Law of Contract

INTRODUCTION

• Law of contract is the foundation on which the

structure of modern business is built.
• It is common practice that in business transactions
quite often promises are made at one time and the
execution follows later.
• In such situation if either of the parties are let free to
go back on its promise without incurring any liability,
there would be endless complications and it would be
impossible to carry on trade and commerce.
• Hence the law of contract was enacted which lays down
the legal rules relating to promises, their formulation,
their performance and their enforceability.
 INDIAN CONTRACT ACT, 1872
The law of contract in India is contained in
Indian Contract Act, 1872.
It extends to whole of India except J&K and came
into force on 1st September, 1872
The branch of law which determines the
circumstances in which promises are made by the
parties to a contract shall be legally binding on
them.
Also it defines the remedies that are available
through court against a person who fails to
perform his contract, and prescribes conditions
under which remedies are available.
However, the law does not deal with all the
branches of law of contract.
There are separate Acts which deal with contracts
relating to-
 Negotiable Instruments
 Transfer of property
 Sale of Goods
 Partnership
 Insurance etc
As such the Indian Contract Act,1872 relates to
General Principles of Law of Contract which are
covered in 75 sections.
 MEANING - CONTRACT
According to section 2(h) of Indian Contract Act
“An agreement enforceable by law is a Contract”
In other words a contract is an agreement,
enforceable by law, made between atleast two
parties by which rights are acquired by one and
obligations are created on the part of another. If
the party which has agreed to do something fails to
do that, then the other party has a remedy
 CONTRACT- TWO ELEMENTS

1- An agreement
2- Legal obligation
 AGREEMENT
 Section 2 (e) defines an agreement as “every promise and
every set of promises, forming the consideration for each
other.”
 In this context the word Promise is defined by sec 2 (b).
 It states that in a contract there are atleast two parties.
One of them makes a proposal (offer) to the other, to do
something, with a view to obtain assent of the other to
such act.
 When the person to whom proposal is made signifies his
assent, the proposal is said to be accepted.
 The proposal when accepted becomes promise.
The person making the proposal is called “Promisor”
and the person accepting the proposal is called
“Promisee”.

TWO ELEMENTS OF AGREEMENT

 Plurality of persons (atleast two persons)
 Consensus – ad – idem (both parties agree to the subject
matter of agreement in same sense and at same time.)
 LEGAL OBLIGATION

For an agreement to be converted into contract,

legal obligation i.e. enforceability by law is
necessary.
If an agreement is incapable of creating a duty
enforceable by law it is not a contract.
Thus it is said that all contracts are agreements but
all agreements are not contract.
Furthermore all legal obligations are not
contractual. Only those legal obligations which
have their source in an agreement are contractual.
Agreements of moral, religious and social nature are
not contracts because they are not likely to create a
duty enforceable by law for simple reason that
parties never intended that they should be attended
by legal consequences.
 ESSENTIAL ELEMENTS OF VALID
CONTRACT
Offer and Acceptance
Intention to create Legal Relations
Lawful Consideration
Capacity of Parties
Free Consent
Lawful Object
Certainity
Possibility of Performance
Not Expressly declared Void
Writing & Registration
 KINDS OF CONTRACTS

A- From Enforceability Point of View

 Valid contract
 Voidable contract
 Void contract & Voidable agreement
 Unenforceable contract
 Illegal or Unlawful contract
B – From Mode of Creation View
 Express Contract
 Implied Contract
 Contract of Mixed Character
 Constructive or Quasi Contract
C – From Extent of Execution PoiExent of View
 Executed Contract
 Executable Contract