Nature of Contract Act

Nature of Law of Contract

Law of contract is the branch of law which determines the circumstances in which promises made by the parties to a contract are legally binding on them. Its rules define the remedies available in a court of law against a person who fails to perform his contract, and the conditions under which the remedies are available.

The law of contract is contained in the Contract Act, 1872 which

a) deals with the general principles of law governing all contracts, and

b) covers the special provisions relating to special contracts like Bailment, Pledge, Indemnity, Guarantee and Agency.

For Example;

1. When you purchase a newspaper, you enter into a contract with the vendor of newspaper.

2. When you purchase milk, you enter into a contract with the milkman.

3. When you purchase bread and butter, you enter into a contract with the vendor of bread and butter.

Law of Contract is not the whole Law of Agreements nor the whole law of obligations:

The law of contracts is the law of only those agreements which create legal obligations (i.e. an obligation which is enforceable by law), it is not the law of those agreements which do not create legal obligations.

An obligation is the duty to do or not to do certain act. In other words, the law of contract is concerned with only those agreements where the parties have the intention to create legal obligations (i.e. the parties are bound to do or not to do certain act). In business or commercial agreements, the usual presumption is that the parties intend to create legal obligations. However, in social, domestic, moral or religious agreements, the usual presumption is that the parties do not intend to create legal obligations.

Salmond has observed that the law of contract is “not the whole law of agreements, nor is it the whole law of obligations. It is the law of those agreements which create obligations and those obligations which have their sources in agreements.” It excludes all obligations which are not contractual in nature and agreements which are social in nature.

Example: X offers to sell his car to Y for ` 1,00,000. Y accepts this offer. In this agreement if there is default by either party, an action for breach of contract can be enforced through a court of law provided all the essential elements of a valid contract are present in this agreement.

Example: X invites Y to dinner. Y accepts the invitation but fails to turn up. Here, X cannot sue Y for damages because the parties to this agreement do not intend to create legal obligations.