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Tamil Nadu National Law School (A State University Established by Act No.9 of 2012)
Tamil Nadu National Law School (A State University Established by Act No.9 of 2012)
PAPER: CONTRACTS
SUBMITTED TO
Dr. k. Govinda Rajan
(Assistant Professor in Law of Contracts)
SUBMITTED BY
I year, B.com. LL.B. (Hons.)
Tamil Nadu National Law School
Registration Number:
ACKNOWNLEDGMENT
Finally, I thank the Almighty who gave me the courage and stamina to
confront all hurdles during the making of this project. Words aren’t sufficient to
acknowledge the tremendous contributions of various people involved in this
project, as I know ‘Words are Poor Comforters’. I once again wholeheartedly and
earnestly thank all the people who were involved directly or indirectly during this
project making which helped me to come out with flying colours.
LAW OF CONTRACT
CHAPTER I
Definition:
An agreement creating obligations enforceable by law. The basic elements of a contract
are assent, consideration capacity and legality. In some states, the element of consideration can
be satisfied by a valid substitute. Possible remedies for breach of contract include general
damages, consequential damages, reliance damages, and specific performance.
Overview:
Contracts are promises that the law will enforce. The law provides remedies if a promise is
breached or recognizes the performance of a promise as a duty. Contracts arise when a duty does
or may come into existence, because of a promise made by one of the parties. To be legally
binding as a contract, a promise must be exchanged for adequate consideration. Adequate
consideration is a benefit or detriment which a party receives which reasonably and fairly
induces them to make the promise/contract. For example, promises that are purely gifts are not
considered enforceable because the personal satisfaction the grantor of the promise may receive
from the act of giving is normally not considered adequate consideration. Certain promises that
are not considered contracts may, in limited circumstances, be enforced if one party has relied to
his detriment on the assurances of the other party.1
Contracts are mainly governed by state statutory and common (judge-made) law and private law.
Private law principally includes the terms of the agreement between the parties who are
exchanging promises. This private law may override many of the rules otherwise established by
state law. Statutory law may require some contracts be put in writing and executed with
particular formalities. Otherwise, the parties may enter into a binding agreement without signing
a formal written document. Most of the principles of the common law of contracts are outlined in
1
https://en.wikipedia.org/wiki/Contract
the Restatement of the Law Second, Contracts, published by the American Law Institute. The
Uniform Commercial Code, whose original articles have been adopted in nearly every state,
represents a body of statutory law that governs important categories of contracts. The main
articles that deal with the law of contracts are Article 1 (General Provisions) and Article 2 (Sales)
Sections of Article 9 (Secured Transactions) govern contracts assigning the rights to payment in
security interest agreements. Contracts related to particular activities or business sectors may be
highly regulated by state and/or federal law.
In 1988, the United States joined the United Nations Convention on Contracts for the
International Sale of Goods which now governs contracts within its scope.
At common law, the elements of a contract are offer, acceptance, intention to create legal
relations, and consideration.
Not all agreements are necessarily contractual, as the parties generally must be deemed to have
an intention to be legally bound. A Gentle man’s agreement is one which is not intended to be
legally enforceable, and which is "binding in honor only".
Contracts may be bilateral or unilateral. A bilateral contract is an agreement in which each of the
parties to the contract makes a promise or set of promises to each other.
For example, in a contract for the sale of a home, the buyer promises to pay the seller
RS2,00,000 in exchange for the seller's promise to deliver title to the property. These common
contracts take place in the daily flow of commerce transactions, and in cases with sophisticated
or expensive promises may involve extensive negotiation and various condition
precedent requirements, which are requirements that must be met for the contract to be fulfilled.2
Less common are unilateral contracts in which one party makes a promise, but the other side
does not promise anything. In these cases, those accepting the offer are not required to
communicate their acceptance to the offer or.
In a reward contract, for example, a person who has lost a dog could promise a reward if the dog
is found, through publication or orally. The payment could be additionally conditioned on the
dog being returned alive. Those who learn of the reward are not required to search for the dog,
but if someone finds the dog and delivers it, the promissory is required to pay.
In the similar case of advertisements of deals or bargains, a general rule is that these are not
contractual offers but merely an "invitation to treat" (or bargain), but the applicability of this rule
is disputed and contains various exceptions. The High Court of Australia stated that the term
unilateral contract is "unscientific and misleading".
In certain circumstances, an implied contract may be created. A contract is implied in fact if the
circumstances imply that parties have reached an agreement even though they have not done so
expressly. For example, a patient may implicitly enter a contract by visiting a doctor and being
examined; if the patient refuses to pay after being examined, the patient has breached a
contract implied in fact.
A contract which is implied in law is also called a quasi-contract, because it is not in fact a
contract; rather, it is a means for the courts to remedy situations in which one party would
be were he or she not required to compensate the other. Quantum-merit claims are an example.
2
https://www.law.cornell.edu/wex/contract
CHAPTER II
Section 23 of the Indian Contract Act has specified certain considerations and objects as
unlawful. The consideration or objects of an agreement is lawful, unless- it is forbidden by law;
is of such a nature that, if permitted, it would defeat the provision of any law; or is fraudulent; or
involves injury to the person or property of another; or the court regards it as immoral or
opposed to public policy.In each of the above mentioned cases the consideration or object of an
agreement is deemed to be unlawful. Every agreement in which the object or consideration is
unlawful is void
X promises to obtain for Y an employment in the public service, and Y promises to pay X Rs.
1000 for that. This agreement is void as the consideration in this case is unlawful.
X agrees to let her daughter to hire to Y as a concubine. This agreement is void as it is immoral
and as a result opposed to law.
An agreement between the citizens of two countries at war with each other is void and hence
inoperative.
DEFINITION
The word ‘Legality’ means ‘the state of being legal’ ‘Object’ means ‘purpose’. So the meaning
of legality of object and consideration is the state of being any reason or purpose legal.
Traditionally
1. An agreement will not be enforced by the court if its object or the consideration is unlawful.
By the expression “Object of an Agreement” is meant its purpose on design. The object and the
consideration must both be lawful, otherwise the agreement is void.
2. The object or consideration of an agreement must be lawful. In order to make the agreement,
a valid contract, for, Section 10 lays down that all agreements are contracts if made for lawful
consideration and with a lawful object. Section 23 declares what kinds of consideration and
objects are not lawful. If the object or consideration is unlawful for one or the other of the
reasons mentioned in Section 23, the agreement is illegal and therefore void (Section 23).
Example-
a) A promises to pay B Rs.1000 at the end of six months, if C, who owes that sum of B, fails to
pay it. B promises to grant time to C accordingly. Here the promise of each party is a
consideration for the promise of the other party, and they are lawful considerations.
b) Promises for a certain sum paid to him by B, to make good to be the value of his ship
wrecked on a certain voyage. Here A’s promise is the consideration for B’s payment and B’s
3
http://chestofbooks.com/business/law/Handbook-Law-Of-Contracts/Chapter-VIII-Legality-of-Object.html
payment is consideration for A’s promise. These are lawful consideration.
PRECEDENTS:
a) An agreement to sublet a license to sell grass issued under the Madras Abkari Act 1886
would not be enforceable, because the object of the Act is the protection of the public as well as
the revenue. Thithi Pkurudsu vs Bheemudu, (1902) 26 Mad. 930.
b) Where a license to cut grass was given by the Forest Dept. and one of the terms of the
license was that the licensee should not assign his interest on the license without the permission
of the Forest Officer, and a fine was prescribed for a breach of this condition, it was held that
there being nothing in the Forest Act to make it obligatory upon the parties to observe the
conditions of the license the assignment would be binding upon the parties, though it was
competent to the Forest Officer to revoke the license if he thought fit to do so. It was so held
because the Act did not forbid the transaction but merely imposed a condition for administrative
purpose. Nazarali v. Baba Miya (1916) 40 Bom. 64.
Example-
a) A being agent for a landed proprietor, agrees for money, without the knowledge of his
principal, to obtain from B a lease of land belonging to his principal. The agreement between A
and B is void, as it implies a fraud by concealment by A on his principal to obtain for B a lease
of land belonging to his principal
PRECEDENTS:
a) A, B and C enter into an agreement for the division among them of gains acquired, or to be
acquired, by them by fraud. The agreement is void, as its object is unlawful. [Illustration (e) to
section23].
b) Where the object of an agreement between A and B was to obtain a contract from the
commissariat department for the benefit of court , which could not be obtained for both of them
without practicing fraud on the department, it was held that the object of the agreement was
fraudulent, and that the agreement was therefore void. Shaib Ram Vs Nagar Mel, (1884)
An agreement is not enforceable at law, and therefore does not result in a contract, if its object is
illegal.
We come now to deal with the only remaining element in the formation of a valid contract - the
legality of the matter or object of the agreement. To result in a contract, an agreement must
create an obligation and it does not create an obligation if it is such that the courts cannot enforce
it. An agreement, therefore, which is illegal or unlawful, is in fact no contract at all, though it is
often spoken of as an illegal contract.
As a rule the law does not interfere with the freedom of persons to enter into contracts, but some
limitations are imposed. Certain objects are forbidden, and though all the other elements
necessary to the formation of a valid contract may be present, yet if one of these forbidden
objects is contemplated by the parties, the courts will not enforce their agreement. The object
makes the agreement unlawful.4
The distinction here made between agreements in violation of positive law and agreements
contrary to public policy is in the reasons which determine the law to hold the agreement void,
and not in the nature or operation of the law itself. The nullity of the agreement itself is in every
case a matter of positive law; but in one class of cases the acts contemplated by the agreement
are prohibited by the common law or by statute, while in the other the prohibition rests more
particularly on public policy, or, as it is sometimes called, the "policy of the law." It is not
always easy to distinguish between the two classes, for frequent decisions upon certain matters
of public policy have established such definite rules regarding them that they are in effect rule of
4
http://www.citeman.com/7416-what-is-legality-object-and-consideration.html
the common law. Too much importance, therefore, must not be attached to any classification of
the subject.
CHAPTER III
(b) By statute.
There are many acts which the law positively forbids or enjoins, and to the doing or omission of
which some penalty is attached.
1 Edgar Lumber Co. v. Cornie Stave Co., 05 Ark. 449, 130 S. W. 452; Piper v. Boston & M. R.
It., 75 N. H. 435, 75 Atl. 1041; Crigler v. Shepler, 101 Pac. 619, 23 L. R. A. (N. S.) 500, 79 Kan.
834. See "Contracts," Dec. Dig. (Key-No.) § 103; Cent. Dip. §§ 468-476.
This classification, like that in the preceding section, is, from the nature of the subject, only
approximate, and for convenience in treatment. Many acts are prohibited by statute which was
formerly prohibited by the common law, and many acts which are prohibited by the common law
in one state are prohibited by statute in another, and in some states there are no common-law
crimes at all. For this reason, in treating of agreements in breach of rules of the common law we
must include agreements in breach of statutes which are merely declaratory of the common law.5
5
http://www.scribd.com/doc/27041470/Legality-of-Object-and-Consideration#scribd
References:
1. https://en.wikipedia.org/wiki/Contract
2. https://www.law.cornell.edu/wex/contract
3. http://chestofbooks.com/business/law/Handbook-Law-Of-Contracts/Chapter-VIII-Legality-of-Object.html
4. http://www.citeman.com/7416-what-is-legality-object-and-consideration.html
5. http://www.scribd.com/doc/27041470/Legality-of-Object-and-Consideration#scribd