Page 12 - DMGT407Corporate and Business Laws

Unit 1: Laws of the Contract

4. At the time of entering into the contract parties must bethinking of the same thing in the Notes
same sense. It is called the consensus ad idem. Their minds must meet at the different
facets of the subject matter of the contract.
5. There must be an intention on the part of the parties to create the legal relationships.
6. An agreement of a purely social or domestic nature is not a contract. In commercial
agreements, the law presumes that the parties intended those agreements to have legal
consequences.
7. The consent of the parties to the agreement must be free and genuine.

8. The parties to contract must be competent to the contract.
9. The contract must be supported by consideration on both sides. Each party to the contract
must give or promise something and receive something or a promise in return.

10. The meaning of the agreement be certain or capable of being made certain.
11. The terms of the agreement should be capable of performance.

Did u know? Privity of the 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.

Self Assessment

Fill in the blanks:
5. Party making the offer is known as offeror and the party to whom the offer is made is
called as…………...
6. When an offeree gives his assent to the offer, then he is known as ………………..

1.4 Classification of the Contracts

Contracts can be classified in terms of their: (1) validity/enforceability (2) mode of formation
and (3) performance.
1. Classification of contracts according to formation: A contract may be (a) Made in writing
(b) By words spoken and (c) Inferred from the conduct of the parties or the circumstances
of the case. Thus, s.9 provides that insofar as the proposal or acceptance of any promise is
made in words, the promise is said to be express. Further, insofar as such proposal or
acceptance is made otherwise than in words, the promise is said to be implied. Accordingly,
contracts may be classified according to the mode of formation as express contracts and

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