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 : • An Agreement • 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 : • 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 : • 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 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. 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 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. Curability. The defect of a voidable contract is curable. But a void agreement is void ab initio and its defects are incurable. 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 Void agreements may be void for a reason other than illegality. All illegal agreements are void. parties to a void agreements may not be punished but parties to an illegal agreements are punished.
On the basis of formation 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. Implied contract. Implied contracts are made by the circumstances and the conduct of the parties who made them. 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. E-com contract. These contracts are entered into between the parties using internet.
On the basis of performance Executed contract. An executed contract is one where both the parties have performed their obligations. In other words it is a complete contract. 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 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.