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Chapter 02 - Contract Act, 1872
Chapter 02 - Contract Act, 1872
CH. 02
CONTRACT ACT
What is `Contract`
The term -Contract- is defined in Section '.h/ of the Indian Contract "ct, which reads as under 0An agreement enforceable by law is a contracts.1 The analysis of this definition shows that a contract must have the following two elements2 &. "n agreement, and '. The agreement must be enforceable by law. In other words2 Contract 3 An Agreement 4 Enforceability .by law/ Agreement .Section '.e/ 5very promise and every set of promises forming the consideration for each other is an agreement. Promise .Section '.b// " proposal when accepted becomes a promise. 5very agreement is not a contract. 6hen an agreement creates some legal obligations and is enforceable by law, it is regarded as a contract.
CLASSIFICATION OF CONTRACTS 1. Classification according to validity or enforceability. a) Valid b) Voidable c) Void contracts or agreements d) Illegal. e) Unenforceable 2. Classification according to Mode of formation (i) Express contract (ii) Implied contract 3. Classification according to Performance
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CONTRACT ACT
OFFER
What is `!ffer"#roposal`
" +roposal is defined as Dwhen 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.D ASection '.a/C. "n offer can be made by .a/ any act or .b/ omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other .Section (/.
CASE EXAMPLE In Carbolic Smoke Ball Co. 's case, the patentBmedicine company advertised that it would give a reward of E&>> to anyone who contracted influenFa after using the smoke balls of the company for a certain period according to the printed directions. Mrs. Carlill purchased the advertised smoke ball and contracted influenFa in spite of using the smoke ball according to the printed instructions. She claimed the reward of E&>>. The claim was resisted by the company on the ground that offer was not made to her and that in any case she had not com municated her acceptance of the offer. She filed a suit for the recovery of the reward. Held: She could recover the reward as she had accepted the offer by complying with the terms of the offer./
Cross !ffers
6here two parties make identical offers to each other, in ignorance of each other;s offer, the offers are known as crossBoffers and neither of the two can be called an acceptance of the other and, therefore, there is no contract.
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CONTRACT ACT
%/ " conditional offer terminates when the condition is not accepted by the offeree. .$/ Counter Hffer
ACCEPTANCE
"cceptance has been defined as D6hen the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted1. The offeree is deemed to have given his acceptance when he gives his assent to the proposal. The assent may be e<press or implied. It is e<press when the acceptance has been signified either in writing, or by word of mouth, or by performance of some re uired act. ExB " enters into a bus for going to his destination and takes a seat. 7rom the very nature, of the circumstance, the law will imply acceptance on the part of ".C In the case of a general offer, it can be accepted by anyone by complying with the terms of the offer.
4
.v/
CH. 02
CONTRACT ACT
" minor;s estate is liable to a person who supplies necessaries of life to a minor.
CASE EXAMPLE In &,>( the +rivy Council in the leading case of Mohiri Bibi v. Dharmo as !hose .&,>,(> Ca. 9(,/ held that in India minor;s contracts are absolutely void and not merely voidable. The facts of the case were2 Iharmodas !hose, a minor, entered into a contract for borrowing a sum of =s. '>,>>> out of which the lender paid the minor a sum of =s. ),>>>. The minor e<ecuted mortgage of property in favour of the lender. Subse uently, the minor sued for setting aside the mortgage. The +rivy Council had to ascertain the validity of the mortgage. Jnder Section $ of the Transfer of +roperty "ct, every person competent to contract is competent to mortgage. The +rivy Council decided that Sections &> and && of the Indian Contract "ct make the minor;s contract void. The mortgagee prayed for refund of =s. ),>>> by the minor. The +rivy Council further held that as a minor;s contract is void, any money advanced to a minor cannot be recovered.
" person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it, he is incapable of understanding it, and of forming a rational :udgement as to its effect upon his interests. " person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. Ex- " patient, in a lunatic asylum, who is at intervals, of sound mind* may contract during those intervals. " sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational :udgement as to its effect on his interest, cannot contract whilst such delirium or drunkenness lasts. .i/ .ii/ .iii/ "lien 5nemy .+olitical Status/ 7oreign Sovereigns and "mbassadors Company under the Companies "ct or Statutory Corporation by passing Special "ct of +arliament .Corporate status/ .iv/ Insolvent +ersons
(B) CORPORATE
6hen under li uidation .under the supervision of the CourtKTribunal/
FREE CONSENT .Sections &>* &(B''/ What is the meaning of `C!/.E/0- (SECTION 13)
6hen two or more persons agree upon the same thing in the same sense, they are said to consent. ExB " agrees to sell his 7iat Car &,)( model for =s. )>,>>>. ? agrees to buy the same. There is a valid contract since " and ? have consented to the same sub:ect matter.
CH. 02
CONTRACT ACT
steam power instead of with horses as before. In fact, the "ct incorporating the company provided that such power might be used with the sanction of the ?oard of Trade. ?ut, the ?oard of Trade refused to give permission and the company had to be wound up. +, a shareholder sued the directors for dam ages for fraud. The @ouse of Lords held that the directors were not liable in fraud because they honestly believed what they said in the prospectus to be true. [Derry v. Pee" #&)),/ &8 ".C. (($C.
IMPORTANCE OF CONSIDERATION
" promise without consideration is purely gratuitous and, however sacred and binding in honour it may be, cannot create a legal obligation. " person who makes a promise to do or abstain from doing something usually does so as a return or e uivalent of some loss, damage, or inconvenience that may have been occasioned to the other party in respect of the promise. The benefit so received and the loss, damage or inconvenience so caused is regarded in law as the consideration for the promise.
INDS OF CONSIDERATION
" consideration may be2 &. "#ecuted or Present '. "#ecutory or $uture
&
.i</ .</ .<i/
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CONTRACT ACT
made certain/ "greements by way of wager .a promise to give money or money;s worth upon the determination or ascertainment of an uncertain event/ "greements against +ublic +olicy "greements to do impossible act. "n agreement, which has been entered into by misrepresentation, fraud, coercion is voidable, at the option of the aggrieved party.
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CONTRACT ACT
e<tends the time for such performance or accepts any satisfaction for it. &. If the person, at whose option the contract is voidable, rescinds it. 8. If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise.
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CONTRACT ACT
DUTIES OF A*ENT
&. (o conduct t e business of agency according to t e !rinci!al)s directions '. ( e agent s ould conduct t e business wit t e s*ill and diligence that is generally possessed by persons engaged in similar business, e<cept where the principal knows that the agent is wanting in skill. 3. (o render !ro!er accounts. 8. (o use all reasonable diligence, in communicating wit is !rinci!al, and in seeking to obtain his instructions. +. ,ot to ma*e any secret !rofits -. ,ot to deal on is own account .. Agent not entitled to remuneration for business misconducted. ). An agent s ould not disclose confidential information supplied to him by the principal [(el Blun ell v. %te&hens .&,'>/ "C. &,9%C. ,. / en an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.
RI*HTS OF AN A*ENT
1. 2. 1. 1. +. &ig &ig &ig &ig &ig t to remuneration t 0f &etainer t of %ien t of 2ndemnification t to com!ensation for in3ury caused by !rinci!al4s neglect
TERMINATION OF A*ENC2
&. ?y revocation by the +rincipal. '. Hn the e<piry of fi<ed period of time. &. Hn the performance of the specific purpose. 8. Insanity or Ieath of the principal or "gent. 9. "n agency shall also terminate in case sub:ect matter is either destroyed or rendered unlawful. %. Insolvency of the +rincipal. Insolvency of the principal, not of the agent, terminates the agency. $. ?y renunciation of agency by the "gent.