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.
Essential Elements of a Valid
E.g., Mr. A has 3 cars. He asked Mr. B “are you ready
to purchase my car for Rs. 2 lakhs.
Contract - 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)
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.
Eg: A invites tenders for the supply of 100 bricks. X, Y, and Z
An invitation to make offer: display of goods by the
Eg; a railway Co. invited tender for shopkeeper
certain Iron with a price
articles which
marked on it does not make an offer, but merely gives an invitation to is
submit the Tender. A accepts the tender given by X. There the
it might require over a year. W’s tender was accepted. He
public to make an offer tobinding
buy thecontract
goods between A and
at the price X
marked on it. E.g.,
supplied goods for some time. He refused to supply
quotations, catalogues, advertisements, prospectus issued by the company, at a later
etc. time. But the contract is binding on W
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.
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.
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
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
Offer
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 –
.
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 good consideration.
E.g., A borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
is
now
It may about
moveto file the
from a suit and Aoragrees
Promisee now
any other to pay
Person a means
– This higherthat
rate of interest.
as long as there isB agrees for
a consideration
for a promise it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if
not he
filing a suit.
is a party This
to the forbearance is a valid consideration.
contract
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”.
CL: There was a promise to pay to the vakil an additional sum if the suit was
There is no recognized method of ascertaining the “Reasonable Some”. The promise is unenforceable due to
uncertainty.
successful. E.g.,
Held, thetopromise
supari kill someone. was void for the want of consideration. The vakil
Should not be illegal - the consideration given for an agreement must not be unlawful. A consideration to the
was under
contract a pre-existing
must not contractual
be against Public Policy, obligation
Immoral and illegal to render the best of his services
under
It mustthe
be original
somethingcontract.
which the (Ramachandra
promisor is not alreadyChintaman
bound to vs.
do: aKalu Raju)
promise to do what one 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
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
consideration
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:
A person to contribute to charity , though gratuitous, would be
enforceable, if on the faith of the promised subscription, the
promisee takes definite steps in furtherance of the object and
undertakes a liability, to the extent of liability incurred, not
exceeding the promised amount of subscription.
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.
the
Trust following
A husband orwas
who separated cases:
Charge from his wife executed a separation deed by
which he promised to pay to the Trustees all the expenses for her maintenance.
Marriage
Held, the agreement Settlement,
created a trust in favourPartition andbe other
of his wife and could
enforceable by her (Gandy V. Gandy).
family arrangements; and
X receives money from Y for paying it to Z. X admits the receipt of that
such
agreements
amount to Z. Z can recover
due from y.
isthereduced
amount from X,toevenwriting.
though the money is
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.
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.
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.
parties
such that one party is in a position to exercise undue
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 of the
It must
government be representation
was obtained. The directors issuedof material
prospects stating fact
therein that
the company had the right to use steam power. They honestly believe that the
It must
permission be
for the use of made before
steam power would bethe conclusion
granted. of
The permission was
refused. The company was that wound up. Held, the directors were guilty of
the contract
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 statementIt is a false statement
without any intention todeliberately, or
deceive recklessly made to
deceive another
It is also called innocentIt is also called
misrepresentation intentional
misrepresentation
It makes the contractIt besides avoiding the
voidable at the option ofcontract. The aggrieved
the party injured party also has right to
sue for damages
Mistake
Mistake may be defined as an erroneous
belief about something.
mistake of fact
A bilateral mistake
Unilateral mistake
Mistake of 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 price
which
A, anthe purchaser
agent for salefailed to pay
of goods, (Paulauthority
having Bier V. Chottalal)
to sell on credit, sells to
Principal
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 sustained.
To act as per Principal’s directions (Sec
211)
Skill and diligence (Sec 212)
Render proper Accounts (Sec 213)
Communicate with Principal (Sec 214)
A employs B to recover Rs. 1 lac from C. Through B’s misconduct the
Not
moneytois notdeal onfrom
recovered his
C. Bown account
is not entitled (Secs
to remuneration 215
for his
& 216)and shall make good the loss sustained.
services,
Means termination
*A agrees to sell his bicycle toof contractual
B and both performed their
obligations, the contract is said to be discharged.
relations
respective
between
* In case ofthe parties
Attempted to asince
Performance, contract.
the offer is not accepted by
the other party, the promisor is discharged.
Modes of Discharge of Contract:
By performance
By impossibility of performance
By mutual agreement
By lapse of time
By operation of law
Where the time of performance by a party is due but the party fails to
By breach of contract
perform within the time specified, the contract is discharged 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 of impossibility
subject matter (riseof the currency
in prices, contract; but the
fluctuations)
impossibility
•Incapacity
•Default by tothird
performpartyaarises subsequent
contract of personal service to the
•Outbreak
•Strikes, Civil
of war disturbances
formation
•Non-existence
of
•Self induced impossibility
the
or non-occurrence
(deliberate
contract;
of things
act orforming
negligence)
and
the basis of a
the
impossibility
contract, is ofor partial
etc., of objects
•Partial failure suchimpossibility
nature that it makes
the•Krell
performance
V Henry Case law:
•In H.B.Steamboat Co., V of
Hultoncontract
Case law: is impossible or
•X• hired a room from Y for viewing the coronation process of King
X agreed to hire a boat from Y for the purpose of viewing the naval
illegal
review is
Edward. called
on the supervening
eve of coronation of king andimpossibility.
for sailing around the fleet.
•The procession was cancelled because
Reasons
•Due
for
to King’s SI:
illness, may
the naval review of
arise King’s
because
was illnessbut the fleet was
cancelled, of change
•Since
assembled.
the ultimate and only purpose of the contract was defeated, the
incontract
•law or
X usedwas of change
the discharged.
boat in circumstances
for sailing around the fleet. beyond
the•Although
contemplation
the primary purpose of ofparties.
the contract was defeated, the
secondary purpose was fulfilled and, therefore, the contract was not
discharged by supervening impossibility.
Discharge by Mutual
means substitution of a new contract in place of the original
contract. The consideration
the original contract.
for the new contract is the discharge of
Agreement
* 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
Where a promisee(cancellation
agrees to dispense with of a contract
the performance of a by
promise made to him or
one or all the parties to the contract)
Extend the time of performance due by the promisor or
Merger (conversion of an inferior right
Accept any other consideration than agreed to in the contract, etc.,