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A) Why do we need to study contract law.

The basic purpose of contract law is to provide a framework within which individuals can freely contract and the contract can legally bind the contracting parties by the creation of laws which are applicable only to the very individuals that create the contract and it is subsequently legally binding laws.

B) what is contract.

Definition, Section 2(h) of the Indian Contract Act, 1872 defines contract as “An agreement enforceable by law is a contract”. Thus, formation of a contract there must be an agreement and the agreement should be enforceable by law.

C) Scope of Contract Law.

  • The scope of contract law varies from country to country and from legal system to legal system depending upon the type of obligations they govern.
  • A contractual obligation implies the existence of an ‘Obligor’ the person who is legally under the obligation and the ‘Obligee’ for whose benefit the obligation exists. This feature of contract distinguishes contract law from criminal law obligations.
  • There are numerous aspects of commercial law and sometimes it is difficult to define all areas. Typically, commercial law practice involves human research as it pertains to but not limited to contracts. The sale of goods, taxation, insurance and hiring. The scope of the contract defines all aspects of the document.
  • Contracts have different forms and the amount of money involved ranges from small to large sums, some contracts last for years while others have a short time frame. The content found in the contracts also varies depending upon their purpose. In addition, some are discrete while others affect many people. Contracts also have specialisation.
  • Membership to a club.
  • Domestic or marriage contracts.
  • Executed fully performed contracts.

D) Essentials of a Valid Contract.

  • Proper offer and proper acceptance with intention to create legal relationship.
  • Lawful consideration: consideration must not be unlawful, immoral or opposed to the public policy.
  • Capacity: the parties to a contract must have capacity “legal ability” to make valid contract.
    Section 11 of The Indian Contract Act, specify that every person is competent to contract provided.
    1. Is of the age of majority according to the law which he is subject, and
    2. Who is of sound mind and
    3. Is not disqualified from contracting by any law to which he is subject.
  • Free consent: consent of the parties must be genuine consent means agreed upon same thing in the same sense ie: there should be consensus-ad-idem. A consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.
  • Lawful object: the object of agreement should be lawful and legal. Two persons cannot enter into an agreement to do a criminal act. Consideration or object of an agreement is unlawful if it.
    1. is forbidden by law, or
    2. Is of such nature that if permitted would defeat the provisions of any law, or
    3. Is fraudulent, or
    4. Involves or implies, injury to person or property of another, or
    5. Court regards it as immoral or opposed to by public policy.
  • Certain: the terms of the agreement are certain or are capable of being made certain.
    Example: A agreed to pay Rs.1 lakh to B for ultra modern decoration of his drawing room. The agreement is void because the meaning of the term Ultra Modern is not certain.

E) Agreement, Contract and Offer.

Agreement under Section 2(e) of The Indian Contract Act is defined as “every promise and every set of promises forming the consideration for each other is an agreement” and a promise is defined as an accepted proposal. All agreements are contracts if they are made by the free consent of parties, competent to contract for a lawful consideration and with a lawful object and are not hereby expressly declared to be void under Section 10.
An agreement becomes a contract when:

  • There is some consideration.
  • The parties are competent to contract.
  • Their consent is free.
  • Their object is lawful.

F) promise.

  • The Act in its Section 2(b) defines the term Promise here as “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise”
  • In other words, an agreement is an accepted promise, accepted by all the parties involved in the agreement or affected by it. This definition says that in order to establish or draft a contract, we need to initiate some steps.
  • The definition requires a person to whom a certain proposal is made. The person (parties) is step one has to be in a position to fully understand all the aspects of a proposal.
  • “Signifies his assent thereto” means that the person in point one accepts or agrees with the proposal after having fully understood it.
  • Once the “person” accepts the proposal, the status of the “proposal” changes to “accepted proposal”.
  • “Accepted proposal” becomes a promise. Note that the proposal is not a promise. For the proposal to become a promise, it has to be an accepted proposal.
  • To sum up, we can represent the above information as Agreement = Offer + Acceptance.

G) Contract and Agreement.

  1. Contract.
    • A contract is an agreement that is enforceable by law.
    • A contract is only legally enforceable.
    • A contract has to create some legal obligations.
    • All contracts are also agreements.
  2. Agreement.
    • A promise or a number of promises that are not contradicting and are accepted by the parties involved is an agreement.
    • An agreement must be socially acceptable, it may or may not be enforceable by the law.
    • An agreement does not create any legal obligations.
    • An agreement may or may not be a contract.

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