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NATURE OF CONTRACT
Presented by – Akhilesh ojha
LAW OF CONTRACT
• Definition of Contract -: a contract is an agreement made between two or more
parties which the law will enforce. Sec.2 (h)
• 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.
• The law of contract also introduces definiteness in business transaction.
• According to Sir William anson the law of contract is in tended 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.
AGREEMENT AND ITS
• If we analyse the definition of contract we find that a contract essentially consists of
two elements .
2-: Its enforceability by law.
• Agreement = offer + acceptance.
• All agreements are not contracts but all contracts are agreement.
• It may be social, religious or legal -:
• A social agreement like an agreement ,to go to a picnic or a movie is not
enforceable in a court of law.
• Similarly, religious agreement is also not enforceable because the parties entering
into such agreement do not intend to go to a court in case the agreement is not
• In a business agreement or commercial agreement intention to create a legal
obligation is always presumed.
• For ex-: A agrees to sell his Fiat car to B for Rs. 20000.It is an agreement which is
enforceable at law. If A does not sell the car, B can file a suit to recover the car or
damages. Similarly, if B does not purchase the car, A can file a suit against B to
compel him to purchase the car or pay damages.
• LAW OF CONTRACT IS NOT THE WHOLE LAW OF OBLIGATION -:
• The law of contract is essentially the law of obligation because an agreement
creating legal obligation is a contract.
• However ,the law of contract is not the whole law of obligation because obligation
do not necessarily arise out of an agreement.
• It may arise out of number of sources, for ex-: torts or civil wrongs ,quasi con tracts,
implied contracts, judicial decisions, trust, husband and wife relationship etc.
• LAW OF CONTRACT CREATES JUS IN PERSONAM AS DISTINGUISHED FROM JUS IN REM -
• Jus in rem means a right against or in respect of a thing.
• Jus in personam means a right against or in respect of a specific person.
• For ex- a owes a certain sum of money to B. B has a right to recover this amount from
A. The right can be exercised only by B and by none else against A. The right of B is
jus in personam.
ESSENTIALS OF VALID CONTRACT
• OFFER AND ACCEPTANNCE -: An agreement involves two parties one making the
offer and the other accepting it. Offer must be definite and it should be accepted
• INTENTION TO CREATE LEGAL RELATIONSHIP -: An agreement should entered in to
with an intention to create a legal relationship or obligation. For ex- A invites his
friend B to see a movie together. If B does not reach the picture hall, A can not go
to a court of law to recover his loss i.e, cost of ticket.
• LAWFUL CONSIDERATION -: An agreement must be supported by consideration. It
means something in return which is enforceable at law. In simple words
consideration is the price for promise. A promise without consideration is not
enforceable at law.
• FREE CONSENT -: For a valid agreement, parties must give their consent freely.
Consent means that two person have agreed upon the same thing in the same
sense. For ex-: A has two cars a maruti and a Fiat .He agrees to sell one of his car to
B .If A is thinking to sell Fiat car and B is thinking to buy a maruti car, then A and B do
not agree on the same thing in same sense.
• LAWFUL OBJECT -: An agreement must be made for a lawful purpose. The object of
an agreement should not be –
• Opposite to public policy.
CLASSIFICATION OF CONTRACT
• ON THE BASIS OF CREATION OR FORMATION -:
1-: EXPRESS CONTRACT-: An express contract may be created orally ,i.e by words
spoken or written . When one party makes the offer by words spoken or written and
the other party accept the same accordingly there is an express contract created.
2-: IMPLIED CONTRACT-: An implied contract is created by the conduct or acts of
the parties and not by words spoken or written.
3-: QUASI CONTRACT-: Indian contract act has named such contract as certain
relationship resembling those created by contracts. Such contracts are not
created expressly or impliedly by the parties but are created by law on the
equitable principles that a person should not allow to become rich at the expense
of the other. For ex-: A,a trader leaves certain goods by mistakes at B’s house. B
must either return the goods or pay the price.
• ON THE BASIS OF VALIDITY -:
1-: VALID CONTRACT -: An agreement enforceable at a court of law is called a
2-: VOID AGREEMENT –: An agreement which can not be enforced at a court of
law is void agreement. Sec 2 (g)
3-:VOID CONTRACT -: Originally an agreement may have been enforceable when
it was made. But subsequently due to impossibility or illegality, it may become