1. law of contract lesson 1
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1. law of contract lesson 1






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1. law of contract lesson 1 1. law of contract lesson 1 Document Transcript

  • Section I Indian Contract Act, 1872 Lesson 1What is Law?Law means a set of rules established by authority or madeby the state as the rule to regulate the conduct of the peopleto protect their property and contractual rights with a viewto securing justice, peaceful living and social security.What is Mercentile Law?Mercentile Law is the part of Civil Laws, which deals withrights and obligations of mercantile persons that arises outof mercantile transactions in respect of mercantile property.The Mercantile Law deals with the laws relating to :- (a)Indian Contract Act, 1872 (b)Negotiable Instrument Act, 1881 (c)Sale of Goods Act, 1930 (d)Partnership Act, 1932 (e)Joint Stock Companies Act, 1956 (f) Insurance, Arbitration act. Etc.LAW OF CONTRACTThe law of contract is the foundation upon which the superstructure of modern business is built. Since the law of
  • contract furnishes the basis of other branches of MercantileLaws, its study preceding the above laws is necessary.The Indian Contract Act, 1872 extends to whole of Indiaexcept the State of Jammu and Kashmir. The basicassumptions of Indian Contract Act, 1872 are: - (1)Freedom of contract barring certain conditions (2)Promises of the parties shall be fulfilled and non- fulfillment of promises shall give rise to legal consequences.Definition of ContractVide Section 2 (h), An agreement enforceable by law iscontract. 1. Agreement – According to Sec. 2 (e) of the Indian Contract Act, 1872 “Every promise and set of promises, forming consideration for each other is an agreement”. It clearly shows that “PROMISE” is an agreement. Its answer lies in Section 2(b), which defines the word “when the person to whom the proposal is made signify his assent thereto, the proposal is said to be accepted. Now the agreement comes into existence. In short the agreement consists of offer/proposal and acceptance. Characteristics of agreement are: - • There may be towo or more persons
  • • Consensuses-ad-idem means both the persons must agree about the subject matter of the agreement in the same sense and same time.2. Legal Obligation According to Section 2(h) of the Indian Contract Act, “An agreement enforceable by law is contract” An agreement is said to be enforceable by law if it creates some legal obligation, in other words the parties to the agreement should be bound to perform their promises. Example: A invites B for dinner. B accepts the invitation but fails to turn up for dinner. A cannot sue B to recover the loss since it is a social contracts. Example: X agrees to sell his house for Rs. 5 lacs. Y accepts the offer, such an agreement between X and Y is contract because it created legal obligation We can express contract in the following manner also. CONTRACTAgreement enforceability by law Offer/Proposal Acceptance Legal obligation Arising out of an Agreement.
  • DISTINCTION BETWEEN AN AGREEMENT AND A CONTRACTAn agreement differs from a contract in the followingcases;-Basis of An agreement A contractdistinction1. What constitute Offer and its Agreement and its acceptance enforceability constitute constitute a agreement contract2. One in other Every agreement All contracts re need not necessary necessarily be agreement. contract3. Binding Agreement is not Contract concluded or a concluded is binding contract binding on the concerned parties.VALID CONTRACT AND ITS ESSENTAILELEMENTValid contract is a contract, which satisfies all theconditions prescribed by law of a valid contract.Example: X offers to sell his car for Rs.50000/-. Y accepts.It is valid contract
  • The elements of a valid contract can be shown as under:- 1. Proper offer and its acceptance 2. Intention to create legal relationship 3. Free consent 4. Capacity to contract 5. Lawful consideration 6. Lawful object 7. Agreement not expressly declared void 8. Certainty of meaning 9. Possibility of performance 10.Legal formalities.1. Proper offer and acceptanceThe offer and acceptance between the two parties must bevalid. It means it must fulfill certain conditions as laid downunder the law of the country to create law.Contract2. Intention to create legal relationshipThere must be intention among the parties to create legalrelationship. Legal relationship exists in business where as,in social, religious agreement, legal relationship does notexist.Example: X invited Y to attend dinner. Y accepts the offer.But Y fails to attend dinner. X cannot sue Y to recover hisloss since it is social relationship.3. Free ConsentAccording to Section 14 of the Indian Contract Act, 1872,the consent should be free. If it is caused by (a) coercion (b)
  • undue influence (c) fraud (d) misrepresentation or (e)mistake, the consent is not free.Example: X threatens Y to sell his house to Z otherwise hewill be killed. In this case Y’s consent has been obtained bycoercion and as such it is not free consent.4. Capacity to contractAccording to Section 11 of the Contract Act “every personis competent to contract who is of the age of majorityaccording to the law to which he is subject and who is ofsound mind and is not disqualified from contracting by anylaw to which he is subject”Example: A minor borrowed Rs.10000/- from Y andexecuted mortgaged of his property in favour of Y. Thiscannot be treated a valid contract because X is notcompetent to contract.5. Lawful considerationSection 23 of the Contract Act defines, “ the considerationis considered lawful unless it is forbidden by law or isfraudulent or involves or implies injury to the person orproperty of another or is immoral or is opposed to publicpolicy”.Example: X agrees to sell his car to Y for Rs.125000/-. Ypromises to pay Rs.1.25 lac. Rs.1.25 lac is legalconsideration for X to sell his car.
  • Example: X agrees to drop prosecution against Y in case ofrobbery. Y promises to restore property of X. Thisagreement is void because the consideration is unlawful.6. Lawful objectFor the formation of a valid contract it is necessary that theparties to an agreement must agree for lawful object.Example: X,Y, Y and Z enter into an agreement fordecision of the gains obtained fraudulently . fraudulently.This agreement is void because its object is unlawful.7. Agreement not expressly declared voidUnder the Indian Contract Act, Section 24 to 30 agreementsis restrained of legal proceedings, agreement in restrained ofmarriage, restrained of trade and agreement by way ofwager have been declared void.Example: X promises to marry Y in default Pay Rs. 1 lac.X married to Z. Y sues for recovery of Rs.1 lac. Since theagreement was in restrained of marriage, it is void.Example: X and Y carried on business Lajpat Nagar area ofNew Delhi. X promises to stop business in the area if Ypays Rs. 5 lac. X stopped his business. Y fails to pay thesum as greed. It was held that X is not entitled to recoverRs. 5 lac since the agreement was in restrained of business.
  • 8. Certainty of meaningThe terms of agreement must be certain and unambiguousterms, Sec 29 of the Act provides, “Agreements, themeaning of which is not certain or capable of being madecertain are void”. To giver rise to a valid contract, the termsof agreement must not be vague and uncertain.Example: X who is dealer of mustard oil, agreed to sell10000 tones of oil to Y . Y. Even if Y does not mention theword ‘mustard oil’ the agreement is valid because ofcircumstances but in case X is dealer of other types of oils,the kind of oil should be mentioned by Y while placingorder.9. Possibility of performanceSection 56 of the Act enumerates, “an agreement to doimpossible act is void.’Example: X agrees to discover gold by magic if Y pays Rsone lac. This is a void agreement and is not enforceable bylaw.10. Legal formalitiesThe agreement must comply with certain legal formalities asto writing, registration, stamping etc to make it enforceable.Example: An agreement on spoken words for arbitration orimmovable property is not enforceable because the law
  • requires that such agreement must be in writing and ifpossible registered.