Professional Documents
Culture Documents
Sem II
Index
Definitions
Classifications of Contracts
Essential Elements of a Valid Contract
Discharge of a Contract
Contingent contracts
Definitions
When one person 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, he is said to
make a PROPOSAL or OFFER
ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic rule of
Public Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID, BUT ALL
VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between the
immediate parties but has its further effect that even the collateral transactions to it become tinted with
illegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principal
contract.
Unilateral Contract – where any one party to the contract has to still
perform their share of obligation
Bilateral Contract - where any both the parties to the contract has to still
perform their share of obligation
Essential Elements of a Valid
Contract
All agreements are contracts if they are made with:
Offer and Acceptance
Intention to create a legal relationship
Lawful Consideration
Capacity of the Parties
Free Consent
Lawful Object
Certainty and Possibility of Performance
Legal formalities
If any of the above is missing, the contract becomes void.
EssentialE.g.,
Elements of a Valid Contract -
Mr. A has 3 cars. He asked Mr. B “are you ready
to purchase my car for Rs. 2 lakhs.
Offer and Acceptance
There must be minimum two parties to an
agreement.
I.e. one party making the offer (also called as
offerer/proposer/promisor)
and
the other accepting it (also called as
offeree/proposee/promisee/acceptor)
Implied offerE.g.,
- An offer
If Mr. maytoalso
A asks behis
B, for implied
blue carfrom the conduct of
for Rs.
the parties or the2,00,000/-,
circumstances of the accept
Mr. C cannot case. the offer.
statement of price is not an offer: a mere declaration of intention or a a mere statement of price is
not construed as an offer to sell.
Offer and other forms
There is a clear difference between offer, invitation to offer or an announcement:
An announcement: a declaration by a person that he intends to do something gives no
right of action to another. Such a declaration only means that an offer will be made or
invited in the future and not that an offer is made now. E.g., Auction sale, will, etc.
An invitation to make offer: display of goods by the shopkeeper with a price marked
on it does not make
Eg: Aaninvites
offer, but merely
tenders forgives an invitation
the supply of 100 tobricks.
the public to make
X, Y, and Zan
offer to buy the Eg; a at
goods railway Co. invited
the price marked tender
on it. for
E.g.,certain Iron articles
quotations, which
catalogues,
submit the Tender. A accepts the tender given by X. There is
it mightissued
advertisements, prospectus require over
by the a year.etc.W’s tender was accepted. He
company,
binding contract between A and X
supplied goods for some time. He refused to supply at a later
time.
Tender is an offer to But the contract
the invitation is binding
of an offer. on W
(public ad).
the offer
It cannot be implied for the silence - the acceptance of an offer cannot be implied from
the silence of the offeree, unless the offeree has, by his previous conduct inducted that his
silence means the acceptance.
Lapse or termination of offer
I. By communicating the notice of revocation - Offeror can give notice of
revocation to offeree but before the acceptance is complete as against him.
e.g., At an auction sale, A makes the highest bid of B’s goods. He withdraws the bid
before the fall of the hammer. The offer has been revoked before its acceptance.
II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed
time is over, otherwise after the reasonable time.
e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to
accept. The purchaser accepted the offer on Monday, by that time A had sold the wool.
Held, the offer had lapsed.
IV. By death or insanity of the offeror provided the offeree comes to know it
before acceptance. But If he accepts an offer in ignorance of the death or insanity
of the offeror, the acceptance is valid.
Lapse or termination of offer
V. By counter offer - When offer is accepted with some modifications in the terms of the offer,
then it amounts to counter offer. By putting counter offer the original offer comes to an end.
E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you ready
to sell it to Rs. 8 lakhs. B’s question to A is a counter offer.
E.g. An offeree agreed to accept half the quantity of goods offered by the offeror on the
terms and conditions as would have applied to the full contract. Held, there was no
contract as there was a counter offer to the offer.
VI. If an offer is not accepted according to the prescribed or usual mode provided the offeror
gives notice to the offeree within a reasonable time that the acceptance is not according to the
prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the
acceptance.
VII. If the law is changed. An offer comes to an end if the law is changed so as to make the
contract contemplated by the offer illegal or incapable of performance.
VIII. Destruction of subject matter: - ‘A’ offers ‘B’ his cow for Rs. 4500/- In the mean time, the
cow dies due to snake bite. The offer is lapsed.
Rejection of offer: - An offeree may reject the offer. Once he does that he cannot subsequently
accept it.
Rejection of the offer may be express or implied.
Express Rejection: The offeree may reject the offer expressly, i.e., by words written or
spoken. This is effective only when notice of rejection reaches the offeror.
Implied Rejection: Rejection of the offer is implied by law- where the offeree makes a
counter-offer or where the offeree gives a conditional acceptance
Communication of Offer.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The
letter is posted 10th July. It reaches B on 12th July. The
communication of the offer is complete when B receives the letter, i.e.,
on 12th July.
Proposer
Revocation of Offer
Revocation means
taking back or
Withdrawal or
cancellation.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
Communication of Revocation of Offer
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
against A when the telegram is dispatched, i.e., on 19th May. It is complete as
against B when he receives it, i.e., on 21st May.
The communication of a revocation is complete -as
against the person who makes it (i.e. for the
revoking party), when it is put into a course of
transmission to the person to whom it is made, so as
to be out of the power of the person who makes it;
(i.e. when the letter of revocation is posted.)
A proposal is revoked –
(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
.
Legal Rules to Consideration
Move at the desire or request of promisor - An act constituting consideration must have been done at the desire or
request of the promisor, if it is done at the desire of the third party or without the desire of the promisor it will not be a
A borrows
E.g.,good Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
consideration.
is
now about
It may to file
move from the a suit and
Promisee or anyAother
agreesPersonnow
– Thistomeans
paythat
a higher
as long asrate
there of
is ainterest. B for
consideration agrees forit
a promise
not is immaterial
filing
contract
who
a suit. Thishas furnished it. But aisstranger
forbearance a validto consideration.
the consideration will be able to sue only if he is a party to the
It need not be adequate - Consideration as said “something in return” and something this something in return need not
be equal in value to “Something given”. The law requires that the contract must be supported by consideration and not
the adequate consideration.
Must be real & not illusionary - There is no real consideration in the following cases:
Physical impossibility: A promises to put life into B’s dead wife on the consideration of Rs.999. A’s promise is
physically impossible to perform.
Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn promise to
discharge A from the liability. This is legally impossible, because C cannot discharge A from the debt due to B.
Uncertain consideration: A engages B for doing certain work and promises to pay a “Reasonable some”. There is no
CL: There
recognizedwas
methodaof ascertaining
promisetheto“Reasonable
pay toSome”.the Thevakil anis additional
promise sum
unenforceable due if the suit
to uncertainty. was
successful. Held,
E.g.,
Should not be illegal - thethe
supari topromise givenwas
kill someone.
consideration for an void formust
agreement the not want of consideration.
be unlawful. The vakil
A consideration to the contract
was under a pre-existing contractual obligation to render the best of his services
must not be against Public Policy, Immoral and illegal
under
It mustthe original
be something contract.
which the promisor(Ramachandra
is not already bound Chintaman
to do: a promise tovs. Kalu
do what oneRaju)
is already bound to do,
either by general law or under an existing contract, is not a good consideration for the new promise, since it adds nothing
to the pre-existing legal or contractual obligation.
Exception to the rules of consideration
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.
Where an agreement is expressed in writing and registered
under the law for the time being in force for the registration of
the documents and is made on account of natural law and
affection between parties standing to the near relation to each
other, it is enforceable even if there is no consideration
Promise to pay a time-bared debt: A promise to pay a time-
bared debt by the debtor is enforceable provided it is made in
writing and signed by the person to be charged therewith or by
his agent. The debt must be such “of which the creditor might
have enforced payment but for the law for the limitation of
suits”
Completed gifts
Compensation for the past voluntary services
Charitable subscription
Exception to the rules of consideration
Completed gifts –
The rule No consideration, no contract does not apply to
completed gifts.
In order to attract this exception there need not be natural
love and affection or nearness of relationship between
donor and donee. The gift must, however, be complete.
Compensation for the past voluntary services - is
binding.
E.g. P finds S’s purse and gives it to him. S promises to give
P Rs. 100/- This is a contract i.e., A promise, to compensate,
wholly or in part, a person, who has already voluntarily
done something for the promisor, is enforceable, even
though without consideration.
Exception to the rules of consideration
Contribution to Charity:
E.g. The defendant had agreed to subscribe Rs. 100/- towards the
construction of a Town hall at Howrah. The plaintiff (secretary of the town
hall) on the faith of the promise entrusted the work to a contractor and
undertook liability to pay him. The defendant was held liable. But where the
promisee had done nothing on the promise, a promised subscription is not
legally recoverable.
E.g. The defendant promised to subscribe Rs. 500/- to a fund started for
rebuilding a Mosque but no steps had been taken to carry out the repairs.
The defendant was held not liable and the suit was dismissed.
Doctrine of Privity of Contract
Dunlop Pneumatic Tyre Co. V Selfridge and Co.
# D entered into a contract of sale of certain tyres to P.
Meaning:
# The contract provided that P shall not sell the tyres below the
The general rule is that only the parties to a
list price. Also, the contract provided that P shall, at time of resale,
impose a condition on the retailer that sale by retailer shall not be
contract
made canlistsue
below the and be sued upon the contract.
price.
In other words, if a person is not a party to the
# P sold certain tyres to S. S resold certain tyres below the list
contract (i.e., a stranger to contract), he cannot
price.
sue.
# In a suit instituted by D against S, the court held that such suit
It not
was implies the mutuality
maintainable since there wasof no
will andof legal
Privity contractbonding
between S and D.
Abetween the parties.
who is indebted to B, sells his property to C. C promises to pay
off
It the debt to B. When C fails to pay; B has no right to sue C,
refers
because he isto the relationship
a stranger to contract. between the parties
who have entered into a contract.
Stranger to Contract V. Stranger to Consideration
Exceptions
Beneficiary, – Stranger
in whose to Contract
favour a Trust of other interest has the
in some
immovable property has been created can enforce it, even
rightthough
to
UOI).
sue
he is in
not athe
party following cases:
to the Contract (Madhu Trading Co. V
Trust or Charge
A husband who was separated from his wife executed a separation deed
by which he promised to pay to the Trustees all the expenses for her
Marriage Settlement, Partition and other
maintenance. Held, the agreement created a trust in favour of his wife and
could be enforceable by her (Gandy V. Gandy).
family arrangements; and such agreements is
X receives money from Y for paying it to Z. X admits the receipt of that
reduced to writing.
amount to Z. Z can recover the amount from X, even though the money
is due from y.
Acknowledgement of liability; by past
A holder in due course is entitled to the amount on a Negotiable
performance
The Purchaser
Instrument,
the
theland
even thereof
of though
immovable property
there who has notice
is no agreement betweenthat
himtheand
is bound by certain conditions or covenants created by an
maker/drawer.
owner of
agreement affecting the land, shall be bound by such conditions, even
Assignment
though he is not aof a toContract
party the original agreement containing those
conditions or covenants.
Contracts entered into through an Agent
Covenants running with land
Essential Elements of a Valid Contract –
Capacity To Contract–Meaning
Every person is competent to contract who is of:
the age of majority according to the law to which he is subject,
sound mind, and
is not disqualified from contracting by any law to which he is subject.
The first rule is that the law protects minors’ against their own
inexperience and against the possible improper designs of those more
experienced.
The second rule is that, in pursuing the above object, the law should not
cause unnecessary hardship to person who deals with minors.
Remember in the case we discussed, a minor mortgaged his house in favour of a
money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for
Surety for a Minor: a person who stands as surety for a minor can be sued
though the minor himself would not be liable
Unsound Mind
A person is said to be of sound mind for the propose of making a
contract, if,
at the time when he makes it, he is capable of understanding the
terms of the contract and
To form a rational judgment as to its effect upon his interest.
Lunatics
Drunkards
I Position of Contracts during War – An alien enemy can neither enter into contract nor
can be sued in an Indian Court except by the license by the Government.
If such contracts are not against public policy, then such contracts are merely suspended for the
duration of the war and revived after the war is over unless they have already become time barred
under the Law of Limitation.
E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract with Y
who carries on business in India. Immediately after the formation of the contract, a war
broke out between India and Pakistan. In this case, X becomes an alien enemy though he is
Indian and contract between x and y (if not against the public policy) will be suspended for
the duration of the war and revived after the war is over.
Few other Persons are also Prohibited to
enter into a contract
Foreign Sovereign and Ambassadors: - They can enter contract and enforce those
contracts in our courts but they cannot be sued in our courts without the sanction of
the Central Govt.
Company under the companies act or statutory corporation under the special act of
parliament: - The contractual capacity of the company is determined by objects clause
of its Memorandum of Association, whereas that of the statutory corporation is
determined by the statute creating it. Any act in excess of the power given is ultra
vires and hence void.
Same sense
Same time
Undue Influence
Fraud
Mistake
Misrepresentation
Coercion
E.g.A threatens B to shoot him if he does not release him from
debt which A owes to B. This is coercion.
Coercion" is the
committing, or threatening to commit, any
act/crime or
the unlawful detaining, or threatening to detain,
any property or any act
forbidden by the Indian Penal Code 1860
with the intention of causing any person to enter
into an agreement.
It is a moral character
Undue Influence
Some of the examples where undue influence exists
between the following relations:
Superior and subordinate
Essentials:
CL: A company’s prospectus contains a representation that it has
statutory powers to run its tramways by steam provide that the consent
theItgovernment
of must be wasrepresentation of material
obtained. The directors issuedfact
prospects stating
therein that the company had the right to use steam power. They honestly
It that
believe must be made
the permission before
for the the
use of steam conclusion
power would beof the
granted.
The permission was refused. The company was that wound up. Held, the
contract
directors were guilty of misrepresentation (Derry vs. Peek)
It must be wrong but the person making it
believes it to be true
It must have been made without any intention of
deceiving the other Person
It need not be made directly made to the Plaintiff
MISREPRESENTATION FRAUD
It is a false statement It is a false statement
without any intention to deliberately, or recklessly
deceive made to deceive another
It is also called innocent It is also called intentional
misrepresentation misrepresentation
mistake of fact
A bilateral mistake
Unilateral mistake
Mistake of law
E.g. X goes
Bilateral to a
Mistake -shop
Whereand
bothintroduces
the parties tohimself as Y are
an agreement andunder
purchases
a mistakesome
as to a
matter of fact, the agreement is void.
goods on credit. The contract is void.
Types
is of such nature that, if permitted it would defeat the provisions of any law
Based on Authority
Universal Agent
General Agent
Special Agent
Based on Nature of Work
Commercial or Mercantile Agents
Non-mercantile Agents
Duties of an Agent/Rights of the
The Principal instructed his agents to deliver goods only against
cash but agent delivered them on credit. Held Agent was liable for
the
A, price which
an agent forthe purchaser
sale of goods,failed
havingto authority
pay (Paulto
Bier
sellV.on
Chottalal)
credit,
Principal
sells to B on credit, without making proper and usual enquiries as
to his solvency. B, at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby
To act as per Principal’s directions (Sec 211)
sustained.
By mutual agreement
By lapse of time
By operation
Where of law by a party is due but the party
the time of performance
fails to perform within the time specified, the contract is
By breach
discharged of contract
by non-performance provided that the contract
contained such specific mentioning.
Discharge by Impossibility of
Performance
Meaning:
Not called asIf
E.g., no impossibility
supervening impossibility: existed at the
time
• •
of formation
Destruction
Commercial ofimpossibility
subject matter of inthe
(rise prices,contract; but the
currency fluctuations)
Incapacity
• •Default bytothird
perform
partya contract of personal service
impossibility
Outbreak
• •Strikes, Civil
of war arises subsequent to the
disturbances
formation
Non-existence
• •
contract,
or of
Self induced impossibility the
non-occurrence contract;
(deliberate
of things
act or
etc., of objects or partial impossibility
forming and
negligence)
the basis ofthe
a
Partial failure
•
impossibility
Krell
• • V Henry Case is
In H.B.Steamboat Co.,of
law: suchCase
V Hulton nature
law: that it makes
the
• •
performance
XXhired
agreed
Edward.
a room from
to hire a boat of
Y forfrom contract
viewing
Y forthe is
thecoronation
purpose impossible
ofprocess
naval review on the eve of coronation of king and for sailing
viewingoftheKingor
illegal
•The
around isthecalled
procession fleet. supervening
was cancelled because ofimpossibility.
King’s illness
Since
• •Due totheKing’s
ultimate
illness,
and only
the naval
purpose
reviewof the
wascontract
cancelled,
wasbut
defeated,
the fleet
Reasons
the
wascontract for
assembled. SI: may arise because of change
was discharged.
in XAlthough
used the boat for sailing around the fleet.
law ortheofprimary
change inofcircumstances beyond
•
• purpose the contract was defeated, the
thesecondary
contemplation of
purpose was fulfilled parties.
and, therefore, the contract was
not discharged by supervening impossibility.
Discharge
contract. Theby Mutual for theAgreement
means substitution of a new contract in place of the original
consideration
discharge of the original contract.
new contract is the
* means a change in one or more of the terms of a contract with mutual
consent of parties.
* Discharges the original contract and creates a new one
Novation
* Parties remain the same
Alteration
Remission
Rescission (cancellation
Where a promisee ofwith
agrees to dispense a the
contract byof one
performance a
promise made to him or
orExtend
all the parties
the time to thedue
of performance contract)
by the promisor or
Accept any other consideration than agreed to in the contract,
Merger
etc., (conversion of an inferior right into a
superior right and the effect is due to
conversion inferior right is discharged)
Discharge by operation of law