Business law

Indian Contract Act

1872
Unit 2
Definition and nature of Law
 Introduction : A vital element impacting
business transaction and decision in business
regulatory framework. Different laws and
regulation govern specific aspects of many
vital decisions taken by business enterprises.
 Law denotes rules and principles established
by authority whether in the form of legislation
or self imposed customs applicable to people.
These are enforced by state to regulate
behavior of individuals and groups to secure
justice, peaceful living and social order
Definitions of Law
 “A rules of conduct imposed and enforced
by the sovereign “ ----- Austin
 “ Law is the body of principle recognized

and applied by the state in the

administration of justice”. ------ Salmond
 “ Rule of external action enforced by

sovereign political authority” --- Holland

Meaning of Law
 ‘Law’ operates to regulate the action of
person with respect to one another and
entire group or society and the state.

 the terms ‘business law’ , ‘commercial

law’ , ‘mercantile law’ are synonymous.
Law of Contract
 Law of contract is the most important and basic
part of mercantile law. It is not only the merchant
or trader but every person who lives in the
organized society, consciously or unconsciously
enters into contracts from sunrise to sunset.
 The law of contract is mainly concerned with
three questions:
 1. Is there an agreement?
 2. Can the parties to such agreement enforce it in
a court of law
 3. How they can enforce it?
 The object of law of contract is to ensure
that the right and obligations created by
contract are honored. That the expectations
created by the parties to an agreement are
fulfilled and that legal remedies are
available to an aggrieved party against the
party failing to perform his part of the
agreement.
Definition
 “ The law of contract is indented to ensure that a man has
been led to expect shall come to pass, that what has been
promised shall be performed” ------ Anson
 Nature of Law of Contract “ The law of contract is that
branch of law which determined the circumstances in which
a promise or an agreement shall be legally binding on the
person making it”
 Unlike other branches of law, law of contract does not state
a number of rights and duties but lays down certain limiting
principles within the framework of which the parties to an
agreement may lay down their own term and conditions.
These will be upheld by the court as long as they do not
infringe upon any provision of the law. It is concerned with
“right in personam as distinguished from rights in rem’.
History of Indian contract Act 1872

 The Law relating to contracts in India is contained in the

India Contract act 1872. the act came into force with effect
from September 1, 1872. It is applicable to the whole of
India except the state of Jammu and Kashmir. The Act as
enacted originally had 266 sections divided into following
group:
 General principles of Law of contract sections 1 to 75
 Contracts relating to sale of Goods sections 76 to 124
 Special kind of Contracts(for example indemnity,
guarantee, bailment and pledge) section 125 to 238
 Contracts relating to partnership section 239 to 266
These section were repealed from the Contract Act
1872 and two new Acts were enacted for the
same:
1. Sale of goods Act 1930

2. Partnership Act 1932

The Indian Contract Act in its present form may be

divided into two parts. The first part(section 1 to
75) deals with the general principles of the law
of contract which apply to all types of contract
irrespective of their nature. The second part
(section 124 to 238) deals with special types of
contracts namely indemnity and Guarantee,
Bailment and Pledge, Agency etc.
Definition of Contract
 “contract is an agreement creating and defining obligations
between the parties”.---Samond
 “An agreement between two or more persons which is
intended to be enforceable at law and is constituted by the
acceptance by one party of an offer made to him by the
other party to do or to abstain from doing some act”----
Halsbury
 “A legally binding agreement made between two or more
persons by which right are acquired by one or more to acts
or forbearances on the part of other or others”---- William
Anson
 Section 2 (h) of the contract Act defines a Contract as “an
agreement enforceable by law”.

 Sir Fredrick Pollock says,

 “every agreement and promise enforceable at law is a contract”.

Thus, there are two essential elements of a contract:

1. An Agreement
2. Its enforceability at law.
1. Agreement: An agreement is defined in section 2(e) as “ every
promise or every set of promises forming the consideration for each
other”
 Promise is defined in section 2(b) as, “a proposal when accepted

becomes a promise”.
 An agreement involves proposal or offer by one party and

acceptance of the same by the other party. It requires existence of

two or more person i.e, plurality of persons because a person cannot
enter into an agreement with himself.
 Agreement= offer+ Acceptance
 Types of agreement
1. Enforceable at Law. An agreement to become a contract
much give rise to a legal obligation. The common acceptance
formed and communicated between the two parties must
create legal relations and not merely the relation which are
purely social or domestic in nature
2. Unenforceable at law: All those agreement are said to be
un-enforceable in which an aggrieved party can not go to law
count and that is left at the mercy of the parties only. It is
simply a gentleman’s promise which may or may not be
fulfilled by the promise. All these agreement remain only an
agreement between the parties and they never become a
contract in the eyes of law, because they are merely social or
domestic arrangements.

Example: The Leading case on this point is : Balfour v/s

Balfour(1919)
Nature of Law of contract

Law of contract create ‘rights in personam’ as

distinguished from rights in rem. “Right in
rem’ means a right against or in respect of
a thing. This right is available against the
whole world. ‘Right in personam’ means a
right against or in respect of a particular
person/persons.
Essential Element of a Valid
Contract
 Offer and Acceptance
 Intention to create legal relationship
 Lawful consideration
 Capacity of parties
 Free consent
 Lawful object
 Certainty of meaning
 Possibility of Performance
 Not declared to be void or illegal
 Legal Formalities
Classification of Contracts
 1. Validity or Enforceability
 2. Formation
 3. Performance

 1. Validity or Enforceability
a. Valid contract
b. Void agreement
c. Voidable contracts
d. Unenforceable contracts
e. Illegal agreement

 Void Contract and Void agreement

A void contract should be distinguished from void
agreement . An agreement not enforceable at law is a void
agreement.
Distinction between voidable contract and void agreement
a. Avoid agreement has from the very beginning on legal effects.
It is enforceable at law
b. The defect in the case of voidable contract is curable and may
be condoned. But a void agreement is void and its defects are
incurable
c. In the case of a void agreement even a third party cannot
acquire any right from person claiming under such contract
while in the case of a voidable contract, a third party can
acquire a valid title from a person claiming under such a
contract.
d. Since a void agreement is enforceable at law there does not
arise any question of compensation on account of the non-
performance of the agreement. But in case of a voidable
contract, a person is entitled to compensation for loss or
damage suffered by him on account of the non-performance of
the contract
e. A voidable contract does not affect the collateral transition.
But where the agreement is void on account of illegality of the
object, the collateral transaction will also become void
 Distinction between illegal and void
agreement
1. Void agreement are broader on scope. Such
agreement may be void for reason other than
illegality. All illegal agreement are void
2. Parties to a void agreement may not punished
but parties to an illegal agreement may be
liable for punishment.
3. Transaction collateral to void agreement are
enforceable by law. However, transaction
collateral to illegal agreement are also tainted
with illegality and hence become void
 Contract classified according to formation
1. Express contract
2. Implied contract
3. Constructive or quasi- contract
4. E-com contracts/ contracts over interest
5. Standard form contracts.

 Classification on the basis of performance

1. Execute contract
2. Executor contract
a. Unilateral contracts
b. Bilateral contracts