nature of contract

1. NATURE OF CONTRACT

2. MEANING OF LAW OF CONTRACT
The law of contract is that branch which determines
the circumstances in which promises made by the
parties to a contract shall be legally binding on
them.

3. JUS IN REM
Jus in rem means “a right against or in respect of a
thing”. It is available against the world at large.
Eg: X is the owner of a plot of land. He has a right to
have quiet possession and enjoyment of that land
against every member of the public. Similarly every
member of the public is under an obliagtion not to
disturb X’s possession or enjoyment.

4. JUS IN PERSONAM
Jus in personam “means a right against or in
respect of a specific person”. It is available only
against particular persons.
Eg: A owes a certain sum of money to B. B has a
right to recover this amount from A. this right can be
exercised only by B and by none else against A. This
right of B is a Jus in personam.

5. DEFINITION OF CONTRACT
According to Salmond, “A contract is an agreement,
creating & defining the obligation between parties.”
According to section 2(h) of Indian Contract Act, “An
agreement enforceable by law is a contract.”
We can say that,
(Contract = Agreement + Enforceability at law)

6. DEFINITION OF AGREEMENT
According to section 2(e) of Indian Contract Act,
“Every promise or set of promises, forming the
consideration for each other.”
Agreement = Offer + Acceptance

7. DEFINITION OF PROMISE
According to section 2(b) of Indian Contract Act,
“A promise is when a person to whom the proposal
is made, signifies his essence thereto, the proposal
is said to be accepted. A proposal when accepted
becomes a promise.”

8. CONSENSUS AD IDEM
This means that the parties to the agreement must
have agreed about the subject-matter of the
agreement in the same sense and the same time.
Eg: A, who owns two horses named Raj and Hans,
is selling horse Raj to B. B thinks he is purchasing
horse Hans. There is no consensus ad idem.

9. MEANING OF OBLIGATION
It is defined as a legal tie which imposes upon a
definite person or persons the necessity of doing or
abstaining from doing a definite act or acts. It may
relate to social or legal matters.
 Social Obligation: Not a Contract
 Legal Obligation: Is a Contract

10. EXAMPLE
1. A agrees to sell his bike to B for Rs. 30,000.
OBLIGATION ON A: To deliver the bike
OBLIGATION ON B: To make the payment
2. A promises to sell his bike to B for Rs. 30,000
received from him.
OBLIGATION ON A: To deliver the bike

11. TYPES OF AGREEMENT
1. SOCIAL AGREEMENT – not enforceable in court
of law. If A invites B for dinner and B accepts it. OR
A father promises to pay 100 Rs. Per month to his
son as pocket allowance.
2. LEGAL AGREEMENT – enforceable in court of
law

12. “All Agreements are not Contracts But
All Contracts are Agreements”
It is not necessary that all agreements will become
a contract because there are some rules,
Regulations & certain formalities for an agreement
to convert into a contract. There are some essential
elements which must exist in an agreement to form
a valid contract. These are:

13. ESSENTIAL ELEMENTS OF A VALID
CONTRACT u/s 10
1. OFFER & ACCEPTANCE
2. INTENTION TO CREATE A LEGAL RELATIONSHIP
3. LAWFUL CONSIDERATION
4. CAPACITY OF PARTIES
5. FREE CONSENT
6. LAWFUL OBJECT
7. CERTAINTY AND POSSIBILITY OF PERFORMANCE
8. NOT DECLARED TO BE VOID OR ILLEGAL
9. LEGAL FORMALITIES

14. 1. OFFER & ACCEPTANCE
 Two parties – one making other accepting
 Terms of offer definite
 Acceptance absolute and unconditional

15. 2. INTENTION TO CREATE A LEGAL
RELATIONSHIP
 Legal relationship
 Social & Domestic nature agreements no not create
legal relationship

16. 3. LAWFUL CONSIDERATION
 Both the parties give something in return
 May be in cash or kind
 May be past, present or future
 Must be real &lawful
 No consideration no contract

17. 4. CAPACITY OF PARTIES
Following persons are incompetent to contract:
a) Minors
b) Persons of unsound mind
c) Persons disqualified by any law

18. 5. FREE CONSENT
Consent is said to be free when it is not caused by:
a) Coercion
b) Undue Influence
c) Fraud
d) Misrepresentation
e) Mistake

19. 6. LAWFUL OBJECT
 It means the object must not be:
a. Illegal
b. Immoral
c. Opposed to public policy
 If object unlawful – not enforceable by law

20. 7. CERTAINTY AND POSSIBILITY OF
PERFORMANCE
 Agreements must be certain
 Agreements must not be vague
 Agreements must not be indefinite
 Agreements must not be impossible
Such agreements cannot be enforced

21. 8. NOT DECLARED TO BE VOID OR
ILLEGAL
 Not declared void by the law
 Not declared void by the contract act
 Not enforceable by law
 Is void ab initio

22. 9. LEGAL FORMALITIES SHOULD BE
FULFILLED
 May be written or oral
 Preferred to be in writing
 Document to be stamped(if required)
 Document to be registered(if required)
In absence of legal formalities – void contract

23. KINDS/TYPES OF CONTRACT
Contracts may be classified as follows:-
I. ON THE BASIS OF CREATION/FORMATION
1. Express Contracts u/s 9 : The Contracts enter
into between the parties by words whether oral or
written are called express contracts.
Eg. A writes to C “I promise to sell my car for
Rs. 90,000.”

24. 2. Implied Contracts u/s 9
It is the contract, where the Proposal or Acceptance
is made otherwise than by words.
Eg:
i. Gets into a public bus
ii. Takes a cup of tea in a restaurant
iii. Coolie lift’s B’s luggage to be carried out of the
railway station

25. 3. Quasi Contract/Constructive u/s 68 to 72
It is a contract in which there is no intention
on either side to make a contract, but law imposes
the contract.
Eg. T, a trader, leaves good’s at B’s house by
mistake. B uses the goods. B is bound to pay for
the goods.

26. 4. Contracts over Internet/e. com Contracts
These contracts are entered into between the two
parties using internet.

27. II. ON THE BASIS OF EXECUTION
1. Executed Contract : An executed contract is one
where both the parties have completed their
obligations.
Eg. A agrees to make a painting of B for Rs. 1,000.
When A delivers the painting & B pays the price,
contract is said to be executed.

28. 2. Executory Contract
Where the contract is still to be performed by party
(s) either wholly or partly or have yet to perform
their obligations
Eg. In above example: If A has yet to make a
painting & B has yet to pay.

29. Partly Executed/Partly Executory
eg. If A has made the painting but B has not yet
paid
 contract is executed as to A &
 executory as to B

30. III. ON THE BASIS OF VALIDITY OR
ENFORCEABILITY
1. Valid Contract : Any agreement enforceable by
law is a valid contract.
2. Void Contract :An agreement which was legally
enforceable by law entered into but which has
become void due to some circumstances, is a void
contract.

31. 3. Voidable Contract: An agreement which is enforceable
at law with the option of one of the parties but not at the
option of other parties is voidable contract.
4. Unenforceable Contract: An unenforceable contract is
valid otherwise except some technical defect or non
observeness of law or any other formality required by
special provision of law.

32. 5. Illegal Contract or Unlawful Contract: A contract
which is either prohibited by law or otherwise
against the policy of law is an illegal contract. It is
void-ab-initio.