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Law of Contract

Law of Contract. Law of Contract. The law of contract is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them

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Law of Contract

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  1. Law of Contract

  2. Law of Contract The law of contract is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them In simple words, the purpose of law of contract is to ensure the parties who enter in to contract understand the terms of the contract

  3. OBJECT OF LAW OF CONTRACT The law of contract is intended to ensure that, ‘what a man has been led to expect shall come to pass, and that what has been promised to him shall be performed’ Sir William Anson

  4. ‘JUS IN REM’ and ‘JUS IN PERSONAM’ Law of contract creates, ‘jus in rem’ and ‘jus in personam’ • ‘jus in rem’ rights against the world at large • ‘jus in personam’ rights against particular persons

  5. Definition of Contract ‘a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law’Oxford Dictionary

  6. Consensus ad idem Meeting of the minds -when the two parties to a contract,both have the same understanding of the terms of the agreement. There would not be a meeting of the minds if Bill Buyer said, "I'll buy all your stock," and he meant shares in a corporation, and Sam Seller said, "I'll sell all my stock to you," and meant his cattle.

  7. Obligation • An agreement, to become a contract, must give rise to a legal obligation or duty. • An obligation is a legal tie which imposes upon a specific person or persons the necessity of doing or abstaining from doing a specific act or acts.

  8. An agreement which gives rise to social obligation is not a contract • An agreement is a wider term • An agreement may be a social agreement or a legal agreement • If A invites B to a dinner and B accepts the invitation, it is a social agreement.

  9. Contracts vs Agreements All contracts are agreements, but not all agreements are necessarily contracts

  10. Essentials of a Valid Contract • Offer and Acceptance • Intention to create legal relationship • Lawful consideration • Capacity of parties-Competency • Free and genuine consent • Lawful object • Agreement not declared void • Certainty and possibility of performance • Legal formalities

  11. Offer and Acceptance • At least two parties to an agreement • one party making the offer and the other accepting it • Terms of the offer must be definite • Acceptance must be absolute and unconditional • Acceptance must be as prescribed

  12. Intention to create legal relationship When two parties enter into an agreement, their intention must be to create legal relationship between them, otherwise there is no contract between them

  13. Lawful consideration • To be enforceable by law an agreement must be supported by consideration • ‘Consideration’ means advantage or benefit moving from one party to the other • Consideration need not be in cash or kind • It may be an act or abstinence • A promise to do something or getting nothing in return is usually not enforceable by law.

  14. Capacity of parties-Competency The parties to the agreement must be capable of entering in to a valid contract Every person is competent to contract if they; • are of the age of majority • are of sound mind • are not disqualified from contracting by any law to which they are subject

  15. Free and genuine consent There must be free and genuine consent of the parties to the agreement. There is absence of free consent if the agreement is induced by coercion, undue influence, fraud, misrepresentation

  16. Lawful object The object of the agreement must be lawful In other words, it means that the object must not be; • illegal • immoral • opposed to public policy

  17. ESSENTIALS OF A VALID CONTRACT: 7. Agreement not declared void: The agreement must not have been expressly declared void by law in force in the country. A void agreement is one which is not enforceable by law.

  18. ESSENTIALS OF A VALID CONTRACT: 8. Certainty and possibility of performance: The agreement must be certain and not vague or indefinite (Sec.29). If it is vague and if it is not possible to ascertain it’s meaning, it cannot be enforced. Ex. ‘A’ agrees to sell to ‘B’ “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void.

  19. ESSENTIALS OF A VALID CONTRACT: • 9.Legal formalities: A contract may be made by words spoken or written. As regards the legal effects, there is no difference between a contract in writing and a contract made by word of mouth. It is however in the interest of the parties that the contract should be in writing. In some other cases, a contract, besides being a written one, has to be registered.

  20. Classification of Contracts Contracts may be classified according to, 1.Validity 2.Formation, and 3.Performance VALIDITY FORMATION PERFORMANCE 1.Voidable Contract [2(i)] 1.Express Contract [9] 1.Executed Contract 2.Void Agreement [2(g)] 2.Implied Contract [9] 2.Executory Contract 3.Void Contract [2(j)] 3.Quasi Contract 3.Unilateral Contract 4.Illegal Agreement 4.Bilateral Contract 5.Unenforceable Contract

  21. 1.Classification according to ‘Validity’ • i] Voidable contract: An agreement which is enforceable by law at the option of one party but not at the option of the other or others is a voidable contract [Sec.2(i)]. The party whose consent is not free may either rescind (avoid or repudiate) the contract, if he so desires, or elect to be bound by it. A voidable contract continues to be valid till it is avoided by the party entitled to do so.

  22. Classification of Contract……… • Example of Voidable Contract: A promises to sell his car to B for Rs 2000. His consent is obtained by use of force.The contract is voidable at the option of A . • He may avoid the contract or elect to be bound by it.

  23. Classification of Contract……… • ii] Void Agreement: An agreement not enforceable by law is said to be void [Sec.2(g)]. • E.g., An agreement with a minor or an agreement without consideration.

  24. Cont’d….. • iii] Void Contract:A contract which ceases to be enforceable by law is a void contract. [2 (j)]. • E.g., A contract to import goods becomes void, when war breaks out between the countries.

  25. Cont’d….. • iv] Illegal Agreement: An illegal agreement is one which transgresses the public policy or which is criminal in nature or which is immoral. • E g.,An agreement to import prohibited goods. All illegal agreements are void but all void agreements are not necessarily illegal.

  26. Cont’d… • ………….Illegal Agreement: • An illegal agreement is not only void as between the parties but has this further effect that even the collateral transactions to it become tainted with illegality. A collateral transaction is one which is subsidiary, incidental or auxiliary to the principal or original contract.

  27. Cont’d…….. • v] Unenforceable Contract: • An unenforceable Contract is one which cannot be enforced in a Court of law because of some technical defect such as absence of writing or where the remedy has been barred by lapse of time. The contract may be carried out by the parties concerned; but in the event of breach or repudiation of such a contract, the aggrieved party will not be entitled to the legal remedies.

  28. 2.Classification according to ‘Formation’ • A contract may be (a) made in writing or by word of mouth, or (b) inferred from the conduct of the parties or circumstances of the cases.These are the modes of formation of contract. • On the basis of ‘Formation’ Contract can be classified as, (i) Express Contract, (ii) Implied Contract, & (iii) Quasi Contract.

  29. Cont’d……. (i) EXPRESS CONTRACT: If the terms and conditions of contracts are expressly agreed upon (whether words spoken or written) at the time of formation of contract, the contract is said to be ‘Express Contract ’. (ii) IMPLIED CONTRACT: One which is inferred from the acts or conduct of the parties or course of dealings between them. An implied contract is one which is not an express contract.

  30. Contracts ………classified. (iii)QUASI CONTRACT: Strictly speaking Quasi Contract is not a contract at all. A contract is intentionally entered in to by the parties. A quasi contract, on the other hand is created by law. It rests on the ground of equity that, “a person shall not be allowed to enrich himself unjustly at the expense of another”.

  31. III. Classification according to ‘Performance’ • (i) Executed Contract (ii) Executory Contract -Unilateral or One-sided Contract -Bilateral Contract

  32. ….. Classification according to ‘Performance’ (I) EXECUTED CONTRACT: ‘Executed’ means that which is done. An executed contract is one in which both the parties have performed their respective obligations. (ii) EXECUTORY CONTRACT: ‘Executory’ means that which remains to be carried in to effect. A contract may be partly executed and partly executory. • ONE-SIDED OR UNILATERAL CONTRACT Performance of only one party is outstanding. • BILATERAL CONTRACT. Performance of both the parties remains outstanding.

  33. CASE 1. Over a cup of tea in a restaurant, A invites B for a dinner at his house on a Sunday. B hires a taxi and reaches A’s house at the appointed time, but A fails to perform his promise. Can B recover any damage …???

  34. VERDICT OF CASE 1. No. [Balfour V. Balfour,1919] A husband promised o pay his wife a household allowance of 30 sterling pounds every month. Later the parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held, agreement such as these were outside the realm of contract altogether.

  35. CASE 2. (a) A engages B for a certain work and promises to pay such remuneration as shall be fixed by C. B does the work. (b) A and B promise to marry each other. (c) A takes a seat in public vehicle. (d) A invites B for a card party

  36. VERDICT OF CASE 2. (a) There is a contract between A and B and A is bound to pay the remuneration as shall be fixed by C. If C does not fix , or refuses to fix the remuneration, A is bound to pay a reasonable remuneration. (b) There is a contract between A and B (c) There is a contract between A and B (D) There is no contract

  37. CASE 3. A forced B to enter in to a contract at the point of pistol. What remedy is available to B. If he (B) does not want to be bound by the contract ..??

  38. VERDICT OF CASE 3. He (B) can repudiate the contract as his consent is not free.

  39. CASE 4. M mows L’s lawn without being asked by L to do so.L watches M do the work but does not attempt to stop him. Is ‘L’ bound to pay any charges to ‘M’?

  40. VERDICT OF CASE 4. Yes, L is bound to pay M a reasonable remuneration.

  41. CASE 5. C orally offered to pay A, an auto mechanic, Rs 50 for testing a used car which C was about to purchase from D. A agreed and tested the car. C paid A Rs 50 in cash for his services. Is the agreement between‘C’and‘A’, (a) express or implied,…..??? (b) executed or executory, …??? (c) Valid,void, voidable or unenforceable…???

  42. VERDICT OF CASE 5. The agreement is, (a) express, (b)executed, and (c) valid.

  43. CASE 6. A promises to pay B Rs.500, if he(B) beats C. B beats C, but A refuses to pay. Can B recover the amount.. ???

  44. VERDICT OF CASE 6. No as the agreement is illegal.

  45. CASE 7. Dlived as apaying boarderwith a family. He agreed with the members of the family to share prize money of a newspaper competition. The entry sent by D won a prize 750 sterling pounds. He refused to share the amount won. Can the members of the family recover their share…….???

  46. VERDICT OF CASE 7. Yes, ‘as there was mutuality in the agreement between the parties’ and the parties had intended to be bound.

  47. OFFER & ACCEPTANCE An offeris aproposal by one party to another to enter in to a legally binding agreement with him.

  48. Offer [Proposal] A person is said to have made a proposal, when, he,……. “signifies to anotherhis willingnessto do or to abstain from doing anything with a view to obtaining the assent of that other, to such act or abstinence” [Sec.2(a)]

  49. PROMISOR-PROMISEE The person making the offer is known as the, offeror, proposer or promisor, and the person to whom it is made is called the, offeree or proposee. When the offeree accepts the offer, he is called the acceptor or promisee [Sec.2(c)].

  50. How an offer is made E.g., An offer may be made by express words, spoken or written. This is known as Express offer. When A says to B, “will you purchase my house at Meerut for Rs.5,00,000” ?

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