Ghulam Murtaza Korai IoBM


Proposal or Offer: Proposal is the initial stage of a contract Definition1: When one person signifies to another his willingness to do or abstain from doing something with a view to obtaining the assent of that other person.
Definition2: A proposal is a statement (by one party) of willingness to enter into a contract on stated terms provided that it is accepted by the party to whom it is addressed.

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Intention to create legal relationship: The maker of the proposal must intent to enter into contractual relationship. The terms of offer must be certain(clear) not loose or vague: The terms of an offer must be definite and certain. Communication of Proposal: It means that proposal must be communicated to the other party.


Express Proposal: A proposal made by words of mouth or by writing is an express proposal. Implied Proposal: A proposal made neither verbally nor in writing is an implied proposal. It is made by the conduct of the party. A common example is taking goods to the cash counter in a super-market. That is an implied proposal. Specific Proposal: An offer made to an individual or to a specific group of persons. It can only be accepted by the person to whom it is made. General Proposal: An offer may be made to the public at large. It may be accepted by anyone who complies with the terms of the offer

Cross Proposal: Two manifestations of willingness to make the same bargain are said to be cross proposals if the following conditions are fulfilled. The legal effect of a counter proposal is that terminates the original proposal. ii) terms of both the offers must be same. A counter proposal is capable of being accepted or rejected. I) subject matter of both the offers must be same.  Counter Proposal: A statement (by the offeree) which does not accept all the terms and conditions proposed by the offerer. but which in fact introduces a new terms is a new proposal and it is called a counter proposal. . and iii) they must be made simultaneously.

Promise. It is called Mirror Image Rule. Promise is an accepted proposal.      Promiser: The person making the proposal is called the promise or the one whose proposal is accepted and he becomes bound by his promise. the proposal is said to be accepted. Promiser and Promisee Proposal+ Acceptance= Promise. Definition: When the person to whom the proposal is made signifies assent to it. The acceptance should be absolute and unconditional. A proposal when accepted becomes a promise.  Promisee: The person accepting the proposal is called the promise. .

     A proposal may be revoked at any time before the communication of the acceptance. . an acceptance is deemed to be complete as soon as the properly addressed and stamped letter is posted. Revocation of Acceptance An acceptance may be revoked at any time before the communication of the acceptance The Postal Rule Where the postal service is used as the means of communication. The contract is concluded on posting the letter even if the letter subsequently fails to reach the proposer.

       By revocation By lapse of time i) prescribed time or ii) reasonable time. By death or insanity of proposer By death or insanity of offeree By Rejection By counter proposal By mode of acceptance .

The proposer can no longer withdraw his offer nor can the offeree withdraw his acceptance.    . It may (If it is accepted by an offeree) result in a legally enforceable contract. a contract comes into effect and both parties are bound. INVITATION TO TREAT An invitation to treat is simply an expression of willingness to enter into negotiations which it is hoped will lead to the conclusion of a contract at a later date. Acceptance is necessary for the formation of a contract but once the offeree has assented to the terms offered.  OFFER An offer is a promise to be bound on particular terms.

The person who submits the tender is the offerer and the other party is at liberty to accept or reject the offer.  Tenders  Tenders an other example of invitation to treat.   . They occur where someone wishes particular work to be done and issues a statement asking interested parties to submit the terms on which they are willing to carry out the work. The person who invites the tender makes an invitation to treat.Display of goods for sale The display of goods constitutes an invitation to treat and that the offer is made by the customer when he presents the goods at the cash counter where the offer may be accepted by the shopkeeper.

  Auction Sales The general rule is that an auctioneer (by inviting bids to be made) makes an invitation to treat. Certain Statements Which Do Not Amount to Proposal Supply of information A statement of wish     . The offer is made by the bidder which in turn is accepted when the auctioneer strikes the table with his hammer. The advertisement of an auction-sale is generally an invitation to treat.

. the promisee who does or abstains from doing something such act or abstinence or promise is called a consideration for the promise (by the promisee to the promisor). When at the desire of the promise. Consideration is the price by which the promise of the other party is bought.

      Consent is said to be free when it is not obtained by means of: Coercion Undue influence Fraud Misrepresentation Mistake .

   Burden or Onus of Proof Burden of proof that the consent for the agreement was obtained by coercion lies on the party intending to avoid the contract. .Coercion : Coercion is the committing or threatening to commit any act forbidden by the Pakistan Penal Code (PPC 1860) or the unlawful detaining or threatening to detain any property to the prejudice of any person with the intention of causing any person enter into an agreement.  Effect of Coercion When consent to agreement is caused by coercion. the agreement is a contract voidable at the option of the party whose consent was so caused.

a) spiritual guide and his disciple b) solicitor and client   Affected mental capacity: Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age. Medical attendant and patient. a) officer and his subordinate b) a police officer and an accused c) master and servant  Fiduciary Relation: Where he stands in a fiduciary relation to the other. . illness or mental or bodily distress.  When a person is deemed to be in a position to dominate the will of another?  Real authority: Where he holds real or apparent authority over the other.Undue influence: A contract is said to be induced by undue influence when the relation between the parties are such that one of them is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

  Effect of Undue Influence When consent to agreement is caused by undue influence. . the agreement is a contract voidable at the option of the party whose consent was so caused. Burden or Onus of Proof Burden of proof that the consent for the agreement was obtained by undue influence lies on the party intending to avoid the contract.

His conduct amounts to active concealment and fraud. For example. It includes: False Assertion: A false representation of a fact made knowingly or without belief in its truth constitutes fraud. where a seller sells goods already sold by him to third person. It is an intention to deceive the party on whom it is employed or induced. For example. Empty Promise: Making a promise without the intention of performing it is a fraud. Active Concealment: Active concealment of a fact by one having knowledge or belief of fact is fraud. . Fraud: Fraud is intentional. buying goods under a contract of sale with the intention of not paying the price is fraud. The induced also enters into a contract.

though he believes it to be true this amounts to misrepresentation. There is no intention to deceive. Misrepresentation: It is misstatement but innocent. . If a party to an agreement induces (however innocently) the other party to make a mistake as to the nature or quality of the subject matter of the agreement. When a person makes a positive statement that a fact is true when his information does not warrant it to be so. this act also amounts to misrepresentation.

or  Undue influence. or  Fraud. or  Misrepresentation.    Effects: if there is no free consent Voidability of agreement without free consent A contract is voidable at the option of a party whose consent to the contract is obtained by means of:  Coercion.  .

Incompetency of Party • A minor • A person of unsound mind • A disqualified person Mistake of Fact Unlawful agreement • Forbidden by law • Fraudulent • Injury to person • Immoral or opposed to public policy .

Agreements without consideration Restraint of marriage Restraint of trade Restraint of legal proceedings Uncertain agreement Wagering agreement Impossible act .

Following Persons are incompetent to enter into a contract: A minor i) Age of Majority 18 years ii) 21 years guardian A person of unsound mind A person disqualified by law . o o o Incompetency of Parties: An agreement in which one of the contracting parties is an incompetent person is a void agreement.

. Contract in lucid interval: A person who is usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind. he is capable of understanding it and of forming rational judgment as to its effect upon his interest.  Test of soundness of mind: A person is said to be sound mind for the purpose of making a contract if at the time when he makes it.

and d) an insolvent .  Drunkenness: A person who is usually of sound mind but occasionally of unsound mind may make a contract when he is of sound mind. b) foreign ambassador. c) a convict. Disqualified persons: a) an alien enemy.

the agreement is void. Consideration &/ or Object unlawful: Every agreement of which the object or consideration is unlawful is void.  Mistake of fact: where both the parties to the agreement are under a mistake as to a fact essential to the agreement. The consideration or object of an agreement is unlawful in the following cases: .

by them by fraud. as its object is unlawful. The agreement is void. The agreement is void. as its object is unlawful .  When it is forbidden by law: A promises to B to drop a prosecution which he has instituted against B for robbery. and B promises to restore the value of things taken. or to be acquired.B and C enter into agreement for the division among them of gains acquired. If it is Fraudulent: A.

000 to Y to publish a libel (i. defamatory article against someone).  Injury to person: X promises to pay Rs 10. Agreements opposed to public policy: An agreement to sale public property .e.

Restraint of trade: An agreement restraining a person from carrying on a lawful profession. . or trade. Restraint of Marriage: Every agreement in restraint of marriage of any person is void.   Agreements without consideration: An agreement without consideration is a void agreement. or business is void to that extent.

Uncertain Agreements: the agreement.  Restraint of legal proceedings: An agreement by which a party is restricted from enforcing his contractual (legal) rights by the usual legal proceedings in the ordinary tribunals is void. the terms of which are not certain is void. .

Section 37 of Contract Act lays down the obligation of the parties regarding performance. . A contract is said to have been performed when the parties to a contract either perform or offer to perform their respective promises. “Performance of Contract” means fulfilling of their respective legal obligations created under the contract by both the promisor and the promisee.

This is an actual performance. . A brought the cotton of required quality to the decided place on the agreed day during the business hours and B took the delivery of goods. Example A contracted to deliver B at his warehouse on 1st December 100 bales of cotton of a particular quality. There may be two types of performance as follows: ▪ Actual performance: where a promisor has made an offer of performance to the promisee and the offer has been accepted by the promisee. it is called an actual performance.

and the offer has not been accepted by the promisee. . Example if in the aforesaid example. It is called an attempted performance (section 38).▪ Attempted Performance: where a promisor has made an offer of performance to the promisee. it is a case of attempted performance because A has done what he was required to do under the contract. B refused to take the delivery of goods.

A breach may of contract may occur in the following ways. Or even by his act makes it impossible to perform his obligation under the contract. If any party to the contract refuses or fails to perform his part of the contract is called breach of contract. .

 Actual Breach of Contract: Actual breach of contract occurs in the following two ways: 1. On due date of performance : if any party to the contract refuses or fails to perform his part of the contract at the fixed time of performance. During the course of performance: if any party has performed a part of the contract and refuses or fails . Anticipatory Breach of Contract: Anticipatory breach of contract occurs when the party declares his intention of not performing the contract before the performance is due. it is called an actual breach of contract on due date of performance 2.

the party not at fault) is discharged from his obligation and gets rights to proceed against the party at fault. it is called an actual breach of contract during the course of performance. The various remedies available to an aggrieved party.to perform the remaining part of the contract. Consequences of Breach of Contract: The aggrieved party (i.e. .

e.Meaning of Remedy: a remedy is the course of action available to an aggrieved party (i. the party not at fault) for the enforcement of a right under a contract.  Remedies for Breach of Contract: The various remedies available to an aggrieved party are.  Rescission of Contract  Suit for Damages  Suit for Specific Performance  Suit for Injunction  .

Y promises to pay for goods on delivery. the promisee may put an end to the contract. the aggrieved party is discharged from all the obligations under the contract and is entitled to claim compensation for the damage which he has sustained because of the nonperformance of the contract. Here Y is discharged from the liability of paying the price. Rescission means a right not to perform obligation. Y is entitled to rescind the contract and to claim compensation for the damage because of non supply of goods. In such a case. . In case of breach of contract. X does not supply the goods on due date. For example X agrees to supply 10 tons of wheat to Y on 20 December.

The object of rewarding damages is not to punish the party at fault but to make good the financial loss suffered by the aggrieved party due to the breach of contract.Damages are monetary compensation allowed for the loss suffered by the aggrieved party due to breach of contract.  Types of Damages:  Ordinary Damages  Special Damages  Exemplary or Punitive Damages  Nominal Damages  .

and The damages must be proximate consequences of the breach of contract and not the indirect consequences. These damages can be recovered if the following two conditions are fulfilled: The aggrieved party must suffer by breach of contract. .   Ordinary damages are those which naturally arise in the usual course of things from such breach.

5008.000)*50] .9.Measure of Ordinary Damages: In a contract for the sale of goods. the measure of ordinary damages is the difference between the contract price and the market price of such goods on the date of breach.e.500 per ton. Y is entitled to recover Rs 75. A failed to deliver goods on 1st January when the price of the wheat was Rs.00 [(i. 8.000 per ton to B. On 20 December. Rs 9. For example on 1st December A contracted to sell and deliver 50 tons of wheat @ Rs.

 Special damages are those which may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach of a contract. . loss of profits on account of default by the other party to the contract can be claimed only when an advance notice of such damages has been given before. e.g. These damages can be recovered if the special circumstances which would result in a special loss in case of breach of a contract are communicated to the promisor.

a builder. before the first of January it falls down. loses the rent which he was to have received from C. A is informed of the contract between B and C. and has to be rebuilt by B. A builds the house so badly that. for the rent lost and for the compensation made to C. and is obliged to make compensation to C for the breach of his contract. who. A must make compensation to B for the cost of rebuilding the house. in order that B may give possession of it at that time to C. contracts to construct and finish a house by the 1st January. in consequences. to whom B has contracted to let it.Example A. .

the rule is smaller the amount of the cheque. A trader may recover such damages as wrongful dishonor of cheque shall adversely affect the goodwill but a non trader whose cheque is wrongfully dishonored will have to prove the loss of goodwill before claiming such damages. . (ii) wrongful dishonor of a cheque by a banker. where damages shall be calculated on the basis of mental injury sustained by the aggrieved party. In case of wrongful dishonor of a cheque. The court may award these damages in case of (i) a breach of promise to marry. larger will be the amount of damages awarded. Exemplary damages are those which are in the nature of punishment.

. one rupee. The court may or not award these nominal damages. These damages are called nominal because they are very small. Nominal damages are those which are awarded where there is only a technical violation of a legal right but the aggrieved party has not in fact suffered any loss because of breach of contract. say.

Here. Subsequently. I million. A refused to sell the house. . Suit for specific performance means demanding court’s direction to the defaulting party to carry out the promise according to the terms of the contract. Example A agreed to sell his house to B for Rs. B may file a suit against B for the specific performance of the contract.

it was held that A could be restrained by injunction from playing for IPL. Suit for injunction means demanding court’s stay order. During the contract period. A made contract with IPL to play outside Pakistan and refused to play for Karachi Dolphins. Where a party to a contract does something which he promised not to so. . Injunction means an order of the court prohibits a person to do a particular act. the court may issue an order prohibiting him from doing so. Example A agreed to play for Karachi Dolphins only during the contract period.

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