Unit II law of contract

Meaning and definition

• A contract generally is an agreement
• When two persons (parties) agreed to do or forbid some thing there
is contract.
• All business transactions are contract.
• When parties are bound to pay some thing against any good or
service there one party gets financial benefit and other party gets
good or service benefit this giving and getting work is of doing
contract.
• Agreeing of perform a work in business is contract.
definitions
• According to section 2(h) of the Indian contract Act 1872 “an agreement
enforceable by law is a contract.” in other words an agreement which can
be enforced in a court of law is known as a contract.
• According to section 504 of Nepal country civil code “when there is an
agreement between two or more then two persons to do or not to do
some thing which is enforceable by law there is a contract.”
• A contract is an agreement creating and defining obligations between the
parties – Salmond
• A contract is an agreement enforceable all laws made between two or
more persons by which rights are acquired by one or more to act or
forbearances on the parts of others or others.-William Anson
• All contracts are agreement but all agreements may not contract.
• An agreement to qualify a valid contract must fulfil some legal criteria
• Agreement which is not enforceable by law is not valid contract
• An agreement which is impossible is not valid contract
• An agreement which is illegal, immoral is not valid contract.
Essential elements of valid contract.
• Parties
• Offer and acceptance & (rules of offer and acceptance )
• Intention to create legal relation
• Lawful object
• Lawful consideration(benefit) some thing for some thing is consideration(& rules)
• Possibility of performance
• Certainty of terms
• Free consent (without coercion, undue influence, mistake, and cheating)
• Competent parties ( who can understand the consequence of their decision)
• Not declared void (not against any current law)
• Legal formalities
 Classification of contract
A. Contract on the Basis of Validity
• Valid Contract: An agreement including all the essential elements i.e. offer,
acceptance etc. is called a valid contract. This kind of contract is enforceable by
law.
• Voidable Contract: A contract without free consent is generally known as a
voidable contract, which can be avoided by the aggrieved party.
• Void Contract: An agreement that is valid at the time of formation but becomes
void or ceases to be enforceable subsequently is known as a void contract.
Example: a contract of two nationals to export/import goods is a valid contract.
The outbreak of war between the countries of two parties alters the contract into
void.
• Illegal Contract: An illegal agreement is one which violates or defeats some rule
of basic public policy or is criminal in nature ow which is immoral.
Example: A receives NPR 100,000 from B to kill C. Here killing is an illegal act.
Therefore, the agreement to support killing is invalid or illegal.
B. On the basis of formation of contracts:
• Express Contract: If the terms of a contract are expressly agreed upon, whether by words
written or spoken, at the time of the formation of the contract is said to be an express
contract.
Example: A offers to B in words, if you deliver your car to me for 5 days, I will pay Rs, 5,000. B,
in words, says I agreed. The contract between A and B is an express contract where the
contract is made by express words from both sides, i.e., offeror and offeree.
• Implied Contract: An implied contract is one that is inferred from the acts or conducts of
the parties or the course of dealings between them.
Example: If A a tradesman, delivers a bag of rice by mistake to B’s house instead of at C’s
house, there is an obligation of B either to return the bag od rice to A or to pay its value even
though there is no express agreement between them.
• Quasi-Contract: Under certain situation, a person may receive a benefit from other which
the law considers he should pay to the other person even though there is no contract
between the parties.
Example: A, a tradesman, leaves certain goods a B’s house by mistake. B treats them as his
own. Here, B is obliged to pay for them.
The difference between quasi-contracts and implied contract is that, “quasi-contracts are
unwritten obligations imposed by law whereas implied contracts are inwritten agreements
established by the parties’ conduct and relationships.”
C. On the basis of existing duty under a contract
• Unilateral Contract: Unilateral contracts are those where only one party is
under obligation to fulfil his promise at the time of formation of the
contract, the other party has fulfilled his obligation at the time of the
contract or before the contract comes into existence.
Example: A while abroad, heard the news of an accident of his son B, and
was saved by C. After 6 months A returns home and promises he will pay Rs,
100,000 to C for his help to save his son’s life. In such a contract only one
party is under obligation to perform at the time of formation of the contract
C has already performed his obligation before the contract existed.
• Bilateral Contract: A bilateral contract is one in which the obligation on the
part of both the parties to the contract are outstanding at the time of
formation of the contract.
Example: A promises to make furniture to B within 7 days and B also agree to
pay the price of such furniture after the delivery is made to him. In such a
case, both the parties A and B, at the time of entering into the contract, are
under obligations to perform their respective promises. is
D. On the basis of performance of contracts
• Executed Contract: An executed contract is one in which both parties have
performed their respective obligations under a contract.
Example: A agrees to supply 100 bags of rice to B for Rs. 1 lakh. When A
supplies the 100 bags of rice and B pays the price, the contract is said to be
executed.
• Executory Contract: If both of the parties are under obligation to perform
their duties under the contract, it is known as an executory contract.
Example: A promises to appoint B as a manager of the company with the
effect from the year and B accepts the appointment. This is an executory
contract with the inclusion of incomplete work.
E. On the basis of future contingency of contracts
• Simple Contract: In a simple contract, the promisor binds himself to
perform the contract in any event without conditions. It does not depend
on something else. His obligation to perform the contract begins from the
beginning.
Example: If A promises to paint a picture for B for Rs, 1,000 A is bound to
paint the picture from the beginning.
• Contingent Contract: Contingent means dependent on something else. A
contingent contract is a contract that depends upon the happening or non-
happening of some future uncertain event.
Example: A enters into an agreement with B to pay Rs. 5 lakhs if B’s house is
burnt. In such case, his obligation arises if B’s house is destroyed by fire or
burnt. Until the house is burnt, there is no obligation arises to pay such
monies by A to B.
The Civil Code, 2074: Major Provisions of the
civil Code
1. Definitions: The Civil Code, of 2074 has defined the different terms, e.g.,
contract, offer, acceptance and other specific contracts. Section 504 (1), (2)
2. Contractual Capacity: Section 506 of the Civil Code, 2074 deals with the
contractual capacity of the contracting parties of minors, persons of
unsound mind and others disqualified by law.
3. Autonomous of the parties: Section 507 of the code declares that the
contracting parties have the right to choose the subject matter of the
contract, and to fix the nature and amount of consideration.
4. Offer and acceptance: Sections 508 to 512 of the act deal with the offer
and acceptance of their communication, revocation, and the different
consideration. considerations
5. Contingent Contract: Section 513 provides the various provisions of the
contingent contract.
6. Void and Voidable Contract: Section 517 has given a list of contracts that
are declared by law as void. Similarly, section 518 has stated that different
cases where a contract becomes a voidable contract.
7. Specific Contracts: Chapters 6 to 14 are related to specific contracts like
indemnity and guarantee, Bailment and pledge, sale of goods, agency of
carriage of goods, lease, hire purchase contract of labour etc.
8. Performance of a contract: Under sections 521 to 534 the code has
provided the different provisions relating to the way, manner of performance,
time, date, place and person bound to perform a contract is mention.
9. Breach of contract and remedies: Chapter 5, sections 535 to 544 the code is
related to the breach of a contract and different remedies available to the
injured party in case of breach and non-performance.
10. Limitations: Each chapter of the code has provided the provision of the
limitation which determines the time within which an injured party must file a
case before the court.