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Unit 1: Law of Contract

centres not on whether someone has violated a contract but whether there was a contract in the Notes

first place. Other disputes centre on whether a change in circumstances has made the contract
unenforceable.
1.2 Contract

A contract is an agreement, enforceable by law, made between at least two parties by which
rights are acquired by one and obligations are created on the part of another. If the party, which
had agreed to do something, fails to do that, then the other party has a remedy.

Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai
to Bangalore on 10 January. The Airlines is under an obligation to take X from Mumbai to

10 January. In case the Airlines fail to fulfil its promise, X has a remedy against it. Thus, X has a
right against the Airlines to be taken from Mumbai to Bangalore on 10 January.
A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor
(the Airlines), the other party to the contract (i.e., X) has a legal remedy.

Privity of Contract

As a contract is entered into by two or more persons thereby creating rights and obligations
for them, it is a party to the contract only who can enforce his rights as against the other party
(i.e., the promisor). The basic principle underlying law of contracts is that a stranger to a contract
cannot maintain a suit for a remedy. The law entitles only those who are parties to the contract

to file suits for exercising their rights. This is known as ‘privity of contract’. This rule can be
traced to the fact that the law of contracts creates jus in personam as distinguished from jus in rem.
Therefore, a stranger to a contract cannot maintain a suit.

Example: A is indebted to B. A sells certain goods to C. C gives a promise to A to pay off A’s
debt to B. In case C fails to pay, B has no right to sue C, being a stranger to the contract between
C and A. In other words C is not in privity with B. However, C is in privity with A.

Figure 1.2: Privity of Contract
M M = Manufacturer
Goods ` W = Wholesaler
R = Retailer
W
B = Buyer
Goods ` B is in privity of contract with
R only but not with W and M
R
Goods `

B

Formation of a Contract

There are different modes of formation of a contract. It may be made in writing or by word of
mouth, or be inferred from the conduct of the parties or the circumstances of the case.

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