Law of Contract Branch of law Promises made shall be legally binding on parties to a contract Introduces a definiteness in business transactions
Evolution Development of Human Civilization
Frequency of exchanges between persons and communities Changes in social and economic behavior
Need for a code to govern bilateral transactions
Scheme of Indian Contract Act, 1872 General Principles of contract
Special contracts Bailment and pledge Indemnity and guarantee Agency
Indian Contract Act Does not deal with
Partnership Sale of goods Negotiable instruments
insurance
Nature of Law of Contract Differs from other branches of law Does not lay down rights and duties
Lays down principles subject to which parties can create contracts Parties create law for themselves
Gives freedom to contract in any way the parties please Contract and Conveyance
Jus in personam What is a contract ?
A contract is an agreement enforceable by law What is an agreement ?
Every promise and every set of promises forming consideration for each other is an agreement What is a promise ?
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.
What is a proposal (offer) ?
A person is said to have made a proposal when he Signifies to another
His willingness
To do or to abstain from doing anything
With a view to obtaining the assent of that other to such act or abstinence An accepted proposal is an agreement
Agreement = Offer + Acceptance Essential elements of a valid contract
Offer and Acceptance
Intention to create legal relationship (agreements of social or domestic nature do not contemplate legal relationship)
Lawful consideration Capacity of parties to contract
Free and genuine consent Lawful object
Agreements not declared to be void Certainty and possibility of performance
How can you make an offer ? By express words By implied conduct of parties
e.g. “Will you sell your car to me for Rs. 100000?” Or
Installation of a public telephone at a public place To whom can an offer be made ?
To definite person To world at large
(Carlill v/s Carbolic Smoke Ball co) What constitutes an offer ?
An obvious intention to be bound by it Object of obtaining assent of offeree
Must be definite Must be communicated
Legal Rules as to offer Must be capable of being accepted “A social invitation is not an offer”
Must be definite and certain “I will sell you a car”. I have three cars. Which Car ? At what price ? Where ? When?
Must be communicated
No communication no acceptance, No acceptance, no agreement, No agreement, no contract Must have an intention to obtain assent of other party
Offer should not contain a term the non compliance of which may be assumed to amount to acceptance One cannot say that if the acceptance is not communicated by certain time, the offer would be considered as
A statement of price is not an offer What is not an offer ?
A declaration of intention and an announcement
An auctioneer announcing an auction in the newspaper. If the auction is cancelled, one cannot sue for cancellation
It is merely a declaration of intention or announcement An invitation to make an offer or do business
Display in a shop Invitation to purchase
Sale of goods in malls, contract is made when the cashier at the counter accepts the payment What is Acceptance ?
An act of assenting to the offer. Can be Express or Implied
At an auction sale, X is the highest bidder. The auctioneer accepts the offer by striking the hammer on the table. This is an implied acceptance.
Legal Rules as to Acceptance It must be absolute and unqualified
A made an offer to B to purchase a house with possession on 25th July. The offer was followed by an
acceptance suggesting possession from 1st Aug. There was no agreement.
It must be communicated to the offeror
A mere resolve or determination of offeree without any manifestation is not acceptance A draft agreement for supply of coal
Sent to the manager of a railway company
Manager wrote on it “approved” and put it in his drawer. Not communicated to the offeror No contract resulted.
Must be given within a reasonable time. Must not precede the offer
Must be given by the party to whom the offer is made Must be given before the offer is revoked
Cannot be implied from silence Communication
Deemed to be made by an act or omission
Can be done through words spoken or written or through conduct
A proposes to sell his house to be at a certain price. The offer is sent through a letter posted on 10th July.
Letter reaches to B on 12th July
Communication of Offer is complete on 12th.
B accepts to purchase at the offered price. He sends is assent through a letter posted on 14th July.
Comm. is complete as against A on 14th.
This letter reaches A on 16th July.
Comm is complete as against B on 16th.
Communication of revocation Taking back, withdrawal, recalling
Comm is complete as against the person to whom it is made, when it is put into transmission As against the person who makes it, when the other person comes to know of it
Time for revocation Of offer
Any time before the communication of acceptance is complete as against the proposer Of Acceptance
Any time before the communication of acceptance is complete as against the acceptor Consideration
When at the desire of the promisor, The promisee or any other person Has done or abstained from doing Or does or abstains from doing Or promises to do or to abstain from doing
Something,
Such act or abstinence or promise is called a consideration for the promise Consideration can be
Past Present
Future
It is an act e.g. A promises B to guarantee payment of price of the goods which B sells on credit to C. It is an abstinence e.g. A promises B not to file a suit against him if B pays A Rs. 500.
Legal Rules as to Consideration It must move at the desire of the promisor
It may move from the promisee or from any other person It may be an act, abstinence or forbearance
May be past, present or future Need not be adequate. Must be real and not illusory.
Must not be illegal and immoral Capacity to contract
Who can contract ? A major
A person of sound mind
A person who is not disqualified from contracting by any law to which he is subject Contracts with minor
Inoperative and void ab initio Contracts with persons of unsound mind
A lunatic
A drunken or an intoxicated person
But when he is not under the influence of intoxication, he is capable of contracting. FREE CONSENT
Consent is not free when it is affected by any of the following elements: Coercion
Undue influence Misrepresentation
Mistake
Valid contract requires consensus ad idem. When consent is not free, contract is voidable.
Coercion
Coercion includes fear, physical compulsion & menace
Threat to commit suicide amounts to coercion
Undue Influence
When one of the parties to a contract is in a position to dominate the will of the other When he/she abuses this position to obtain unfair advantage
Following relationships raise presumption of Undue Influence Parent and child
Guardian and ward Trustee and beneficiary Religious advisor and disciple
Doctor and patient Solicitor and client Fiance and fiancee
Misrepresentation It is a false statement
The person making it honestly believes it to be true Or he does not know it to be false
Misrepresentation includes non disclosure of material fact without any intention to deceive Fraud
It exists when a false representation is made Knowingly without belief in its truth &
Recklessly
And the person making it intended the other party to act upon it
It exists when there is a concealment of a material fact or partial statement of fact with an intention to deceive or to induce to enter into a contract
Mistake
Of law
Of own country of foreign
No defence contract is void
Of fact
Bilateral Unilateral
Agreement Generally not allowed
is void as a defence Exceptions: Identities of Persons Nature of contract Legality of Object
Consideration must be legal It is unlawful in the following cases:
It is forbidden by law It is fraudulent
It involves or implies injury to the person or Property of another
It is regarded immoral It is opposed to public policy
EFFECTS OF ILLEGAL AGREEMENTS Void ab initio
Collateral transaction become tainted with illegality
No action can be taken for recovery of money paid or property transferred No action can be taken for breach of agreement
CONTINGENT CONTRACTS
It is contract to do or not do something if some Event collateral to such contract does or does not
Happen Event is uncertain Event is collateral
‘A’ agreed to purchase certain shares of a company if the company appointed him as its sole agent at a certain place. Before the company do that, it went into liquidation.
‘A’ was entered in the list of contributories.
Held A was not liable as the event upon which purchase of share was to take place, never occurred. Performance of contract
Performance of a contract takes place when parties to it fulfill their obligations within the time prescribed and in the manner prescribed.
What is an offer to perform ?
A software company enters into a contract with a mining company to install electronic device system for dispatch of mined lignite. The software company installs the system.
Subsequently the mining company prevents them from operationalizing the system. Time is of essence in a contract
The performance of a promise within the specified time by a party to the contract is essential in order to entitle him to enforce performance from the other party.
In business and mercantile contracts, time is of essence because business requires certainty. Discharge of contract
Termination of contractual relationship between the parties
Discharge takes place when rights and obligations created by a contract come to an end How can a contract be discharged?
By performance By agreement or consent By impossibility By lapse of time By operation of law By breach of contract ‘X’ let out a hall for music concert.
The hall fell through in an earthquake before the first concert could take place. Contract is discharged.
Breach of a contract
If a party breaks his obligation which the contract imposes, there takes place a breach of the contract. Actual breach may take place either at the time when performance is due
Or during the performance of the contract
Anticipatory breach may take place when the party repudiates his obligations before the time of performance arrives
‘A’ undertakes to supply 10 cars to B on 1st Jan. Before this date, he informs B that he is not going to supply
the goods. This is anticipatory breach of contract. What can you do in case of breach?
Can rescind the contract Can sue for damages Can sue for specific performance
Can sue for injunction Quasi contracts
It is a relationship resembling that created by a contract. Constructive contracts under English law
Principle of unjust enrichment It is created by law Types of quasi contracts
Supply of necessities Payment by the interest person Obligation to pay for non gratuitous act
Responsibility of finder of goods
Something delivered in Mistake or under coercion
A supplies the wife and children of B, who is a minor, with necessaries suitable to her condition in life. A is entitled to be reimbursed from the property of B.
F picks up a diamond on the floor of S’s shop He hands it over to S to keep it till true owner is found out
No one appears to claim it for quite some weeks in spite of the wide advt. F claims the diamond from S
S refuses to return
The Govt effected certain repairs to the tank for its preservation The Govt had no intention to do so gratuitously
The Zamindars enjoyed the benefits thereof
An insurance company paid the amount on a policy under the mistake that the goods had been destroyed by a peril insured against.
The goods in fact had been sold. The co. can recover the money.
Indemnity
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
Guarantee
It is a contract to perform the promise, or discharge the liability of a third person in case of his default. Bailment
Derived from a French verb, bailler = to deliver
Delivery of Goods is a key concept of Bailment The possession has to be parted with by the bailor
e.g. A delivers the goods for being transported from Anand to Ahmedabad to a transport company Pledge Bailment of goods as security for payment of a debt or performance of a promise is called pledge
e.g. A borrows Rs. 200 from B and keeps his watch as security for payment of the debt Any kind of movable property i.e. goods, documents or valuables may be pledged
