Contract The law of contract is the foundation upon which the superstructure of modern business is built. It is common knowledge that in business transactions quiet often promises are made at one time and the performance follows later. in such a situation if either of the parties were 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,: p romises,: their formation, their performance and their enforceability. Explaining the object of the law of contract Sir William Anson observes:
“The law of contract is intended to ensure that what a man has been led to expect shall come to pass; that what has been promised to him shall be performed” The law of contract is applicable not only to business community, but also to others. Everyone of enters into a number of contracts almost everyday, and most of the times we do so without even realizing what we are doing from the point of law. a person seldom realizes that when he entrusts his scooter to the mechanics for repairs, he is entering into a contract of bailment, or when he buys a chocolate, he is entering into the contract of the sales of good.(Mercantile Law by M.C Kuchhal)
Definition of Contract: Literally: The world contract comes from a Latin word “Contractus” Contractus means consent, agreement or to enter into an agreement with a particular subject.
According to section 2(h) of the Contract Act: “An agreement enforceable by law is a contract” From the above definition, we find that a contract essentially consists of two elements: 1) An Agre Agreem emen entt and and 2) Legal Obligation Obligationss i.e., i.e., a duty duty enforceable enforceable by law. law.
Kinds of contract
CONTRACT
From the point of view of Enforceability
From the point of view of Mode of Creation
From the point of view of Performance
Kinds of Contract from the point of view of Enforceability: Enforceability : From the point of view of enforceability a con tract is divided into following types:
1) Vali Valid d Con Contr trac act t
2) Void-able contract
3) Void Void cont contra ract ct 4) Unenfo Unenforce rceabl ablee contra contract ct
Valid contract According to section (10);
“ All agreements are contracts if they are made by the 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.” Valid contract = agreement + enforceability
A contract is basically an agreement to do or not to do something. Saying a contract is valid means it's legally binding and enforceable. The point of a contract is to clearly outline an agreement so the "object" is accomplished while preventing disputes or litigation.
Requirements of a Valid Contract: According to above definition d efinition contract is valid if it meets the following requirements:
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Obligation of Parties .
Anyone can enter into a contract, except minors, certain felons and people of unsound mind. The contract must identify who the parties are; usually names are sufficient, but sometimes addresses or titles may be used. In sales agreements, for example, in addition to names, "seller" and "buyer" are sometimes used to further describe the parties. •
Free Consent.
A valid contract also requires the parties' p arties' consent, which must be free, mutual and communicated to each other. Consent is not free when obtained through duress, menace, fraud, undue influence or mistakes. Obviously, a person who signs a contract because there's a gun pointed at his head hasn't consented to the agreement and can rescind it. All cases, of course, are not that clear-cut, and the law must applied to each individual case. Also, consent isn't mutual unless the parties agree on the same thing in the same sense.
This is often referred to as a "meeting of the minds." Generally, there's an offer and an acceptance communicated by the parties.
Lawful Object.
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The thing being agreed to is also known as the object or subject. It must be lawful, possible and definite. A court, for example, will not enforce a contract to p erform an illegal act. Drug deals often go wrong, but a person who pays for drugs that aren't delivered can't seek the help of a court in getting the money back. •
Lawful Consideration:
All contracts require require considerat consideration, ion, meaning each party must gain something. something. It may be something that is or isn't done or given. When a party agrees to do something (paint your house) or to not do something (not sell their house to anyone else for 30 days) they must gain something. Generally, if Ali says that he I'll paint my house, and I haven't promised him anything in return, I can't sue him for not showing up because he hasn’t received any consideration. (www.entrepreneur.com )
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Obligation of parties:
In Valid contract all the parties to the contract are legally responsibl e for the performance of a contract. There must be legal relationship between the parties. If one of the parties breaks the contract, the other party can take action against guilty party. The contract can be enforced through the court also. (Business law by Khalid Mehmood Cheema) •
Not expressly declared void:
The agreement must not have been declared void by the contract Act. There are certain agreements which are declared void an agreement in restraint of marriage, agreement in restrain of trade. ILLUSTRATION:
A offer to sell his car to B for Rs.2 lac, B accepts the offer. if this agreement fulfils all the essential of a contract, it is a valid contract. If A fails to deliver the car, B can sue him for delivery and if B fails to make the payment, A can sue him h im for recovery of price. Parker v. Clarke (1960) (introduction to business law by P W Redmond) C persuaded her niece, P, to sell her own house and come and live in c`s on condition that C would leave her house to P by will. After sometime ejected p from the house and refused to leave it to her by will. p claim damages for the breach of contract.
Held: although its a family agreement, there was consideration for c`s promise, and evidence of intention to create legal relations .p was therefore entitled to damages.
Simpkins v. pays (1955) (introduction to business law by P W Redmond) Three friends joined to enter a newspaper competition and agreed to share any winnings. Held: they intended to create legal relations and their agreement was therefore a b inding contract.
Void-able Contracts: According to 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 the other or others, is a voidable contract. Void-able contract=Agreement + enforceability at the option of aggrieved party
A contract is voidable when one of the parties to the contract c ontract has not exercised his free consent. One of the essential elements of a formation of a contract for example, free consent, is absent. All voidable contracts are those which are induced by coercion fraud or misrepresentation. The person whose consent is n ot freely given may avoid a contract. It therefore continues to be valid till the party whose consent is caused by coercion, undue influence, fraud or misrepresentation chooses to avoid the contract within a reasonable time. Contract then is not binding on the other party. ILLUSTRATION:
A threatens to shoot B if he does not sell his new scooter to A for Rs.4000.B agrees. The contract has been brought about by coercion and is voidable at the option of B.
Other Circumstances under Which A Contract Becomes Void-able : (Mercantile Law by M.C Kuchhal)
The Contract Act has laid down d own certain other situations also under which a contract becomes voidable.For Example, (a) When a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise, then the contract becomes voidable at the option of the party so prevented.(Section 53)
ILLUSTRATION:
A contracts with B that I shall white wash B`s house for Rs.100.A is ready and willing to execute the work accordingly, but B prevents him from doing so. the contract becomes voidable at the option of B. (b) When a party to the contract contract promises to do a certain certain thing within a specified specified time, but fails to do it, then the contract becomes voidable at the option of the promise. if the intention of the parties was that time should be of the essence of the contract.(Section 55) ILLUSTRATION:
X agrees to sell and deliver 10 bags of wheat to Y for Rs.2500 within 1 week. But X does not supply wheat within the specified time. The contract becomes voidable at the option of Y.
Consequences of Rescission of Void-able Contracts: Section (64) lays down the rights and obligations of the parties to a voidable contract after it is rescinded. the section says that when a person at whose option a contract is voidable rescinds it, the other party thereto need not to perform any promise therein contained in which he is a promisor.if the party rescinding a voidable contract has received any benefit from another party to such contract, he must restore such benefit so far as may be, to the person from whom it was received. For Example, when a contract for the sale of a house is avoided on the ground of undue influence, any money received on the account of price must be refunded.
Case laws: Shireen Mal vs. John J.Taylor) ( Shireen
Where a man and a woman went through a ceremony of marriage without any intention on the part of the husband to regard it as a real marriage, it was held that the consent of the wife was obtained by fraud and that the marriage was mere pretence. p retence.
Lancashire loan Ltd vs. black (1934) (introduction to business law by P W Redmond) A mother coerced her daughter into making a money-lending contract with X, a moneylender, who knew of the mother’s action. Held: the contract was Void-able by the daughter.
