CA FOUNDATION BUSINESS LAW SERIES LECTURE 1 GENERAL NATURE OF CONTRACT

•     CA FOUNDATION BUSINESS LAW SERIES LECTURE 1
 GENERAL NATURE OF CONTRACT
THE INDIAN CONTRACT ACT 1872
 GENERAL NATURE OF CONTRACT

     BUSINESS LAW SECTION A

•     NATURE OF THE CONTRACT

1.       THE CONTRACT CAME INTO FORCE ON 1 SEPTEMBER 1872

2.       THE INDIAN CONTRACT ACT WAS PASSED AND IMPLEMENTED TO CONTROL VARIOUS KINDS OF COMMERCIAL AND BUSINESS CONTRACTS

3.       THIS ACT IS NOT COMPLETE CODE OF CONTRACT .IT DEALS WITH GENERAL PRINCIPLES OF LAW OF CONTRACT AND SPECIAL CONTRACT

4.       THE ACT IS APPLICABLE TO THE WHOLE OF INDIA EXCEPT JAMMU AND KASHMIR

5.       THE CONTRACT ACT ONLY PROVIDES RULES AND REGULATIONS FOR THE PURPOSE OF CONTRACT. IT DOES NOT LIST ANY RIGHTS AND LIABILITIES BETWEEN PARTIES TO THE CONTRACT.

6.       RIGHTS AND LIABILITIES AND THEIR MANNER OF PERFORMANCE ARE DECIDED BY THE PARTIES THEMSELVES UNDER THE CONTRACT BUT IT IS WITH IN THE PURVIEW OF THE ACT.

7.       BASES ON THE PRINCIPLES OF ENGLISH COMMON LAW

8.       ENACTED BY IMPERIAL LEGISLATIVE COUNCIL

9.       AT PRESENT THE INDIAN CONTRACT MAY BE DIVIDED INTO TWO PARTS:-

10.    PART 1:- DEALS WITH GENERAL PRINCIPLES OF LAW OF CONTRACT SECTION 1 TO 75

11.    PART 2 DEALS WITH SPECIAL KINDS OF CONTRACT SUCH A CONTRACT OF INDEMNITY AND GUARANTEE,CONTRACT OF B AILMENT,CONTRACT OF AGENCY

12.    THE LAW OF CONTRACT IS ESSENTIAL TO CARRY ON TRADE OR COMMERCE SMOOTHLY BECAUSE IT INTRODUCES DEFINITENESS IN THE BUSINESS TRANSACTIONS. IT ALSO AFFECT THE ENTIRE SOCIETY.

•     DEFINITION

•     A CONTRACT IS AN AGREEMENT TO DO OR NOT TO DO AN ACT. IT IS A LEGALLY BINDING AGREEMENT WHICH IS ENFORCEABLE AT LAW.

•     SECTION 2(H) OF THE CONTRACT ACT DEFINES A CONTRACT AS “ AN AGREEMENT ENFORCEABLE BY LAW”

•     SALMOND,”A CONTRACT IS AN AGREEMENT,CREATING AND DEFINING THE OBLIGATIONS BETWEEN PARTIES.”

•     SIR FREDRIC POLLOCK SAYS “ EVERY AGREEMENT AND PROMISE ENFORCEABLE AT LAW”

•     ELEMENTS OF THE CONTRACT

•     TWO ESSENTIAL ELEMENT OF CONTRACT:-

I.            AGREEMENT

II.            ENFORCE ABILITY AT LAW

•     MEANING OF AGREEMENT

•     SEC 2 (E) AS EVERY PROMISE OR SET OF PROMISE FORMING THE CONSIDERATION FOR EACH OTHER.

•     PROMISE MEANS A PROPOSAL WHEN ACCEPTED BECOMES A PROMISE.

•     AGREEMENT = OFFER AND ACCEPTANCE

•     ENFORCEABLE AT LAW MEANS AN AGREEMENT TO BECOME A CONTRACT MUST GIVE RISE TO LEGAL OBLIGATION.

•     THE LEADING CASE IS BALFOUR V BALFOUR

•     EXPLANATION OF LEADING CASE BALFOUR VS BALFOUR

•     MR BALFOUR HUSBAND WHO WORKED IN CEYLON PROMISED TO PAY A N ALLOWANCE OF POUND 30 PER MONTH TO MRS BALFOUR WIFE WHO WAS NOT ABLE TO ACCOMPANY HER HUSBAND ON MEDICAL GROUND. MR BALFOUR FAILED TO PAY THE AMOUNT. MRS BALFOUR FILED THE CASE AGAINST HER HUSBAND. THE COURT DISMISSED THE CASE AND HELD IT WAS MERE A DOMESTIC AGREEMENT AND IT WAS NOT LEGALLY BINDING CONTRACT

•     ALL AGREEMENTS ARE NOT CONTRACTS BUT ALL CONTRACTS ARE AGREEMENTS

•     AGREEMENT IS A WIDER TERM WHEN AN OFFER IS MADE AND IT IS ACCEPTED BUT IT BECOMES CONTRACT WHEN IT SATISFIES ALL THE ESSENTIAL REQUISITES IN SECTION 10 OF THE INDIAN CONTRACT ACT.

•     AGREEMENT WHICH ARE NOT ENFORCEABLE AT LAW ARE NOT CONTRACTS. AGREEMENT IS WIDER TERM IT COVER SOCIAL AND DOMESTIC AGREEMENTS ALSO.

•     ESSENTIAL ELEMENTS OF A VALID CONTRACT

1. OFFER AND ACCEPTANCE :-MUST BE A LAWFUL OFFER BY ONE PARTY AND LAWFUL ACCEPTANCE OF SAME BY THE OTHER PARTY. EXAMPLE MR A OFFERS HIS RED MARUTI CAR FOR 25,000 TO MR B AND MR B ACCEPTS THE PROPOSAL. IT IS VALID AGREEMENT.
2. INTENTION TO CREATE LEGAL RELATIONSHIP:- IT DOES NOT COVER SOCIAL OR DOMESTIC AGREEMENT.(BALFOUR VS BALFOUR)
3. LAWFUL CONSIDERATION :- SOME THING IN RETURN. IT IS AN ESSENTIAL ELEMENT IN A CONTRACT. GRATUITOUS PROMISE ARE NOT ENFORCEABLE AT LAW.CONSIDERATION MUST BE LAWFUL IT SHOULD NOT BE FORBIDDEN BY LAW

4. CONSENSUS AD IDEM:- THE MINDS OF BOTH THE PARTIES MUST BE AD IDEM. TWO PARTIES MUST HAVE AGREED ABOUT THE SUBJECT MATTER OF THE CONTRACT AT THE SAME TIME AND IN THE SAME SENSE. LIKE A WANTED TO SELL HIS RED MARUTI CAR BUT B ACCEPTED THE OFFER INTENDING TO BE RED ESTEEM. HERE NO CONSENSUS AD IDEM.
5. CAPACITIES OF CONTRACT:- PARTIES MUST BE COMPETENT TO ENTER INTO CONTRACT. SECTION 11 OF THE CONTRACT ACT STATES THAT THE FOLLOWING PERSONS ARE COMPETENT TO ENTER INTO CONTRACT
1. WHO IS THE AGE OF MAJORITY ACCORDING TO THE LAW TO WHICH HE IS SUBJECT
2. WHO IS OF SOUND MIND
3. WHO IS NOT DISQUALIFIED

A MINOR,LUNATIC,IDIOT AND A DRUNKARD PERSON CAN NOT ENTER INTO A CONTRACT

6. FREE CONSENT :- CONSENT MEANS THE PARTIES MUST HAVE AGREED UPON THE SAME THING IN THE SAME SENSE. SECTION 14 OF CONTRACT ACT STATES THE CONTRACT IS SAID TO BE FREE WHEN IT IS NOT CAUSED BY:
1. COERCION
2. UNDUE INFLUENCE
3. FRAUD
4. MISREPRESENTATION
5. MISTAKE
7. LAWFUL OBJECT:-THE OBJECT OR THE PURPOSE OF THE CONTRACT SHOULD BE LAWFUL. SECTION 23 OF THE CONTRACT ACT STATES THE OBJECT OF THE CONTRACT SHOULD NOT BE:-
1. FORBIDDEN BY LAW
2. FRAUDULENT
3. INVOLVES AN INJURY TO THE PERSON OR PROPERTY TO THE PERSON
4. THE COURT REGARDS IT AS IMMORAL OR OPPOSED TO PUBLIC POLICY
8. CERTAINTY OF MEANING :- ACCORDING TO 29 OF CONTRACT ACT THE TERMS OF THE AGREEMENT MUST BE PRECISE AND CERTAIN. IT SHOULD NOT BE VAGUE.
9. POSSIBILITY OF PERFORMANCE :- IF THE ACT IS IMPOSSIBLE IN IT SELF ,PHYSICALLY OR LEGALLY, IT CANNOT BE ENFORCED AT LAW. SECTION 56 OF THE CONTRACT ACT STATES THAT AN AGREEMENT TO DO AN ACT IS IMPOSSIBLE IS VOID
10. NOT DECLARED TO BE VOID OR ILLEGAL:- THE INDIAN CONTRACT ACT EXPRESSLY DECLARED CERTAIN AGREEMENTS AS VOID. FOR EXAMPLE AGREEMENT IN RESTRAINT OF MARRIAGE,AGREEMENT IN RESTRAINED OF TRADE,AGREEMENT IN RESTRAINT OF LEGAL PROCEEDING,UNCERTAIN AGREEMENTS ,WAGERING AGREEMENTS.
11. LEGAL FORMALITIES:-IF THE REQUIRED LEGAL FORMALITIES ARE NOT CARRIED OUT,THE AGREEMENT SHALL NOT MAKE A VALID CONTRACT.

ALL THE ABOVE ELEMENTS MUST BE PRESENT IN IT. IF ANY OF THE ABOVE ESSENTIAL ELEMENTS IS MISSING HE CONTRACT IS EITHER VOIDABLE,VOID,ILLEGAL,UNENFORCEABLE IN THE EYES OF LAW.