LAW OF CONTRACTS

https://www.indiacode.nic.in/handle/123456789/2187?sam_handle=123456789/1362

LAW OF CONTRACT - I

❑ Basic principles of Contract- Indian Contract Act,

1872 (S.1 – 75)

❑ Standard Form of Contracts & Government Contracts

❑ E-contracts and Smart Contract

❑ Specific Relief Act, 1963

History of contract law in India

• Barter System

• Vedic and Medeival Period

• No general code covering contracts.

• Vedas, the Dhramshatras, Smritis, and the Shrutis.

• Manusmriti- competence of the persons

• Chandragupta’s reign- bilateral transactions

• Rule of ‘damdupat’ - the amount of principle and interest recoverable at one time in

a lump sum cannot be more than double the money lent.

• Islamic law

• Mohammedan Law of Contract

• marriages (Nikah) are contracts

• English common and statute law

• Calcutta, Madras and Bombay, so far it was applicable to Indian circumstances -1726

• Imperial legislative council enacted Indian Contract Act, 1872

Origin and Development

• The emergence and development of contract law derives most of its history from the industrial
revolution. Since ancient times, it was the growth of trade and commerce that enhanced the need to
have contracts.

• Contract law as a social upgradation- “The movement of all progressive societies has hitherto been
from status to contract.”- Sir Henry Maine.
Indian Contract Act, 1872

Enactment Date – 25th April 1872

Commencement Date- 1 st Sep 1872

• S. 1 – 75 – Gen Provisions/ Contract 1

• S. 76 – 123 – Sale of Goods- Now Sale of Goods Act, 1930

• S. 124 – 238 – Special contracts/Contract 2

• S. 239 – 266 – Partnership – Now Partnership Act, 1932

It extends to the whole of India ( 2019 amendment)

Introduction

• The Law of Contract deals with agreements which can be enforced through courts of law. The Law
of Contract is the most important part of commercial law because every commercial transaction
starts from an agreement between two or more persons.

• Object: to introduce definiteness in commercial and other transactions.

• Example: Tom enters into a contract to deliver 10 tons of coal of Jerry on a certain date. Since such
a contract is enforceable by the courts, Tom can plan his activities on the basis of getting the coal on
the fixed date. If the contract is broken, Jerry can claim damages from Tom by approaching the court
and will not suffer any loss

Nature

• The Indian Contract Act,1872 lays down certain general rules regarding contracts.

• Branch of civil law

• The Act is not exhaustive. There are other Acts relating to particular types of contracts e.g. the
Negotiable Instruments Act, Transfer of Property Act, etc. The Contract Act does not affect any usage
or custom of trade, or any incident of any contract not inconsistent with the provisions of the Act.

• Based on English Common law

• Private Law

Contracts as Defined by Eminent Jurists

• Black’s Law Dictionary

Contract law means an agreement between two or more parties creating obligations that are
enforceable or otherwise recognizable at law.

• Salmond

“A contract is an agreement creating and defining obligations between the parties ”.

• Pollock:

“Every agreement and promise enforceable at law are a contract.”

• Anson
The law of contract is that branch of law which determines the circumstances in which a promise
shall be legally binding on the person making it.

• Halsbury

“A Contract is an agreement between two or more persons which is intended to be enforceable at

Sanctity Of Contract

• Sanctity Of Contract is a general idea that once parties duly enter into a contract, they must honor
their obligations under that contract.

• efficient breach theory is that parties should feel free to breach a contract and pay damages, so
long as this result is more economically efficient than performing under the contract.

Agreement and Contract

“Agreements enforceable by law is contract” [S.2(h)]

“All Contracts are Agreements, but all Agreements are not Contracts”

“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

• not hereby expressly declared to be void.” - Sec.10

Essential elements

1. Two or more parties

2. offer and acceptance

3. intention to create legal relationship.

• A and B agree to go to a movie. A does not turn in resulting in loss of B’s time. B cannot claim any
damages from B since the agreement to watch a movie is a social agreement which does not result
in a contract.

• In case of social/ domestic agreement there is no intention to create legal relationship and there
the is no contract (Balfour v. Balfour)

• In case of commercial agreements, the law presumes that the parties had the intention to create
legal relations.
4. consideration- QUID- PRO-QUO i.e. something in return.

5. Capacity to contract (Section 11)

•major

•sound mind and

• not disqualified by law

• alien enemy,

• foreign sovereigns and

• accredited representative of a foreign state.

• Insolvents and

• convicts

6. Free consent :- A consent is said to be free when it is

not caused by

• coercion,

• undue influence,

•fraud,

•misrepresentation or

•mistake.

7. Consensus ad idem - agreed upon same thing in the same sense

Lawful object and consideration

Eg: Two persons cannot enter into an agreement to do a criminal act.

Consideration or object of an agreement is unlawful if it is

• forbidden by law

• is of such nature that, if permitted, would defeat the

provisions of any law

• is fraudulent

• Cause injury to person or property of another

• immoral, or

• opposed to public policy.

9. Possibility of performance:

• Example : A agrees to B to discover treasure by magic.

10. The terms of the agreements should be certain or are capable of being made certain

• Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing room. The
agreement is void because the meaning of the term “ ultra modern” is not certain.

11. Not expressely declared Void by law

• Agreements in restraint of marriage

• Agreements in restraint of trade

• Agreements in restraint of legal proceedings

• Agreements by way of wager

12. Necessary legal formalities

• A contract may be oral or in writing.

• Where a particular type of contract is required by law to be in writing and registered, it must
comply with necessary formalities as to writing, registration and attestation.

Example : A promise to pay a time barred debt must be in writing. Sale deed -writing, registered and
attested

Distinguish – contract n agreement

KINDS OF CONTRACTS

On the basis of creation

• Express contract :- A contract made by the words spoken or

written.

Example : A says to B ‘will you purchase my bike for Rs.20,000?” B says

to A “Yes”.

• Implied contract:- A contract inferred by the conduct of person

or the circumstances of the case.

Example: 1) A stops a taxi by waving his hand and takes his seat. There

is an implied contract that A will pay the fare.

2) obtaining cash through automatic teller machine, sale by fall

hammer of an auction sale.

• Quasi Contracts- If Mr. A leaves his goods at Mr. B’s shop by mistake,

then it is for Mr. B to return the goods or to compensate the price.

• E – Contract: contract entered into via electronic means.

• Smart Contracts

• Shrink Wrap,

• Click Wrap, and

• Browse-Wrap Agreements

• Standard Form Contract /Adhesion contract/ Boilerplate

contract.

• Insurance contract

• cell phone service agreements.

• Govt. contracts

Validity

• (Valid) Contract:- An agreement which satisfies all the requirements

prescribed by law

• Void contract (S. 2(j)):- due to a subsequent change in any law or

impossibility of an act contract becomes void.

• Supervening impossibility- death of party

• Change of law

• Subsequent Illegality

• Voidable contract 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.

• Consent is by coercion, undue influence, fraud or misrepresentation.