24 (Unit) 2.1. INDIAN Neral 2.1.1. Introduction to the Act ‘The Indian Law relating to contracts is embodied in the Indian Contract Act, 1872. The Indian Contract ‘Act was enacted in 1872, and it came into force on ‘September 1, 1872, The Indian Contract Act, 1872 is based mainly on English Common Law which is to a large extent made-up of judicial precedents, (There being no separate Contract Act in England). It is the primary source of law regulating contracts in Indian law, as subsequently amended. It determines ‘the circumstances in which promise made by the parties toa contract shal be legally binding on them. In the very beginning, the Act contained 266 Sections in 11 Chapters. However in the year 1930, its provisions relating to the ‘Sale of Goods’ and in the year 1932, the provision relating to ‘Partnership’ were repealed from this Act on the promulgation of separate Acts for the same. The Indian Contract Act, 1872 as on the date contains the following provisions: 1) General principles of the law of contracts and quasi-contracts [Sections 1-75}, 2) Certain special kinds of contracts, which are as follows: i) Indemnity and Guarantee (Section 124-147), +) Bailment and Pledge (Section 148-181], and il) Agency (Sections 182 t0 238}, 2.1.2, Application of the Act [Section 1] ‘The Indian Contract Act, 1872 (Sections 1-75) came into force on 1* September, 1872. It applies to the of Property, Sale of Goods, etc, Again the Act does not Affect any usage of custom of trade, Partnership; Insurance, = 2) 3) 4) 5) 6) 2 8) ) MBA Second Trimester (Businsg Defini Proposal [Section 2(a)]: When one Peng signifies to another his willingness to gq wt abstain from doing anything, with a yy! i obtaining the assent of that other 10 such aq q abstinence, he is said to make a proposal, Promise [Section 2(b)]: When the person whom the proposal is mide signifies his thereto, the propostl is std to be aceped h proposal, when accepted, becomes a promise: Offeree/Promisee [Section 2c)]: The who makes the offer/proposal is calle ‘offerrpromisor’ andthe person to wha offeriproposal is made is called ye ‘offeree/promisee’, yi Consideration for the Promise [Section 2), ‘When, at the desire ofthe promisor, the promise ot any other person has done or abstained fom doing, or does or abstains from doing, op Promises to do or to abstain from. ding Something, such act or abstinence or promise jg called a consideration for the promise, Agreement [Section 2 (e)]: Every promise and every set of promises, forming consideration for each other, Reciprocal Promises (Section 2 (0): Promises Which form the consideration or part of the Consideration for each other are called reciprocal promises, Void Agreement [Section 2(g)]: An agreemen! Rot enforceable by law is void, Contract [Section 2(h)]: A contract as an “agreement enforceable by law”, Voidable Contract (Section 2(i)}: An agreement which is enforceable by law at the option of one OF more of the parties thereto, but not at the option of the other or others, is avoidable contract, Ik 10) Void Contract [Section 2(j)}: A contract which ‘eases to be enforceable by law, Scanned with CamScanner |Taian Contract Act, 1872 (Chapter 2) 2.2.1.. Meaning and Definitions of a Contract ee ‘The word ‘contract’ is derived from the Latin ST ‘Contractum’ meaning drawing together. Section 2(h) of the Indian Contract Act, 1872 defines & contract as an “agreement enforceable by law’ contract is an exchange of promises. It is formed by two or more persons. Its initiated by one party by offering something to the other party. If the other party accepts the offer in full then it becomes an agreement. When such agreement fulfils the conditions of Section 10 of the Indian Contract Act, it becomes the contract. According to Pollock, “Every “agreement and promise enforceable by law is a contract”. ‘According to Salmond, “A contract is an agreement creating and defining obligations between the parties”. According to Sir William Anson, “A contract is a legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearances (abstaining from doing something) on the part of the others”. From the several definitions, we find that a contract, essentially consists of two elements: Enforceability Agreement eu Contract Contract = Agreement + Enforceability by Law 1) Agreement: The parties to the contract must agree to enter into the contract. Legally, the agreement consists of one party's offer to enter into the contract and the other party's acceptance of the terms of the offer. Section 2 (e) defines agreement as, “Every promise and every set of promises, forming consideration for each other”. Again Section 2(b) defines promise in these words, “When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. Proposal when accepted becomes a promise”. This, in other words, means % that an’ agreement is ‘an acee order, therefore, to form an must be a proposal or offer by one meth there acceptance by the other. To sum up: Party and its Agreement = Offer + Acceptance ted’ proposal; 2) Enforceability by Law: An Sad » be enforceable by law if toe Sido obligation. In other words, the parties {se agreement must be bound to perform the promises and in case of default by either of thers rust intend to sue, eg, in case of seca domestic agreements; the usual presumption is ther the parties do not intend to create legal relations, The subject-matter of the contract should not be against the law or against public policy. For example, a contract to commit a crime would not be legally enforceable. Contracts that call for the violation of usury laws would also not be legally enforceable. An example of a contract that would be unenforceable because it is against public policy is a contract that unreasonably restrains trade. 2.2.2. Essential Elements of a Contract/Features of Contract Following essential elements must co-exist in order to make a valid contract: Essential Elements of a Contract ‘Agreement (Offer and ‘Aceptanee) Intention to Crest Legal Relations Lawful Consideration ‘Capacity of Paris Free & Genuine Consent awl Object Writing and Registration . ‘Certainty Possibility of Performance ‘Agreement not Declared 2) Intention to Create Legal Relatio Void 1) Agreement (Offer and Acceptance): To constitute a contract there must be an agreement, and for an agreement, there must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer. ‘The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto. ns: There must be an intention among the parties that the agreement should be attached by legal 6 Scanned with CamScanner26 (Unit-1) consequences and. create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations and as such they do not give rise ta a contract. For example, an agreement to dine at a friend's house is not an agreement intended to create egal relations and therefore is not a contract, Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts. 3) Lawful Consideration: The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the Promise and is called ‘consideration’. For example, A agrees to sell his books to B for 100, B's promise to pay %100 is the consideration for A's promise to sell his books and A’s promise to sell the books is the consideration for B’s promise to pay €100. 4) Capacity of Parties: The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. Section 11 of the Indian Contract Act specifies that every person is competent to contract provided: i) Is of the age of majority according to the law to which he is subject; ii) Who is of sound mind; and iii) Is not disqualified from contracting by any Jaw to which he is subject. In other words the following persons are not competent to contract: i) Aminor, ii) A person of unsound mind (such person can enter into a contract during his. lucid intervals), and iii) A person disqualified from contracting by any law to which he is subject. 5) Free and Genuine Consent [Section 14]: Free consent of all the parties to an agreement is another essential element of a valid contract, ‘Consent’ means that the parties must have agreed upon the same thing in the same sense [Section 13]. There is absence of ‘free consent’, if the agreement is induced by: i) Coercion [Section 15], ii) Undue influence [Section 16}, 6) Dn 8) 9%) MBA Second Trimester (Business Law) KTU iii) Fraud (Section 17], iv) Misrepresentation [Section 18], oF ¥) Mistake [Sections 20, 21, and 22]. For example, A threatened to shoot B if he (B) does not lend him 72,000 and B agreed to it. Here, the agreement is entered into under coercion and hence voidable at the option of B. Lawful Object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not’ be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or property of another [Section 23]. If the object is unlawful for one or the other of the reasons mentioned above the agreement is void. For example, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law. Writing and Registration: According to the Indian Contract Act, a contract may be oral or in writing, But in certain special cases it lays down that the agreement, to be valid, must be in writing or/and registered. For example, it requires that an agreement to pay a time-barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered [Section 25]. Similarly, certain other Acts also require writing or/and registration to make the agreement enforceable by law which must be observed. Thus: i) An arbitration agreement must be in writing as per the Arbitration and Conciliation Act, 1996, ii) An agreement for’a sale of immovable property must be in writing and registered under the Transfer of Property Act, 1882 before they can be legally enforced. Certainty: Section 29 of the Contract Act provides that “Agreements, the meaning of which is not certain or capable of being made certain, are void”. In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain, It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced. Possibility of Performance or Doctrine of Frustration: Section 56 lays down that “An agreement to do an act impossible in itself is void”. Ifthe act is impossible in itself, physically or legally, the agreement cannot be enforced at Scanned with CamScannerContract Act, 1872 (Chapter 2) a ‘The doctrine of frustration appli¢s when, contract has been entered into, some supervening event occurs that » makes pe formance; ate contract radically different artics had cont they entered into the canfact. paar 10) oor, not Declared Void or, Lawful greement: The agreement must not be one, which the law declares to be either illegal or void. A void agreement is one, which is without any Iegal effects, Illogal agreement is an agreement expressly or impliedly prohibited by law. For example, Agreement in restraint of trade, marriage; legal proceedings, etc, are void agreements. Those agreements prohibited by the Indian Penal Code, e.g., threat to commit Murder ‘or publishing defamatory statements OF agreements, which are opposed to public policy, are illegal in nature. ‘Agreement and Contract Contracts but All Section 2(h) of the ys that an agreement 2.2.3. All Agreements are not Contracts are Agreements. Indian Contract Act, 1872 sai enforceable by law is a contract, Section 10 of the Indian Contract Act, 1872 clabor ty Syhat agreements are contracts and provides, “All agreements are contracts if they are made by the free arent of parties competent to contract FOr & lawful Consideration and with a lawful object, and are not hereby expressly declared to be void" -The most important character that an agreement must tract is its enforceability possess in order to be a com! Pr raw. The intention of the parties (0 indulge in the Tegal relations is a must, because everyday we ingolve in several types of contract, ‘and we, epeolutely, do not have any intention of taking the person to the court in the case of breach of them, Because we create agreements not contracts. ofthe Indian Contract Act, 1872 says et of promises, Section 2(€) mise and every S that every Prot inating tne. consideration for each other, is an agreement. cris, every contract i8 am aBr66m6T% but every ereement isnot 2 contrac: A ‘agreement grows into aerrontract when the following conditions are satisfied, : 1) There is some consideration for it, 2) The parties are ‘competent to contract, am 3) Their consent is 4). Their object is I i Y ror example, X invites His FSO, io tw UP ¥ accepts the invitation: ae Y falls in his I dinner, X cannot £0 1° the oO et we have tO ve hive the intention | create 8 Mt by el en mmake it eligible or, “of alia contract ae es i folrorved under Section 10 of the In fan Con ‘Act, 1872. Thus it js clear that every cont ae e ‘agreement but every ‘agreement is NOLO CONT isa nucleus of all contracts is an agreements a e1 distinction between contracts and agreements. . Difference ian A | Dass of ‘Agreement Contract oa acorns | ment [An offer when contract i 1) Constituent | cepied becomes ah entered into by 2® agreement. sgreement a1 o hence valid contracts ae Jenforceable. _ a Sy Creation of | When agreements [A contract ar illegal oF pecessarily creates Lege on {immoral the pats | 1°91 obligation. are not lable © form. An greement may OF may not create 2 Tegal obligation. [5 One Ta Other [Every agreement |All comets 2° exePnot necessarily | necessarily be acontract. agreements. rp Binding [Aezmentisnot — [Conact ® feuded ora [concluded and binding contract. ‘binding on the concemed parties. 5 Enforceabity | The enforceability [Tes enforceable Jdependson the [under the eer of agreement. | provisions ofthe law of the country. 6 Scope The scope ofan |The scope agreement is more limited as only comprehensive than | legal agreements contracts, as become contracts agreements can be | that are [social agreements, | enforceable. legal agreements, 4 unawful agreements, and domestic or agreements. ture B Agreements maybe | Only lawful Wwful or unlawful, | agreements become contracts enforceable in a court of aw. Scanned with CamScanner28 Wnit-t) 2.2.4. Types of Contracts Contracts can be classified on the basis of different aspects, which are as follows: pe Pitney [eis] emia Sue Enforceability | | of Formation Performance || of Obligation Frasca Feces Feet Fs [Void Contract [Implied Contract ‘= Contract Contract Preteens [rereorrs gece Lg fs sou Bice Ss [sso Ui ‘neon = 1) On the Basis of Enforceability: On the basis of enforceability, various contract are as follows: i) Valid Contract: An agreement is valid contract if it fulfils all the essential requirements of a contract given under Section 10. A valid contract is enforceable by law. Lack of any element prescribed under section 10 would change legal status of a contract and it may not be permitted to be enforced. For example, a) X offers to marry Y. Y accepts X’s offer: This is a valid contract. b) A homeowner (who is over the age of 18 and of sound mind) signed a contract with the appliance store to buy a refrigerator. The homeowner pays for the refrigerator and the appliance store presents the refrigerator for the home owner to take home. ii) Void Contract: It is a contract without any legal effect and cannot be enforced in a Court of Law. Section 2(j) says that a void contract is “a contract which ceases to be enforceable by law”. Where both parties to an agreement are under a mistake of fact, {Section 20], when the consideration or object of an agreement is unlawful, (Section 23), an agreement made without consideration, [Section 25}, etc, are instances of void contract, For example, a) A and B contract to marry each other. Before the time fixed for marriage, A goes mad. The contract becomes void. Aton’ second Tender (Business Law) ky ts to’take indigo for Bite, » Ngee! ‘A's government afterwards declares war against the country jn eich the port is situated. The contract Hetomes void when war is declared. int: Section 2(g) says that, an voi ment not wreeable by law is void, a ot enfor i ble Contract: Section 2() says that, " Widable ‘contract is “an agreement which is cetorceable by law at the option of one or fmore parties but not at the option of the Miner or others is a voidable contract”, i if the consent ‘ement becomes voidable if t Agrne party had not been free (except idable contract become void stake). Voi only when it is declared to be 30 by an i arty. If aggrieved party in aggrieved spuact caused by fraud suffered jidable contract cau! es he has the right to claim Compensation from other party. For éxample, A contract brought about as a Undue influence, Fraud result of Coercion, ce ‘or Misrepresentation would be voidable at the option of the person whose consent was caused by any one of these factors. y) Illegal Contract: It is a contract, which is forbidden by law. Illegal contract if permitted would defeat the provisions of any law or is fraudulent. It may involve or imply injury to a person or property of another, or court regards it as immoral or opposed to public policy. The court will not only enforce such a contract but also other connected contracts. All illegal agreements void but all void agreements or contracts are not necessarily illegal. Every agreement of which the object and consideration is unlawful is not only void as between immediate parties but also taints the collateral transactions with illegality. In Bombay, the wagering agreements have been declared unlawful by statue, For example, ; a) Contract to commit crime, contract that is immoral or opposed to public policy are illegal in nature. b) ‘A, Band C enters into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. The agreement is illegal. Scanned with CamScannerIndian Contract Act, 1872 (Chapter 2) : : . jon soquiring A person acquit vi) Unenforceable Contract: Where a 2A sal ee “a voll |twder a arte By Contract is good in substance, but because Agreement would get no | becomes void later wen of some technical defect, it cannot be Fahts over them and|have acquired rights over enforced by law it. is called as eet ey neta |e ta eee unenforceable contract. These contracts are Tansaction in relation to | before it became ved, Neither void nor voidable. Such contracts ‘them: are good in substance. But due to” non- {ilfilment of prescribed legal formalities ss rsrence between Vold Agreements and Voidable these cannot be claimed in the court. As Contracts ‘soon as the technical reason is looked into ‘Void Agreements Voidable Contracts and rectified such contracts may be 1) A void agreement is|A contract enforceable by| allowed to be enforced. For example, an unenforceable by law) law at the option of the insurance policy, without proper stamp from the very beginning. || aggrieved party, is a voidable| duty, cannot be produced as evidence of a cone contract in the court. Unenforceable 2) Tes void ab in 2, eid contract may be valid contracts are fully valid contracts, but the Rae uae Parties cannot enforce them through the courts, '3) A void agreement is[ Avoidable contract, on the| without any legal effect] other hand, can be enforced and hence cannot be| by the party at whose option For example, an oral agreement for eh cont clan oie | ei oe arbitration is unenforceable because the law = rat is| A voidable contract bea Peat an bliation egrecnica mma i, ae Ss be in writing. If the oral agreement for vey begining. ereved “pay ar aoe arbitration is reduced to writing, it will option the contract is become enforceable. Woidable chooses to rescind it if betwe ic zal Diterence between Void Agreement an he The qaloy fftue + we em ares compensation in the] any person who has received| ‘Void Agreement ‘legal Agreement event of non-performance| any benefit must compensate| 1) All illegal agreements | All void agreements are of a void agreement does|or restore it to the other| are void agreements. | not necessarily illegal. not arise, as it. is| party 2) Collateral agreements | Collateral agreements or unenforceable from. the or connected | connected transactions of a very beginning. ‘wansactions of an | void agreement remain 6) It does not affect” the| A voidable contract does not| illegal agreement also | valid and enforceable collateral agreements | affect collateral transaction, become illegal and But where the agreement unenforceable, is void on account of the 3) Parties to an gal | Void agreement does not illegality of the object| agreement are lable to | make the parties to it liable and consideration, the Punishment for | for punishment under law. collateral agreements will entering into an illegal also become void. —_ 7) Third party does not| A third party who purchases| 4) In illegal agreement, | ina contract which acquire any rights, goods in good faith and for any money advanced or | becomes void feoneiderstion bettie "a benefit obtained cannot | subsequently, the money fcomracty ts ciated be claimed back. advanced ‘or benefit oquites good iis 6 thes obtained has to be restored sil 40 the other party, bi '8) Even on the expiry of al On the expiry of reasonable| Difference between Void Agreement and Void feasonable time, it can|time, it may become a valid Contract never become a valid|contract, if the aggrieved ‘Void Agreement ‘Vold Contract a Party oes not cepndiate tl TA void agreement [A void contract maybe i ne void ab initio. valid: or void or voidable 7 — when it is made, 9) The question of damages) The aggrieved party cas] 2 anything “has been] In a void contact, IF Soe No aise. cm Camas done or given under a| somthing has been deve ct void agreement, thee | given under wit Ste -20| Compensation ouig i compensation available, : i Scanned with CamScanneral Difference between Vold Contract and Voldable Contract Vold Contract Voldable Contract AS ‘ber Section 20) a] A Woldable comract i an pormwets which ceases to | ngreement, which is enforceable by Iaw | enforceable by law at the Tomes void when it | option of one or more of the ‘Seases to be enforceable. | parties thereon. But not at the opinion of other or others, Avoidable contract on the 2) A Void contract Is valid When itis made but | other hand is voidable of subsequently becomes | the option of the aggrieved Party, and remains valid ‘until withdrawn by him, it Contract — caused by impossibility, coercion, undue influence, Subsequent "illegality, | fraud, misrepresentation are ‘epudiation of avoidable | voidable, But in case Contract, a contingent |‘contract is caused. by contract depending upon | mistake itis void, happening ofan Uncertain’ event, when ‘occurrence of such event becomes impossible. '3)_A void contract does not | The, aggrieved party in a provide any legal | voidable contract gets a remedy for the partes to | right to withdraw — the the contract. They even | contract. When such party ccannot get it performed | withdraws it, the contract when they so desire. | becomes void, Incase agerieved pany docs’ not withdraw the contract within a reasonable’ time, the contract remains valid. 2) On the Basis of Formation: On the basis of formation, various contract are as follows: i) Express Contract: Generally the contracts are made in this form. These contracts results from express agreements. Express agreement is formed by making offer and giving acceptance in the words spoken or in writing, According to Section 9 of Indian Contract Act “In so far as the proposal and acceptance of ‘any promise is made in words, the Promise is said to be express. An express Promise Jeads to the formation of express contract”. For example, a) X say to Y “Will you buy my car for 1,00,000?” Y says to X “I am ready to buy your car for 1,00,000". It is an express contract made orally. b)_X writes a letter to Y, “offer to sell my car for 1,00,000 to you”. ¥ send a letter to X, “I am ready to buy your car for 1,00,000". It is an express contract made in writing. MBA Second ‘Trimester (Business Law) KTU ii) Implied) Contract: Where the offer. and ! accepiance are made not by use of words but by conduct only and are therefore implied from the circumstances, the agreement is an, implied agreement. Either, the, entire) agreement may be implied or only a few terms of the agreement may be implied, For example, if a person enters a bus, there is {implied promise that he will pay the bus fair. ii) Quast-Contract: The term quasi-contract, Tenet iterally ‘mean ‘semicontract. “| | quasi-contract is created by law. Thus,) quasi-contracts are strictly not contracts as there is no intention of parties to enter j into a contract. It is legal ooigation whit 4 is imposed on a party who is required to perform it_A quasi-contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. 3) On the Basis of Performance: On the basis of performance, various contract are as follows: i) Executed Contract: An executed contract is ‘one in which both the parties have performed their respective obligation. The consideration in a given contract could be an act or forbearance. When the act is done or executed or the forbearance is brought on record, then the contract is an executed contract, For example, A makes -an agreement for buying one hundred cotton bales from B @ 5,000 per bale. B delivers these cotton bales to A and in retum of it A makes payment to B. This contract becomes executed one. ii) Executory Contract: An executory contract, is one whére one or both the parties to the contract. have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory: contract. Here, the consideration is reciprocal promise or obligation. Such consideration is tobe Performed in future only, and therefore, these contracts are described as. executory contracts, For example, A makes an agreement for’ buying a car from car dealer. A has made Payment. The car has been delivered to him, But ownership of that car is yet to. be transferred to him. The contract remains executory, Scanned with CamScannerTminn Contract Act, 1872 (Chapter 2) 4: Ae) the Basis of Obligation: On'the basis of 2 yuan, various contract are as follows: i) Unilateral Contract: A unilateral contract is ® one-sided contract in which only one Party has to. perform his promise or Obligation to do or forbear. For example, A makes payment for bus fare for his. journey from Jaipur to Kota, He has Performed: his promise, It is now for the transport company to perform the pro ii) Bilateral Contract: Where the obli Promise in a contract is outstanding on the rt of both the parties, it is known as bilateral contract, 2.3. OFFER AND ACCEPTANCE 2.3.1. Offer Offer is a proposal by one party to another to enter into a legally binding agreement with him. A Proposal is an expression of will or intention. The word proposal is synonymous with the English word ‘offer’. According to Section 2(a) of the Indian Contract Act, 1872, “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”. For example, R tells S, “I am willing to sell my machine for %9,000; Are you ready to buy?” This is a clear offer from R to S. Offeror/Promisor and Offeree/Promisee [Section 2) i The person who makes the offer/proposal is called an ‘offeror/promisor” and the person to. whom offer/proposal is made is called the ‘offeree/promisee’ 2.3.1.1. How an Offer is Made? ‘An offer to an agreement can be made by: 1) Express Offer - Any Act: An offer can be made by an act in the following ways: i) By Words (Whether Written or Oral): The written offer can be made by letters, telegrams, telex. messages, advertisements, etc, The oral offer can be made either by person or over telephone. ii) By Conduct: The offer may be made by positive acts or signs so that the person 2» 31 acting ‘or making signs mean’ (0: say or convey. However, silence of a party can in ino case amount to offer by conduct, For example, i) _ A proposes, by letter, to sell atouse to B ata certain price. This is an offer by an act by written words (i.e. letter). This is also an express offer. ii) A proposes, over telephone, to sell a house to B at a certain price, This is an offer by act (by oral words). This is an express offer. Implied Offer - By Omission: An offer can also be made by a party by omission (t0 do something) - Omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other. This includes such conduct or forbearance on one's part that the other person takes it as his willingness or assent. An offer implied-from the conduct of the parties or from the circumstances of the case’ is known: as implied offer. For example, i) A owns a motor-boat for taking people from Mumbai to Goa. The boat is in the waters at the Gateway of India. This is an offer by conduct to take passengers from Mumbai to Goa. He’ need not speak or call the passengers. The very fact that his motor boat is in the waters near Gateway of India signifies his willingness to do an act with a view to obtaining the assent of the other. This is an example of an implied offer. A offers not to file a suit against B, if the latter pays A the amount of %200 outstanding. This is an offer by abstinence or omission to do something. 2.3.1.2. Essential Elements of a Valid Offer Essential elements of valid offer are as follows: 1) Offer must be Capable of Creating.a Legal Relationship: If the offer does not intend to give. rise to legal consequences, it is not a valid offer in the eye of law. For example, An offer to.a friend to dine at the offeror’s place, or an offer to one’s wife to show her a movie is not a valid offer and as such cannot give rise to a binding ‘agreement, even though it is accepted and there is consideration, because in social agreements or domestic arrangements the presumption is’ that the parties do not intend legal consequences to follow the breach of agreement. Scanned with CamScanner32 (Unit-) ust be Certain, Definite and Not the terms of an offer are vague or ie, acceptance, cannot create any But if the a ual relationship. But if the agreement aes Wachinery for ascertaining a vague conta agreement not void on the ground of {ts being Vague imple, A offers to sell B a 100 quintals of Fase rerothing whatever to show what kind oil was intended. The offer is not eapable of bein accepted for want of certainty. But if in the ing ple. A is @ dealer in coconut oil only, ava constitute a vali offer since the nature of if rade affords an indication as to Which oil is being offered. ‘ust be Expressed or Implied: An offer i. ore made either by words or by conduct. An Mfr which is expressed by words, spoken or ten, is called an ‘express offer’ and the one is 1m the conduct of a person or ich is inferred fro1 0 Te creumstances of the case is called an “implied offer’. For'example, M say: sell his motorcycle to expressed offer. 4) Offer must be Distinct from an Invitation to Offer: An offer must be distinguished from an invitation to offer. In case of an invitation to offer, the person making an invitation to others to qnake an offer to him. It is prelude to an offer inviting negotiations or preliminary discussions. For example, A advertises to sell his house. B, C, and D offer to purchase the house at a certain price. A refuses to accept all the offers. A can do 50, as the advertisement issued by A is not an offer but an invitation to an offer, It is B, C, and D who actually offer and itis for A to accept the 2) Offer m Vague: If indefinite, 5 to.N that he is willing to him for 720,000. This is an ‘same oF not. i 5) An offer may be Specific or General: An offer is said to be ‘specific’ when it is made to a definite person or persons. Such an offer can be accepted only by the person or persons to whom it is made. A ‘general offer’, on the other fiand, is one which is made to.the world at large or public in general and may be accepted by any person who fulfils the requisite conditions. Advertisements are the example of general contract. For example, M makes an offer to N to sell his bicycle for €200, there is a specific offer and N alone can accept it. MBA Second Trimester (By ; neu ) Offer must be Communicated: my comp te Must be communicated om Ob is made, communicated, there can bee senate acceptance of an offer in gue ePtce jt offer, is no acceptance and ‘i right on the acceptor. For example, A, wit + A, without kno has been offered for the anes of sft criminal, catches the criminal and at formation to the superintendent of °°. the cannot recover the reward as he cannot have accepted the offer when he wo ee tidto aware of it. Renal wing that a rew, 7) Offer must be Made with a Vi Consent of the Offeree: An ‘ates rate only when it is communicated to the atet"® Until the offer is made known to the offent, there can be no acceptance and no cas! Doing anything in ignorance of the offer a never be treated as its acceptance, for; there wan never a consensus of wills. This applies to both ‘specific’ and ‘general’ offers. 8) Offer may be Conditional: An offeror may attach any terms and conditions to. the offer he makes. He may even prescribe the mode of acceptance. The offeree will have to accept all the terms of the offer. There is no contract, unless all the terms of the offer are complied with and accepted in the mode prescribed. 9) No Term the Non-Compliance of which Amounts to Acceptance: The offer should not contain the term of non-compliance, which would amount of acceptance. For example, a man cannot say that if acceptance is not communicated by a certain time the offer would be considered as accepted. For example, X writes a letter to Y. I offer to sell my car for %1,00,000. If I do not receive your reply by Friday next, I shall assume that you have accepted the offer. Here if ¥ does not reply, it does not mean that he has accepted the offer. 2.3.2. Acceptance [Section 2(b)] ‘The assent given to a proposal may be understood as acceptance. A proposal when accepted becomes a promise. Acceptance means giving consent to the offer. It is an expression by the offeree of his willingness to be bound by the terms of the offer. In other words, offer and acceptance combine together to form a contract. An application for share in a company is in the nature of offer while the allotment Scanned with CamScannerIndian Contract Act, 1872 (Chapter 2) of the iare pete company is an acceptance res c clitipletedGinnot be HOES. meee ee rt According {o Section 2() of the Indlan Contract the pers Proposal is said to be accepted when omen eee on the proposal is made signifies his tse thereto, A proposal when accepted becomes Pe sarge A offers to sell his car to B for ,00,000. B agrees to buy the car for 1,00,000. B's act is an acceptance of A's offer. Essentials of Valid Acceptance Essentials of valid acceptance are as follows: Essentials of Valid Acceptance “Absolute and Unqualified ‘or Unconditional Within Proper Time ‘Most be Communieated “Mast be According to the ‘Must be Given only by the Peace E -| | ————— Pesonte Whonthe Ofer] Facepane man Sure Otter ‘Offer Once Rejected cannot bbe Accepted 1) Absolute and Unqualified or Unconditional: ‘according to Section 7(1) of the Indian Contract ‘Act, 1872, “In order to convert a proposal into promise, the acceptance must be absolute and unqualified”. It means that an offer must be fecepted as it is without any reservation, ‘eriation or condition, A qualified and Conditional acceptance amounts to marking of f counter offer which puts an end to the original offer and it cannot be revived by subsequent acceptance. 2) Within Proper Time: Acceptance must be given within proper time. Proper time would be the time specified by the offeror’s. If no time has been specified by the offeror, then the acceptance aust be given within reasonable time. In case of any conflict, the length of reasonable time would be determined by Court depending upon the ‘circumstances of the case. Acceptance must be tiven before the offer lapses or is revoked or is withdrawn. 3) Must be Communicated: The acceptance must be signified (je. indicated or declared). In other words the acceptance is complete only when it 4) to ‘ in the prescribed shall be accepte not otherwise b the acceptance. : ‘e Given only. by the Person (0 om ° Mester ig Made: An offer can be accepted only by the person oF | whom : s oye and with whom it imports Of intention to contract; it cannot be accepted by an ‘gon without the consent of the offeror. The ae law is clear that “if You propose f0 make a contract with A, ¢ substitute himself ait he fails to do S0, he accePts then B cannol for A without your consent, 6) Acceptance must Succeed the Offer: Acceptance must be given after receiving the ert should not precede the offer. If the aoceptance precedes an offer, it is not 2 valid acceptance and does not result in a contract. 7) Offer Once Rejected cannot be Accepted: Offer once rejected cannot be accepted again unless a fresh offer is made. Prey Aa 2.41. Meaning and Definition of Consideration [Section 2(d)] The term ‘consideration’ is one of the vital elements to uphold a contract. Subject to some exceptions, an agreement made without consideration is a null and void contract. Consideration is a legal term used in the sense of quid pro quo, which means ‘something in return’, When a party to an agreement promises to do something, he must get ‘something’ in return. This ‘something’ is called consideration. Consideration is the price agreed to be paid by the promisee for the obligation of the promisor. Scanned with CamScanner34 (Unite) Section 10 of the Indian Contract Act distinctly staten that a “lawful consideration” is necessary for the recognition of an agreement as a valid) contract, Sections 23, 24 and 25 further Iny stress on the nature of the lawful consideration and thus play an important role in regulating the contractual relation for their legal validity and enforcement through a court of law. Section 2(d) defines consideration as follows: “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”. That is to say, 1) Consideration is the doing or not doing of something which the promisor desires to be done cor not done. 2) Consideration must be at the desire of the ‘promisor. 3) Consideration may move from one person 0 any other person. 4) Consideration may past, present or future. 5) Consideration need not adequate, but should be real. For example, X Promises to deliver his good to ¥ and Y promises to pay €1,000 on delivery. In this ease the consideration for each of these promises is as under: Promise ‘Consideration For X's promise [Y's promise to pay € 1,000 on delivery. For ¥"s promise | X's promise to deliver his goods. Basically, the essence of the concept of consideration fies in the return sought by a person for undertaking an obligation by making a promise. Scholars have described the meaning of consideration in the same sense, According to Blackstone, “Consideration is the recompense given by the party contracting to the other”. ‘According to Cheshire and Fifoot, “Consideration is the price paid by the plaintiff for the defendant’s promise”. ‘According to Pollock, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”. ‘According to Sir Frederick Pollock, “An act or forbearance of one party or the promise: thereof, (Consideration) is the price for which the promise of the other is bought and the promise thus given for value is enforceable”. WIth Seer Viirnestes Wasi Lam) TS 24,2, Fassentials of a Valid Consideration Piysentials of a valid consideration are as follows 1) Consideration must Move at the Desire of the Promisor: In order 1 constiuute egal ‘consideration, the uct or abstinence forming the conalderation for the promise must be done at the desire or request of the promisor. Thus ets done or services rendered voluntarily, or at the desire of third party, ‘will not amount to valid consideration 10 35 10 on if he were obliged to pay Sor does not need or require. For example, A sees B’s house on fire and helps in extinguishing it. He cannot demand payment for his services because B never asked him to come for help. 2) Consideration may Move from the Promisee or ‘Any Other Person: The second essential of valid consideration, as contained in the definition of consideration in Section 2(d), is that consideration feed not move from the promisee alone but ay proceed from a third person. Thus, as long te here is a consideration for a promise, it is immaterial who has furnished it. It may move from the promisee or from any other person. This means that even a stranger to the consideration ‘can sue on a contract, provided he is a party to the contract. This is sometimes called as ‘Doctrine of Constructive Consideration’. 3) It may be Past, Present or Future: The words used in Section 2(d) are: “... has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future) something ‘This means ‘consideration may be past, present or future: i) Past Consideration: When consideration by fa party for a present promise was given in the past, ic., before the date of the promise, itis said to be past consideration. ii) Present or Executed Consideration: When consideration is given simultaneously with promise, ie., at the time of the promise. It is said to be present consideration. For example, in a cash sale consideration is present or executed. iii) Future or Executory Consideration: When consideration from one party to the other is to pass subsequently to the making of the contract. It is future or executory consideration. Scanned with CamScannerIndian Contract Act, 1872 (Chapter 2) 4) 5) 6 It Need not be Adequate: already explained, means return”. This “something in return” nee necessarily be equal in value to something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the Courts are not concerned as to its adequacy, provided it is of some value. “The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the Court when it is sought to be enforced.” It must be Something which the Promisor is Not Already Bound to Do: A 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 a new promise, since it adds nothing to the pre-existing legal or contractual obligation. Likewise, a promise to perform a public duty by a public servant is not a consideration. It may be an Act, Abstinence or Forbearance or a Return Promise: This has already been explained, Thus it may be noted that the following are good considerations for a contract: i) Forbearance to Sue: If a person who could sue another for the enforcement of a right agrees not to pursue his claim, this constitutes a good consideration for promise by the other person. This results in 2 benefit to the person not sued and a detriment to the person who could sue. For example, A borrows from B 7100 at 20 per cent p.a. and fails t0 pay the amount. When B is about to file a suit, A agrees to pay a higher rate of interest, B, as a result, foes not file the suit. This forbearance on the part of B to file a suit is a sufficient Consideration and B can enforce the promise by A to pay the higher rate of interest. romise of a Disputed Claim: Compromise is a kind of forbearance. As such the same principle, as discussed above, applies to the bona fide compromise of a Gisputed claim even though ultimately it night appear that the claim was wholly tnfounded. But, originally, the claim should be reasonable and the person claiming should honestly believe that itis a valid claim. He should also act bona fide. If it tums out that the claim was frivolous and the claimant was not acting bona fide, the other party can claim compensation. ‘Consideration, as “something in ii) Comp! 35 si) Composition with Creditor: a Se js financially embarra ly errtors and request them to 5 ing of his cred er their accept a lesser of tbe tors agree debt, the sing both upon the debtor th ‘amounts t0 D deaua need not be a0Calue in the eyes some ¥3 1 the val consideration in the consideration real, competent and of of the law. There is 10 Te following cases: 4) Physical impossibility, Legal impossibility, | }) Uncertain consi iv) lusory consideration. ‘A in consideration of some money 6 ° ; sh from B promises to bring gold for hint from sun ¢ ror it copper into gold with the help of magic. sory consideration is illusionary and fetious on a nt of impossibility and uncertainty ioral or Opposed to 8) It Must not be Illegal, Imm Public Policy [Section 23}: The consideration fiven for an agreement must not Be unlawful. airere itis unlawful, the Courts do not allow an action on the agreement, 2.4.3. Exception to the Rule ‘No Consideration No Contract’ ‘The general rule Is that an agreement made without consideration is vold [Section 25). In every Valid contract consideration is very important. A contract may only be enforceable when there is However, the Indian adequate consideration. Contract Act contains certain exceptions to this rule. The following are the exceptions to the general rule No Consideration, No Contract: 1) Agreements Made on Account of Natural Love and Affection (Section 25(1)]: Such agreement made without consideration is valid if: i) Itis expressed in writing, ii) Ttis registered under the law. i) Ibis made on account of love and affection, and iv) It is between parties standing in a near relation to each other. Note: Neamess of relation by itself does not necessarily import love and affection. For example, a Hindu husband by a registered document promised to pay his wife 1,000 per mon a her pin-pocket money. This agreement aid. Scanned with CamScanner2) Promise to Compensate [Section 25(2)]: Such promise made without consideration is valid if: i) Itis a promise to compensate (wholly or in part); and ii) The person who is to be compensated has already done something voluntarily or has done something which the promisor was legally bound to do. For example, i) X finds Y's purse and gives it to him. Y promises to give 8500 to X. This is a valid contract even though the consideration did not move at the desire of Y, the promisor. ii): X, a neighbour helped putting down the fire in Y's house. Afterwards, Y promised X to give 1,000. This is a valid contract even though the consideration did not move at the desire of the promisor. 3) Promise to Pay Time Barred Debt [Section 25(3)]: Such promise without consideration is valid if: i) It is made in writing, ii) Itis signed by the debtor or his agent, and iii) Tt relates fo a debt. which could not be enforced by a creditor because of limitation. For example, A has borrowed sum of 10,000 from B for the period of 2 years. Till the ‘expiration of that period neither A served notice of demand to B nor B repaid the debt. Debt become time barred which A cannot. legally recover. B ‘makes promise to repay 5000 after a month. This promise is valid without consideration provided B ‘makes it in writing and signs on it with a clear intention of making partial payment. 4) Completed Gifts (Explanation to Section 25]: The gifts actually made by a donor and accepted by the donee are valid even without consideration. Thus, a completed gift needs no consideration. For example, X transferred some property to Y by a duly written and registered deed as a gift. This is a valid contract even though no consideration moved. 5) Contract of an Agency [Section 185]: The contract made for creating relationship of agency between parties does not require any consideration. Without consideration such contracts are invalid. Thus a promise made by the person to act as an agent of another person is enforceable without consideration. Similarly if person makes an agreement with another to appoint him as his agent for particular period of time, It is also a valid agreement. MBA Second Trimester (Business Law) KTU CAI el ha 2.5.1. Introduction Section 10 of the Indian Contract Act, 1872 provides that “All agreements are contracts if they are made by the parties competent to contract”, Therefore, capacity to contract is an essential clement of a valid contract, The term capacity to contract means and includes the legal capacity of the parties to enter into a contract. In other word, it is the capacity of parties to enter into a legally binding contract. 2.5.2. Competency to Enter into Contract [Section 11] ‘The parties to a contract must be legally able to enter into a contract. Usually, minors and mentally incompetent individuals lack contractual capacity. Depending on the situation, a contract entered into by someone who lacks contractual capacity may or may not be enforceable. Section 11 of the Indian Contract Act, 1872 provides that “Every person is competent to contract, who is of the age of majority according to the law to which he is subject, and who is of sound and is not otherwise disqualified from contracting by any law to which he is subject”. that a person is section declares the following Thus, the to contract under incompetent circumstances: 1) Minority: If he is a minor, according to the law to which he is subject. 2) Mental Incompetence: If he is of unsound mind, 3) Status: If he is disqualified from contracting by any law to which he is subject. 2.5.3. Minor A person who is not a major person (above 18) is an infant or a minor. According to Section 3 of the Indian Majority Act, 1875, a person, domiciled in India, who is under 18 years of age, is a minor. ‘Accordingly every person who has completed the age of 18 years becomes a major. But minors of whose person or property or both a guardian is appointed by a Court and minors of whose property superintendence has been assumed by a Court of Wards, attain majority at the age of 21 years. Scanned with CamScannerdian Contract Act, 1872, (Chapter 2) Determination of Minority f t expressly provides that the age of “accordyn of a person is to be determined Courts of 410, the law to which he is subject”. The ‘ Of Law used to decide the age of majority (Competency to Contract) by the law of domicile and Not by the law of the place where the contract is fme*ted into, But the later trend of law for determin- ing the age of majority is: In the case of contracts relating to ordinary Tereantile transactions, the age of majority is tO determined by the law of the place where the Contract is made; and 2) In the case of contracts relating to land, the age of majority is to be determined by the law of the Place where the land is situated, Thus, where @ Person aged 18 years, domiciled in India, endorsed certain negotiable instrument. in Ceylon, by the laws of which he was a minor, he ‘Was held not to be liable as an endorse. 2.5.3.2. Position of Minor’s Agreement Position of a minor's agreement can be understood by going through the following points: 1) Agreement Entered into by a Minor is Altogether Void: A contract with a minor is void as minor is incapable of giving a promise imposing a legal obligation. For example, ‘A’ a minor borrowed a sum of %35,000 from “B’ and as a security for the same executed a mortgage in his favour. He became major few months later and filed a suit for declaration that mortgage executed by him during his minority was void and should be cancelled. It was held that a mortgage by a minor was void and ‘B’ was not entitled to repayment of money, 2) Minor can be a Beneficiary: If a contract is beneficial to a minor it can be enforced by him, There is no restriction on minor from being a beneficiary. For example, ‘A’ (major) executed promissory note in favour of “B’ (minor). The minor can enforce the promissory note. 3) No Estoppel Against a Minor: Where a minor by misrepresenting his age has induced the other Party to enter into a contract with him, he eannot make liable on the contract since there can be no estoppel against a minor. 4) Ratification on Attaining Majority is not Allowed [Section 68]: An agreement with minor is completely void. A minor cannot ratify the agreement even on attaining majorite because a void agreement cannot be ratified” EE ARIE a 5) 6) 2D 8) 9) 11) Minor 37 For example, A minor borrowed a sum of money executing a'simple bond for it and after attaining majority executed a second bond 1, respect of original loan and interest. It was held that suit upon second bond is not maintainable: Liability for Necessaries: Under Section 68, any person would be entitled to reimbursement ot of the minor’s estate, for necessaries supplied to hhim or to his family. Necessaries as defined by the English Sale of Goods Act, also means, goods suitable to the condition is the life of infant as required by him at the time of sale of delivery. It includes not only food and clothing but also education and instruction. Necessaries also include ‘goods’ and services. If minor had obtained payment fraudulently by concealment of age, he may be compelled to restore the payment but he cannot be compelled for an identical sum, if any, as it would amount to enforcing a void contract. ‘Minor Partner: A minor being incompetent to contract cannot be a partner in a partnership firm, but under Section 30 of the Indian Partnership Act, he can be admitted to the ‘benefits of partnership’ with the consent of all the partners by an agreement executed through his lawful guardian with the other partners, Minor Agent [Section 184]: A minor can be an agent. He shall bind the principal by his acts done in the course of such an agency, but he cannot be held personally liable for negligence or breach of duty. Minor and Insolvency [Section 68]: A minor cannot be adjudicated as an insolvent, for he is incapable of contracting debts. Even for necessaries supplied to him, he is not Personally liable, only his property is liable, Contract by Minor and Adult Jointly: Where a minor and an adult jointly enter into an agreement with another person, the minor has no liability but the contract as a whole can be enforced against the adult. 10) Position of Minor’s Parents: The parents of a minor are not liable for agreements made by a minor, whether the agreement is for the purchase of necessaries or not. The parents can be held liable only when the child is contracting as an agent for the parents. Shareholder: A minor, _ being incompetent to contract, cannot be a shareholder of the company. A company can also refuse to register transfer or transmission of shares in favour of a minor unless the shares are fully paid, Scanned with CamScanner38 (Unit-It) 2.5.4. Persons of [Section 12] Section 12 of the Indian Contract Act, 1872 lays down a test of soundness of mind it defines the term ‘sound mind? as follows: “A person is said to be of sound mind for the purpose of making a contract, If at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effects upon his interests”. Unsound Mind According to this Section, therefore, the person entering into the contract must be a person who understands what he is doing and is able to form a rational judgment as to whether what he is about to do is to his interest or not. Section further states that: 1) “A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.” Thus a patient in a Tunatic asylum, who is at intervals of sound mind, may contract during those intervals. 2) “A person, who is usually of sound mind, but ‘occasionally of unsound mind, may not make a contract when he is of unsound mind.” Thus, a 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 judgment as to its fffect on his interest, cannot contract whilst such delirium or drunkenness lasts. Unsoundness of mind may arise from: 1) Idiocy: It is God given and permanent, with no intervals of saneness. The mental powers of an idiot are completely absent because of lack of development of the brain. 2) Lunacy or Insanity: Itis a disease of the brain. ‘A lunatic loses the use of his reason due to some mental strain or disease. Of course he may have lucid intervals of sanity. 3) Drunkenness: It produces _ temporary incapacity, till the drunkard is under the effect of intoxication, provided it is so excessive as to suspend the reason for a time and create impotence of mind. 4) Hypnotism: -It also produces temporary incapacity, till the person is under the impact of artificially induced sleep. 5) Mental Decay: On account of old age, etc. ‘Therefore, an agreement with a person of unsound mind is void. ‘MBA Second Trimester (Business Law) KTU 2.5.5. Persons Disqualified by Law Besides minors and persons of unsound mind, there are others who are disqualified from contracting under the provision of some other laws. Such persons are: 1) Alien Enemies: An alien (citizen of a foreign country) living in India can enter into contracts with citizens of India during peace time only, and that too subject to any restrictions imposed by the Government in that respect. On the declaration of a war between his country and India, he becomes an alien enemy and cannot enter into contracts. “Alien friend can contract but an alien enemy cannot contract.” Foreign Sovereigns and Ambassadors: One has to be cautious while entering into contracts with foreign sovereigns and ambassadors, because whereas they can sue others to enforce the contracts entered upon with them, they cannot be sued without obtaining the prior sanction of the Central Government. Thus they are in a privileged position and are ordinarily considered incompetent to contract. Convict: A convict is one who is found guilty and is imprisoned. During the period of imprisonment, a convict is incompetent: i) Toenter into contracts, and ii) To sue on contracts made before conviction. On the expiry of the sentence, he is at liberty to institute a suit and the Law of Limitation is held in abeyance during the period of his sentence. Insolvent: An adjudged insolvent (before an ‘order of discharge’) is competent to enter into certain types of contracts, ie., he can incur debts, purchase property or be an employee but he cannot sell his property which vests in the Official Receiver. Before ‘discharge’ he also suffers from certain disqualification, for ‘example, cannot be a Magistrate or a Director of a company or a member of local body but he has the contractual capacity except with respect to his property. After the ‘order of discharge’, he is just like an ordinary citizen. 5). Joint-Stock Company and Corporation Incorporated under a Special Act like (LIC, UTD: A company/Corporation is an artificial person created by law. It cannot enter into contracts outside the powers conferred upon it by its Memorandum of Association or by the provisions of its special Act, as the case may be. Again, being an artificial person (and not a natural person) it cannot enter into contracts of a strictly personal nature, .g., marriage. Scanned with CamScanner 2) 3) 4)Indian Contract Act, 1872 (Chapter 2) 6) Pardanashin Women: A pardanashin woman is ‘one who lives in seclusion having no commission except from behind the parda or screen with any male person except a few privileged relations. She has not much intercourse with the outside world. Law provides special protection to pardanashin ladies on the ground of their being ignorant so far as the worldly knowledge goes. A contract with a pardanashin woman is presumed to have been induced by undue influence. 7) Married Women: A women is competent to enter into a contract. Marriage does not affect the contractual capability of a woman, A married woman may sue or be sued in her own name in respect of her separate property. e tae 2.6.1. Consent [Section 13] According to Section 13, “Two or more persons are said to have consented when they agree upon the same thing in the same sense” (Consensus ad idem). The Latin term consensus ad idem means “agreement as to the same things”. Consequently, when parties to a contract make some fundamental error as to the nature of the transaction, or as to the person dealt with or as to the subject-matter of the agreement, it cannot be said that they have agreed upon the same thing in the same sense, And if they do not agree in the same sense, there cannot be consent. A contract cannot arise in the absence of consent. For example, A, a painter, agrees to paint the house of B and B agrees to pay the sum of &2,000 upon the satisfactory completion of the work. In this case, there is a meeting of the minds of A and B on the subject of what is to be done and at what price, Effect of Absence of Consent When there is no consent at all, the agreement is void ab initio, ic., it is not enforceable at the option of either party. For example, X has one Maruti car and one Fiat car. He wants to sell Fiat car. Y does not know that X has two ears, Y offers to buy X"s Maruti car for £50,000, X accepts the offer thinking it to be an offer for his Fiat car. Here, there is no identity of mind in respect of the subject matter. Hence, there is no consent at all and the agreement is void ab initio, Se x» Free Consent 2.6.1 Definition | of [Section 14] Consent is said to be so cause have been given but for i coercion, undue influence, or mistake. Section 14 says ‘free’ if it is not obtained by: 1) Coercion as defined in Section 15, op 2) Undue influence, as defined in Section 16, 3) Fraud, as defined in Section 17,o¢. 4) Misrepresentation as defined in Section 18, or 5) Mistake, subject to the pro, Secti 20, 21 and 22. eee d when it would no he existence of such misrepresentation, fraud that consent is said to be 2.6.3.“ Coercion [Section 15] “Coercion is the committing, or threatening to ‘commit any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any force in the place where the coercion is employed”. For example, X says to Y: “I shall kill your son, or 1 shall not return the documents of title relating to your wife's property, unless you agree to sell your house to me for %5,000”. Y says, “All right, I shall'sell my house to you for %5,000 do not kill my son or do not detain. my wife’s documents of title”. X has employed coercion; he cannot therefore enforce the contract. But Y can enforce the contract if he finds the contract to his benefit. An agreement induced by coercion is voidable and not void. That means it can be enforced by the party coerced, but not by the party using coercion, Effect of Coercion [Section 19, 64, 72] Effects Provision 1) Option of aggrieved | When consent to an agreement is party toavoid the obtained by coercion, the contract agreement is a contract voidable at the option of the party whos] [consent was obtained by coercion (also. called aggrieved party) {Section 19} 2) Obligation of ‘The party rescinding a voidable| aggrieved party to [contract shall restore the benefit restore benefit _| received by him under the contrat to the person from whom the) benefit was received. Section 64) 3) Obligation of other [A person to whom money has been party torepay or | paid or anything delivered under} retum coercion must repay or return it [Section 72) Scanned with CamScanner40 (Unit-I) 2.6.4, Undue Influence [Section 16(1)] “A contract is said to be induced by ‘undue influence’ where: 1) The relations subsisting between the parties are such that one of the parties is In a position to dominate the will of the other, and 2) He uses the position obtains an unfair advantage over the other.” According to Section 16(2), a person is deemed to be in a position to dominate the will of another: 1) Where he holds a real or apparent authority over the other, for example, the relationship between master and the servant, police officer and the accused; Where he stands in a fiduciary relation to the other. Fiduciary relation means a relation of ‘mutual trust and confidence. Such a relationship is supposed to exist in the following cases: father and son, guardian and ward, solicitor and client, doctor and patient, Guru (spiritual adviser) and disciple, trustee and beneficiary, etc.; or Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, iliness, or mental or bodily distress, for example, old illiterate persons. 2 3) For example, a Hindu well advanced in age, with the object of securing benefits of his soul in the next world, gave away his whole property to his ‘guru’ or spiritual adviser. Undue influence was presumed. Difference between Coercion and Undue Influence Basis of Coercion | Undue Influence Difference 7D) Relationship | Parties toa contract | Parties to a contract ray of may not be [are related to each related 10 each| other under some other. sort of relationship. 2) Consent | Consent is obtained [Consent is obvained by giving a threat] by dominating the ‘of an offence or| will. committing = an offence. 3) Nature of | It involves physical| It involves moral Pressure _| pressure pressure. Who can | It can be exercised [It can be exercised Exercise even by a stranger] only by a party to a tothe contract. | contract and not by a stranger. 3) Restoration |The aggrieved | The party avoiding of Benefit | party has to restore | the contract may or the benefit received | may not retum the under Section 64, [benefit under Section 194. MBA Second Trimester (Business Law) KTY Presumption | Conrion bas wo be] it may be presumed proved by the party| by the law under alleging it, in no/ certain ease itis presumed | eicumstances. The by the law. parry against whom Soch presumption lies must disprove it The party | does n0t involve commiting "ihe any criminal ime may _ be | lability. punishable under IPC. 7 Nature of Liability Fraud [Section 17] ‘As per the Act “Fraud” means and includes any of the following acts committed by @ party to a contract, or with his involvement or by his agent with intent to deceive another party thereto or his induce him to enter into the contract: 1) The suggestion that an act is true when it is not true by one who does not believe it to be true. Thus, a false statement intentionally made is fraud. An absence of honest belief in the truth of the statement made is essential to constitute fraud. If A represent or honestly believes his statement to be true, he cannot be liable in deceit no matter how ill-advised, stupid, or even negligent he may have been. In order to be called fraudulent representation the false statement ‘must be made intentionally. 2) The active concealment of a fact by a person who has knowledge or belief of the act. Active concealment of a material fact is taken as much and as if the existence of such fact was expressly denied or the reverse of it expressly stated. Mere non-disclosure is not fraud, where there is no duty to disclose. Caveat Emptor or ‘Buyer Beware’ is the principle in all contracts of sale of goods. As a rule the seller is not bound to disclose to the buyer the faults in the goods he is selling. A promise made without any intention of performing it. If a man while entering into a contract has no intention to perform his promise, there is fraud on his part. 4) Any other act fitted to deceive, “the fertility of man’s invention in devising new schemes of fraud is so great that it would be difficult, if not impossible, to confine fraud within the limits of any exhaustive definition. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat anyone is considered fraud. And sub- section 4 is obviously intended to cover all those cases of fraud which cannot appropriately be covered by the other sub-sections, eee 2.6.5. agent, or toi 3 Scanned with CamScannerIndian Contract Act, 1872 (Chapter 2) 5) Any such act or omission as the law speci declares to be fraudulent. This sub-section refers to the provisions in certain Acts which make it obligatory to disclose relevant facts. Thus, e.g., under Section 55 of the Transfer of Property Act, the seller of immovable property is bound to disclose to the buyer all material defects in the property (c.g. the roof has a crack) or in the seller's title (e.g., the property 1s mortgaged). An omission to make such @ disclosure amounts to fraud. 2.6.6. _ Misrepresentation [Section 18] The term ‘misrepreséntation’ means a false Tepresentation of fact made innocently or non- disclosure of a material fact without any intention to deceive the other party. Section 18 defines the term ‘misrepresentation’ as follows: “Misrepresentation” means and includes: 1) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; 2) Any breach of duty which, without an intent to deceive, gains an advantage to the person ‘committing it, or any one claiming under him, by misleading another to his prejudice or fo the prejudice of anyone claiming under him; 3) Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement. 2.6.7. Mistake Mistake may be defined as an’ erroneous belief concerning something. It can be of following types: ‘Types of Mistake Mistake of Law Mistake of Fact Mistake of Indian | Mistake of Foreign] | Bilateral | | Unilateral Taw rae 2.6.71. Mistake of Lay his Mistake of law may be of wy section 21) 1), Mistake of Indian Law: Eres, be conversant with the law of his © %*Med to hhence the maxim “ignoraneg S,°OUNY, and excuse”. Mistake of law, therefore je and it does not give right to the man”, use the contract, Starting the effect cp nies 2 S¥Oid law, Section 21 declares that “a gonpet®28 © voidable because it was caused by a minag@ ot any law in force in India”, Accontinmt sox? 28 10 ‘cordingly, no reli can be granted on the ground of men Met of the country. of mistake of law 2) Mistake of Foreign Law: Mi taw stands on the same footing seiko sues fact”. Here the agreement is void in eax ot “bilateral mistake” only, as explained unde, to, subsequent heading. met the Mistake of Law and their Effect Type of Mistake Effect of Law 1) Mistake of [The contract is not” voidable because Indian Law everyone is supposed to know the law of his country. 2) Mistake of [A mistake of foreign law is teated a Foreign [mistake of fit... the contac svi if Law both the parties are under a mistake as toa foreign law because one cannot be lexpected to know the law of other county. 2.6.7.2. Mistake of Fact [Section 20 & 22] Mistake of fact may be of two types: 1) Bilateral Mistake (Section 20]: Where the parties to an agreement misunderstood each other and are at cross purposes, there is a bilateral mistake, Here there is no real correspondence of offer and acceptance, each party obviously understanding the contract in a different way. 2) Unilateral Mistake [Section 22]: Where only one of the contracting parties is mistaken as to a matter of fact, the mistake is a unilateral mistake. Regarding the effect of unilateral mistake on the validity of a contract, Section 22 provides that “a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of act”, Accordingly, in case of unilateral mistake @ contract remains valid unless the mistake i caused by misrepresentation ot fraud, in which case the contract is voidable at the option °° aggrieved party. mer Scanned with CamScanner“consideration: ;PUTPOSe or design. ‘The term ious forme i Selined in Section 2(d) and the May take have been considered Book, where A agrees to sell efit OF these WHO 8 insolvent assigns the defrauding $e COME for F100 with a view to assignmec is, “editors, the consideration for the Object nan pe» the sum of £100 is lawful but the is igar tie» defrauding the creditors, is unlawful as it Teutended to defeat the provisions of the insolvency 12W. In practice, itis difficult to distinguish between ‘object’ and ‘consideration’, especially when Consideration consists in a promise to do or not to do something. 2.7.2. When Consideration or Object is Unlawful [Section 23] Object and the consideration of an a be lawful; otherwise, the agreement is vi According to Section 23 of The Indian Contract Act, 1872, the consideration or the object of an agreement is unlawful in the following cases: 1) If it is Forbidden by Law: If the object or the consideration of an agreement is the doing of an act which is forbidden (i.e., prohibited) by law, the agreement is void. An act is said to be forbidden by law when it is punishable either by the criminal law of the country or by special legislation. For example, A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the. things taken. The agreement is void, as its’ object is unlawful. [William versus Bayley]. 2) If it Defeats the Provisions of any Law: If the object or the consideration of an agreement is of such nature that, if permitted, it would defeat the provisions of any law, the agreement is void. igreement must For example, A’s estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which a defaulter is prohibited from purchasing the estate, B, upon an under- standing with A, becomes the purchaser, and agrees to convey the estate to A, upon receiving from him the price which B has paid, The agreement is void as it tenders the transaction, in effect, a purchase by the defaulter, and would so defeat the object of the law. MBA Second Trimester (Business Law) KTU 3) If it is Fraudulent: Ifthe object of an agreement is to defraud others, the agreement is void. For example, A, B and C enter into an agreement of the division among them of gains acquired, or be acquired, by them by fraud. The agreement is void, as its object is unlawful. 4) If it Involves or Implies Injury to a Person or Property of Another: If the object of an agreement is to injure a person or the property of another, the agreement is void. For example, X borrowed 7100 from Y and executed a bond under which he promised to work for Y without pay for 2 years and agreed to ay interest at 10% per month and the principal amount at once. It was held that the agreement was void because it involved injury to X. [Ramsardop versus Bansi Mandar). 5) If the Court Regards it as Immoral or Opposed to Public Policy: If the object or consideration is immoral or is opposed to the public policy, the agreement is void. For example, i) A, who is B’s mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay %1,000 to A. The agreement is void, because it is immoral. ii) A agrees to let her daughter to hire to B for concubinage. The agreement is void because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860). 2.7.3. Void Agreement Void means having no legal value and agreement means Arrangement, promise or contract made with somebody, so void agreement means an agreement that has no legal value. The Act has specified various factors due to which an agreement may be considered as void agreement. One of these factors is unlawfulness of object and consideration of the contract, ice, illegality of the contract, which makes it void. A void agreement has no legal effect. An agreement which does not satisfy the essential elements of contract is void. Void contract confers no rights on any person and creates no obligation. For example, an agreement made by a minor, agreement without consideration, certain agreements against public policy, etc. Scanned with CamScannerIndias ™ Contract Act, 1872 (Chaper 2 2.74. FB 4. ‘Xpressly py, eclars purement [Section 24-30) ee declare 5 (o agreements, which . ‘Agen be void, They are as follows oe For example, A promise to superintend on behalf Of B, a legal manufacture of indigo and an illegal traffic in other articles. B promises to pay to A,a sala of 290,000 a year. The agreement is void, ihe object of A's piomise and the consideration for B’s promise being in part unlawful, 2) Agreement made without Consideration [Section 25}: Section 25 declares that an agreement without consideration is void, unless it is in writing and registered, or it is a promise to ‘compensate for something done, or is a promise to Pay a debt barred by limitation. This is, of course, subject to a few exceptions which have already been considered alongwith “consideration”. 3) Agreement in Restraint of Marriage [Section 26): Every individual enjoys the freedom to marry. According to the Act, “Every agreement in restraint of the marriage of any person, other than a minor is void”. It is the policy of law to discourage agreements, which restrain freedom of marriage. The restraint may be general or partial. Where a party is restrained from marrying at all or for marrying for a fixed period or from marrying a particular person, or class of persons, the agreement is void. A promise to marry a particular person does not imply any restrain of marriage and is a valid contract: For example, Preeti agrees with Sambandh for good consideration that she will not marry Kurup. It is void agreement. 4) ‘Agreement in Restrain of Trade [Section 27}: ‘The Constitution of India guarantees the freedom of trade and commerce to every ‘citizen. ‘According to the Act “Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent, void". There are some exceptions to this tale like sale of goodwill, partner's agreements, a trade combinations or negative “stipulations in service agreements wherein some reasonable restrictions on trade are permitted in law. 5) Agreement in Restrain of Legal Proceedings {Section 28]: Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to that extent. 6) Agreements the Meaning of which is Uncertain [Section 29]: Agreements the meaning of which is not certain, or capable of being made certain, are void. 7) Agreements by Way of Wager/Wagering ‘Agreements [Section 30]: The word ‘wager’ ‘means ‘betting’ or ‘gambling’. A wagering agreement is an agreement between two persons under which money or money’s worth is payable, by one person to another on the happening or non-happening of a future uncertain event. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on wager, or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is ~ made. However certain prizes for horse-racing. For example, X promises to pay 1,000 to Y if it rained on a particular day, and ¥ promises to pay 21,000 to X if it did not. Such agreement is a ‘wagering agreement and thus void. 2.7.5. Unlawful and Iegal Agreements An unlawful agreement is one which, like a void agreement, is not enforceable by law. It is void ab initio and is destitute of legal effects altogether. It affects only the immediate parties and has no further consequences. An illegal agreement, on the other hand, is not only void as between the immediate parties but has this further effect that the collateral transaction to it also becomes tainted with illegality. For example, 1) L lends %5,000 to B to help him to purchase some prohibited goods from T, an alien enemy. If B enters into an agreement with T, the agreement will be illegal and the agreement between B and L shall also become illegal, being collateral to the main transaction which is illegal. L cannot, therefore, recover the amount. He can recover the amount if he did not know of the Purpose of the loan. Scanned with CamScanner44 (Unit) 2) An agre ‘ngreer publish « libel is illegal, Every illegal agreement ts unlawful, but every unlawful agreement fs not necessarily illegal, It is xometimes difficult to decide as to whether an act is illegal or unlawful as many of the illegal and the unlawful acts lie on the borderline, Effects of Megal Agreements The general rule of law is that ‘on an illegal agreement, Thi following two maxims: 1) Bx Turpi Causa non Oritur Actio: It means no fnetion arises from a base cause. The law discourages people from entering into illegal fgreements which arise from base causes. 10 simple words, no action is allowed on an illegal agreement. no action is allowed is is based on the 2) In Pari Delicto, Potior Est Conditio Defendentis: it means in cases of equal guilt, the defendant is in a better position than of a plaintiff. For example, Ram promises to pay Rahim %5000 if he beats Tita. If Rahim beats Tita, he cannot recover the amount from Ram. If he has already paid the amount and Rahim does not beat Tita, Ram cannot recover the amount. If an agreement is illegal, the law will help neither party to the agreement. Nothing can be recovered tinder an illegal agreement. If something has been paid, it cannot be recovered back, whether the illegal Object has been carried out or not is immaterial. Effects of illegality are as follows: 1) The collateral transactions to an illegal agreement also become illegal and hence cannot be enforced. 2) No action can be taken: i) For the recovery of money paid or property transferred under an illegal ‘agreement, and ii) For the breach of an illegal agreement. 3) In case of an agreement containing the promise, some part of which is legal and other part illegal, the legal position is under: i) If the illegal part cannot be separated from the legal part, the whole agreement is altogether illegal. ii) If the illegal part can be’ separated from the legal part, the Court will enforce the legal part and reject the illegal part. [MBA Second Trimester (Business Law) KTU g of Performance of 2.8.1. Meaniny Contract [Section a7 1 act’ means fulfilment 7 contact The term ‘Performance of He reated under the fe legal obligation Me promisor and the promisee. The st either perform or offer to promises unless such Performance is dispensed with oF excused under the provisions of the Indian ‘Contract Act, or any other provigvnen a contract is duly performed by both the parties, the contract comes t0 @ HAPPY ending and Pathing more remains. Performance by all the parties aha Fospective obligations is the normal and natural trode of discharging or terminating the contract. of respective contract by both the parties to contract must form their respective formance of Contract 2.8.2. Types of Pe Meer formed in the following ‘A contract is said to be pel situations: 1) Actual Performance: When a party has done ‘what he agreed to do and there is nothing left for him to do, he is said to have performed his obligation. The performance of the contract, in Seder to be discharged, must, however, be made in accordance with the contents of the contract. In simple words, the party has done what he had undertaken to do. He must have fulfilled his obligations under the contract. 2) Offer to Perform or Tender: If it occurs that the promisor has to perform his obligation under the contract but the promise does not accept. This is called an attempted performance or tender. If the promisor has made an offer of performance but the offer has been refused by the offeree, then the promisor is not responsible for non-performance. An offer to perform one’s obligations under a contract is known as tender. The position of the promisor is that: i) He is free from obligation as he has performed his part legally; ii) He does not lose his rights under the contract; iii) He is not guilty of non-performance; and iv) The performance is a lawful one and perfectly valid in the eyes of law. For example, A, the debtor, tenders money due under a debt. The result of that tender is to stop the running of interest on the amount payable but the debt is not discharged. Scanned with CamScannerTadian Contact Aet, 1872 (Chapter 2) 2.8.3, The promt? May Perform a Contract? ihe clitamesee er a contract may be performed, as 1) Promiso tt may permit, by the following: conor Himself: If there is something in the qact to show that it was the intention of the parties that the promise should be performed by cre omisor himself, such promise must be Performed by the promisor [Section 40}. This means contracts which involve the exercise of Personal skill or diligence, or which are founded on personal confidence between the Parties must be performed by the promisor himself, For example, X promise to paint a Picture for ¥. The promise must be performed by X himself. : 2) Agent: Where personal consideration is not the foundation of a contract, the promisor or his Tepresentative may employ a competent person to perform it. [Section 40] 3) Representatives: A contract which involves the use of personal skill or is founded on personal consideration comes to an end on the death of the Promisor. As regards any other contract the legal Tepresentatives of the deceased promisor are bound to perform it unless a contrary intention appears from the contract [Section 37, Para 2]. But their liability under a contract is limited to the value of the property they inherit from the deceased. 4) Third Pérsons: When a promise accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. That is, performance by a stranger, accepted by the promisee, produces the result of discharging the promisor, although the latter has neither authorised nor ratified the act of the third party [Section 41]. 5) Joint Promisors: When two or more persons shave made a joint promise, then unless a contrary intention appears from the contract, all such persons must jointly fulfil the promise, If any of them dies, his legal representatives must, jointly with the surviving promisors, fulfil the promise. If all of them die, the legal representatives of all of them must fulfil the promise jointly [Section 42]. 2.8.4. | Who may Demand Performance? The counterpart of @ contractual obligation is a contractual right, Who is the person entitled to enforce the contractual rights? There is'no direct provision on this matter in the Act. A contract's 4s performance may be demanded by any one of the 1 Promisee: The promisee, i.e., the person who was given the promise, is primarily the person Who can demand the performance of the promise according to the terms of the contract, 2) Agent: An agent can always take necessary ‘faction to demand performance or enforce the ‘contract on behalf of the promisee. Representative: In case of death of the » aera before the performance of an Impersonal contract, the contractual rights may devolve upon the legal successors. They may ‘demand the performance of the contract, 4) Third Person: Normally, a stranger to contract cannot sue on a contract even if he is a beneficiary under it. However,” in some exceptional situations, a third person may also enforce a contract. 2 QUASI-CONTRACT 2.9.1. Meaning of Quasi-Contract Quasi-contracts are defined to be “the lawful and purely voluntary acts of a man, from which there results any obligation whatever to a third person, and sometime a reciprocal obligation between the parties. Itis not legitimately done, but the terms are accepted and followed as if there is a legitimate contract”. A quasi-contract is not a contract at all because one or the other essentials for the formation of a contract are absent. It is an obligation imposed by law, not by agreement of the parties. Courts create quasi- contracts to avoid the unjust enrichment of a party in a dispute over payment for a good or service. In some cases, a party who has suffered a loss in a business relationship may not be able to recover for the loss without evidence of a contract or some legally recognised agreement. To avoid this unjust result, Courts create a fictitious agreement where no legally enforceable agreement exists. For example, X supplies goods to his customer Y ‘who receives and consumes them, Y is bound to pay the price. Y's acceptance of the goods constitutes an implied promise to pay. This kind of contract is called a tacit contract. In this very illustration, if the B00ds are delivered by a servant of X to Z, mistaking Z for Y, then Z will be bound to X for their value, nag Scanned with CamScannerOo) SUnitl) 2.9.2. Ry Salient feann eres Of Quasi-Contract nt features of quasi Itis imposed wae are as follows; » oman 'Y law and does not arise from any The duty of a i Party and not the promi Party ds the basis of such coment oa ) The right under it is always a right to money and generally, though not always, to a liquidated sum of money. 4) The right under it is available against specific Person(s) and not against the world. 5)_A suit for its breach may be filed way as in case of a complete contract. the same 2.9.3. Types of Quasi-Contract Under the provisions of the Indian Contract Act, the relationship of quasi-contract is deemed to have come to exist in five different circumstances, which ‘we shall presently dilate upon. But in none of these cases there comes into existence any contract between the parties in the real sense. Due to peculiar circumstances in which they are placed, the law imposes in each of these cases a contractual liability. Different types of quasi-contract are as follows: 1) Supply of Necessaries [Section 68]: If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. For example, A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property. 2) Right to Recover Money Paid for Another Person [Section 69]: A person who has paid a sum of money which another is obliged to pay, is entitled to be reimbursed by that other person provided the payment has been made by him to protect his own interest. For example, B holds land in Bengal, on a lease granted by A, a Zamindar, The revenue payable by A to the Govemment being in arrears, his land is advertised for sale by the Government. Under the revenue law, the consequence of such sale will be the annulment of B’s lease. B, to prevent the sale and the consequent annulment of his own lease, pays the Government the sum due from A. A is bound to make good to B the amount so paid. 3) Obligation of a Person Enjoying Benefits of Non-Gratuitous Act [Section 70]: When a person lawfully does anything for another person, or delivers anything to him not intending 4) MBA Second Trimester (Business Law) KT to do so gratuitously, and such’ other person enjoys the benefit there of, the latter is bound to make compensation to the former in respect of, oF to restore, the thing so done or delivered. For ‘example, A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own, He is bound to pay for them.to A. For example, A saves B's property from.fire. A is not entitled to compensation from B, if the circumstances” show that he intended to act gratuitously. Conditions Before any right of action under Section 70 arises, three conditions must be satisfied: i) The thing must have been done lawfully. fi) The person doing the act should not have intended to do it gratuitously. iii) The person for whom the act is done must have enjoyed the benefit of the act. Responsibility of Finder of Goods [Section 71}: A person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee. For example, X a guest founds a diamond ring at a birthday party of Y. X told Y and other guests about it. He has performed his duty to find the ‘owner. If he is not able to find the owner he can retain the ring as a baile. lity for Money Paid or thing Delivered by Mistake or under Coercion [Section 72]: A person to whom money has been paid, or anything delivered, by mistake or under coercion must repay or return it to the person who paid it by mistake or under coercion. For example, A pays ‘some money to B by mistake. It is really due to C. B must refund the money to A. C, however, cannot recover the amount from B as there is no privity of contract between B and C. For example, A and B jointly owe 8100 to C. A alone pays the amount to , and B, not knowing this fact, pays 7100 over again to C. C is bound to pay the amount to B. 2.9.4. Difference between a Contract and Quasi-Contract Basis of Contract ‘Quasi-Contract Difference i) Purpose |Contract results from|Quasi-contract is_ an the will ofthe parties|obligation resembling lexpressed with afthat created by 4 view to create an|contract. obligation. 2) Essentials [The essentials for the{ The essentials forthe forthe formation of a valid|formation of a valid Formation contract are present. [contract are absent. ofa Valid Contract Scanned with CamScannerii) Alteration: 15) 2.10.1. Meanin, Contract : 2.10. DISCHARGE lula lagreement at all, A quasi-coniaci resembles a contact Is nota full-edgeal Jeonmact, tis an implied contract, but results rescnble| those created by 2 contact [Poligation is ‘reat Obligation is impose by the con the consent of heby law. Obligation of Discharge of Discharge Of contract means termination of the ntractual relationship between the parties. A Contract is said to be discharged when it ceases to operate, ic, when the rights and obligations created by it comes to an end. In some cases, other rights and obligations may arise as a result of discharge of contract, but they are altogether independent of the original contract. 2.10.2. Modes of Discharge of Contract Various modes of discharge of contract are as follows: )) 2) By Performance: Performance of contract is one of the obvious methods of discharging a contract. It takes place when the parties to a contract fulfil their respective obligations By Mutual Agreement: A contract can be discharged by mutual agreement in any of the following ways: i) Novation: It means a new contract is entered {nto in consideration of the old contract. The new contract is entered into between the same parties or the new parties. The novation js valid when all the parties must consent it. The new contract must be valid and enforceable, otherwise the old contract will continue valid. For example, A owed €100 to B, under contract, B owed €100 to C. It was agreed cmong A, Band C that A would pay 2100 to IC ‘An alteration of a contract 's a change in one or more terms of the ean’ oo the mutual consent of the contract with 7 parties, The alteration discharges the original contract and creates a new contract. However, the parties to the new contract remain the same. In case of alteration of the contract, the old terms and conditions need not to be performed while the new terms and conditions must be performed. For example, A agreed with B to supply 100 LN. sets at a certain price by the end of October. Subsequently, A and B mutually agree that the supply be made by the end of November. This is an altercation in the terms of the contract by consent of both the parties. iii) Rescission: The rescission of a contract means the cancellation of the contract by one or all the parties to contract. It may take place: 3) With the mutual consent of the parties. b) By a party whose consent was not freely obtained (voidable contract) ©) One party may rescind the contract, if a breach of contract by the other party. 4) The party rescinding the contract must restore the benefit received from the other party. No partial rescission. The party may rescind the entire contract, The rescission of the contract in part is not possible. Just as a proposal has to be communicated, the rescission should. also be communicated. A rescission may be revoked in the same manner as a proposal is revoked. iv) Remission: It means the acceptance of a lesser consideration than what is agreed under the contract. It takes place when the promise: a) Dispenses with a part or whole of the performance of a promise. b) Extends the time for a performance by the promisor. ©) Accepts a lesser sum. 4) Accepts any other consideration, than agreed in the contract, For example, A owes B %5,000. A pays 32,000 to B and B accepts the amount in satisfaction of the whole debt. The whole debt is discharged Tt may be noted that when a party accepts a lesser sum in satisfaction of a larger sum due under the contract it is called ‘accord and satisfaction’ in the English Law. ‘The promisee accepts a lesser. sum. than what is Scanned with CamScanner