons, creating an obligation upon them to fulfill or not to fulfill some duties laid down specifically in the agreement.

This agreement creates a legal relationship of rights and duties on the parties and if these obligations in the agreement are not fulfilled then specific action could be taken by courts on the defaulter parties. 7

Law of Contract Continues…. In other words contract is a legally binding agreement between two or more person and parties for a particular purpose. It is an exchange or promise between parties to do or absent from doing an act, which is an enforceable by the court of law. CONTRACT:AGREEMENT + ENFORCEABILITY BY LAW So it is true that Law of Contract is the extension of agreement. 8

Definition - Law of Contract 1.

“Every agreement and promise enforceable by Law is a Contract”. Sir Fredrick Pollock

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“An agreement which create and define obligations between the parties is Law of Contract.”

Samoans

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Definition Continues…. 3.

“A contract is an agreement enforceable at law made between two or more persons by whom rights are acquired by one or more to acts or absent on the part of the other or others” Sir Pollock

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“A contract is deliberate engagement between competent parties, upon a legal consideration to do or to abstain from doing some act.” Justice Storey 10

Conclusion:-

“Every Law of Contract are Agreement, but every Agreement are not Law of Contract.” 11

What is Agreement It is the combinations of three following elements:-

Proposal + Acceptance + Consideration

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Example: -

“A is ready to buy a Cell phone from B with a price of 20,000 Rs, and B is also agree for this deal. So it is an agreement first than due enforceability by law it will treat as law of contract.”

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CLASSIFICATION OF CONTRACTS

ENFORCEABILI TY

• Valid Contract • Void Contract • Void Agreement • Voidable Contract • Illegal Agreement •Agreement discovered to be void •Unenforceable Contract

FORMATION • Express • Implied / Tacit • Quasi/ Constructive

PERFORMAN CE • Executed Contract • Executory Contract

OBLIGATION • Unilateral • Bilateral

CONTD…. 

ON THE BASIS OF ENFORCEABILITY 1.- Valid Contact:- valid contract is that contract which satisfies all the essentials of section 10 of Indian Contact Act like:- lawful offer & acceptance, free consent, etc. For example:- A ask B if he wants to buy his bike for Rs.10,000. B agrees to buy bike. It is agreement which is enforceable by law. Hence, it is contract. 2. Void Contract Sec2(j):- void contract is one which was a valid contract when it was made but subsequently it becomes void due to change of circumstances. For example:- X agrees to sell his horse to Y for Rs. 5,000. but the horse died in an accident. It become impossible to perform the contract due to destruction of the subject. Thus, a valid contract changes into void contract because of impossibility of performance.

CONTD…… 3. Void Agreement :- an agreement not enforceable by law is said to be void. For example:- X supplies luxury goods to Y a minor for a consideration of Rs. 10,000. Y refused to make payment. X cannot enforce the agreement in the court of law since the agreement is void because Y is minor. 4. Voidable Contract Sec2(i):- an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other, is voidable contract. Such a contract come into existence where of consent of one or more parties is not free. For example:- X promise to sell his scooter to Y for Rs. 500000. however, the consent X has been procured by Y at a gun point. X is an aggrieved party & the contract is voidable at his option.

CONTD…… 5. Illegal Agreement:- an agreement which is prohibited by law or against the policy of law is known as illegal agreement. For example:- X agrees to kill Y if Z pays him Rs.10,000. it is an unlawful as well as void agreement.

6. Agreement discovered to be void:- an agreement whose void nature become known to parties only subsequent to its formation For example:- X agrees to sell his car to Y, both not knowing that the car has been badly damaged in accident the previous night.

CONTD…… 7. Unenforceable Contract:- A contract which is valid in all respects but because of non – fulfillment of some technical formality, it cannot be treated as enforceable. For example, if document is unstamped but required to be stamped.

VOID AGREEMENT V/S VOIDABLE CONTRACT BASIS OF DISTINCTION

VOID AGREEMENT

VOIDABLE CONTRACT

Void ab - initio

Void from the beginning

Valid for one party but not for another

Missing Element

Enforceability by Law

Free consent of party missing

Enforceability

Cannot be enforced by any party

Continues to be enforceable as long as both the parties give their consent

CONTD…… 

ON THE BASIS OF FORMATION 1. - Express Contract:- the contract is said to be an express contract when terms of contract have been agreed upon between the parties expressly i.e. oral or written, at the time of formation.

CONTD…… 2. Implied Contract:- an implied contract is one which come into existence by the acts, the conduct of the parties. For example:- Order placed for a cup of coffee in a restaurant. 3. Quasi Contract:- in quasi contract, there is no intention of the parties to form a contract but created by law. For example:- X, a trader, leaves certain goods at house of Y by mistake. This imposes an obligation on “Y” either to return the goods to X or to make the payment if he treats the goods as his own. 4. E.com Contract:- contract created on the internet. For example:- any business deal done on internet.

CONTD….. 

ON THE BASIS OF PERFORMANCE

1.- Executed Contract:- a contract is said to be executed contract where both the have performed their respective obligations. It is a completed contract. For example:- all the transactions of cash sales are executed contract. 2. - Executory Contract:- An executory contract is one where both the parties are yet to perform their respective obligations. (Furniture to be made)

CONTD….. 

ON THE BASIS OF OBLIGATION

1.- Bilateral Contract:- A bilateral contract is one in which both the parties are required to perform their obligations at the time of formation of contract. 2. Unilateral Contract:- a contract is said to be unilateral where one party has performed his obligation and the performance of obligation is outstanding on the part of other party. For example:- X buys a railway ticket for journey from Amritsar to Delhi. X has performed his obligation under the contract by paying the fare. But, the railways are yet to perform their duty i.e. carrying ‘X’ from Amritsar to Delhi.

Essentials Elements of a Valid Contract (section 10 of Indian contract act,1872)

All Contracts are agreements but all agreements are not contracts. Only that agreements which is enforceable by law is a contract. An agreement, to be enforceable by law, must posses the essential elements of a valid contract as contained in section 10 of the Indian Contract Act.  According to Section 10, "All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.

The essential elements of a valid contract are: 1. Proper Offer and Proper 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. Section 2 (a) of the Contract Act defines Offer as – ‘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 to such act or abstinence, he is said to make an offer'. Section 2 (b) of the Contract Act states that, ‘when the person to whom the offer is made signifies his assent there to, the offer is said to be accepted.

2. Intention to Create Legal Relationship. In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations. A) An agreement to have lunch at a friend’s house is not an agreement intending to create legal relations, Agreements between husband and wife, generally lack the intention to create legal relations.

3.Lawful Consideration. Consideration is an essential element of a contract. It has been defined in various ways.

In other words of Pollock, "Consideration is the price for which the promise of the another is brought.“ According to Blackstone "Consideration is recompense given by the party contracting to another."

Consideration is known as quid pro-quo or something in return.

It may be in the form of money, goods and services, a promise to marry and it may be past, present or future. But it must be real and lawful. It should not be unlawful, immoral and against the public policy.

4. Competency of parties. The parties to an agreement must be competent. If either of the parties does not have the ability to contract, the contract is not valid. According to the following persons are incompetent to contract. (a) Minor: A person less than age of 18 is minor. (b) Unsound mind person: Any person who is unable to understand the term and condition of contract at the time of its formation is unsound mind. (c) persons disqualified by law to which they are subject.

5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense. According to Section 14, Consent is said to be free when it is not caused by(1) Coercion (forcing someone) (2) Undue influence (a person is induced to act otherwise than by their own will) (3) Fraud (wrongful deception (deceive) intended to result in financial/personal gain) (4) Mis-representation (an offence of giving false information) (5) Mistake. (erroneous belief concerning something) An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house. The Object is said to be unlawful if(a) it is forbidden by law; (b) it is of such nature that if permitted it would defeat the provision of any law; (c) it is fraudulent; (d) it involves an injury to the person or property of any other; (e) the court regards it as immoral or opposed to public policy.

7. Certainty of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or capable of being made certain are void.“ For e.g. : A agree to sell to B a 100 tonne of oil, there is nothing to show what kind of oil intended, the agreement is void due to the absence of certainty. But if A is dealer of coconut oil only agree to sell B,100 tonne of oil, the nature of A’s trade is sufficient to show the kind of oil, and this will be a valid contract.

8. Possibility of Performance. Condition for a contract should be capable for performance .If the act is impossible in itself, physically or legally, if cannot be enforced at law.

9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country.

For example agreements in restraint of trade, marriage, legal proceedings etc. That is : If A is not willing to marry with B, law can not enforce him/her.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act. All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.