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CONTRACT Study Notes-Introduction

Dear Readers, 
Here we are providing you updated and most relevant Study notes on Contract of Introduction and Basic Concepts for Law Entrance Exam. These study notes are highly recommendable for all those who aspire to crack CLAT, DULLB, AILET and other Law Entrance Exam.

INDIAN CONTRACT ACT, 1872

The Indian Contract Act, 1872 came into force on 1st September 1872. It extends to the whole of India except the state of Jammu & Kashmir. It provides a legal framework for not only the trade and commercial activities in which contracts are involved but also for social and familial contracts. A contract binds both the parties by the words written/agreed by the parties.

Structure of Indian Contract Act, 1872

The originally executed act has 266 sections later in 1932, section 239 to section 266 relating to partnership and in year 1930, section 76 to section 123 relating to sales of goods act were repealed.
Note -1.  The sales of goods Act, 1930.
The Indian Partnership Act, 1932.
Broadly, we can divide Indian Contract Act in two Parts as shown in Diagram.

Essential Elements of a Valid Contract:

Offer and Acceptance:
There must be a ‘lawful offer’ and a ‘lawful acceptance’. In other words there are some legal rules governing offer and acceptance.
[We shall discuss them in the next chapter]

Intention to Create Legal obligation:
Both the parties, to a contract, must contemplate legal consequences. For example, a husband offering to take his wife out for a movie is not an agreement intended to create legal relations.

Lawful Consideration:
Consideration is the price paid for the promise of the other. Consideration may be an act / abstinence or a promise.
It may be past, present or future.
For example, Robert promises to supply 10 quintals of wheat for a consideration of Rs.5000/-

Capacity of Parties:
The parties, to an agreement, must be competent to contract. That is to say
  • The parties must be major
  • The parties must be mentally sound
  • The parties must not be disqualified from contracting by law.
Free Consent
Both parties, to a contract must enter it out of their free will and consent. Consent is said to be “free”, when it is not affected by reasons such as
  • Coercion
  • Undueinfluence
  • Fraud
  • Misrepresentation
  • Mistake
Lawful Object:
  • Object means purpose
  • The Act lays down that the object for which the agreement has been entered into must not befraudulent / illegal / immoral or opposed to public policy.
Writing and Registration:
  • It must be clearly understood that contracts need not necessarily be in writing.
  • It may be oral
It may even be implied
However, Indian Contract Act lays down that in certain special cases, for a contract to be valid, it must only be in writing. Besides, it also needs to be registered.
Thus, for example:
An agreement for a sale of immovable property must be in writing and registered.

Certainty:
To ensure that a contract is valid, the terms of it must be certain. In other words “agreements, the meaning of which is not certain or capable of being made certain are void”.
For example, Mr. Sharma agrees to sell his car to Mr. Mukesh at “best competitive price”, since the price is not clearly ascertainable in this case, the agreement is void.

Possibility of Performance:
The Contract Act lays down that “Agreement to do an impossible act is void”.
For example
Nagabushan agrees to bring a dead body alive in return for a crore of rupees. The agreement is not enforceable.

Not Expressly Declared Void:
The Contract Act has ‘expressly declared’ certain agreements to be void. Following are the cases:-
  • Agreement in restraint of marriage
  • Agreement in restraint of trade
  • Agreement in absolute restraint of legal proceedings.
Thus, an agreement should not be expressly declared void by the Act.
Remember:
  • A valid contract is enforceable by both parties
  • A valid contract gives rise to rights and duties.

Classification of Contracts:

1. Contracts on the basis of creation:

Express contract
It is one, which is made by words spoken or written
Implied contract
It is one, which can be inferred from the conduct of a person or the circumstances of case

2.Contracts on the basis of execution:

Executed Contract
It is a contract where both the parties have fulfilled their respective obligations under the contract
It is a contract where both the parties have still to perform their respective obligations

3. Contracts on the basis of Enforceability

Valid contract:
 It is a contract, which satisfies all the essential elements prescribed by law. It is enforceable by both the parties.
Note: A detailed description of all the essential elements of a valid contract is presented below.

Void Agreement
It is an agreement; where in any of the essential elements of a valid contract is missing.

Voidable contract
It is an agreement, where in free and voluntary consent of one of the parties is missing and hence the party whose consent is not free can avoid the contract.


Practice Exercise

1.  The Contract Act of 1872 was enacted on
A. 25th April, 1872                  
B. 25th March, 1872
C. 25th August, 1872          
D. None of the above
Ans: A            

2.  The Contract Act 1872 was enforced on
A. 1st July, 1873
B. 1st August, 1872
C. 1st September, 1872  
D. None of these
Ans: C

3.  How many sections does the Indian Contact Act, 1872 consist
A. 234
B. 256
C. 238
D. 200
Ans: C

4. An agreement not enforceable by law is called
A. Void agreement
B. Valid agreement
C. Voidable agreement   
D. None of the above
Ans: A

5.  An agreement enforceable by law is called
A. A Promise
B. Contract
C. Both (a) and (b)         
D. None of the above
Ans: B

6. An agreement which is enforceable by law at the option of one or more of the parties there to but not at the option of other or others is
A. A void contract
B. A voidable contract
C. A valid contract         
D. All of the above
Ans: B

7.  Name the type of contract that can be inferred from the conduct of a person or the circumstances of case
A.  Executed contract
B.  Express contract
C. Void contract
D. Implied contract
Ans: D

8.  An agreement to do an impossible act is
A. Valid
B. Void
C. Voidable
D. None of the above
Ans: B

9. Consent is said to be free when it is not affected by
A. Coercion
B.  Undue influence
C. Fraud
D. All of the above
Ans: D

10.  Sec 126-147 of the Contract Act deals with
A.  Sale of Goods
B. Contract of Agency
C.  Contract of Pledge
D. Contract of Guarantee
Ans: D

11. The Contract of Pledge is contained under which Sections of the Indian Contract Act, 1872?
A. 124-125
B. 126-147
C. 172-181
D. 148-171
Ans: C

12. The Sections of the Act dealing with agency are?
A. 124-125
B. 172-181
C. 126-147
D. 182-258
Ans: D

13. Sec. 124-125 of the Act deals with?
A. Partnership
B. Agency
C. Indemnity
D. Guarantee
Ans: C

14. Bailment has been dealt with in which Sec. of the Act?
A. 148-171
B. 172-181
C. 126-147
D. 182-258
Ans: A

15. Which Sec is the Interpretation clause of the Indian Contract Act, 1872?
A. Sec. 1
B. Sec. 3
C Sec. 2
D Sec. 4
Ans: C



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