Introduction y We enter into contracts almost every day. y Taking a seat in a bus amounts to entering into a contract.

y You go to restaurant and take snacks, you have entered into a Contract. y However, in such situations, we do not realize that we have entered into a Contract. y The people who are engaged in trade, industry and commerce, they carry on business by entering into contracts. y The law relating to Contracts is found in the Indian Contract, 1872 y The law of contracts differs from the other branches of law. y It does not lays down so many precise rights and duties which the law will protect and enforce. y It only contains a number of limiting principles, subject to which parties may create rights and duties for themselves. y The law will uphold those rights and duties. What is a contract

y Section 2 (h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law . y Section 2 (e) defines agreement as every promise and every set of promises forming consideration for each other y Section 2 (b) defines promise as when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise The law of contract is that branch of law which determines the circumstances in which promise 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 right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties. Indian Contract Act, 1872 came into effect from 1 September, 1872. It extends to the whole of India except the state of Jammu and Kashmir. y CONTRACT [SECTION 2(h)]: A contract is an agreement enforceable by law . Thus, CONTRACT = AGREEMENT (+) ENFORCEABILITY BY LAW
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y All contracts are agreements but all agreements are not contracts y AGREEMENT [SECTION 2(e)]: An agreement means, Every promise or every set of promises, forming consideration for each other . AGREEMENT = OFFER + ACCEPTANCE

y PROPOSAL/OFFER [SECTION 2(a)]: A person is said to make a proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining assent of that other to such act or abstinence y PROPOSAL = WILLINGNESS TO DO OR ABSTAIN FROM DOING (+) WILLINGNESS TO OBTAIN ASSENT OF THE OTHER PARTY TO SUCH ACT OR ABSTINENCE

What is a contract act

y The Contract Act is e law of those agreements which create obligations, and in the case of breach of a promise by one party to the agreement, the other has a legal remedy. y All legal obligations are not contractual in nature. y A legal obligation having its source in an agreement only will give rise to a contract. y An obligation which does not have its origin in an agreement does not give rise to a contract. y Some of the obligations are: torts or civil wrong, judgments of courts, Contracts of records etc ESSENTIAL ELEMENTS OF A VALID CONTRACT o As per section 10 of the Act, All agreements are contracts if they are made by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void The essential elements of a valid contract are: 1. Agreement 2. Intention to create legal relationship 3. Free and genuine consent 4. Parties competent to contract

5. Lawful consideration 6. Lawful object 7. Agreements not declared void or illegal 8. Certainty of meaning 9. Possibility of performance 10. Necessary legal formalities (1) Agreement:

y To constitute a Contract, there must be an agreement. y An agreement is composed of two elements: (a) (b) Offer An Acceptance

y The party making an offer is known as offeror, and the party to whom the offer is made , is known as the offeree. y Thus there are essentially to be two parties to an agreement.. y They both must be thinking of the same thing in the same sense. y In other words, there must be consensus-ad-idem. (2) Intention to create legal relationship: y There should be an intention on the part of the parties to create a legal relationship.

y An agreement of a purely social or domestic nature is not a contract. y However, even in the case of agreements of purely social or domestic nature, there may be an intention of the parties to create legal obligations. y In that case, the social agreement is intended to have legal consequences. y e.g M promises his wife N to get her a saree if she will sing a song.

(3) Free and Genuine Consent: y The consent of the parties to an agreement. y The consent of the parties should not be obtained by misrepresentation, fraud, undue influence, coercion or mistake. y If the consent is obtained by any of these sources, then the contract is not valid. (4) Parties competent to contract:

y According to Section 11 of the Indian Contract Act, every person is competent to contract if he or she is: (i) Of the age of maturity

(ii) (iii)

Of sound mind Not disqualified for contracting by any law to which he or she is subject to Therefore, if a party to a contract is suffers from any of these flaws, the contract is unenforceable except in certain exceptional circumstances y Ex, If A agrees to sell Taj Mahal, is he capable & competent ?

(5) Lawful Consideration: y The agreement must be supported by consideration from both sides. y Each party to the agreement must give or promise something and receive something or a promise to return. y Consideration is the price for which the promise of the other party is sought. y However, this price need not be in terms of money, it can be in terms of kind. y The consideration must be real and lawful.

E.g: Illegal works like killing another for money, or immoral works or illegal acts are cannot be treated as a valid agreement.

(6) Lawful Object: y The object of the agreement must be lawful and not one which the law disapproves. y _ A rents out his house for the business of making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract.

(7) Agreement not declared illegal or Void: y There are certain agreements which have been declared illegal or void by the law. y In such cases, even if an agreement possesses all the elements of a valid contract, the agreement may not be enforceable by the law. y y y y For example: _ Agreement in restraint of legal proceedings, _ Agreement in restraint of trade, _ Agreement in restraint of marriage and

y _ Agreement by way of wager.

(8 ) Certainty of Meaning: y The meaning of the agreement must be certain or capable of being made certain , otherwise the agreement will not be enforceable by law. y For example, A agrees to sell 10 metres of cloth. But this does not show what type of cloth is intended for sale. y Therefore, the agreement may not be enforceable by law. y However, if the special description of the cloth is expressly stated, say Terry cot (80:20), the agreement would be enforceable by law as there is no uncertainty about its meaning. (9) Possibility of Performance: y The terms of the agreement should be capable of performance. y An agreement to do an act impossible in itself cannot be enforced by law. y For instance, A agrees with B to discover treasure by magic.

y Such types of agreements cannot be enforced. y _ Impossible agreements like one claims to run at a speed of 100km/hr or take 7 wickets in an over. would not create a valid agreement.

(10) Necessary legal Formalities: y A contract may be oral or in writing. y However, if a particular type of contract is required by the law to be in writing , it must comply with necessary formalities as to writing, registration, attestation etc, if necessary. y If such legal formalities are not carried out, then the contract is not enforceable by the law. CLASSIFICATION OF CONTRACT y On the basis of On the basis of On the basis of Validity: 1. Valid contract 2. Void contract 4. Void agreement y On the basis of formation:

1.Express contract 2.Implied Contract 3.Quasi Contract On the basis of Performance: 1. 2. 3. 4. y Executed contract Executory contract Unilateral contract Bilateral contract

Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party.

y e.g A , threatens to shoot B if he does not sell his new Bajaj scooter to A FOR Rs. 2000, B agrees. The contract has been brought about by coercion and voidable at the option of B. y Void contract [Section 2(j)]: A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void. Void agreement: An agreement not enforceable by law is said to be void. Such agreement does not confer any right to any of the parties to it. The agreement, in such a case, is void-ab-initio (from the very beginning). Such an agreement does not result in a contract at all. Unenforceable contracts: Where a contract is good in substance but because of some technical defect cannot be enforced by law as absence of writing, registration,requisite stamp etc. is called unenforceable contract. These contracts are neither void nor voidable.

Illegal agreement: An agreement is illegal if it is forbidden by law; or is of such nature that, if permitted,

would defeat the provisions of nay law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. All illegal agreements are void agreements but all void agreements are not illegal. e.g. An agreement with a minor is void but not illegal. An agreement the terms of which are uncertain is void but not illegal. y Express contract: Where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, the contract is said to be express contract. Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied.

e.g. coolie ,shoe shiner. Quasi contracts: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no

intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it. A quasi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. e.g finder of goods. y Executed contract: An executed contract is one in which both the parties have performed their respective obligation. Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract.

Unilateral contract: A unilateral contract is one in which only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time o the contract or before the contract comes into existence.

Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts are also known as contracts with executory consideration