CONTRACT ACT

1872
What is a contract ?

 Agreement
+
 Enforceable
What is an agreement ?

 Proposal

 Acceptance

 Consideration
 When is an agreement
enforceable?

 Competent parties
 Free consent

 Lawful object and consideration

 Agreement not expressly declared

void by law
 Consideration
Proposal + Acceptance Agreement
Competent parties

Free consent

Enforceability Lawful object and

consideration

Agreement not expressly

declared void by law

CONTRACT
Proposal
Proposal

 Definition
 Proposal (contd…)
Requisites of Proposal
 Express or Implied
 To whom made ?
 Act or abstinence
 Assent of offer
 Legal obligation
 Communication
Proposal (contd…)

 Counter offer

An offer to an offer
 Proposal (contd…)
Invitation to offer
 Display of goods in a shop
 Catalogue quoting price of goods
 Tender notice
 Issue of proposal form by insurance company
 Auctioneer’s announcement to sell goods by
auction
 Proposal (contd…)

 Letter of Intent
 Proposal (contd…)

 Communication of proposal

When it comes to the knowledge of the person

to whom it is made
 Proposal (contd…)

 Revocation of the Proposal

Before other party accepts it
 Proposal (contd…)
How revoked ?
 Communicating notice of revocation
 Lapse of time
 Failure to fulfill condition precedent
 Death or insanity of proposer
acceptance
Acceptance

 Definition
Acceptance (contd…)
Essentials
 Absolute and unconditional
 Mode of Acceptance
 Mental Acceptance
 Express or Implied
 Acceptance of all terms
Acceptance (contd…)

 Communication of acceptance
Acceptance (contd…)

 REVOCATION OF ACCEPTANCE
Consideration
 Consideration

Definition
 At the desire of the promisor
 Move from the promisee or any other
person
 Act or Abstinence
 Past, present, future
 Consideration (contd…)

 ADEQUACY OF CONSIDERATION
 Consideration (contd…)

 Agreements not supported by

consideration and three
exceptions.
 PRIVITY
OF
CONTRACT
 PRIVITY OF CONTRACT

 Doctrine based on rights in personnam

 Exceptions (10)
Holder of a bill of lading

Holder of a negotiable instrument

 TYPES OF
AGREEMENTS

Agreement

Valid Voidable Void Illegal Unenforceable

 WHEN IS AN AGREEMENT
ENFORCEABLE

 Competent parties
 Free consent
 Lawful object and consideration
 Agreement not expressly declared void by
law
COMPETENT PARTIES

Competent parties

Major Sound mind Not disqualified

Online Contracts
Consequences of entering into a contract

with a minor
Free consent
 Free consent
What is Consent?
 Agreeing to the same thing in the
same sense
 Meeting of the minds

 ‘Consensus ad idem’
 Free consent (contd…)
When is consent free?

When not induced by:

 Coercion

 Undue influence

 Fraud

 Misrepresentation

 Mistake
 Free consent (contd…)
Coercion
 Committing or threatening to commit act forbidden by
IPC
OR

Unlawfully detaining or threatening to

detain property of other to his prejudice
Immaterial whether IPC is/is not in force at

place of coercion
 Free consent (contd…)
Undue Influence
Domination of Will

Real, apparent authority Fiduciary relation Mental capacity

AND
 Unfair advantage
 Burden of Proof
 Free consent (contd…)
Fraud
 Suggestio falsi
 Suppressio Veri
 Promise made without any intention of
performing it
 Any act fit to deceive
 Act/omission declared fraudulent by law
 Free consent (contd…)
Misrepresentation

 Unwarranted Statement
 Breach of duty
 Inducing mistake about subject-matter
 Free consent (contd…)

MISTAKE

Fact Law

Bilateral Unilateral
Consideration
and
object
 Consideration and object
Consideration and object lawful unless:

 Forbidden by law
 Defeat any law
 Fraudulent
 Injury to person or property
 Immoral or opposed to public policy
 VOID
AGREEMENTS
 VOID AGREEMENTS
Agreements in Restraint of Trade

Exceptions
1. Sale of business along with goodwill.
2. Contracts of service
a. During the continuation of contract
b. After the conclusion of contract
 VOID AGREEMENTS (contd…)

Agreements in Restraint of Legal Proceedings

 Absolute restraint
 Limiting the time
 Exception – ADR
 Hague Rules Article III Rule 6: Unless notice of loss or damage… is
given in writing at the port of discharge or at the time of removal of
the goods.... Such removal shall be prima facie evidence of delivery
by the carrier of the goods as described in the bill of lading.

 In any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within 1
year after delivery of goods……
VOID AGREEMENTS (contd…)

Uncertain agreements

Arbitration Clauses
 VOID AGREEMENTS (contd…)

Doctrine of Frustration
 Initial impossibility
 Subsequent impossibility/illegality
 Govt./Legislative intervention
 Destruction of subject-matter of Contract
 Non-occurrence of event essential to contract
 Death/illness of promisor
 Commercial hardship not recognized

 Charter parties
Performance
of
contract
 Performance of contract

 Who must perform?

 Mode of performance
 Consequence of non-performance
 Anticipatory breach of contract
REMEDIES
FOR
BREACH
OF
CONTRACT
 REMEDIES FOR BREACH
OF CONTRACT

Remedies

Damages Specific performance Injunction

 REMEDIES FOR BREACH
OF CONTRACT (CONTD…)
Damages
Rules governing measure of damages:
 Damages for direct loss

 Remoteness of damage

 Duty to mitigate the loss

REMEDIES FOR BREACH
OF CONTRACT (CONTD…)

Liquidated Damages
and
Penalty
 QUASI CONTRACTS
Based on equitable doctrine of unjust
enrichment

 Supply of necessaries to a person incapable of

contracting.
 Payment by interested person
 Liability to pay for non-gratuitous act
 Finder of goods
 Payment or delivery under mistake or
coercion
SALE OF GOODS
ACT 1930
 The Act codifies the law relating
to sale of goods which was
contained in sections 76 to 123
of Contract Act. Those sections
have been repealed by the SGA
Parties are at a liberty to subject
the contract of sale
to
the law of the country of their
choice
Choice may be expressly stated by
parties
or
determined by Court
Two important presumptions made by
Courts:

 Law of the place of making the contract -

lex loci contractu

 Law of the place of performing the contract -

lex loci solutions
Transfer of property in goods under
sales made in foreign countries is in
general regulated by the law of the
place where goods are situated at the
time of sale
 Admissibility of evidence,
enforceability of contract, procedure -
lex fori
or
law of the place
where action is brought
Foreign law presumed to be same as
municipal law.
If different, foreign law must be
proved as a fact by the party relying
upon foreign law.
FORMATION OF CONTRACT

Contract of Sale

Sale Agreement to Sell

 Formalities
Formation
 Offer
 Acceptance
 Provision for delivery of goods
 Provision for payment of price

How made?
 Writing
 Oral
 Partly written and partly oral
 Implied from conduct of parties or course of their
business
 Subject-matter - Goods

Subject-matter - Goods

Existing Contingent Future

Specific or ascertained Generic or unascertained

EFFECT OF GOODS PERISHING

 Goods perishing before making of

contract

 Goods perishing before sale but after

agreement to sell
 BEFORE MAKING OF
CONTRACT

 Contract for specific goods only

 Goods damaged, destroyed, seller deprived
 Before contract of sale is made
 Without knowledge of seller

Void Agreement
 BEFORE SALE BUT AFTER
AGREEMENT TO SELL

 Specific goods
 Goods perishing
 Perishing after agreement but before sale
 Without fault of seller or buyer

Agreement can be avoided

 PRICE
 Ascertainment of price
 Fixed by contract
 Left to be fixed in agreed manner (market price)
 Course of dealings between parties
 Reasonable price

 Price fixed by valuation of third party.

 Unless different intention appears, stipulations as

to time of payment not deemed to be essence of
contracts.

 Whether any other stipulation as to time is of

essence of contract or not depends on terms of
contract.
 CONDITIONS AND
WARRANTIES
 Condition
A stipulation essential to main purpose of contract,
breach gives rise to a right to repudiate contract.

 Warranty
A stipulation collateral to main purpose of contract,
breach gives rise to claim for damages.
implied conditions and warranties

 Implied undertaking as to title, etc.

 Implied conditions when sale is by description

 No implied conditions as to quality or fitness

 Implied conditions when sale is by sample

 IMPLIED
CONDITIONS/WARRANTIES AS TO
TITLE

 Seller has/will have right to sell– condition

 Enjoy quiet possession of goods – warranty

 Goods free from any charge or encumbrance

- warranty
 IMPLIED CONDITIONS WHEN
SALE BY DESCRIPTION
 Goods shall correspond with description

 If sale is by sample as well as by description,

it is not sufficient that the bulk corresponds with
sample if goods do not also correspond with
description

 Description includes quality or fitness, place of

shipment, time of dispatch or delivery, time of
shipment, mode of packing.
 NO IMPLIED
CONDITION/WARRANTY AS TO
QUALITY OF FITNESS
Exception 1

Implied condition as to quality/fitness when:

 Buyer expressly/impliedly makes known to seller the purpose

 Buyer shows he relies on seller’s skill and judgment
And
 Goods are of a description dealt with by seller (manufacturer or not)

Exception to Exception 1
No implied condition when article sold under its patent or trade name
 NO IMPLIED CONDITION/WARRANTY
AS TO QUALITY OF FITNESS

Exception 2
Implied condition as to merchantableness when :

 Goods bought by description

 From seller who deals in goods of that description (manufacturer

or not)

Exception to Exception 2
If buyer has examined the goods, no implied condition as regards
defects which examination ought to have revealed
 NO IMPLIED CONDITION/WARRANTY
AS TO QUALITY OF FITNESS

Exception 3
An implied warranty or condition as to quality or
fitness for a particular purpose may be annexed by
usage of trade.
IMPLIED CONDITIONS WHEN
SALE BY SAMPLE
 Bulk shall correspond with sample in quality

 Buyer to have reasonable opportunity of

comparing bulk with sample

 Goods free from defect, rendering them

unmerchantable, which would not be apparent
on reasonable examination of sample.
TRANSFER OF PROPERTY
Generic goods

Goods must be ascertained

Generic Goods
TRANSFER OF PROPERTY – SPECIFIC
GOODS

 Property passes when intended to pass

 Specific goods in a deliverable state

 Specific goods to be put into a deliverable state

 Specific goods in a deliverable state, when the

seller has to do anything in order to
ascertain price
 TRANSFER OF PROPERTY
Sale of unascertained goods and appropriation,
Delivery to carrier
Property passes on appropriation
 Contract for sale of unascertained or future goods by
description
 Goods in a deliverable state
 Goods unconditionally appropriated to contract by
delivery to buyer or carrier
 Appropriation by seller with assent of buyer or by
buyer with assent of seller
 Assent express or implied
 Assent before or after appropriation
 WHEN UNCONDITIONAL
APPROPRIATION?
 Seller delivers goods to buyer/carrier/
bailee (whether named by buyer or not)

 Delivery is pursuant to the contract

 Delivery is for purpose of transmission to

buyer

 Seller does not reserve the right of disposal

 CONDITIONAL
APPROPRIATION
 Where seller will not part with the goods
until he is paid.

 Where seller ships goods as per contract

but takes out bill of lading to his own
order or to the order of his agent.
(reserving the right of disposal)
PASSING OF PROPERTY – APPROVAL
BASIS OR SALE OR RETURN

 Property passes when buyer :

 Signifies his approval/acceptance to seller

 Does any act, adopting the transaction

 Retains goods without giving notice or

rejection.
 TRANSFER OF TITLE
 Nemo dat quod non habet- No one can give
what he does not possess

 Sale by person not owner – Exceptions

 Title by estoppel
 Sale by mercantile agent

 Sale by one of the joint owners

 Sale by a person in possession under voidable contract
 Sale by a seller in possession after sale
 Sale by a buyer in possession before sale
 Performance of contract
 Duties of seller and buyer
 Payment and delivery are concurrent conditions
 Delivery
 Effect of part delivery
 Buyer to apply for delivery
 Rules as to delivery
 Delivery of wrong quantity
 Installment delivery
 Delivery to carrier or wharfing
 Risk where goods are delivered at distant place
 Acceptance
 Buyer not bound to return rejected goods
 Liability of buyer for neglecting or refusing delivery of goods.
 RIGHTS OF UNPAID SELLER
AGAINST GOODS
 Who is a seller?
 When is seller unpaid?
 What are his rights vis-à-vis goods?

Rights of Unpaid Seller

Against Goods

LIEN STOPPAGE IN TRANSIT

Lien, When? Right, When?
Part Delivery Duration of Transit RESALE
Termination of Lien How effected?
 FOB
AND
CIF CONTRACTS
 FOB AND CIF CONTRACTS

 Ex-Works or Ex-Factory………………….. Free delivered

 In between host of contracts
 Most important FOB, CIF
 FOB CONTRACTS
 Pyrene V/s Scindia Navigation 1945 QB,
All. E. R.
 Flexible instrument- not susceptible to rigid definition
 Central idea-price paid to seller includes all costs up
to loading in a ship nominated by buyer.
 Normally property and risk passes when goods cross
the ship’s rail
 Incidents can be varied without losing its essential nature.
 FOB CONTRACTS (contd…)

 FOB contracts:
 Classic/strict
 Modern
 FOB CONTRACTS (contd…)

 Seller’s duties

 Ship free on board goods as described in contract of

sale on the nominated vessel at the port of loading

 Pay all costs for handling and transport till goods on

board
 FOB CONTRACTS (contd…)
 The Buyer’s duties

 Advise seller in good time on what ship goods are to

be shipped
 Designate/nominate a ship
 Secure shipping space
 Obtain export license
 Enter and declare the goods with customs authorities
 FOB CONTRACTS (contd…)
 Goods
 Port of loading
 Nomination of ship
 Delivery
 Loading
 Passing of Property
 Administrative duties and payments
 Brandt & Co. V/s Morris (1917) KB,
 Pound & Co. V/s Hardy & Co., (1956) AC (HL)
 Payment
 CIF CONTRACTS
Classical judicial definition of CIF given by Atkinson
in Johnson V/s Taylor Bros. [1920] AC 144.
 Make out an invoice of goods sold
 Ship at port of shipment goods of contract description
 Procure a contract of affreightment
 Arrange for an insurance policy
 Forward and tender to the buyer shipping documents
 The seller may sell on cif terms goods which he has shipped
or may himself buy goods already shipped and then sell them
cif. Hence he may not be able to plead an export ban as
frustrating his contract as he can buy goods already shipped.
 CIF CONTRACTS (CONTD…)

 Difference between fob with additional

duties and cif contract
 CIF CONTRACTS (CONTD…)

 A sale of documents?
 CIF CONTRACTS (CONTD…)

 Documents in CIF contracts

 Invoice
 Bill of Lading
o Substitute for Bill of Lading

 Policy of insurance
o Certificate of Insurance
LAW RELATING
TO
SEA TRANSPORT
 CHARTER PARTY

CONTRACT OF AFFREIGHTIMENT

Charter-Party Bill of Lading

Voyage Time Demise

Implied undertakings in charter parties

Frustration of charter party
BILL OF LADING

 Definition

 History
 BILL OF LADING (CONTD…)
 Functions
 Contract or evidence of contract?
 Receipt- goods received or shipped?
o Leading marks for identification
o No of pieces/packages, quantity, wt
o Apparent order and condition

 Document of title to the goods

 Quasi – negotiable instrument

 BILL OF LADING (CONTD…)
Section 3 of Bill of Lading Act, 1856

Every bill of lading in the hands of a consignee or endorsee for

valuable consideration, representing goods to have been shipped
on board a vessel, shall be conclusive evidence of such shipment
as against the master or other person signing the same,
notwithstanding that such goods or some parts there of may not
have been so shipped, unless such holder of the bill of lading shall
have had actual notice at the time of receiving the same that the
goods had not in fact been laden on board; Provided that the
master or other person so signing may exonerate himself, in
respect of such misrepresentation by showing that it was caused
without any default on his part, and wholly by the fraud of the
shipper, or of the holder or some person under whom the holder
claims.
 BILL OF LADING (CONTD…)
Section 1 of Bill of Lading Act, 1856

Every consignee of goods named in a bill of

lading and every endorsee of a bill of lading to
whom the property in the goods therein
mentioned shall pass, upon or by reason of such
consignment or endorsement shall have
transferred to and vested in him all rights of suit,
and be subject to the same liabilities in respect of
such goods as if the contract contained in the
bill of lading had been made with himself.
 INTERNATIONAL CONVENTIONS

 Hague Rules 1924

 Hague-Visby Rules 1968 (in force in 1977)
 Protocol amending HV Rules 1979 (in force in 1984)
 Hamburg Rules 1978 (in force 1992 November)
 UN Convention on International Multimodal Transport of
Goods, 1980 (not yet operative)
 DOMESTIC LAWS

 Bill of Lading Act, 1856

 Carriage of Goods by Sea Act 1925

 Multimodal Transportation of Goods Act,

1993, Amendment in 2000
 Hague/Hague-Visby Rules
Rules relating to Bills of Lading:

ARTICLE II:
Subject to the provisions of Article VI, under every
contract of carriage…………….. hereinafter set forth.

ARTICLE VI:
Special Conditions:
Notwithstanding the provisions of the preceding Articles,
a carrier…… shall be at liberty to enter into any
agreement in any terms as to responsibility and liability
of the carrier….
 Hague/Hague-Visby Rules
ARTICLE III:
Rule 1:
The carrier shall be bound before and at the beginning
of the voyage to exercise due diligence to make the ship
seaworthy……
Rule 2:
Subject to the provisions of Article IV, the carrier shall
properly and carefully load, handle ----- the goods.

ARTICLE IV:
Neither the carrier nor the ship shall be liable for loss or
damage arising or resulting from…………..
 Hague/Hague-Visby Rules
ARTICLE III:
Rule 5:
The shipper shall be deemed to have guaranteed to
the carrier the accuracy at the time of shipment of
the marks, no………
And the shipper shall indemnify the carrier against
all loss….. resulting from inaccuracies.
The right of the carrier to such indemnity shall in no
way limit his responsibility/liability under the
carriage contract to any person other than the
shipper.