Nature of Contract (Short Notes)

By Y.Srinivasa Rao, M.A (English Lit.)., B.Ed., LL.M., Research Scholar in Law of Torts., Principal Senior Civil Judge.

Table of contents:

  1. Contract.
  2. Implied Contract
  3. Contract in Restraint of Trade
  4. Contract in Restraint of Marriage
  5. Contract of Benevolence 
  6. Contract of Indemnity 
  7. Contract of Affreightment
  8. Contract of Carriage
  9. Contract of Guarantee
  10. Contract of Agency and Contract of Sale
  11. Contract of Service and Contract for Service 

Contract:-

An agreement between competent parties, upon a legal consideration, to do or to abstain from doing some act. For numerous other definitions, see Chalmers’s Sale of Goods Act, App. II., at p. 169, where it is said that ‘the disposition of the best modern writers appears to be define ‘contract’ as an agreement enforceable at law,’ but contended that this definition seems rather too narrow. Every contract is founded upon the mutual agreement of the parties; when the agreement is formal, and stated either verbally or in writing, it is usually called an express contract; when the agreement is matter of inference and deduction, it is called an implied contract. Contracts are also distinguished into executed and executory: executed, where nothing remains to be done by either party, and where the transaction is completed at the moment that the arrangement is made; as where an article is sold and delivered, and payment for it is made on the spot; executory, where some future act is to be done; as where an agreement is made to build a house in six months; or to do an act on or before some future day; or to lend money upon a certain interest, payable at a future time. There is also one other distinction, namely, that between entire and severable contracts. An entire contract is one the consideration of which is entire on both sides. The entire fulfilment of the promise by either is a condition precedent to the fulfilment of any part of the promise by the other. Whenever, therefore, there is a contract to pay the gross sum for a certain, and definite consideration, the contract is entire. A severable contract is one the consideration of which is, by its terms, susceptible of apportionment on either side, so as to correspond to the unascertained consideration on the other side, as a contract to pay a person the worth of his services so long as he will do certain work; or to give a certain price for every bushel of so much corn as corresponds to a sample.

Implied Contract — A contract which the law infers, from acts, circumstances or relationships, as that an employer will pay the person employed what his labour was worth.

Contract in Restraint of Trade — 

1). In the case of Petrofina (Great Britain) Ltd. v. Martin, 1966 Ch 146: (1966) 2 WLR 318: (1966) 1 All ER 126 Diplock L.J. in the Court of Appeal, has said (All ER p. 138.) that a contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the convenantee) to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses. Zaheer Khan v. Percept D’ Mark (India) Pvt. Ltd., AIR 2004 Bom 362. 

2). Contracts in general restrained of trade is, that a party shall not carry on a particular trade at all — are void on the ground of public policy (Mitchel v. Reynolds, (1711) 1 PWMs 181: 24 ER 347, but contracts in partial restraint of trade — that is, where the restrain does not extend further than is necessary for the reasonable protection of the party for whose protection it has been agreed to are good, if made, although by deed, for some consideration, and if not injurious to the public interests of this country.

Contract in Restraint of Marriage — On the grounds of public policy, conditions attached to gifts or bequests to a person who has never been married, if in general restraint of marriage, are void, i.e. the donee or legatee takes the gifts or bequests whether he or she marry or not; but a condition in restraint of the second marriage, whether of a man or woman, is not void (see Allen v. Jackson, (1875) 1 Ch D 399), and a condition is good if the restraint be partial only.

Contract of Benevolence — A contract made for the benefit of one of the contracting parties only, as a mandate or deposit.

Contract of Indemnity — 

1). Contract of Indemnity means a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called a “contract of indemnity”, [Section 124, Contract Act, 1872 (India)]. 

2). A contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of any other person as contemplated in Section 124 of the Indian Contract Act. But indemnity, as applicable to marine insurance, must not be an indemnity, as contemplated by the Indian Contract Act, as the loss in such a contract is covered by the contract itself and such loss is not caused to the assured by the conduct of the insurer nor by the conduct of any other person, State of Orissa v. United India Insurance Co. Ltd., (1997) 5 SCC 512.  

Contract of Affreightment — Contract of affreighment means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period, [Section 115-VI(2)(A), Explanation, Income Tax Act, 1961 (India)].

Contract of Carriage — Applies only to contracts of carriage covered by a bill of lading or any similar document of title, in so far as such document relates to the carriage of goods by sea including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same, [Article 1(b), Carriage, Goods by Sea Act, 1925].

Contract of Guarantee — It means a contract to perform the promise or discharge the liability, of a third person in case of his default. See. Section 126 of Contract Act, 1872 .

Contract of Agency and Contract of Sale — As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship, Sri Tirumala Venkateswara Timber & Bamboo Firm v. CTO, AIR 1968 SC 784: (1968) 2 SCR 476: 21 STC 312.

Contract of Service and Contract for Service — There is a well-recognised distinction between a “contract of service” and a “contract for services”. A “contract for services” implies a contract whereby one party undertakes to render services e.g. professional or technical services, to or for another in the performance of which he is not subject to detailed direction and control but exercises professional or technical skill and uses his own knowledge and discretion. (See Oxford Companion to Law) A “contract of service” implies relationship of master and servant and involves an obligation to obey orders in the work to be performed and as to its mode and manner of performance. (SeeStroud’s Judicial Dictionary, 5th Edn.; Simmons v. Heath Laundry Co., (1910) 1 KB 543: 79 LJKB 395; and Dharangadhra Chemical Works Ltd. v. State of Saurashtra, AIR 1957 SC 264 at p. 159.) (Para 40), Indian Medical Assn. v. V.P. Shantha, (1995) 6 SCC 651.

  There is a distinction between a “contract of service” and a “contract for service”. A “contract for service” implies a contract whereby one party undertakes to render service e.g. professional or technical service, to or for another in the performance of which he is not subject to detailed direction and control and exercises professional or technical skill and uses his own knowledge and discretion, whereas a “contract of service” implies relationship of master and servant and involves an obligation to obey orders in the work to be performed and as to its mode and manner of performance. A contract of service is excluded for consideration from the ambit of definition of “service” in the Consumer Protection Act, whereas a contract for service is included, Kishore Lal v. ESI Corpn., (2007) 2 SCC (L&S) 1.

Law of Contracts

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