Law of Contract   The law of contract is that branch of law which    determines the circumstances in which promises    ma...
Contd..   The parties to a contract, in a sense, make the law for    themselves. So long as they do not infringe some    ...
Contd..    Law of contract creates jus in personam as distinguished from     jus in rem:    Jus in rem means a right avai...
The Indian Contract Act, 1872   The law relating to contracts is contained in the Indian    Contract Act, it came into fo...
Contd…    The Act largely deals with:(i) The general principles applicable to contracts(ii) The conditions necessary for ...
Meaning of Contract   A contract is an agreement made between two or more parties    which the law will enforce. Sec 2 (h...
Contd..   Before there can be an agreement between two parties, there    must be consensus ad idem (meeting of minds). Th...
Contd..Obligation:  An agreement, to become a contract, must give rise to a legal  obligation or duty. The term ‘obligatio...
Contd..   An agreement may be a social agreement or a legal    agreement. If A invites B to a dinner and B accepts the   ...
Essential Elements of a Valid Contract    According to Sec. 10 “All agreements are contracts if they     are made by free...
Contd…2. Intention to create legal relationship:   There should be an intention on the part of the parties to the   agreem...
Contd…3. Lawful Consideration:    The agreement must be supported by consideration on both   sides. Each party to the agre...
Contd…4. Capacity of parties-competency:   The parties to the agreement must be capable of entering into a   valid contrac...
Contd…5. Free and genuine consent:   The consent of the parties to the agreement must be free and   genuine. The consent o...
Contd..7.   Agreement not declared illegal or void:       There are certain agreements which have been expressly     decla...
Contd..The terms of the agreement must also be such as are capableof performance. Agreement to do an act impossible in its...
Test Your Knowledge  X invites Z to a dinner in his house on Sunday. Z hired a taxi   and reaches X’s house at the appoin...
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  1. 1. Law of Contract The law of contract is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. Its rules define the remedies that are available in a court of law against a person who fails to perform his contract, and the conditions under which the remedies are available. It is of particular importance to people engaged in trade, commerce and industry as bulk of their business transactions are based on contracts. The law of contract introduces definiteness in business transactions. 1
  2. 2. Contd.. The parties to a contract, in a sense, make the law for themselves. So long as they do not infringe some legal prohibition, they can make what rules they like in respect of the subject-matter of their agreement, and the law will give effect to their decisions. Salmond has rightly observed that the law of contract is “not the whole law of agreements, nor is it the whole law of obligations. It is the law of those agreements which create obligations, and those obligations which have their source in agreements.” It excludes from its purview all obligations which are not contractual in nature and agreements which are social in nature. 2
  3. 3. Contd.. Law of contract creates jus in personam as distinguished from jus in rem: Jus in rem means a right available against the whole world. Jus in personam means a right available only against a particular individual. The Contract Act deals with rights in personam and not with rights in rem. Example: Á’ is the owner of a house. As owner of the house he has the right of its quiet possession and enjoyment against the whole world. This is, therefore, his right in rem. A is indebted of B to the extent of Rs. 10,000. B’s right to recover money from A will be termed as right in personam as it is available only against A and none else. 3
  4. 4. The Indian Contract Act, 1872 The law relating to contracts is contained in the Indian Contract Act, it came into force from 1st September, 1872 and has been amended in 1886, 1891, 1899, 1930, 1932 and 1997. The Act has been mainly enacted to ensure that the obligations prescribed by agreements and the reasonable expectations created by them are fulfilled by the concerned parties to the agreements. 4
  5. 5. Contd… The Act largely deals with:(i) The general principles applicable to contracts(ii) The conditions necessary for making a valid contract(iii)The principles applicable to quasi contract; and(iv)The principles applicable to some special contracts like those of Indemnity, Guarantee, Bailment and Agency. 5
  6. 6. Meaning of Contract A contract is an agreement made between two or more parties which the law will enforce. Sec 2 (h) defines a contract as an agreement enforceable by law. In other words, “Every agreement and promise enforceable at law is a contract”. A contract essentially consists of two elements (1) Agreement and (2) its enforceability by law. An agreement is defined as “every promise and every set of promises, forming consideration for each other.”(Sec.2 (e). A promise is defined “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. Sec 2 (b). To form an agreement, there must be a proposal or offer by one party and its acceptance by the other. To sum up: Agreement= Offer+Acceptance. 6
  7. 7. Contd.. Before there can be an agreement between two parties, there must be consensus ad idem (meeting of minds). This means that the parties to the agreement must have agreed about the subject –matter of the agreement in the same sense and at the same time . Unless there is consensus ad idem, there can be no contract. Ex: A who owned two cars namely Maruti Swift and Honda City, is selling Maruti Swift to B. B thinks he is purchasing Honda City. There is no consensus ad idem and consequently no contract. If A says to B will you purchase my Maruti Swift for Rs. 3,00,000/- and B says “yes” to it, there is consensus ad idem and an agreement comes into existence. 7
  8. 8. Contd..Obligation: An agreement, to become a contract, must give rise to a legal obligation or duty. The term ‘obligation’ is defined as a legal tie which imposes upon a definite person or persons the necessity of doing or abstaining from doing a definite act or acts. It may relate to social or legal matters. An agreement which gives rise to a social obligation is not a contract. It must give rise to a legal obligation in order to become a contract. Ex: A agrees to sell his car to B for Rs. 10,000. The agreement gives rise to an obligation on the part of A to deliver the car to B and on the part of B to pay Rs. 10,000 to A. This agreement is a contract. 8
  9. 9. Contd.. An agreement may be a social agreement or a legal agreement. If A invites B to a dinner and B accepts the invitation, it is a social agreement. A social agreement does not give rise to contractual obligations and is not enforceable in a court of law. It is only those agreements which are enforceable in a Court of law which are contracts. Ex: A father promises to pay his son Rs.100 every month as pocket allowance. Later he refuses to pay. The son cannot recover as it is a domestic agreement and there is no intention on the part of the parties to create legal relations. To conclude: Contract= Agreement + Enforceability at law Thus all contracts are agreements but all agreements are not necessarily contracts. 9
  10. 10. Essential Elements of a Valid Contract According to Sec. 10 “All agreements are contracts if they are made by free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void. In order to become a contract, an agreement must have the following essential elements:1. Agreement: To constitute a contract there must be an agreement. An agreement is composed of two elements-offer and acceptance. The party making the offer is known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there are essentially to be two parties to an agreement. They both must be thinking of the same thing in the same sense. In other words, there must be consensus-ad-idem. 10
  11. 11. Contd…2. Intention to create legal relationship: There should be an intention on the part of the parties to the agreement to create a legal relationship. An agreement of purely social or domestic nature is not a contract.Balfour Vs. Balfour A husband agreed to pay 30 pounds to his wife every month while he was abroad. As he failed to pay the promised amount, his wife sued him for the recovery of the amount. Held, she could not recover as it was a social agreement and the parties did not intend to create any legal relations. 11
  12. 12. Contd…3. Lawful Consideration: The agreement must be supported by consideration on both sides. Each party to the agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, this price need not be in terms of money. In case the promise is not supported by consideration, the promise will be a bare promise and is not enforceable at law. It must be real and lawful. 12
  13. 13. Contd…4. Capacity of parties-competency: The parties to the agreement must be capable of entering into a valid contract. Every person is competent to contract if he(a) is of the age of majority,(b) is of sound mind, and(c) is not disqualified from contracting by any law to which he is subject. Flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc., If a party suffers from any flaw in capacity, the agreement is not enforceable except in some special cases. 13
  14. 14. Contd…5. Free and genuine consent: The consent of the parties to the agreement must be free and genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake. If the consent is obtained by any of these flaws, then the contract is not valid.6. Lawful object: The object of the agreement must be lawful. In other words, it means that the object must not be illegal, immoral, or opposed to public policy. If an agreement suffers from any legal flaw, it would not be enforceable by law. 14
  15. 15. Contd..7. Agreement not declared illegal or void: There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable at law.8. Certainty and possibility of performance: The agreement must be certain and not vague or indefinite. If it is vague and it is not possible to ascertain its meaning , it cannot be enforced. Ex: A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. 15
  16. 16. Contd..The terms of the agreement must also be such as are capableof performance. Agreement to do an act impossible in itselfcannot be enforced .For example, where A agrees with B to put life into B’s deathwife, the agreement is void as it is impossible of performance.9. Legal Formalities:A contract may be oral or in writing. If, however, a particulartype of contract is required by law to be in writing, it mustcomply with the necessary formalities as to writing, registrationand attestation, if necessary. If these legal formalities are notcarried out , then the contract is not enforceable at law. 16
  17. 17. Test Your Knowledge X invites Z to a dinner in his house on Sunday. Z hired a taxi and reaches X’s house at the appointed time, but X fails to perform his promise. Can Z recover any damages from X? Amitab forced Akshay to enter into a contract at the point of pistol. What remedy is available to Akshay, if he does not want to be bound by the contract? State whether there is any contract in the following cases: 1. Ramgopal Verma engaged the services of Urmila as an actress in a film and promised to pay such remuneration as shall be fixed by Mahesh Butt. Urmila acted in the film.2. Bipasha boarded RTC bus at ICBM Campus to go to Palasa.3. Rakhi Shawant invited Shahid Kapoor for a party. Shahid accepted the invitation. 17

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