Indian Contract Act, 1872
The law of contract constitutes the most important branch of Mercantile or Commercial Law. It is the foundation upon which the superstructure of modern business is built.
The Indian contract act is divisible into two parts.
The first part (Section 1-75) deals with the general principles of the law of contract and therefore applies to all contracts irrespective of their nature.
The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.
Contract:
According to section 2(h) of the Indian contract act 1872 “An agreement enforceable by law is a contract. “
A contract is a combination of the two elements:
There must be an agreement
Agreement must be enforceable by law (obligation)
Contract = Agreement + Enforcement by law
Agreement
Section 2(e) “Every promise and every set of promises, forming the consideration for each other, is an agreement.” Thus it is clear from this definition that a ‘promise’ is an agreement.
Agreement = offer + Acceptance
Promise
Section 2(b) “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.“
An agreement, therefore, comes into existence when one party makes a proposal or offer to the other party and that other party signifies his assent thereto.
Elements of a Valid Contract
Section 10 of the Indian Contract Act, 1872 provides that “all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”.
Thus, the important element of valid contract are as follows:
An offer or proposal by one party and acceptance of that offer by another party resulting in an agreement—consensus-ad-idem.
An intention to create legal relations or intent to have legal consequences.
The agreement is supported by a lawful consideration
The parties to the contract are legally capable to contract
Free consent between the parties.
The object and consideration of the contract is legal and is not opposed to public policy.
The terms of the contract are certain.
Therefore, to form a valid contract there must be
An agreement
Based on the genuine consent of the parties,
Supported by a lawful consideration
Made for a lawful object and
Between the competent parties.
Offer and Acceptance
Firstly, there must be an offer and its acceptance. Such offer and acceptance should create legal obligation between parties. This should result in a moral duty on the person who promises or offers to do something.
Consent
consent means ‘knowledge and approval of the parties concerned.
A contract is made when one person makes an offer while another person accepts the offer. This acceptance of the offer should be made without any threat It means that a consent given should be free and genuine.
Capacity of the parties
The third essential elements of valid contract is the capacity of the parties to make a valid contract. Capacity or incapacity of a person could be decided only after calculating various factors.
Section 11 of the Indian Contract Act, 1872 elaborates on the issue by providing that a person who-
Therefore, law prohibits
Minors
Persons of unsound mind
Person who is otherwise disqualified like an alien enemy, insolvents, convicts etc from entering into any contract.
Consideration
Section 2(d) of the Indian contract 1872 defines consideration thus:
“when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for price”.
Types of Contracts:
On the Basis of the validity
1. Valid Contract
An agreement which fulfils all the essentials, prescribed by law on the basis of its creation For example S offers to sell his car for Rs.2, 00,000 to T. T agrees to buy it. It is a Valid Contract.
2. Void Contract (2(j))
A contract which ceases to be enforceable by law A contract which does not satisfy any of the essential elements of a valid contract is said to be Void. For example A contract between drug dealers to buy and sell drugs is a void contract.
3. Voidable Contract 2(i)
An agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contract. This is the result of coercion, undue influence, fraud and misrepresentation.
4. Illegal Contract
It is a contract which is forbidden by law. All illegal agreements are Void but all void agreements or contracts are not necessarily illegal. Contract that is immoral or opposed to public policy are illegal in nature.
Unlike illegal agreements there is no punishment to the parties to a void agreement.
Illegal agreements are void from the very beginning but sometimes valid contracts may subsequently become void.
5. Unenforceable Contract
Where a contract is unenforceable because of some technical defect i.e. absence in writing barred by imitation etc If the parties perform the contract it will be valid, but the court will not compel them if they do not
II. On the Basis of the Formation
1. Express Contract
A contract made by word spoken or written According to Section. 9, in so for as the proposal or acceptance of any promise is made in words, the promise is said to be express For example P says to Q ‘will you buy my bicycle for Rs.1,000?” Q says to P “Yes”.
2. Implied Contract
The implied contract is one, which is not expressly written but understood by the conduct of parties. Where the proposal or acceptance of any promise is made otherwise than in words, the promise is said to be implied. For example A gets into a public bus, there is an implied contract that he will pay the bus fare.
3. Quasi Contract
It is a contract created by law. Actually, there is no contract. It is based on the principle that “a person shall not be allowed to enrich himself unjustly at the expense of the other”. In other words it is an obligation of one party to another imposed by law independent of an agreement between the parties.
4. Tacit Contract
A contract is said to be tacit when it has to be inferred from the conduct of the parties. For example obtaining cash through automatic teller machine, sale by fall of hammer of an auction sale
III. On the Basis of Performance
1. Executed Contract
A contract in which both the parties have fulfilled their obligations under the contract. For example X contracts to buy a car from Y by paying cash, Y instantly delivers his car.
2. Executory Contract
A contract in which both the parties are yet to fulfil their obligations, it is said to be an executory contract. For example A agrees to buy B’s cycle by promising to pay cash on 15th June. B agrees to deliver the cycle on 20th June.
3. Unilateral Contract
A unilateral contract is a one sided contract in which only one party has performed his promise or obligation, the other party has to perform his promise or obligation.
For example X promises to pay Y a sum of Rs.10, 000 for the goods to be delivered by Y. X paid the money and Y is yet to deliver the goods.
4. Bilateral Contract
A contract in which both the parties commit to perform their respective promises is called a bilateral contract. For example R offers to sell his fiat car to S for Rs.10, 00,000 on acceptance of R’s offer by S, there is a promise by R to sell the car and there is a promise by S to purchase the car, there are two promises.
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