Nature of Contract \u2013 CA Foundation Business Law Study Material<\/h2>\n
Question 1.
\nAll contracts are agreements but all agreements are not contracts. Comment.
\nAnswer:
\nAs per section 2(h) of the Indian Contract Act, 1872, an agreement enforceable by law is a contract. Thus an agreement backed by enforceability by law i.e. the intention to create legal relations is regarded as a contract. An agreement is a prerequisite for the creation of a contract.<\/p>\n
Every promise & every set of promises forming consideration for each other is an agreement. Thus when an offer made by a person is accepted by another, an agreement is said to be created. However, an agreement is a wider term in comparison to contracting. It includes even those agreements which are not enforceable since they were not created with an intention of forming legal relations, such as domestic, political or social agreements.<\/p>\n
Thus agreement is the genus of which contract is the species & only those agreements grow into contracts that create legal relations.<\/p>\n
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Question 2.
\nExplain briefly the essentials of a valid contract.
\nAnswer:
\nSection 10 provides \u201call 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\u201d.<\/p>\n
Offer and acceptance:
\nThere must be a “lawful offer\u201d and a “lawful acceptance\u201d of the offer, thus resulting in an agreement.<\/p>\n
Intention to create legal relations:
\nThere must be an intention among the parties that the agreements should be attended by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate a contract.<\/p>\n
Lawful consideration:
\nConsideration means \u201csomething in return\u201d. An agreement is enforceable when each of the parties to it gives something and gets something in return. The payment of money is a common form of consideration. But it may also consist of an act, forbearance, and a promise to do or not to do something. Consideration must be real, valuable and lawful.<\/p>\n
The capacity of parties:
\nThe parties to an agreement must be competent to contract; otherwise, it cannot be enforced by a court of law. Every person who is competent to contract who is (a) of the age of majority, (b) of sound mind and (c) is not disqualified from contracting by any law.<\/p>\n
Free consent:
\nThe consent of the parties must be free ie. the parties should enter into a contract voluntarily and of free will. Section 14 lays down that consent is not free if it is caused by (a) coercion, (b) undue influence, (c) fraud, (d) misrepresentation or (e) mistake.<\/p>\n
Lawful object:
\nThe object of the agreement should be lawful. It should be authorised or sanctioned by law. The object of an agreement is unlawful if it is forbidden by law or is fraudulent or is immoral or opposed to public policy.<\/p>\n
Agreement not expressly declared void:
\nThe Indian Contract Act, 1872, has expressly declared certain agreements to be not enforceable at law, e.g. agreements in restraint of marriage, agreements in restraint of trade, wagering agreements etc. The parties to the agreement should ensure that their agreement does not fall in the category of these void agreements.<\/p>\n
Certainty:
\nThe terms of the contract should be certain and definite and not vague. Section 29 says \u201cAgreements, the meaning of which is not certain or capable of being made certain are void.\u201d<\/p>\n
Possibility of performance:
\nYet another essential feature of a valid contract is that it must be capable of performing. Section 56 lays down that \u201cAn agreement to do an act impossible in itself is void.\u201d If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.<\/p>\n
Writing and registration:
\nAccording to the Indian Contract Act, a contract may be oral or in writing. An oral contract is as much enforceable as a written contract. However, if there is a provision in any law prescribing that contracts should be in writing\/ registered then, this formality of writing and registration should be followed.<\/p>\n
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Question 3.
\n“The law of contracts is not the whole law of agreements nor is it the whole law of obligations.\u201d – Comment.
\nAnswer:
\nObligations may arise from different sources. The law of contract deals only with such legal obligations which arise from agreements. Obligations that are not contractual in nature are outside the purview of the law of contract. For example, the obligation to observe traffic rules does not fall within the scope of the Contract Act.<\/p>\n
The other sources of obligations are obligations under the trust law or the law of tort or the fundamental duties under the Constitution etc. They are outside the purview of the Contract law since they are not voluntarily created through an agreement. Salmond has rightly observed: \u201cThe law of contracts is not the whole law of agreements, nor is the whole law of obligation. It is the law of those agreements which create obligations and those obligations, which have their source in agreements\u201d.<\/p>\n
Question 4.
\nDifferentiate between:
\n(a) Void agreements & Void Contracts
\n(b) Voidable & Void Contracts
\n(c) Void Agreements & Illegal Agreements
\nAnswer:
\n(a)<\/p>\n