PCS (J) Notes: Introduction to Law of Contract

NOTES ON  LAW OF CONTRACT

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Introduction [CHAPTER-I]

What is Law and why should one know Law?

Law means a ‘set of rules’ which governs our behaviors and relating in a civilized society.

One should know law to which he is subject because Ignorance of law is no excuse.

Indian Contract Act, 1872

INTRODUCTION OF INDIAN CONTRACT ACT, 1872:-

  • The India Contract Act consists of the following two parts:

(a). The General principles of Law of Contract.

(b).Specific kinds of the Law of Contracts.

  • It has XI Chapter and 266 sections s detailed below:-

1).Sections 1-75 deals with “General Principles”.

2). Sections 76 to 123, which dealt with Sale of Goods, is repealed and replaces by the Sale of Goods Act,1930.

3).Sections 124- 147 deal with the two kinds of special contracts, namely the Contract of Indemnity and the contract of Guarantee).

4).Sections 148-181 lays down the provisions relating to special contracts namely, the Contract of Bailment and Contract of Pledge and Pawn.

5). Sections 182- 238 deal with the Contract of Agency and

6). Finally, Sections 239-266, which dealt with the law relating to partnership are repealed and replaced by section 73 and schedule II of the Indian Partnership Act, 1932.

  • Law of contract creates jus in personem and not in jus in rem.

 

SECTION 1:-

Commencement and Applicability

Short Title                                          The Indian Contract Act, 1872

Extent                                  Applicable to whole India except the state of Jammu & Kashmir

Commencement                                   First day of September 1872 (1st Sept. 187)

CONTRACT

[Sec. 2h- An agreement enforceable by law is a contract.]

The term ‘contract’ is derived from the Latin word ‘Contractum’, which means drawn together’. “It is an agreement entered into between two or more persons subject to certain terms and conditions for a lawful consideration”.

Illustration:-A and B entered into an agreement. A promises B to sell his house for Rs. 50,000/- and B accepts to purchase it for the said amount. It is a contract between A and B–the promisee or acceptor

                                                                                  The promisor or offeror

Thus, for the formation of a contract, there must be:-

  • An agreement and
  • The agreement should be enforceable by law.

Agreement= Offer = Acceptance

Contract = Agreement + Enforceability

 

NOW THE QUESTION IS: WHAT IS AN AGREEMENT?

Section-2(c) of the act defines agreement as “Every promise and every set of promise forming the consideration for each other, is an agreement”.

To constitute an agreement:

  1. There must be at least two parties.
  2. There must be a proposal or offer from one party
  3. There must be an acceptance from the other party.

Difference between Contract & Agreement:-

Basis Contract Agreement
Sections Sec. 2(h) Sec. 2(e)
Definition A contract is an agreement enforceable by law Every promise or every set of promises forming consideration for each other is an agreement.
Enforceability Every contract is enforceable Every promise is not enforceable.
Interrelation

-ship

A contract includes an agreement. An agreement does not include a contract.
Scope Scope of contract is limited, as it includes only commercial agreements. Scope is relatively wider, as it includes both social and commercial agreements.
Validity Only legal agreements are called contract. An agreement may be both legal and illegal.
Legal Obligation Every contract contains a legal obligation. It is not necessary for every agreement to have legal obligation.

 

According to section 10 of the Indian Contract Act, “All agreements are contracts, if they are made by the free consent of the parties, competent to contract, for lawful consideration and with a lawful object and are not hereby expressly declared to be void.

“All contracts are agreement, but all agreements are not contract”

An agreement

  • may or
  • may not be enforceable by law,

So, all agreement are not contract. Only those agreements are contracts, which are enforceable by law.

Contract = Agreement + Enforceability.

ESSENTIALS OF A VALID CONTRACT

  1. Two Parties (Offeror Sec. 2 (a). & Acceptor Sec. (b)): To constitute a contract, there must be an offer and acceptance. The person who offers or makes offer is called “Offeror” and the other party eho accepts the offer is called “Acceptor”. The offer and acceptance must be communicated properly to each other.
  2. Consensus-ad-idem (Identity of Minds): A contract to be valid there must exist consensus-ad-idem. Both the parties to the contract must have agreed/ consented about the subject in same sense and at the same time. If the consensus-ad-idem is absence between the parties, the contract is declared null and void.
  • Capacity to Contract (Section 11): Parties must be competent to enter into a contract. According section 11 of this Act, any person is competent to contract provided-
  • He is a major ( not a minor )
  • He is of sound mind ( not of unsound mind)
  • He is not disqualified by law in force to contract.

Section 11 of the Indian Majority Act, 1875 a minor is a person who has not completed the age of  18years.

In the case of Moharibibee v/s Dharmadas Ghose (1903), it was held that a contract entered into with a minor is void ab initio.

  1. Free Consent (sec.14): According to sec.19 of the Indian Contract Act, “ Two or more parties are said to consent, when they agree up on the same thing in the same sense and at the same time”. Section 14 of this Act, define “Free Consent” as Consent is said to be free, when it is not caused by:
  2. Coercion (sec.15)
  3. Undue Influence (sec.16)
  • Fraud (sec.17)
  1. Misrepresentation (sec.18)
  2. Mistake (sec.20,21 &22)
  3. Lawful Consideration 2d): it means ‘something in return’. It is a price for the contract. It refers to both the parties. A contract to be valid and enforceable, there must be a lawful consideration. A contract without consideration is void.
  4. Legal Relationship: A contract to be enforceable, it must create legal relationship between parties. Mere social/domestic agreements do not give rise to create legal relationship. In commercial agreements, the law presumes that the parties had intention to create legal relations.

VII. Lawful object: The object of the agreement should be lawful and legal. Two persons cannot enter into agreement to do a criminal act. Consideration or object of an agreement is unlawful if it is:

 

  1. forbidden by law, or
  2. Defeats any provision of law, or
  • Fraudulent
  1. Causing injury to person or property of another, or
  2. Immoral or opposed to public policy.

VIII. Terms must be certain (not vague):- the terms and conditions of the contract shall be clearly finished and certain in the agreement without any ambiguity or vagueness. Otherwise the contract is not valid and enforceable.

  1. Possibility of Performance: – it is an essential element of a contract, if the performance of the contract is impossible, it is void. Thus Sec.56 of this Act lays down that, “an agreement to do an act impossible itself is void”.

Kinds of Contract

On the basis of validity, contract may be classified as follows:

  1. Valid Contract (Sec.2 (h): – A contract is said to e valid if it can be enforceable in the Court of Law. According to sec. 2(h) of this Act, “an agreement enforceable by law is a contract”.
  2. Void Contract (Sec. 2(g): – “A contract which is not enforceable by law is a void contract”. It is an agreement without any legal effect and is void ab initio or it becomes void subsequently. When both parties to an agreement are:    Under a mistake of facts (20), Consideration or object of an agreement is unlawful( 23), Agreement made without consideration (25), Agreement in restrain of marriage (26), Restraint of trade (27), Restraint legal proceeding (28), Agreement by wage of wager (30).
  3. Voidable Contract [sec. 2(i)]: – an agreement which is enforceable by law at the option of one or more the parties but not at the option of the other or others is a voidable contract.

For example: A contract entered into out of coercion, undue influence, fraud, misrepresentation, mistake etc.,.is said to be voidable. According to sec. 19 of the Indian Contract Act.

 

  1. Unenforceable Contract: It is a contract, which is valid for all practical purposes until and unless its validity is challenged or questioned. It cannot be enforceable due to some technical defect. It can be enforced in future after the technical defect is removed/ cured. Ex: when a contract unenforceable for want of registration, it becomes enforceable in future after registration.
  2. Illegal Contract: it is a one, which is immoral or against the law. An illegal contract is void and also a crime under Section – 120 A (Criminal Conspiracy) under IPC.

 

 

 

 

s

Difference between void and voidable Contract

Matters Void  Voidable
Definition It means contract which cease to be enforceable.  It means an agreement enforceable by law by one or more parties.
Reason Due to change in law or circumstances. If consent is not obtained freely.
Performance of contract Party can’t demand performance of contract If aggrieved party does not cancel it within reasonable time, performance can be demanded.

 

 “STANDARD FORM OF CONTRACT”.

 

 

Standard form of contract in lay-man terms means ‘ take it or leave it’ kind of contract, in this type of contract the other party is not in a position to negotiate with the terms and condition laid down in the contract, party just have the option of either enter into the contract or forget about the contract. Thus, the fundamental rights to negotiate is affected by this type of arrangement popularly these type of contract are known as adhesion or a boilerplate kind of contract. Most common type of SFC are insurance company contract, on purchasing a machine, signing up for your e-mail, social networking sites, etc.

 

SFC is a kind of contracts in Indian Contract Act, 1872. Due to heavy industrial development these kind of contract has become common and are executed in large numbers now a days.

 

by Shree Rastogi

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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