Business/Commercial Law Law Of Contract

1. CONTRACT

2. Contract:
Definition of Contract by Pollack
“every agreement and promise enforceable at law is contract.”

3. Contract Act
Definition of Contract by Salmond
“a contract is an agreement creating and defining
obligations between the parties”

4. Contract Act
Definition of Contract u/s 2(h)
“An agreement enforceable by law is a Contract.”

5. Enforceability:
An agreement is enforceable if it is recognized by
court. In order to be enforceable by law, the
agreement must create legal obligations between
the parties.

6. Types of Agreement:
 Social Agreement: Social agreement are not
enforceable because they do not create legal
obligations between the parties.
 Example: invitation for dinner
 Legal Agreement: Legal agreement are
enforceable because they create legal
obligations between the parties.
 Example: “A” promise to sell his car to “B”

7. Contract Act
Contract = Agreement + Enforceability
Agreement = Offer + Acceptance
Enforceability = Legal obligations b/w parties

8. ESSENTIALS OF VALID
CONTRACT

9.  Offer and Acceptance
 Legal Obligation
 Lawful Consideration
 Capacity of Parties
 Free Consent
 Lawful Object
 In Writing and
Registration
 Certainty of Terms
 Possibility of
Performance
 Not expressly
declared void
ESSENTIALS OF VALID
CONTRACT

10. ESSENTIALS OF VALID
CONTRACT
Offer and Acceptance
an agreement, there must be a lawful offer by one party and lawful
eptance of that offer by other party. The term lawful means that the
r and acceptance must satisfy the requirements of contract act.
mple:
offers to sell his cycle to “B” for Rs.45000, This is an offer, if “B”
epts this offer there is an acceptance.

11.  Legal obligation:
The parties to an agreement must create legal
obligations. It means that if one party does not
fulfill his promise, he shall be liable for breach
of contract.
Example:
“A” offers to “B” to sell his home for Rs.2
Million, It is a contract as it creates legal
obligation.
ESSENTIALS OF VALID
CONTRACT

12. ESSENTIALS OF VALID
CONTRACT
 Lawful Consideration:
For a valid contract, consideration must be
lawful, Consideration is the price paid by one
party for the promise of the other party. A
contract is enforceable only when both the
parties give and take something. That
something given or taken is called
consideration.
Example: “A” promises to sell his car to “B” for 1
million, For “A” the 1 million is consideration
and for “B” car is the consideration.

13. ESSENTIALS OF VALID
CONTRACT
 Capacity of Parties:
An agreement is enforceable if it is made by
parties who are the competent to contract. To
be competent to contract, it is essential that
the parties are of the age of majority, have
sound mind etc.
Example:
“M” a person of unsound mind agree to sells his
house to “S” for Rs 2 lacs. It is not a valid
contract because “M” is unsound.

14. ESSENTIALS OF VALID
CONTRACT
 Free Consent:
For a valid contract, it is essential that the
consent of parties must be free, Consent is
free when it is not obtained by force, undue
influence, fraud, mispresentation or any kind
of mistakes,
If the consent of either party is not free, the
agreement cannot become a contract.
Example: “A” forced “B” at gun point to enter
into a contract.

15. ESSENTIALS OF VALID
CONTRACT
 Lawful Objects:
It is necessary that agreement is made for a
lawful object. The object of contract must not
be illegal, immoral, opposed to public policy.
Every agreement with unlawful object is illegal
and therefore contract is void.
 Example:
“A” hires a house to use for gambling. The
object of agreement is illegal and void.

16.  Writing and Registration :
A contract may be oral or in writing, It is
preferable that the contract be in writing
because it is easy to prove in court.
ESSENTIALS OF VALIDCONTRACT

17.  Certainty of Terms:
The terms and conditions of a contract must be
clear, complete and certain. If the terms are
uncertain the agreement is void.
 Example:
“A” promises to sell 200 books to “B” without
specifying their titles. The agreement is void
because the terms are not clear.
ESSENTIALS OF VALIDCONTRACT

18. ESSENTIALS OF VALIDCONTRACT
 Possibility of Performance:
A valid contract must be capable of being
performed, An agreement to do an impossible
act is void. If the act is legally or physically
impossible to perform, the agreement cannot
be enforced by law.
Example;
“A” agrees with “B” to discover a treasure by
magic, the agreement is not enforceable.

19. KINDS OF CONTRACT:
 There are four types of contracts.
 1: According to Enforceability.
 2: According to Formation.
 3: According to Performance.
 4: According to Parties.

20. KINDS OF CONTRACT:
 1: According to Enforceability:
According to enforceability, a contract can be
divided as under;
 a: Valid Contract.
 b: Void Contract.
 c: Void Agreement.
 e: Unenforceable contract.
 f. Illegal Agreement.

21. KINDS OF CONTRACT:
 1: According to Enforceability:
 a: Valid Contract:
A valid contract is enforceable by law, An agreement
becomes enforceable by law when all the essentials of
a valid contract are present.
Obligations of Parties:
In a valid contract, all parties are legally responsible for
the performance of the contract, if one of the parties
breaches the contract, the other party can enforce it
through court of law.
Example: If “A” agrees to sell a car to “B”, if it fulfills all
the essentials of a contract, it is a valid contract, If “A”
fails to deliver the car, “B” can sue him and if “B” fails to

22. KINDS OF CONTRACT:
 1: According to Enforceability:
 b: Void Contract: The term void means not
binding by the law. A contract which is not
enforceable by law is a void contract.
Obligations of Parties:
A contract becomes void due to impossibility to
performance. A contract becomes void before
performance when it becomes impossible to
be performed by any party due to following
reasons.

23. KINDS OF CONTRACT:
A contract becomes “void” before performance
when it becomes impossible to be performed by
any party due to following reasons.
Impossibility to performance
Subsequently illegality
Rejection of voidable contract
Impossibility of depending event

24. KINDS OF CONTRACT:
 1: According to Enforceability:
 c : Void Agreement: An agreement not
enforceable by law is said to be void. The void
agreement does not creates any legal
obligations on among parties. An agreement
which is void from the beginning is void
agreement.
 Example: “A” promise to buy a cow from
“B” for 25000Rs/= .The cow was dead before
the contract. Both parties were unaware. The
agreement is void.

25. KINDS OF CONTRACT:
 1: According to Enforceability:
 d: Voidable Contract:
It is voidable contract when the consent of
one of the parties is not free, contract which
has been made on by using false means,
through fraud and mispresentation.
Example: “D” forced “Q” to sell his car at
gunpoint.
“A” deceives “B” by stating that his factory
produces 10 million kg of sugar monthly and
induces “B” to buy it. The contract is voidable

26. KINDS OF CONTRACT:
 1: According to Enforceability:
 e: Unenforceable contract: An
unenforceable contract is that contract which
cannot be enforced in a court of law because
of some technical defects and faults such as
absence of writing, registration, requisite
stamp etc.
 Example: “A” borrow Rs. 1 billion from “B” and
makes a pronote on a Rs.10 stamp paper, it is
unenforceable because pronote is
undervalued.

27. KINDS OF CONTRACT:
 1: According to Enforceability:
 f: illegal Agreement: An agreement is
illegal when its performance is forbidden by
any law. Such an agreement can never
become a contract. An agreement is illegal
and void if it is forbidden by law or is of such a
nature that if permitted.
 Example: “A” gives “B” money to buy
smuggling goods, The agreement is illegal
and the money cannot be recovered.

28.  2: According to Formation:
According to Formation a contract has the
following three kinds.
Express Contract.
Implied Contract.
Quasi Contract.
KINDS OF CONTRACT:

29. KINDS OF CONTRACT:
 2: According to Formation:
Express Contract : Express contract is one which
is expressed in words spoken or written. When
such a contract is formed, there is no difficulty in
understanding the rights, terms, obligations and
conditions of a contract.
Example: “A” gives his house on rent to “B”, on
per month 10000 Rs and for one year of period, “A”
mentioned terms and condition on a paper.

30.  2: According to Formation:
Implied Contract: An implied contract is made
without any words spoken and written, It arise from
acts, conduct of parties, course of dealing or
circumstances.
Example: “A” went into a restaurant and had a cup
of tea. It is implied contract that A will pay for the
cup of tea
KINDS OF CONTRACT:

31.  2: According to Formation:
 Quasi Contract:
In a quasi contract, the law imposes certain
obligations under some special circumstances. It
is based upon the principle of equity that a
person shall not get allowed to get benefit at the
cost of another.
 Example: “A” finds lost goods of “B” . “A” is
bound legally to return goods back to “B”.
KINDS OF CONTRACT:

32.  3: According to Performance:
According to performance a contract is of
following two kinds.
 Executed Contract
 Executory Contract
KINDS OF CONTRACT:

33.  3: According to Performance:
 Executed Contract :
A contract is said to be executed
when both the parties have completely
performed their obligations. It means that
nothing remains to be done by either party
under the contract.
 Example:
“A” buys a book from “B” . “A” delivers the
books “B” pays the price. It is an executed
contract.
KINDS OF CONTRACT:

34.  3: According to Performance:
 Executory Contract :
In an executory contract something remains to
be done. In other words, a contract is said to
be executory when both parties to a contract
have yet to perform their obligations.
Example:
“M” sells his car to “N” for 1 million, “N” has not
yet paid and “M” has not delivered the car.
KINDS OF CONTRACT:

35.  4. According to Parties:
According to parties a contract may be of the
following two kinds.
 Unilateral Contract
 Bilateral Contract
KINDS OF CONTRACT:

36.  4. According to Parties:
 Unilateral Contract: In a unilateral contract
only one party has commitment. In other
words, it is a contract where only one party is
bound but the other party chooses to be
bound by it.
Example:
A promises to pay Rs 10,000 to any one who
finds his lost beg, B finds the bag and returns
to A, it is a unilateral contract which comes
KINDS OF CONTRACT:

37.  4. According to Parties:
 Bilateral Contract: It is a contract where both
parties are bounded to perform certain duties,
responsibilities and obligations.
 Example: A promises to supply raw material
and B promises to pay the price of raw
materials to B.
KINDS OF CONTRACT:

38. Discharge of a Contract
 By Following modes in which a contract may
be discharged.
 By Performance
 By Mutual Agreement
 By impossibility of Performance
 By Operation of Law
 By Breach

39. Discharge of a Contract
By Performance :
When the parties to the contract have
duly performed their respective promises
undertaken by them, the contract comes to an
end.

40. Discharge of a Contract
 By Mutual Agreement:
A contract comes into being by the agreement
between two parties, therefore it may also be
discharged by their mutual agreement and
willingness.

41. Discharge of a Contract
 By the impossibility to perform:
If the performance of contract becomes, or turns
out to be, impossible, the parties to the
contract are discharged from their respective
obligations.

42. Discharge of a Contract
 By Operation of Law:
Some times the performance of a contract is
discharged by the operation of some law. For
instance, is soon as a person is discharged by
an order of court.

43. Discharge of a Contract
 By Breach:
When one party to the contract breaks the
contract by non performance of the promise or
otherwise, the other party is discharged from
his obligation under the contract and has right
of action against the party responsible for the
breach.