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DEFINITION OF CONTRACT
A contract is an agreement made between two or more parties which the law will enforce. According to Sec. 2 (h), a contract is an agreement enforceable by law. An agreement comes into existence by the process of offer by one party and its unqualified acceptance by the other party. The parties who enter into an agreement must agree upon the subjectmatter in the same sense and at the same time, i.e., there must be consensus ad idem. An agreement may be a social agreement or a legal agreement. A social agreement is that which does not give rise to legal consequences. In case of its breach the parties cannot go to the Law Court to enforce a right. A legal agreement is that which gives rise to legal consequences and remedies in the Law Court in case of its breach.
ESSENTIALS OF CONTRACT 1. There must be an agreement. This involves two parties, one party making the offer and the other party accepting it. 2. The parties must intend to create legal relationship. 3. The parties must be capable of entering into an agreement as regards age and understanding. 4. The agreement must be supported by consideration on both sides. 5. The consent of the parties must be free and genuine. 6. The object of the agreement must be lawful. 7. The terms of the agreement must be certain and capable of performance. 8. The agreement must not have been expressly declared as void.
CLASSIFICATION OF CONTRACT
Void agreement ± an agreement not enforceable by law [Sec.2(g)] Void contract ± a contract which ceases to be enforceable by law [Sec.2(f)] Voidable Contract ± a contract which is enforceable by law at the option of one party thereto, but not at the option of the other [Sec.2(i)] Illegal Agreement ± an agreement which involves the transgression of some rule of basic public policy and is criminal in nature or immoral. It is not only void as between the immediate parties but it also taints the collateral transactions with illegality. Express contract ± a contract is which the terms are stated in words (written or spoken) by the parties. Implied contract ± a contract which is inferred from the circumstances of the case or from the conduct of the parties.
CLASSIFICATION OF CONTRACT (Cont«.d) Quasi-contract ± an obligation created by law, regardless of agreement. Executed contract ± a contract which is wholly performed by both the parties. Executory contract ± a contract in which the promises of both the parties have yet to be performed. Partly executory, partly executed ± a contract in which one party has performed his obligation, but the other party has yet to perform his obligation. Unilateral contract ± a contract in which only one party has yet to perform his obligation. Bilateral contract ± a contract in which both the parties have yet to perform their obligations.
In the former case. It may be made by express words spoken or written. . It is specific when it is made to a particular person. in the latter case. and general when it is made to the world at large. it is called a general offer. it is called a specific offer. or it may be implied when it is inferred from the conduct of the offeror or from the circumstances of the case.OFFER & ACCEPTANCE OFFER An offer is an undertaking by the offeror to be contractually bound in the event of a proper acceptance of the offer by the oferee.
2. 6. It must be intended to create legal relations. It must be distinguished from a) A declaration of intention. 5. 7. It must be communicated to the offeree.Legal Rules as to Offer 1. It must not contain a term the non-compliance of which would amount to acceptance. . 3. It must be certain. and b) and invitation to make offer. It must be made with a view to obtaining the assent of the offeree. A statement of price is not an offer. 4.
. By lapse of the specified or reasonable time. 4. 3. 2. By death or insanity of the offeror. By communication of notice of termination of offer to the offeree. Counter-offer is an offer to the original 5. By a counter-offer. offer.Lapse of Offer An offer lapses or comes to an end 1. 6. By non-fulfillment of a condition precedent. By not being accepted according to the prescribed or usual mode.
The communication of a revocation is complete ± as against the person who makes it. The communication of an acceptance is complete ± as against the purposer when it is put into a course of transmission to him. so as to be out of the power of the acceptor. when it is put into a course of transmission to the person to whom it is made so as to be out of the power of the person who makes it. as against the person to whom it is made. 4).Communication of Offer. Acceptance and Revocation The communication of a proposal (offer) is complete when it comes to the knowledge of the person to whom it is made. . when it comes to the knowledge of the proposer. as against the acceptor. when it comes to his knowledge (Sec.
Special terms of offer. These must be brought to the notice of the other party before the acceptance of the offer. otherwise the acceptor will not be bound by such terms. Contract by Telephone or Telex It has the same effect as an oral agreement entered into between the parties when they are face to face. he is bound by them if he accepts the offer. and his attention is drawn to them. . Where the acceptor knows that there are some special terms.
OFFER & ACCEPTANCE ACCEPTANCE Legal Rules as to Acceptance 1. 2. Mental acceptance is no acceptance. . 9. It must show an intention to fulfil the promise. It cannot precede an offer. 7. If the offer is general. 5. 6. It must be absolute and unqualified. 3. It must be given by the specific person to whom the offer is made. It must be given within the prescribed or reasonable time. It must be communicated to the offeror. it may be accepted by any person. 8. 4. It must be according to the prescribed or usual mode. It must be given before the offer lapses.
there is no contract. Acceptance subject to contract An acceptance subject to contract means that the parties do not intend to be bound until a formal contract is prepared and signed by them. Agreement to agree in future If the parties have not agreed upon the terms of their agreement but have agreed to agree in future.Effect of silence on acceptance The acceptance of an offer cannot be implied from the silence of the offeree unless the offeree has by his previous conduct indicated that his silence means that he accepts. .
CONSIDERATION Consideration means something in return. such act or abstinence or promise is called a consideration for the promise. It is the price for which the promise of the other is bought. or does or abstains from doing something. Sec. the promisee or any other person has done or abstained from doing. It must result in a benefit to the promisor and / or a detriment to the promisee or both.´ . 2 (d) defines it as follows: ³When at the desire of the promisor.
immoral or opposed to public policy. present or future. It must move at the desire of the promisor. It must not be illegal.Legal rules as to consideration It is essential to support every contract. It may be past. It may move from the promisee or any other person. It must be real and not illusory. It must not be something which the promisor is already legally or contractually bound to do. It need not be adequate. .
5. 2. he is the assignee of rights and benefits under involving personal skill. there are covenants running with the land. 3. 4. . a trust or charge is created in some specific immovable property in favour of him. he enters into a contract through an agent.Stranger to contract The general rule is that a stranger to a contract cannot sue. and 6. there is an acknowledgement of a liability by the promisor or the promisor constitutes himself as agent. But he may sue where 1. partition or family arrangement for his benefit. a provision is made in a marriage settlement.
A written and registered agreement based on natural love and affection between parties standing in a near relation to each other [Sec. A promise to compensate. 25(2)]. 1 to Sec. wholly or a part. 2. 25] .e. i. 25(3)]. no consideration is required in case of 1.. a person who has already voluntarily done something for the promisor [Sec. 25] The following are the exceptions to this rule. A promise by a debtor to pay a time-barred debt if it is made in writing and is signed by the debtor or by his agent [Sec. A complete gift [Expl. 4. 5.An agreement made without consideration is void [Sec. 3. 185]. An agency [Sec. 25 (1)].
But where a guardian has been appointed to a minor under the Guardians and Wards Act or where a minor is under the guardianship of the Court of Wards.Minor A minor is a person who has not completed eighteen years of age. he attains majority at the age of twenty-one. The positions as regards his agreements is as follows: Cont««d .CAPACITY TO CONTRACT Every person is competent to contract who is of the age of majority according to the law to which he is subject. 11) 1. and is not disqualified from contracting by any law to which he is subject (Sec. and who is of sound mind.
2) He can be a promisee or a beneficiary in a contract. service. 5) He can be an agent. Cont««d . education and instruction provided these are beneficial to him. 3) His estate is liable for the necessary goods supplied or necessary services rendered to him or to anyone whom he is legally bound to support or for money lent to him to buy necessaries.1) His agreement is altogether void and inoperative. 4) He may enter into contracts of apprenticeship.
he cannot be asked to compensate or pay for it. 10) He cannot be adjudged insolvent. 8) The court never orders specific performance of his agreements. . But he can be admitted to the benefits of an already existing partnership with the consent of the other partners. 7) If he has received any benefit under a void agreement.6) He cannot be a partner. 9) He can always plead minority and is not estopped from doing so even when he enters into an agreement by falsely misrepresenting his age.
3. like a minor. . A lunatic can enter into a contract when he is of sound mind. Idiots. are liable for necessaries supplied to them or their minor dependants. Persons of unsound mind Lunatics. During the war an Indian citizen cannot enter into a contract with a alien enemy. Contracts made before the war are either suspended or dissolved. Other persons. These persons. Their position is similar to that of lunatics. An agreement of an idiot like that of a minor is altogether void. Alten enemies. Drunken or Intoxicated persons.2.
A Convict when undergoing imprisonment is incapable of entering into a contract. When a debtor is adjudged insolvent he is deprived of his power to deal in his property divisible among his creditors. 1956. . Insolvents. As regards a company registered under the Companies Act.Foreign sovereigns and accredited representatives of a foreign state. its contractual capacity is regulated by its Memorandum of Association and the Companies Act. Convicts. 1956. They can enter into contracts and enforce these contracts in our Courts. Corporations. The contractual capacity of a statutory corporation is limited by the Statute governing it. But they cannot be sued in our Courts without the prior sanction of the Central Government.
subject to the provisions of Secs. or (ii) Undue influence.] Consent is said to be free when it is not caused by (i) Coercion. Two or more persons are said to consent when they agree upon the same thing in the same sense [Sec. or (iii) Fraud. . or (v) Mistake.FREE CONSENT All agreements are contracts if they are made by the free consent of the parties. 13. 20. or (iv) Misrepresentation. 21 and 22.
1860 or the unlawful deaining. A threat to commit suicide amounts to coercion. 19 and 19-A] COERCION ³Coercion´ is the committing or threatening to commit any act formidden by the Indian Penal Code. When consent to an agreement is caused by coercion. with the intention of causing any person to enter into an agreement (Sec. 15). the agreement is a contract voidable at the option of the party whose consent was so caused [Secs.Effect of agreement without free consent. to the prejudice of any person whatever. misrepresentation. any property. fraud. or threatening to detain. or undue influence. .
A person is deemed to be in a position to dominate the will of another where he ± Cont««d .UNDUE INFLUENCE A contract is said to be induced by ³undue influence´ where 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 uses that position to obtain an unfair advantage over the other.
illness or mental or bodily distress. and the transaction appears to be unconscionable. or (b) Stands in a fiduciary relation to the other. Where a person who is in a position to dominate the will of another. enters into a contract with him. the burden of providing that such contract was not induced by undue influence lies upon the person in a position to dominate the will of the other (Sec. 16).(a) Holds real or apparent authority over the other. or (c) Makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age. .
Landlord and Tenant. Husband and Wife. Guardian and Ward.Relationships which raise presumption of undue influence: Parent and Child. Religious Guru and Disciple. 3. Creditor and Debtor. Trustee and Beneficiary. No presumptions of undue influence in the following cases: 1. Fiance and Fiancee. . 2. Solicitor and Client Doctor and Patient.
or Without belief in its truth. Knowingly.MISREPRESENTATION AND FRAUD ³Misrepresentation is a mis-statement of a material fact made innocently with a honest belief as to its truth or non-disclosure of a material fact. . and the maker intends the other party to act upon it. or recklessly. ³Fraud´ exists when it is shown that a false representation has been made. It also exists when there is a concealment of a material fact. without any intent to deceive the other party. not caring whether it is true or false.
The general rule as regards mistake of law of the country is that ignorance of law is no excuse. Mistake of Law.MISTAKE Mistake is erroneous belief about something. or (2) Mistake of fact. . or b) Mistake of law of a foreign country. It may be a a) Mistake of law of the country. It may be a (1) Mistake of Law. Mistake of law of a foreign country is regarded as a mistake of fact.
ii. Title to the subject-matter. 20]. iii. Quantity of the subject-matter. Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement. Mistake of Fact.2. Identity of the subject-matter. or vi. Price of the subject-matter. iv. Mistake of fact regarding subjectmatter may relate to i. Existence of the subject-matter. It may be a (1) Bilateral mistake. Mistake of Fact (bilateral mistake) may relate to: a) Subject-matter. v. Quality of the subject-matter. Cont««d . the agreement is void [Sec.
In both these cases. Legal. .b) Possibility of performance. or ii. Mistake of fact may also relate to i. the agreement is void. Physical. impossibility of performance.
Where only one of the parties is under a mistake as to a matter of fact. There are however two exceptions to this rule. the contract is not voidable [Sec. .2. (i) Identity of the person contracted with. Where a person is made to enter into a contract through the inducement of another but through no fault of his own. Mistake of Fact (Cont«. In such a case the contract is void. there is a mistake as to the nature of the contract. and the contract is void.d) (2) Unilateral mistake. (ii) Nature of contract. 22]. If A intends to enter into a contract with B. C cannot give himself any right in respect of the contract by accepting the offer.
The performance may be (i) actual performance. Discharge of a contract by performance takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manner prescribed. or (ii)attempted performance . Discharge by performance. The various modes of discharge of a contract are as follows: 1.DISCHARGE OF CONTRACT A contract is said to be discharged when the obligations created by it come to an end.
A contract rests on the agreement of the parties. Discharge by agreement or consent. As it is agreement which binds them. Discharge by implied consent takes place by± .2. so by their agreement or consent they may be discharged. The discharge by consent may be express or implied.
acceptance of a lesser fulfillment of the promise made.. i.(a) Novation. (d) Remission. either between the same parties or between one of the parties and a third party.. when one or more of the terms of the contract is/are altered by the mutual consent of the parties to the contract.e.e. .e.e. (e) Waiver which means intentional relinquishment or giving up of a right by a party entitled thereto under a contract.e. i. i. (b) Alteration... when all or some of the terms of the contract are cancelled. when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under a new contract. i. i.. (f) Merger. (c) Rescission. when a new contract is substituted for an existing one.
Impossibility of performance may beInitial impossibility. The contract is discharged in these cases.3. (a) Destruction of subject-matter of contract. Supervening impossibility. . (b) Non-existence or non-occurrence of a particular state of things: (c) Death or incapacity for personal service. (e) Outbreak of war. Discharge by impossibility. An agreement to do an act impossible in itself is void. Impossibility which arises subsequent to the formation of a contract (which could be performed at the time when the contract was entered into) is called subsequent or supervening impossibility. (d) Change of law or stepping in of a person with statutory authority. The cases covered by supervening impossibility include.
lock-outs and civil disturbances. The contract is not discharged in these cases. (e) Failure of one of the objects. (d) Strikes.The following cases are not covered by supervening impossibility: (a) Difficulty of performance. . (b) Commercial impossibility. (c) Failure of a third person on whose work the promisor relied.
. and (e) rights and liabilities becoming vested in the same person.4. (d) unauthorised alteration of the terms of a written agreement. This includes discharge by (a) death. the contract is discharged. If a contract is not performed within the period of limitation and if no action is taken by the promisee in a Law Court. (b) merger. Discharge by lapse of time. Discharge by operation of law. 5. (c) insolvency.
. If a party breaks his obligation which the contract imposes. or  Anticipatory breach. or (b) During the performance of the contract. Discharge by breach of contract. there takes place breach of contract. Breach of contract may be  Actual breach.  Actual breach of contract may occur (a) At the time when the performance is due.6.  Anticipatory breach of contract occurs when a party repudiates his liability or obligation under the contract before the time for performance arrives.
When there is breach of a contract by a party. Damages. the injured party has one or more of the following remedies: 1. Baxendale. 73 of the Indian Contract Act which deals with ³compensation for loss or damage caused by breach of contract´ is based on the judgment in the case of Hadley v.REMEDIES FOR BREACH OF CONTRACT In case of breach of a contract. He is also absolved of all the obligations under the contract. is to be found in the judgment in the case of Hadley v. Baxendale. 2. Sec. The foundation of modern law of damages. Damages are monetary compensation awarded to the injured party by Court for the loss or injury suffered by him.d . Rescission. both in India and England.. the injured party may sue to treat the contract as rescinded. Damages may be of four types: Cont«.
3) Vindictive or exemplary damages. Where the injured party has not suffered any loss by reason of the breach of a contract. are known as special damages and may be recovered. 2) Special damages.1) Ordinary damages. These are damages which actually arise in the usual course of things from the breach of a contract. 4) Normal damages. . the court may award a very nominal sum as damages. These damages are allowed in case of the breach of a contract to marry or dishonour of a cheque by a banker wrongfully. Damages which may reasonably be supposed to have been in the contemplation of both the parties at the time when they made the contract as the probable result of the breach of it.
Quantum Meruit. µLiquidated damages¶ represent a sum. which is a fair and genuine pre-estimate of the probable loss that might ensue as a result of the breach. This right is founded on an implied promise by the other party arising from the acceptance of a benefit by that party.Liquidated damages and penalty. The Courts in India allow only µreasonable compensation¶. A µpenalty¶ is a sum named in the contract at the time of its formation. partly performed by one party. has become discharged by the breach of the contract by the other party. 3. fixed or ascertained by the parties in the contract. . which is disproportionate to the damage likely to accrue as a result of the breach. A right to sue on a quantum meruit (as much as earned) arises where a contract.
It is a mode of securing the specific performance of the negative terms of a contract. In certain cases the Court may direct the party in breach of a contract to actually carry out the promise. Specific performance. exactly according to the terms of the contract. This is called specific performance of the contract.4. . 5. Injunction.
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