Law of contract
Nishan Poudel
Introduction
It is the foundation upon which superstructure of
modern business is built i.e it is a basis of business.
Every business activity is determined and guided
by the agreement of the parties,concerned.
Law of contract lays down the general rules
relating to promises, their formation, performance,
and their enforceability.
The law of contract not apply to the business
community, but also to others.
Law of contract furnishes the basis for the other
branches of Mercantile Law sale of goods,
insurance, partnership, insolvency etc.
Definitions
Nepal Contract Act section 2(e)- Contract is
defined as an agreement concluded between
two or more parties for performing or not
performing any work.
Indian Contract Act section 2(h) - An
agreement enforceable by law is contract.
We can conclude the main points of law of
contracts as:
An agreement to do or not to do any action on ground of consent
Enforceability of the liabilities by law
Two or more parties
Rights and liabilities created reciprocally between concerned
parties.
Importance of Law of Contract
in Business
Obligations of parties are enforceable by law.
Ensures legal relationship between parties.
Has sufficient provisions for attainment of their
purpose.
Protects rights and creates duties for contracting
parties.
Provides alternative remedy if things go wrong.
Agreement every promise or set of promises
forming the consideration for each other.
Promise when a person to whom the
proposal is made signifies his assent thereto,
the proposal is said to be accepted. When
proposal is accepted, it becomes promise.
Proposal - it is defined as a proposal put
forward by one person to another, with the
expectation of obtaining his consent for
performing or not performing any work
Contract
Agreement
Busines
s
Social
Legal
Obligation
Domestic
Essential Elements for a Valid Contract
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Two or More parties.
Offer and acceptance
Intention to create a legal relation (balfour vs
balfour) .examples to be dicussed
Lawful consideration
Capacity of parties
Free and Genuine consent
Lawful object
Certainty (not vauge)
Possibility of performance
Not expressly declared void
Difference between agreement
and contract
Agreement
Combination
of offer
and acceptance is
agreement.
It may of may not
create legal obligations
Doesnt attract law of
contract
The essential elements
of contract are not
necessary
Contract
All
agreements
enforceable by law are
contracts
It must create a legal
obligation.
Attracts law of contract
All necessary elements
to contract are
necessary.
Types of Contract
From
point of view of Enforceability
Valid contract
Voidable contract
Void contract
Unenforceable contract
Form
point of view of Mode of Creation
Expressed contract
Implied contract
Indirect or Quasi contract
Form
point of view of Performance
Executed contract
Executory contract
Form
point of view of Liability
Unilateral contract
Bilateral contract
Void Agreement (S. 13)
Void = not binding (not enforceable by law)
Expressly declared void contract
Agreement in restraint of marriage (other than
minor)
Agreement in restraint of trade
Exception:
Sale of goodwill
Partners agreement
trade combination (between trader and
manufacture not to sale goods below certain price
is valid)
negative stipulation in service agreements
Contd
Agreement in restraint of legal proceedings
Agreement against prevailing law
Uncertain, impossible, vague agreements
Contract preventing from enjoying the facilities
already enjoyed by the general public.
Contract for immoral purpose or opposed to the public
policy.
Contract by incompetent person
Contract for unlawful consideration or objective.
Void Contract
When valid contract becomes void contract?
A contract which ceases to be enforceable by law
becomes void, when it ceases to be enforceable by
law
Supervening impossibility
Subsequent illegality
Repudiation of voidable contract
In case of contingent contract, if contingent event
becomes impossible.
Voidable Contract (S.14)
An agreement which is enforceable by law at
the option of one or more party thereto, but
not at the option of other.
Usually contracts becomes voidable when
consent of the party is obtained by
coercion,
undue influence,
fraud, or
deceit.
Coercion
If any person does any of the following act
with an intention of compelling any person to
accept any contract against him/her
Withheld or threaten to withhold property
Threaten to defame him/her
Takes or threaten to take any action against prevailing
law.
Undue Influence
The relation subsisting between the parties are
such that one party is in a position to dominate
the will of another party and that party use his
position to dominate latter's will.
Following person is deemed to be under the
influence
Person living his/her guardianship or custody.
Who cannot take care of their interest temporarily or
permanently by reason of old age, sickness or
physical or mental weakness.
Who can be subjected to under ones economic or
ranking influences.
Fraud
If any party, with an intention to cheat other
party, does any of the following things
Leads or takes other party or his agent to believe a
particular matter is true though that matter is not
true, or
Suppresses any information in his possession, or
Commit any act against the prevailing law
Deceit
Submission of false information, (unintentional)
Mislead any party so as to aggrieve another
party
Causing any wrong on the matter of contract.
Consequences of Voidable
Contract
Aggrieved party can make the contract
void.
Aggrieved party may demand his position to
be the same