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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,:
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 Agreement and

2) Legal Obligations i.e., a duty enforceable by law.


Kinds of contract

CONTRACT

From the point of From the point of From the point of


view of view of view of
Enforceability Mode of Creation Performance

Kinds of Contract from the point of view of Enforceability:

From the point of view of enforceability a contract is divided into following types:
1) Valid Contract
2) Void-able contract
3) Void contract
4) Unenforceable contract

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 contract is valid if it meets the following requirements:

• 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' 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.
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 perform 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 consideration, meaning each party must gain 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)

• Obligation of parties:

In Valid contract all the parties to the contract are legally responsible 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 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 binding
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 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 not 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 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 promises to do a certain thing within a 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)

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.

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.