Nature of contract-2


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Nature of contract-2

  1. 1. Nature of Contract
  2. 2. Indian Contract Act, 1872 General Principles (Secs.1 -75) Some special Contracts (Secs.124-238) Indemnity and guarantee(Secs.124-147) Act is not exhaustive Nature of the law of contract: It lays down a no. of limiting principles subject to which parties may create rights and obligations themselves and law upholds that No infringements expected Law of contract is not whole law of agreements nor whole law of obligations Law of contract creates jus in personam not jus in rem Chapter 15 2
  3. 3. Contract - Definitions 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. Pollock says “Every agreement and promise enforceable at law is a contract”. Sir William Anson defines contract as “ a legally binding agreement between two or more persons by which rights are acquired by one or more acts or forbearances (abstaining from doing something) on the part of the others. According to Salmond , a contract is”an agreement creating and defining obligations and rights between the parties. A contract consists of two things : 1. Agreement 2. Enforceability by law An agreement is ”every promise and every set of promises, forming consideration for each other”. Sec.2(e) A promise is “when the person to whom proposal is made, signifies his assent thereto, the proposal is said to be accepted. An proposal when accepted becomes a promise. As per Sec.2(b) an agreement is an accepted offer/ proposal. Agreement = Offer+Acceptance Chapter 15 3
  4. 4. Consensus ad idem It is meeting of two minds of the parties in full and final agreement. Agreeing of parties about the subject matter of the agreement in the same sense and at the same time. No consensus ad idem , no contract. Obligation: An obligation is “a legal tie which imposes upon a definite person or persons the necessity of doing or abstaining from doing act or acts. It may be social/legal. An agreement giving rise to social obligation is not a contract. Agreement is a very wide term Chapter 15 4
  5. 5. Essential elements of a valid contract 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 expressly declared to be void. Main essential elements are: 1. Offer and Acceptance 2. Intention to create legal relationship 3. Lawful consideration 4. Capacity of parties to contract 5. Free and genuine consent 6. Lawful object 7. Agreements not declared void (Secs.24-30 and 56) 8. Certainty and possibility of performance (Sec.29) 9. Legal formalities Chapter 15 5
  6. 6. Classification of contracts Classification based on validity Valid contract Voidable Contract : An agreement enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others. (due to coercion, undue influence, misrepresentation or fraud etc.) Void agreement and void contract 1. Void agreement : Agreement not enforceable by law {Sec.2(g)} . It is destitute and nullity of legal effects altogether. 2. Void contract is which ceases to be enforceable by law 3. Illegal agreement : Which transgresses some rule of basic public policy or criminal in nature or immoral All illegal agreements are void but all void agreements or contracts are not necessarily illegal. 4. Unenforceable contract : which cannot be enforced in a court of law b’coz of some technical defect. Chapter 15 6
  7. 7. Classification of contracts Contd. Classification based on formation 1. Express contract : Made in writing or by word of mouth (Sec.9, express promise leads to express contract) 2. Implied contract : Inferred from conduct of the parties or the circumstances of the case (Sec.9, implies promise leads to implied contract) 3. Quasi-contract : strictly speaking it is not a contract at all. It is not intentionally entered into by the parties but is created by law. It rests on ground of Equity – a person shall not be allowed to get enriched himself unjustly at the expense of of another. 4. E-Commerce contract: entered into between two parties via internet. Chapter 15 7
  8. 8. Classification of contracts contd. Classification based on performance: 1. Executed contract- In which both parties performed their respective obligations and rights. 2. Executory contract- In which both parties have yet to perform their obligations. Can also be partly executed and partly Executory also. 3. Unilateral or one sided contract-In which one party has to fulfill his obligations at the time of formation of the contract, the other party having fulfilled his obligation at the time of contract or before contract comes into existence. Also known as contracts with executed consideration. 4. Bilateral contract – In which obligations on the part of both the parties are outstanding at the time of making the contract. Also known as contracts with Executory consideration. Chapter 15 8
  9. 9. Classification of contracts contd. As per English Law: 1. Formal contracts- a) Contracts of record- By judgment of a court or a recognizance. Strictly speaking , written acknowledgement of a debt due to the crown. b) Contracts under seal- One which drives its binding force from its form alone. It is in writing and is signed, sealed and delivered by the parties. Also known as deed or a specialty contract. These can be : Contracts made without consideration, Contracts made by corporations and conveyance of the legal estate in land or any interest in land including leases of land for more than three years. 2. Simple contracts : Not made under seal, may be oral or written. But these must be supported by consideration and are also known as parol contracts. Chapter 15 9
  10. 10. THANKSChapter 15 10