Law: Nature And Kinds Of Contracts

CHAPTER SUMMARY:

1.1. INTRODUCTION AND DEFINITION OF CONTRACT

Following points/topics are discussed under this article:

1.1.1. Introduction:

In India, the law relating to contracts is contained in the INDIAN CONTRACT ACT, 1872. The Act came into force on the first day of September 1872, and it applies to the whole of India except the State of Jammu and Kashmir. The Indian Contract Act consists of the following two parts:

(a) General principles of the Law of Contract.

(b) Special kinds of contracts.

The general principles of the Law of Contract are contained in Sections 1 to 75 of the Indian Contract Act. These principles apply to all kinds of contracts irrespective of their nature. Special contracts are contained in Sections 124 to 238 of the Indian Contract Act. These special contracts are Indemnity, Guarantee, Bailment, Pledge and Agency.

It is to be noted that the Law of Contract creates jus in personam and not jus in rem. The term jus in personam means a right against or in respect of a specified person. Under the Law of Contract, the right is available only against particular persons.

Example 1.1: A owes Rs. 50,000 to B. Here, B has a right to recover this amount from A. This right of A to recover the amount from A is jus in personam.

The terms jus in rem means a right against or in respect of a thing.

Example 1.2: A is the owner of a house. Here, A has a right to quiet possession of the house against every member of the society. Likewise, every member of the society is under obligation not to disturb A’s possession. This right of A is a jus in rem.

1.1.2.     Definition of Contract:

The term ‘contract’ is defined in Section 2 (h) of the Indian Contract Act, as under:

“An agreement enforceable by law is a contract.”

This means that contract is a combination of an agreement and the enforceability of the agreement We can say that:

Contract = An agreement + Enforceability.

The definitions of the terms ‘agreement’ and ‘promise’ are relevant to understand the meaning of contract.

The term ‘agreement’ is defined in Section 2 (e) of the Indian Contract Act, as under:

“Every promise and every set of promises forming the consideration for each other, is an agreement.”

And the term ‘promise’ is defined in Section 2 (b) of the Indian Contract Act, as under: “A proposal, when accepted, becomes a promise.”

The above two mentioned provisions show that an agreement is an accepted proposal (offer). Thus, every agreement consists of an offer from one party and its acceptance by the other. We can say that:

Agreement = Offer + Acceptance.

Every agreement is not a contract. It is regarded as contract only when it is enforceable by law. The conditions of enforceability of agreement are laid down in Section 10 of the Indian Contract Act.

1.1.3. Conditions of Enforceability:

The conditions of enforceability of an agreement as laid down in Section 10, are:

i. The Agreement must be made by the free consent of the parties.

ii. The agreement must be made by the parties who are competent to contract.

iii. The agreement must be made for a lawful consideration and with a lawful object.

iv. The agreement must not be expressly declared to be void.