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MODULE II

LAW OF CONTRACT

Prepared By: Jalpa Mehta Faculty : RBIMS

OUTLINE
1. 2. 3. 4. 5. 6. 7.

Importance of the law of contract Essential elements of a contract Agreement & Contracts Kinds of Agreement Kinds of Contract Proposal Acceptance

Prepared By: Jalpa Mehta Faculty : RBIMS

1. Importance of the law of contract The law of contract is the most important branch of business law. It affects everybody, trade, commerce & Industry. In commercial & ordinary life, promises are made. These promises arise out of the acceptance of an offer or proposal. The law of contract deals with such promises which create legal obligations. Thus, promises which do not give rise to legal obligations are not contracts. The law of contract excludes obligations which a re not contractual in nature.
Prepared By: Jalpa Mehta Faculty : RBIMS

The law of contract however, deals with promises given for some value i.e. consideration The law of contract regulates the conduct of the parties to the creation, performance & breach of the promises. It also provides remedies to the aggrieved parties. It also deals with particular contract like indemnity, guarantee, bailment & agency. Thus the law of contract deals with agreement which create legal obligation.

Prepared By: Jalpa Mehta Faculty : RBIMS

2. Essential Elements of a contract Proposal & acceptance Consideration- lawful consideration with a lawful object. Capacity of parties to contract- competent parties Free contract An agreement must not be expressly declared to be void Writing & registration (if so required) Legal relationship Certainty Possibility of performance Enforceable by law
Prepared By: Jalpa Mehta Faculty : RBIMS

Proposal & Acceptance: Definitions When one person signifies to another his willingness to do or 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 [sec.2(a)]. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise [sec.2(b)].

Consideration: Definition 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. [sec.2(d)]. An agreement without consideration is void. An agreement is a contract, only of it is made for a lawful consideration & with a lawful object. The consideration or object of an agreement is unlawful if-----(i) It is forbidden by law; or (ii) Is of such nature that, if permitted, it would defeat the provision of any law; or (iii)Is fraudulent; or (iv)Involves or implies injury to the person or property of another; (v) The court regards it as immoral or opposed to public policy.

Capacity of parties to contract- competent parties: Each party to the contract should be:-- major Of sound mind (i.e. should not be lunatic or insane). Should not be disqualified from contracting by any law.

Prepared By: Jalpa Mehta Faculty : RBIMS

Free consent: Parties to the contract must give their free consent. The parties must agree upon the same thing in the same manner. Consent must not be obtained by. (i) Coercion (ii) undue influence (iii) fraud (iv) misrepresentation (v) mistake

Prepared By: Jalpa Mehta Faculty : RBIMS

An agreement must not be expressly declared to be void: A void agreement is not enforceable by law. The agreements which are opposed to public policy like agreements in restraint of trade, or in restraint of marriage or in restraint of legal proceedings are void agreements.

Prepared By: Jalpa Mehta Faculty : RBIMS

3. Agreement & Contracts

Agreement: Definition Every promise & set of promises, forming the consideration for each other is an agreement. Contract: Definition An agreement which is enforceable by is a contract.

Prepared By: Jalpa Mehta Faculty : RBIMS

4. Kinds of Agreement Valid agreement Void agreement Enforceable agreement Voidable agreement Unenforceable agreement Illegal agreement

Prepared By: Jalpa Mehta Faculty : RBIMS

5. Kinds of Contract Voidable contract Void contract Unenforceable contract Executed contract Executory contract Express contract Implied contract Quasi contract Contingent contract Contract of record Speciality contract Simple contract Statutory contract
Prepared By: Jalpa Mehta Faculty : RBIMS

6. Proposal

Definition: sec 2(a)- When a person signifies to other his willingness to do or 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 Essentials of a valid offer Apart from willingness there must be and expression of request An offer must be intended and capable of creating legal relations Invitation to offer Advertisements, price lists, catalogues, invitation by companies to subscribe for the shares etc. are no offers but are invitation Prepared By: Jalpa Mehta to make offers. Faculty : RBIMS

The offer must be to a definite person to create legal relations Terms of offer must be certain and unambiguous An offer can be expressed or implied An offer must be communicated to an offeree. A person can not accept an offer unless he knows of the existence of the offer. ( Case : Lalman Shukla v/s Gauri Dutt) An offer may be conditional but the conditions may be clearly communicated. A conditional offer lapses when the condition is not accepted by the offeree. Offer can be withdrawn before it is accepted New offer in rejection of the original offer is a counter offer.
Prepared By: Jalpa Mehta Faculty : RBIMS

7.

Acceptance

Definition As per sec 2(b), When a person to whom a proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.

Essentials of valid acceptance (sec 7) 1.) Acceptance must be absolute and unqualified/ unconditional. Acceptance of a proposal with conditions, variations & reservations is not acceptance at all. Acceptance with variations is a counter offer & there is no contract until this counter offer is accepted by the original proposal.

Neele V. Meritt (1930)- Meritt offered a land to Neele at $280. Neele replied accepting and enclosing $30 and promising to pay the balance by monthly instalments of $50 each. It was held that there is no contract as the parties to contract must be ad idem i.e. consenting on the same thing in the same sense. Thus the proposal should be accepted as proposed or offered without reservations, conditions or variations.

2.) Acceptance must be expressed in some usual and reasonable manner mode of acceptance - the acceptance expressed by post or by telegram or by words or by conduct are reasonable manner. - If the manner in which the acceptance is prescribed

then the valid acceptance has to be in that manner only. - Thus the proposer is at liberty to prescribe the mode in which his offer or proposal shall be accepted. E.g. If proposer prescribes the delivery of goods at certain place, then he is not bound to accept delivery at any other place

3.) Mental acceptance is not sufficient in law

- Silence cannot amount to acceptance - Intent to accept an offer is also no acceptance. - Thus acceptance must be communicated by words or conduct by an offeree to the proposer.
4.) Acceptance must be communicated to the

offerer. - the acceptance should be signed & communicated to the offerer himself. - If the acceptance is not communicated to the offerer, no contract is created.

- In Brogden v. Metropolitan Railway Co. A draft for supply of coal was sent to Railway manager. He signed and approved on the agreement but by mistake left it in his drawer. It was held that Acceptance and intimation of acceptance both are necessary for a binding contract.

5.) Acceptance of Proposal


the terms even though offeree is ignorant of some of the terms of the offer Except the where the terms are not apparent on the face and no reasonable caution is taken to draw attention of the acceptor.
- Acceptance of proposal is the acceptance of all

Case Mackillican v. Marittimes de France A Plaintiff purchased from defendant company a ticket to travel by steamer which was in French language. On the lost of luggage of Plaintiff, it was held that Plaintiff was at fault as he did not make himself acquainted with the terms and conditions.

Case Henderson v. Stevenson Plaintiff sued a defendant company for the damages of the loss of his luggage on account of negligence of the servants of the company. The companys defence was that, it was protected by the conditions mentions on the back of the ticket itself. The front side of the ticket showed simply names of the places. On the back side, it was printed with small fonts that the company is not liable for any losses due to negligence of its servants.. It was held that Plaintiff had no reasonable or sufficient notice of the conditions and he could recover from the company for his losses.

6.) Acceptance of the proposal need not always be expressed in Words.


- Performance of the conditions of a proposal is an acceptance of the proposal E.g. Where the insurance company accepts the cheque as per the terms of the proposal towards the premium, encashment of the cheque is a sufficient acceptance of the proposal.

7.) Acceptance must be by certain person


- Offer made to an uncertain number of people or to the world at large but no contract can arise until it has been accepted by certain person. Such offer is called as general offer .It closes as soon as it is accepted by a definite person
E.g. A gives an advertisement in the newspaper offering
Rs.10000 to one who gives information of his lost son. B gives the information. B is entitled to the reward of Rs.10000

8.) If the act is done in ignorance of the proposal, it is not an acceptance of the proposal E.g. An advertisement for the reward of Rs.501 to anyone who gives information of his lost son. B gives information but is ignorant of the reward. After sometime he claims for the reward. B is not entitled to reward as he gave the information without being aware of the offer

9.) Acceptance must be given within a


reasonable time
E.g. M offered to take shares in a company on 8th June and received acceptance on 23rd Nov. M refused to take the shares. As the reasonable period of acceptance has elapsed. He was entitled to refuse to take the shares

10.) Acceptance must be given before the

offer lapses or is revoked or is withdrawn.


contract

11.) An agreement to agree in future is no


E.g. An actress engaged in a theatrical company entered into a contract saying if the play is shown in London she would be compensated by mutually agreed salary