INTRODUCTION
· The Law of
Contract constitutes the most important branch of Mercantile or Commercial Law.
·
It is the
foundation upon which the superstructure of modern business is built. It
affects everybody, more so, trade, commerce and industry.
·
It may be said
that the contract is the foundation of the civilized world.
·
The law gives us
certain rights as citizens. At the same time, it imposes on us certain
obligations. The Indian Contract Act is directly connected with these rights and
obligations.
The Indian Contract Act
is divisible into two parts.
1. The first part
(Section 1-75) deals with the general
principles of the law of contract and therefore applies to all contracts
irrespective of their nature.
2. The second part
(Sections 124-238) deals with
certain special kinds of contracts, namely contracts of Indemnity and
Guarantee, Bailment, Pledge, and Agency.
Enacted: 25 April 1872
Commenced: 1 September 1872 Enacted by: Imperial Legislative Council D
DEFINITIONS
·
Proposal -
Section 2 (a): as “when one person
will signify to another person his willingness to do or not do something
(abstain) with a view to obtain the assent of such person to such an act or
abstinence, he is said to make a proposal or an offer.
·
Promise - The
Act in its section 2(b): defines the
term “promise” here as: “when the person to whom the proposal is made signifies
his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted
becomes a promise”.
·
Promisor or
Promisee : 2(c): When the
proposal is accepted, the person making the proposal is called as promisor and
the person accepting the proposal is called as promisee.
·
Consideration
: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 abstain from
doing something, such act or abstinence or promise is called consideration for
the promise".
·
Agreement - In
section 2 (e): the Act defines the
term agreement as “every promise and every set of promises, forming the
consideration for each other”. Every promise and every set of promises, forming
the consideration for each other, is an agreement.
·
Reciprocal
Promises Section 2(f): in The Indian
Contract Act, 1872 Promises which form the consideration or part of the
consideration for each other, are called reciprocal promises;
·
Void Agreement
sec 2(g): “An agreement not
enforceable by law is said to be void”.
·
Contract u/s
2(h): An agreement enforceable
by law is a contract.
·
Voidable
Contract u/s 2(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 or others, is a voidable contract”.
·
Void contract Section
2(j): An agreement not
enforceable by law is said to be void.
·
Plaintiff: A person who files a suit in a court of law against
another for breach of contract is called plaintiff.
·
Defendant: the person against whom a suit has been filed in
court and who has to defend himself against the charges of breach of contract
is called defendant.
DEFINITION OF A
CONTRACT
·
A legally
binding agreement.
·
That means there
must be some kind of agreement between two parties.
·
However, not all
agreements because not all agreements are contracts are legally enforceable.
·
legally
enforceable means that a court will say that an agreement is a contract
DEFINITION OF A CONTRACT
·
Contract is an
understanding or an agreement between two parties.
·
To decide if an
agreement is legally enforceable as a contract, a court will apply the rules
and principles of the law of contract.
·
Contract is an
agreement creating and defining obligations between the parties.
·
Every agreement
and promise enforceable by law is a contract.
CHARACTERISTICS OF CONTRACT
·
There must be an
offer;
·
There must be
acceptance of the offer;
·
There must be
consideration;
·
Intention to
create legal relations between the parties;
·
The parties must
have contractual capacity;
·
The contract
must not be unlawful or contrary to public policy.
ALL CONTRACTS ARE AGREEMENTS
For a Contract to be there an agreement is
essential; without an agreement, there can be no contract. It could be said, “Where
there is contract, there is agreement without an agreement there can be no
contract”.
The Core Elements are:
1. Agreement
constituting a proposal.
2. Competence of the
parties to enter into an agreement.
3. Consequences of the parties to the
agreement.
4. Valid objective and
consideration.
5. Agreement being written
verified and registered.
6. Agreement being
enforceable by law.
·
As stated above,
an agreement to become a contract must give rise to a legal obligation.
·
If an agreement
is incapable of creating a duty enforceable by law. It is not a contract.
·
Thus an
agreement is a wider term than a contract. Agreements of moral, religious or
social nature
·
e.g., a promise
to lunch together at a friend’s house or to take a walk together are not contracts
because they are not likely to create a duty enforceable by law for the simple
reason that the parties never intended that they should be attended by legal
consequences
·
Thus an
agreement becomes a contract when at least the following conditions are
satisfied.
1. Free consent
2. Competency of the parties
3. Lawful consideration.
4.
Lawful object.
ESSENTIAL ELEMENTS OF A VALID CONTRACT: (SEC. 10)
1. Agreement - Offer & acceptance
2. Capacity of the
contracting parties
3. Free consent of Parties
4. Lawful Consideration
and Legal Object
5. Not expressly
declared to be void.
6. Writing &
registration Agreement
7. Capable of performance
KINDS OF AGREEMENT
AGREEMENT BASED ON OBLIGATION:
1. Unilateral Agreement: A contract in which only one party makes an express promise, or undertakes a performance without first securing a reciprocal agreement from the other party.
2. Bilateral Agreement: A bilateral agreement is a broad term used simply to
cover agreements between two parties. For international treaties, they can
range from legal obligations to non-binding agreements of principle (often used
as a precursor to the former).
BASED ON MODE OF CREATION
1. Express Agreement: An express contract is a legally binding agreement,
the terms of which are all clearly stated either orally or in writing. For an
express contract to come together there must be an offer made by one of the
parties, and acceptance of that offer by the other party.
2. Implied Agreement: An implied agreement is an obligation between two
or more parties in the absence of a written contract. An implied agreement is
an obligation between two or more parties in the absence of a written contract,
based on the interest of fairness implied by circumstance or conduct.
BASED ON ENFORCEABILITY
1. Void Contract or Agreement: The section 2(j) of the Act defines a void contract
as “A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable”. This makes all those contracts that are not
enforceable by a court of law as void.
2. Voidable Contract These types of Contracts are defined in section
2(i) of the Act: “An agreement which is enforceable by law at the option of one
or more of the parties thereto, but not at the option of the other or others,
is a voidable contract.”
BASED ON LAW
1. Legal agreement: A legal agreement is a written document that will
identify the parties' roles and responsibilities under the agreement. Once the
written document is signed, either manually, digitally, or electronically, the
document becomes legally binding.
2. An illegal agreement: In business law is a contract that was made for an
illegal reason and is consequently against the law. If the content of the
agreement causes the parties to perform illegal actions, then the contract is
illegal. Agreements collateral to the original is also considered void.
BASED ON
PERFORMANCE
1. Executed Agreement: Executed means that which has been done. Such an
Agreement is one in which the parties to the agreement have performed their
respective obligations.
2.
Executory Agreement: Executory means that needs to be done. An Executory
Agreement is one that remains to be executed and the parties have yet to
perform their obligations.
BASED ON ENFORCEABILITY
1. Enforceable Agreement: An Enforceable Agreement is a valid Agreement that
has no loopholes (limitation). Such an Agreement is Enforceable by law.
2. Unenforceable Agreement: unenforceable Agreement is one that cannot be
enforced by law. The unenforceability can be because of some technical defect,
such as the execution of the agreement being banned by lapse of time or terms
and conditions being not clear in the agreement.
KINDS OF CONTRACTS
1. Valid Contracts: The Valid Contract as discussed in the topic on
“Essentials of a Contract” is an agreement that is legally binding and
enforceable. It must qualify all the essentials of a contract.
2. Void Contract or Agreement: The
section 2(j) of the Act defines a void contract as “A contract which ceases to
be enforceable by law becomes void when it ceases to be enforceable”. This
makes all those contracts that are not enforceable by a court of law as void.
3. Voidable Contract: These types of Contracts are defined in section
2(i) of the Act: “An agreement which is enforceable by law at the option of one
or more of the parties thereto, but not at the option of the other or others,
is a voidable contract.” This may seem difficult to wrap your head around but
consider the following example: Suppose a person A agrees to pay a sum of Rs.
10,0000 to a person B for an antique chair. This contract would be valid, the
only problem is that person B is a minor and can’t legally enter a contract.
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