Contract Law

What is a Contract

All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object.

Every person is competent to contract if he is a major and is of sound mind. A person is deemed to be of sound mind if at the time of making the contract he is capable of understanding it and forming a rational judgment as to its effect upon his interests.

Free consent means when the consent is not caused by coercion, undue influence, fraud, misrepresentation or mistake

Formation of a Contract

A contract is formed when a person competent to contract makes a proposal the terms of which are certain and the same is made with an intention of creating a legal relation. Such a proposal must be communicated to the person for whom it is made. When such a proposal is accepted and promise is made for a consideration a contract is completed.

The Indian Contract Act 1872 declares as void any agreement if the object of such an agreement is unlawful. An agreement made without consideration is deemed void unless it is a promise to compensate for something done or to pay a debt. Similarly an agreement in restraint of marriage is void. Also an agreement in restraint of trade or in restraint of legal proceedings is void. Agreements by way of wager are also deemed void. Lastly an agreement the meaning of which is not certain or which is impossible to perform is void.

Once a contract is entered into the parties must perform their obligations under the contract. Where one party to a contract fails to perform his part of the contract or is unable to perform his part of the contract, the second party may terminate the contract.

Consequences of breach of contract

When a contract is breached by one party, the party who suffers by such breach of contract is entitled to receive from the person who has broken the contract, compensation for any loss or damage that has occurred to him by such breach. Such compensation however cannot be claimed for remote or indirect damages.

In some contracts there is a provision for a stipulated amount to be paid as penalty in case of breach of contract. In such a case the party that suffers due to the breach of contract is entitled to such penalty whether or not actual damage or loss is proved.

The Indian law recognizes all types of contract if they meet the conditions mentioned in the Contract Act.

Disclaimer: This information is of a general nature regarding the law. The readers are advised not to act upon this general information. Please take further and appropriate advice based on the facts of your case from The Indian Lawyer by logging a query. The Indian Lawyer disclaims its liability for any adverse acts taken by the readers based on this limited information only.

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