UNIT 1

LLB IBPOC

UNIT 1

GENERAL PRINCIPLES OF CONTRACT ACT (Sec. 1 to 75 )

INTRODUCTION :-

The law relating to contracts in India is contained in Indian Contract Act, 1872. The Act was passed by British India and is based on the principles of English Common Law.

It is applicable to all the states of India except the state of Jammu and Kashmir.

It determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some rights and duties on the contracting parties

CONTI..(WHY) OR (OBJECT)

The basic purpose of contract law is to provide a framework within which individuals can freely contract.

The rule of contract is the Remedies that are available in a court of law against a person who fails to perform his contact .

Example : commerce and industry as bulk of their business transaction are based on contract.

WHAT IS CONTRACT :-

The term Contract is defined in section 2 (h) of the Indian Contract Act.

 Contract 2(h) :- An agreement enforceable by Law is a contract.

Other Words :- Contract = An Agreement +

Enforceability Definition shows that a contract must

have the following two elements : 1) An Agreement and 2) An Agreement must be enforceable by law.

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 Agreement 2(e) :- Every promise and set of promises forming the consideration for each other.

In short, agreement = offer +

acceptance.

If one party fails to perform as promised the other party can use the court system to enforce the contract and recover damages or other remedy.

Essential Elements of a Valid Contract :-1). Offer and Acceptance:-  In order to

create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party. Parties are

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2). Intention to Create Legal Relationship:-  In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.

Example : A husband promised to pay his wife a house hold allowance of rs 10000 per months. Later the parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held agreements such as these were outside the realm of contract.

3). Lawful Consideration:- Consideration has been defined in various ways. Consideration means an advantage or benefit moving from one party to the other. It is the essence of a bargain. In simple words consideration is known as quid pro-quo or something in return. [section 2(d) 23 and 25 ]

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4). Capacity of parties:-The parties to an agreement must be competent to contract. If either of the parties does not have the capacity to contract, the contract is not valid.According the following persons are incompetent to contract. (secs. 11 and 12 ) (a) Minority,               (b) Persons of unsound mind, lunacy, idiocy, drunkenness and(c) persons disqualified by law to which they are subject.

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5). Free Consent:- 'Consent' means the parties must have agreed upon the same thing in the same sense.According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or                   (2) Undue influence, or         (3) Fraud, or

(4) Mis-representation, or         (5) Mistake.

An agreement should be made by the free consent of the parties.

Conti…6). Lawful Object(sec. 23) :-  The object of an agreement

must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law;(b) it is of such nature that if permitted it would defeat the provision of any law;(c) it is fraudulent;(d) it involves an injury to the person or property of any other;(e) the court regards it as immoral or opposed to public policy.

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7). Certainity of Meaning:-  According to Section 29,"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.

Example : 8). Possibility of Performance :- If the act is

impossible in itself, physically or legally, if cannot be enforced at law.

For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.

Conti…9). Not Declared to be void or Illegal (sec 24

to 30 ):- The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.

10). Legal Formalities (sec . 10):- An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

Types of Contracts :-

Classification according to validity or enforceability :-

a)    Valid contract:  A contract which satisfies all the conditions prescribed by law is a valid contract.

E.g. X offers to marry y. y accepts X offer. This is a valid contract.

Section 10 of indian

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b)    Void Contract:  The term void contract is described as under section 2(j) of I.CA, 1872, A contract which cases to be enforceable by law becomes void when it ceases to be enforceable. In other words, a void contract is a contract which is valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason.

E.g. X offers to marry Y, Y accepts X offer. Later on Y dies this contract was valid at the time of its formation but became void at the death of Y.

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c)    Void Agreement: According to Section 2(g), an agreement not enforceable by law is said to be void. Such agreements are void- ab- initio which means that they are unenforceable right from the time they are made.

E.g. in agreement with a minor or a person of unsound mind is void –ab-initio because a mino or a person of unsound mind is incompetent to contract.

Conti…d)    Voidable contract to section 2(i) : According of the

Indian contract act, 1872, A voidable contract is one which can be set aside or avoided at the option of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid contract.  For e.g. a contract is treated as voidable at the option of the party whose consent has been obtained under influence or fraud or misinterpretation.

E.g. X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. Here, Y consent has been obtained by coercion and hence this contract is void able at the option of Y the aggrieved party.

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e)   Illegal Agreement:  An illegal agreement is one the object of which is unlawful. Such an agreement cannot be enforced bylaw. Thus, illegal agreements are always void – ab- initio (i.e. void from the very beginning)

e.g. X agrees to y Rs. 1 lakh Y kills Z. Y kill and claims Rs. 1 lakh. Y cannot recover from X because the agreement between X and Y is illegal and also its object is unlawful.

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f)   Unenforceable contract: It is contract which is actually valid but cannot be enforced because of some technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed.

Classification according to Formation :-

a)   Express contract: Express contract is one which is made by words spoken or written.

 Example No. 1: X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready to buy you car for Rs. 100000. It is an express contract made rally.  

Example No. 2: X writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to x, I am ready to buy you car for Rs. 100000. It is an express contract made in writing.

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An implied / tactic contract :- is a contract which is made otherwise than by the words spoken or written. It came into existence on account of an act or conduct of the parties.

Example :- A stops a taxi by waving his hand and boards it. There is an implied contract that A will pay the prescribed fare on reaching his destination.

Withdrawal of cash from the ATM of a bank.

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c)    Quasi or constructive contract: It is a contract in which there is no intention either side to make a contract, but the law imposes contract. In such a contract eights and obligations arise not by any agreement between the practice but by operation of law.

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E- Contract :- An e-contract is a contract made through the electronic mode.

Classification according to Performance / Obligation :- Executed Contract :- In an executed

contract both the parties have performed their promises under a contract. It is a contract where, under the terms of contract, nothing remains to be done by the parties.

Example A sells his car to B for   1 lakh. A

delivered the car and B paid the price. This is an executed contract.

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Executory Contract :- In an executory contract both the parties are yet to perform their promises. In other words, it is a contract where parties have to still perform their obligation in the future.

Example A sells his car to B for   1 lakh. If A

is still to deliver the car and B is yet to pay the price, it is an executory contract

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Bilateral Contract :- In a bilateral contract both the parties have to perform their respective promises. It is also known as a two-sided contract. Here, the obligation is outstanding on the part of both the parties.

example :- X promises y to pay rs 1000 for his cycle. Neither of them has performed his obligation.

Conti…. Unilateral Contract :- A unilateral contract is also

known as a one-sided contract. It is a contract where only one party has to perform his promise. In such a contract, the promise on one side is exchanged for an act on the other side. Aft er the formation of a unilateral contract, only one party remains liable to perform his obligation because the other party has already performed his obligation.

Example Alap promises to pay   1000 to anyone who finds

his lost cellphone. Bansi finds and returns it to Alap. From the time Bansi found the cell phone, the contract came into existence. Now Alap has to perform his promise, i.e., the payment of  1000.

References

Mercantile Law N.D.Kapoor, Sultan Chand and Sons Part 1 Contract law chapter 1 page no 3.

http://www.slideshare.net/abdu_569/indian-contract-act-9647662

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