Moral Theory of Contracts and Legal Theory of Contracts

Moral theory of contracts and legal theory of contracts

According to the contractarian moral theory, the concept of a contract or mutual agreement gives moral standards their normative power. Contractarians doubt that either divine will or a perfectionist ideal of human nature can serve as a foundation for morality or political authority.

In social contract theory , Locke believed that the person was a free, sensible being who freely chose to become a political subject. Civil society was established with the intention of defending and expanding freedom. The natural world was free and equal, but it needed security. The brutality of some low-life men frequently shook the peace of nature, making it uneasy.

Thus, Locke made an attempt to explain why men agreed to the foundation of political authority: to ensure greater adherence to natural laws, to bring objectivity to the formulation and application of laws, and to preserve peace. The social contract was created by humans to safeguard their rights to life, liberty, and property.

Contracts have always been a crucial component of our daily lives. We engage into contracts hundreds of times a year, whether we recognise it or not. Even when we purchase candy, we are making a deal with the store owner..

A legally binding arrangement or relationship between two or more parties to carry out or refrain from carrying out specific acts is known as a contract. A contract cannot be created until there is an offer and an acceptance. An acceptance of an offer, for which there must be deliberation, must support it. Both parties must aim to establish a legal relationship on a legal topic that must be voluntarily entered into and should be possible to carry out.

As was previously mentioned, for an agreement to be considered a contract, a legal obligation must result. if an agreement is unable to impose a legal obligation. It is not an agreement. As a result, an agreement has broader meaning than a contract.
Moral, religious, or social agreements, like a commitment to go to lunch with a friend or go for a walk, are not considered contracts because they are unlikely to result in a duty that can be enforced by the law because the parties never intended for them to have that effect.

Legal agreements, on the other hand, are contracts since they establish legal links between the parties.As was previously mentioned, for an agreement to be considered a contract, a legal obligation must result. if an agreement is unable to impose a legal obligation. It is not an agreement. As a result, an agreement has broader meaning than a contract.

Moral, religious, or social agreements, like a commitment to go to lunch with a friend or go for a walk, are not considered contracts because they are unlikely to result in a duty that can be enforced by the law because the parties never intended for them to have that effect.

Relation between principal and third party

Many agency agreements’ main goal is to establish a legal connection between the principal and the third party. However, a number of variables may affect whether such a relationship actually develops. The agency relationship could have issues, or the agent could act improperly.

Even worse, it’s possible that the third party thinks the agent is the principal. Knowing the legal status of the relationship between the primary and the third party is crucial when problems emerge.

Disclosed Principal

You may recall that in a conventional agency relationship, the agent will negotiate a contract on behalf of his principal with a third party, and then the agent will ‘drop out’ of the transaction.
However, whether or not the agent behaved within the bounds of his authority will have a significant impact on the principal’s and third party’s capacity to bring a claim based on the contract.
If the principal or a third party violates the contract while the agent is acting within the bounds of his actual power (explicit or implied), the innocent party may sue the offending party. A third party cannot sue the principal when the agent acts without permission.

A bill of exchange or check, for example, must be signed by the principal in order for him to bring or receive a lawsuit based on it.
Previously, it was assumed that an agent acting on behalf of a foreign principle lacked the authority to establish privity of contract between the principal and the third party. However, this assumption was later overturned.

Patnership at will

If there is no provision addressing the partnership’s termination when it is formed, we refer to it as a partnership at will. A partnership must meet two requirements in order to be a partnership at will, as stated in Section 7 of the Indian Partnership Act of 1932. There is no agreement regarding the duration of a partnership, and there is no provision regarding how a partnership will be determined. Therefore, this will not be a partnership at will if the partners agree on the length of the partnership or other aspects of the business. However, if a partnership was established for a set period of time and continues to exist after that time, it will turn into a partnership at will from the expiration of the term .

Particular Patnership

A partnership can be established for ongoing company operations or for a specific project or initiative. A partnership is referred to as a particular partnership if it was created specifically to carry out one commercial venture or to finish one activity. The partnership will be terminated after the aforementioned project or activity is finished. However, the partners are free to decide to keep the said relationship going. However, if this is absent, the partnership ceases after the job is over.

Rights of partners are as follows :-

i.The partner’s right to participate in day-to-day management of the business.
ii. The right to be heard and to be consulted before making any business-related decisions.
iii. The ability to inspect and request copies of the books of accounts.
iv. The right to divide the profits equally or in accordance with the partners’ agreement.
v. The right to receive interest on the capital that the partners of the company contributed.
vi. The ability to receive interest on loans that partners have made for commercial purposes.
vii. The right to indemnification for payments made, liabilities assumed, or losses averted for the firm.
viii. The right to use partnership assets solely for partnership business, not personally.
x. The option to forbid the entrance of new partners or the dismissal of current partners.
xi. The ability to continue till and until he stops being a partner himself.
xii. The right to retire with the approval of the other partners and in accordance with the terms of the deed.

Liability of a partner to third partners

i. Each partner is held jointly and severally accountable for any actions taken by the firm while he or she was a partner. Due to this liability, each partner may be sued either jointly or individually by the firm’s creditor.
ii. If a partner commits a wrongdoing that results in a loss to a third party, an injury to that party, or the imposition of a fine, the firm is equally responsible for such losses and injuries as the partner. The partner must, however, act within the bounds of the firm’s normal operations or with the consent of his fellow partners.
iii .When a partner misuses money or property obtained from a third party while acting within the scope of his apparent authority, or when a business improperly uses money or property acquired from a third party in the course of its operations by any of the partners, the firm is responsible for making up the loss.
iv. Responsibility of a new partner: A new partner is responsible for the firm’s debts and actions as of the day he joins. However, the new partner might consent to accept responsibility for obligations incurred before his admittance. Such a deal prevents the former creditor from bringing legal action against the new partner. He will be only liable to the other co-partners .
v. A retiring partner’s liability: A retiring partner is responsible for the firm’s actions prior to his retirement. However, if an agreement is struck between the third parties and the surviving partners of the company relieving the retiring partner of all liabilities, the retiring partner may not be accountable for the debts accrued prior to his departure. If a public notice of his retirement is not made, the retiring partner will be held responsible after retirement. If a sleeping or dormant partner retires, no such notice is necessary.

Liabilities of partners

i)Joint & Several: Each partner is responsible for the firm’s actions while he was a partner on a joint and several basis. A partner is always subject to unlimited liabilities.
ii) Liability for Losses Caused by HIM: Each partner is responsible for making up any damage the company suffers as a result of their dishonesty or willful negligence in conducting business. In no way can a partner absolve himself of such loss.
iii) Accountability for Secret Profits: A partner is responsible for disclosing and paying to the company any unreported profits made from the firm’s operations, assets, or goodwill.
iv) Accountability for Earnings from Competing Business: If a partner runs a business that is similar to and in competition with that of the company, he is responsible for accounting for and paying the company any profits he makes from that venture.
v) Liability to Render True Accounts: In order to benefit other partners, a partner must render true accounts. He is required to reveal all accounts, whether legitimate or illicit, that are relevant to the firm’s operations.
vi) Responsibility for Firm Losses: Just as a partner is entitled to a portion of the firm’s profits, he is also responsible for contributing equally to its losses, unless otherwise specified.

Negotiable Instruments Act

Basically, a document with monetary worth that can be freely transferred is a negotiable instrument. Examples of these instruments include checks, bills of exchange, and others.

The value and transferability of negotiable instruments are their primary attributes. An instrument can be a negotiable instrument as long as it has these characteristics.

1.Bearer Instruments

For negotiable instruments to become payable to bearers, two requirements must be met. First, the parties to the transaction must explicitly state that it is due in full. Second, a blank endorsement should be the sole one offered for it.

The primary implication of these two requirements is that any holder of such instruments is eligible to receive payment for them. A bill of exchange, for instance, is payable to whoever has it. Cheques, bills of exchange, and promissory notes are some examples of these bearer documents.

2.Purchase equipment

In some circumstances, it is common for negotiating documents to be payable to order. When they are specifically stated to be payable in the documents, they are payable. They might also only be payable to one individual by order.The only prerequisite is that transferability should not be prohibited.

3 . Inland Instruments

The NI Act’s Section 11 addresses inland instruments. This clause essentially governs financial instruments that are drawn and payable in India. Alternately, they might be due outside of India, but only if an Indian resident uses them.

4. Foreign Devices

Any instrument that is not domestic automatically qualifies as foreign. Although they are drawn in a foreign nation, these instruments may be payable inside or outside of India. They might even come from India, but just to be paid to someone who lives abroad.

5. Instruments of Demand

An instrument could occasionally not state how long it will continue to be payable. These instruments typically pay anytime the bearer requests.

Rightful Dishonour of cheque

The paying banker is justified in dishonouring a cheque in the following circumstances.

Insufficient funds– When there are insufficient funds to meet the requirement specified in the cheque, or when the amount to the customer’s credit is insufficient to cover the entire amount of the cheque, the instrument may be dishonoured.

Unfilled particulars– A banker can dishonour a cheque if all of the required particulars of the cheque are not in order. The date, name of the payee, amount written in both words and numbers, signature of the drawer, account number, and so on must be properly filled in; otherwise, the banker may refuse to honour the cheque

If the cheque is not properly presented, that is, if it is presented at a branch where the customer does not have an account, if it is presented after banking hours, or if it is not presented within a reasonable time, the banker may refuse to honour the cheque.

Death of the customer– When a customer dies, the balance in their account passes to their legal representatives, and once the banker receives notice of the customer’s death, he may refuse to honour any cheques issued by the drawer prior to his death, because the amount in the account now belongs to his legal representatives.

Customer insolvency: When a customer is deemed insolvent by a court of competent jurisdiction, all of his assets are transferred to the assignee, and as a result, a banking may decline to honour such checks.

Fraud: If a check is forged, the banker may refuse to honour it.

Court orders: The banker may decline to honour a check if a court issues an attachment order, judgement, or garnishee order against a person in accordance with section 39 of the Civil Procedure Code of 1908 or the Specific Relief Act of 1963.

Sales of Goods Act 1930

Almost every type of business involves the purchase and sale of goods as part of its transaction. People in business frequently enter into contracts of sale to sell their goods. All of these transactions are governed by the Sale of Goods Act of 1930, which is one of the most important types of contracts under Indian law. Every individual, whether a legal professional or a common man, who regularly transacts in goods must understand the key terms of this contract. This article will introduce you to some of the key terms found in the Sale of Goods Act of 1930.

This act defines a contract in which the seller of specific goods transfers or agrees to transfer the goods to the buyer in exchange for a fee. This mercantile law was enacted on July 1, 1930, during India’s British Raj. This law was heavily influenced by the United Kingdom’s Sale of Goods Act of 1893. Except for Jammu and Kashmir, the law applies throughout India. A contract of sale, according to section 2 of this act, is a generic term that refers to both the sale and the agreement to sell and is characterised by:An offer to buy goods for a price or an offer to sell goods for a price and Acceptance of the offer.

Important Terms

Buyer – As defined in section 2(1), a buyer is someone who purchases or agrees to buy certain products. In the contract of sale, the buyer is listed as one of the parties.
Seller – As defined in section 2(13), a seller is someone who sells or agrees to sell certain products. The seller is named as one of the contract’s parties.

We can conclude from combining the definitions of a buyer and a seller that it is not necessary to transfer goods to be considered a buyer or a seller. You become buyer and seller under the contract of sale simply by agreeing or promising to sell and buy goods

Goods are any type of merchandise or possession.

Section 2(7) describes an important clause in the contract for sale of goods as follows: It is a movable asset (except for money and actionable claims)

Shares and stocks Crops, grass, and standing timber Things attached to the land but agreed to be severed prior to the sale.
For example, if a resort provides complimentary food and lodging but customers do not wish to take the food. Then the food rebate is inapplicable because the food was not included in the sale.

Types of Goods Act

Existing Goods – Existing goods are goods that exist physically at the time of the contract and are in the seller’s legal possession. They are further classified as follows:

Specific Goods – As defined in section 2(14), they are goods that are identified and agreed to be transferred at the time the contract is made. For instance, A wishes to sell a Bike of a specific model and year of manufacture, and B agrees to purchase the bike. The bike is a specific good in this context.

Ascertained Goods – These are goods that are identified by judicial interpretation rather than by law. Ascertained goods are goods that have been identified and marked for sale in whole or in part at the time of the contract. These items have been designated for sale.

Unsanctioned or Unascertained Goods – Unsanctioned goods are those that are not specifically identified for sale at the time of the contract. For example, there is a bulk of 1000 wheat quinols, of which 500 are agreed to be sold. The seller can choose the goods from the bulk in this case, and it is not specified.

Future Goods – Section 2 contains a definition of future goods (6). Future goods are goods that do not exist at the time of the contract but are expected to be produced, acquired, or manufactured by the seller. For example, suppose A sells chairs and B desires 300 chairs of a particular design, which A agrees to manufacture at a later date. Chairs are considered future goods in this context.

Contingent Goods – The definition of contingent goods can be found in section 6(2) of the Sale of Goods Act. A contingent good is a type of future good that is contingent on certain conditions occurring (or not occurring).


Section 2(2) defines delivery of goods as the process of transferring possession of goods from one person to another. The person receiving the goods may be the buyer or another person authorised by the buyer to do so. The following are the various types of goods delivery:

Actual Delivery – An actual delivery occurs when the commodity is handed over directly to the buyer or a person authorised by the buyer.

Constructive Delivery – A constructive delivery occurs when goods are transferred without any change in possession. It could imply that the seller holds the goods as bailee.

Symbolic Delivery – The goods are not delivered in this case, but a symbolic means of obtaining possession is involved. A symbolic delivery is, for example, handing over the keys to a warehouse where the goods are stored. This type of delivery is typically used when the goods are large or heavy. for the buyer even after selling them.

Hire purchase Agreement

A hire purchase agreement is a contract that is entered into when purchasing expensive goods. At the time of purchase, the consumer makes a mortgage payment, and the remaining balance is paid in interest-bearing instalments.

Though hire purchase is not widely used in India, a mortgage is a similar concept. A mortgage typically entails the borrower pledging a previously owned item in order to obtain some spending money. As long as the debt is repaid, ownership of the item is transferred to the lender. The borrower uses hire purchase to purchase a new item.

The lender will inherit the purchased goods in both cases until the borrower pays off the entire debt.

To be classified as a hire purchase agreement, the terms of the agreement must include the following elements:

The owner gives a person possession of goods on the condition that the person pay the agreed-upon amount in periodic instalments.

The ownership of the goods passes to such person upon payment of the final instalment.

The person has the option to cancel the agreement before the property is transferred.

The agreement is backed up by consideration in the form of regular rentals paid to the owner by the hirer and the hirer’s right to use the goods.

1 .
2 .
3 .
4 .

Author: Harsh Srivastava,
Second Year Law Student /The University of Petroleum & Energy Studies

Leave a Comment