Classification of contracts

Contracts may be classified on the basis of their (a) validity, (b) formation, or (c)
performance,

I) Classification on the basis of validity

Void agreement, Valid contract, void contract, voidable contract, unenforceable

contract, illegal agreement. 

II. Classification on the basis of formation

Express contract,  Implied contract,  Quasi contract. 

III. Classification on the basis of performance

Executed contract; Executory contract; Unilateral contract;

Essentials of a valid acceptance

1. Acceptance must be absolute and unqualified. Acceptance must correspond with all
the terms of the offer.

2. Acceptance must be communicated to the offeror. Only if the offeree does

something to communicate his acceptance to the offeror the acceptance would
become valid.

3. Acceptance must be made within a reasonable time. Acceptance must be made

within the time allowed by the offeror.

4. It must be according to the mode prescribed. If the offeror has specified any mode
of acceptance, it should be exactly according to that mode.

5. The acceptor must be aware of the proposal at the time of the acceptance.

6. Acceptance cannot be implied from silence. 

Communication of offer, acceptance and revocation

Communication of offer:. The communication of an offer is complete when it comes to the

knowledge of the person to whom it is made.

Communication of acceptance:. The communication of an acceptance is complete;

a) As against the proposer when it is put into a course of transmission to him, so as to be out
of the power of the acceptor,
b) As against the acceptor when it comes to the knowledge of the proposer. 

Communication of revocation:.The communication of a revocation is complete;

a) As against the person who makes it, 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;

b) As against the person to whom it is made, when it comes to his knowledge. 

Essentials of valid consideration

1. Consideration must be provided at the desire of the promisor.  2. Consideration

may move from the promisee or any other person.  3. Consideration may be an act,
abstinence or forbearance or a return promise.  4.Consideration may be past, present
or future.  5.Consideration need not be adequate.  6. Consideration must be real and
not illusory.  7. Consideration must be something which the promisor is not already
bound to do.  8. Consideration must not be illegal, immoral or opposed to public policy.

No consideration no contract

Section 25 of the contract Act makes it clear that "an agreement made without
consideration is void" Though this is the general rule there are a few exceptional
situations where an agreement without consideration may still be enforceable. 

1. Natural love and affection. Section 25 (1) 

An agreement entered into on the basis of love and affection and without receiving
any valid consideration may be enforceable if the following conditions are satisfied.

a) the agreement should be in writing: b) it should be registered according to the law

relating to registration,      c) it should be between parties standing in near relation to
one another, and d) it should be made on account of natural love and affection. 

2. Compensation for voluntary services.

Section 25 (2) When a promise is given to compensate a voluntary service done, the
promise may be enforceable even though it is not supported by consideration.

3. Time barred debt

Section 25 (3) A promise in writing to pay a time barred debt signed by the promisor
is enforceable even though it is not supported by consideration. 

4. Completed gifts
Explanation 1 to Section 25 provides that even in the absence of consideration any
gift between two persons actually executed would be valid.

5. Contracts of agency

Section 185 provides that no consideration is required to create an agency.

Differences between coercion and undue influence

1 Coercion involves the use of physical force while undue influence involves only
moral pressure.

2. In the case of undue influence the relationship between the parties should be such
that one is in a position to dominate the will of the other. In the case of coercion, there
may not be any relationship between the parties. Even a stranger to contract can
exercise coercion.

3 Coercion involves criminal liability whereas undue influence does not involve any
criminal liability

4. In the case of certain relationships there is a presumption of undue influence,

whereas there are no such presumptions in coercion.

5. When the consent of the promisor is obtained by coercion the contract is voidable.
In the case of undue influence the contract is either voidable or the court may set
aside it or enforce it in a modified form.

Who shall perform the contract?

1) The promisor. As a general rule, a contract may be performed by the promisor,

either personally or through any other competent person. However if the intention of
the parties as reflected in the contract is that it should be performed by the promisor
himself, it should be performed by him.

2) The agent. Where a contract does not involve personal skill or competence it may
be performed by any competent person appointed be the promisor

3) The legal representative. A contract involving personal skill comes to an end on the
death of the promisor.

4) Third parties. When a promisee accepts performance of the promise from a third
person, he cannot afterwards enforce it against the promisor

Who can demand performance? It is only the promisee who can demand the
performance of the contract. A third person has no right to demand performance even
if it is entered into for his benefit

The claim forquantum meruitarises in the following cases,

1. When an agreement is discovered to be void or when a contract becomes void.

2 When something is done without any intention to do so gratuitously

3. When there is an express or implied contract to render services but there is no

agreement as to remuneration

4. When the completion of the contract has been prevented by the act of the other
party to the contract.

5. When a contract is divisible and the party not in default has enjoyed the benefit of
part performance

6. When an indivisible contract for a lump sum is completely performed, but badly,
the person who has performed the contract can claim the lump sum; but the other
party can make a deduction for bad work.

Definition of bailment

The term bailment is derived from a French word "baillier", which means to deliver.
Thus the essence of bailment is the transfer of possession. The ownership remains
with the owner himself and possession alone is transferred to another person.

Essentials of bailment

1. Delivery of possession. The most important feature of a contract of bailment is the

delivery of possession from the bailor to the bailee. 

2. Contract. A bailment is usually created by agreement berween the bailor and the
bailee. The agreement may be express or implied.

3. Delivery must be for some purpose. The delivery of goods from the bailor to the
bailee must be for some purpose.

4. Return of goods. Bailment is made for some purpose and after the purpose is
accomplished, the goods are to be returned or otherwise disposed of according to the
directions of the bailor.

5. Movable goods. Only goods can be the subject matter of a contract of bailment.
Immovable property cannot be bailed.

Law relating to lien

Lien means a right of a person to retain possession of some goods belonging to
another until some debt or claim of the person in possession is satisfied. This right is
based on possession and therefore it is also called possessory lien. 

Lien may be (i) particular lien, or (ii) general lien

1. Particular lien. A particular lien is one which is available to the bailee against only
those goods in respect of which he has rendered some service involving the exercise
of labour or skill.

2. General lien. It is the right of a person to retain possession of goods as security for
general balance of account. Here, the bailee can retain any goods bailed to him for
any amount due to him in respect of those goods or any other goods.

Difference between bailment and pledge

1. Purpose. Bailment can be made for any purpose. But a pledge is made for a specific
purpose only; i.e., as a security for payment of a debt or performance of a promise.

2. Right to sell. A bailee has no right to sell the goods. But a pledge has a right to sell
the goods pledged, in case of default by the pawnor.

3. Right to use the goods. In the case of bailment, the bailee may use the goods
bailed as per the terms of the contract. In a pledge the pledge has no right of using
the goods.

Distinction between a contract of guarantee and a contract of indemnity

1. Number of parties

★ There are two parties in a contract of indemnity, namely, indemnifier and the
indemnified.

★ Contract of guarantee has three parties, creditor, principal debtor and the surety

2.Number of contracts

★ In indemnity there is only one contract.

★ In guarantee there are three contracts

3.Nature of liability

★ Liability of the indemnifier to the indemnified is primary in nature.

★ The liability of the surety to the creditor is secondary in nature. Primary liability is
on the principal debtor.

4. Request

★ It is not necessary for the indemnifier to act at the request of the indemnified

★ The surety should have given guarantee at the request of the principal debtor.

5.Commencement of liability

★ The liability of the indemnifier arises only on the happening of a contingency

★ In guarantee there is an existing liability, the performance of which is guaranteed

by the surety.

Agent, principal and agency

Section 182 of the Act, defines an agent as "a person employed to do any act for
another or to represent another in dealings with third persons. The person for whom
such act is done, or who is so represented is called the "principal".

The contract which creates the relationship of an agent and principal is called
'agency'. This relationship between the principal and the agent may be created by an
express or implied agreement. The purpose of agency is for creating contractual
relationship between the principal and third parties.

Essentials of agency

1. Agreement between the principal and the agent. Agency is created on the basis of
an agreement between the principal and the agent. The agreement may be express or
implied

2. Principal should be competent. Only a person who is competent to contract may

appoint an agent. 

3. The agent need not be competent. An agent need not be competent to contract.
Even a minor can bring about a contractual relationship between a principal and a
third party

4. No consideration is required to create agency. Section 185 of the Act expressly

provides that there need not be any consideration to create an agency.

Creation of agency 

The relationship of principal and agent may be created in any of the following ways;

1. Agency by express agreement. An agent appointed by words spoken or written is

called express agency. 

2. Agency by implied agreement. When agency arises from the conduct of the parties,
or inferred from the circumstances of the case it is called an implied agency. The
following are the major types of implied agency;         a. Agency by estoppel.  b.
Agency by holding out.  c.Agency by necessity.  

3. Agency by operation of law. Sometimes agency may arise by operation of law. 

4. Agency by ratification. Sometimes an agreement may be entered into on behalf of

another person but without his consent.

Duties of an agent

The following are the important duties of an agent towards his principal;

1. Duty to work according to the directions given by the principal. The most important
duty of an agent is to act according to the directions given by the principal.

2. To work with reasonable skill and diligence. An agent is bound to conduct the
business of agency with as much skill as is generally possessed by persons engaged
in similar business.

3. Duty to render accounts. An agent is bound to render accounts when the principal
demands it. (Section 213)

6. Duty to pay money received. The agent is bound to pay to his principal all sums
received on his account:

7. Duty not to use information obtained against the principal. Any information
obtained by the agent in the course of agency should be passed on to the principal.

Rights of an agent

1. Right of retainer. The agent has a right to retain his principal's money until his
claims in respect of his remuneration,

2. Right to remuneration. The agent is entitled to his agreed remuneration, or if there

is no agreement, to a reasonable remuneration from the principal.

3. Right of lien. An agent is entitled to retain goods, papers and other property of the
principal whether movable or immovable received by him until the amount due to him
for commission etc. has been paid or accounted for.

4. Right to be indemnified against consequences of lawful acts. The agent has a right
to be indemnified against the consequences of all lawful acts done by him in exercise
of the authority conferred upon him. 

5. Right to be indemnified against consequences of acts done in good faith. When an

agent does the act in good faith, the employer is liable to indemnify the agent against
the consequences of that act even though such act causes injury to the rights of third
persons.

Duties of principal

1. To indemnify the agent against the consequence of all lawful acts. The principal is bound to
indemnify the agent against the consequences of all lawful acts done by such agent in exercise of
the authority conferred upon him. (Section 222)

2. Right to be indemnified against consequences of acts done in good faith. When an agent does
the act in good faith, the employer is liable to indemnify the agent against the consequences of
that act even though such act causes injury to the rights of third persons. (Section 223)

3. Right to compensation. The agent has a right to be compensated for injuries sustained by him
by neglect or want of skill on the part of the principal (Section 225)

4. To pay the remuneration to the agent. The agent has got a right to receive the
agreed remuneration, or a reasonable remuneration.

Right of the principal

The principal has got the following rights against an agent who fails in his duty.

1) Right to recover damages. The principal has got a right to recover damages from an agent. 

2) To demand account and to claim secret profits made. If the agent makes any secret profit the
principal has got the right to recover them. 

3) To resist agent's claim for indemnity. If the agent has entered into the contract with the
third party in his own account, the principal can resist the agent's claim for indemnity. 

Personal liability of agent

1. Where the contract expressly provides; At the time when the third person enters into contract
with an agent, he may stipulate that the agent should be personally liable.

2. Where the agent acts for a foreign principal. The agent will be personally liable if he acts for a
merchant who is resident abroad . 

3. Where the agent acts for an undisclosed principal. An agent who is acting for an undisclosed
principal is personally liable. 

4. When the agent acts for a principal who cannot be sued. Where the principal is incompetent to
contract, ie, where he is a minor or a person of unsound mind, the agent is personally liable

5. Where the agent signs a contract in his own name. If an agent puts signature on a negotiable
instrument, without making it clear that he is signing on behalf of the principal, the agent will be
personally liable.

6. Where the agent acts for a principal not in existence. No agent can bind a principal who was not
in existence at the time of making of the contract.

Contract of sale

According to section 4 of the Act, a contract of sale means, a contract whereby the seller transfers
or agrees to transfer the property in the goods to the buyer for a price. A close analysis reveals
that a contract of sale may be a (i) sale or, (ii) an agreement to sell.

Sale. Where the property in the goods is immediately transferred from the seller to the buyer
there is a sale.

Agreement to sell. Where the transfer of the property in the goods is to take place at a future
time or subject to some conditions thereafter to be fulfilled, the contract is called an agreement to
sell.

Essential elements of a contract of sale

1. Two parties. There must be two parties to constitute a contract of sale, namely a buyer
and a seller 

2. Goods. The subject matter of a contract of sale must always be goods. Only
movable goods can be the subject matter of a contract of sale

3. Price. The consideration for transfer of ownership should be price. Only if goods are sold or
bought for money, the Sale of Goods Act applies. 

4. Transfer of general property. The term general property stands for ownership. The sale of
goods act applies only if ownership is transferred. 

5. Contract. Sale of goods implies a valid contract between two persons . 

Sale and agreement to sell

1. Nature of contract. An agreement to sell is an executory contract. But a sale is an

executed contract 

2. Transfer of property. In the case of an agreement to sell, the transfer of property in

the goods is to take place at a future time or subject to certain conditions to be
fulfilled.

3. Risk of loss. In an agreement to sell, if the goods are destroyed, the loss falls on the
seller.

4. Consequence of breach by the seller. In the case of an agreement to sell, if the

seller commits a breach, the buyer can sue the seller for damages.

5. Consequence of breach by the buyer. In an agreement to sell, if the buyer fails to

accept the goods, the remedy of the seller is to sue for damages only. In the case of a
sale if the buyer does not pay the price, the seller may sue him for the price.

Exceptions to the rule of caveat emptor. The doctrine of caveat emptor has got
few exceptions. They are given below:

1) Fitness for buyer's purpose. Where the buyer lets the seller know the particular
purpose and depends on the seller's skill and judgment who deals in goods of that
kind, the condition is that the goods must be fit for that purpose [Section 16 (1)]

2) Condition as to merchantability. This condition applies where (i) the goods are sold
by description, (1) the seller deals in those goods, and (iii) the buyer has no
opportunity to examine the goods

3) Consent by fraud. The doctrine of caveat emptor shall not apply where the consent
of the buyer is obtained by fraud or where the seller knowingly conceals a defect
which could not be discovered

on a reasonable examination.

4) Goods sold by sample as well as description.

5) Goods sold by sample.

6) Condition as to quality or fitness annexed by usage or custom of trade.

Delivery of goods

Delivery of goods may be actual, symbolic or constructive.

1. Actual delivery. Where the goods sold are handed over by the seller to the buyer or his duly
authorized agent, the delivery is said to be actual

2. Symbolic delivery. It is the doing of some act which has the effect of putting the goods in
possession of the buyer. For example, delivery of goods by transfer of documents of title is
symbolic delivery

3. Constructive delivery or delivery by atonement. It takes place when a person in possession of

goods of the seller acknowledges to the buyer that he holds the goods on his behalf.