1 Indian Contract Act, 1872. 2 B usiness Law Chapter – 1 Nature and Essential of a Contract.

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Indian Contract Indian Contract Act, 1872Act, 1872

Indian Contract Indian Contract Act, 1872Act, 1872

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Indian Contract Act, 1872

BBusiness Law usiness Law

Chapter – 1Chapter – 1

Nature and Essential Nature and Essential of a Contractof a Contract

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BBusiness Lawusiness Law

`The term “Contract” in ordinary sense means an agreement between two persons.

The law of contract seeks to regulate the behavior of persons who make contracts, so that any conflict arises between these persons later may be resolved.

Meaning of Contract:Sec. 2 (h) defines a contract: “ An agreement enforceable by law is a contract.”e.g. C makes an agreement with D to sell him some goods for Rs. 25000.

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-B invites a friend S to dinner. He makes elaborate preparations. S fails to turn up for dinner and all the preparation made by B go waste. Since this was a contract between the parties, B cannot take S to court for legal action against him for breaking the commitment to come for the dinner.

• How could it be said that the above was not a contact although it was clearly an agreement between the two friends?

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1.An Agreement or offer and acceptance:-Agreement = Proposal + their acceptance-Agree. Must made by two person, one is making offer and another is accepting this offer.

2.Intention to create legal relation-Court would like to measure the degree of seriousness.-Not every loose conversation, not any exchange of pleasantries, not a casual social commitment, consider as a contact.

Essential of Valid ContractEssential of Valid Contract

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3.Competentnce of PartiesEverybody is able to make contract except Minor,

Person of Unsounded mind, Person who are disqualified by any other

law.4.Consideration

“Something in Return”e.g. B promise to S that He will buy his bike for

Rs.35000.5.Free Consent

If the parties make the agree. without any kind of pressure or misguidance, then the agree. would be the result of Free Consent.

“Consensus ad item” between parties, which means that there must be complete understanding of each other’s mind between them.

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6.Lawful object and consideratione.g. I will kill you Mr. if you will give mw 100 bottle wine.

7.Not expressly declared void (Cancelled) agreementAlways void i.e. without legal effect because of their nature.

e.g. Agree. made without consideration Agree. to do impossible act. Agree. on the meaning of which uncertain etc.8.Certain Formalities

-Necessary fulfillment of certain formalities for making certain specific types of contract-Made in written or in presence of witness.

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• A invite B to out for dinner together. B accepts the offer. A hires a taxi but B does not turn up. A has to give the dinner some compensation. Can A recover it from B?

• V offer to donate Rs. 11000 to hospital. The hospital accept the offer. Can it recover the amount ?

Case Law

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Chapter – 2Chapter – 2

OFFER AND

ACCEPTANCE

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• Formation of Agreement required two steps , making of a proposal by one person and acceptance of this proposal by other.

• Agreement= Offer + their acceptance

OFFER AND ACCEPTANCE

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The Proposal or OfferSec. 2 (a) define an offer in these words:“When one person signifies to another

his willingness to do or to abstain from doing anything,with a view to obtaining the assent (acceptance) of that other to such act or abstinence, he is said to make a proposal”e.g. R tells S : “ I am ready to sell my machine for Rs.9000,are you ready to buy”. This is clear offer from R to S.

The Proposal or OfferSec. 2 (a) define an offer in these words:“When one person signifies to another

his willingness to do or to abstain from doing anything,with a view to obtaining the assent (acceptance) of that other to such act or abstinence, he is said to make a proposal”e.g. R tells S : “ I am ready to sell my machine for Rs.9000,are you ready to buy”. This is clear offer from R to S.

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Requirements for Valid OfferRequirements for Valid Offer

1.Offer must be express or implied-Must be made in a manner which leave no doubt

about it.-Proposal made in words, the promise is said to be

express, and proposal mad otherwise than in words, it is said to be implied.

e.g. B tells S : “Can you repair my computer?” – Express offer

A street seller of photo-albums quietly extends a piece before a passer –by who takes it in his possession.-Implied offer to sell.2.Offer must intend to create legal relation3.Offer must be certain and not vague in meaning

Offer must be definite and certain in meaning

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4.Offer may be specific or GeneralThere must be destination of offer.-If offer is targeted for one specific person, it is called a specific offer.-If it is targeted for the whole world at large, it is called general offer. e.g. Advertisement

5. Offer must be communicatedLalman Shulka vs Gauri Dutt

6.Offer must be distinguished from invitation to offere.g. Availability of Books in Book Store being available for letting out. Display of suit with price tag-All are example of invitation to offer. Advertiser may or may not sell this.

e.g. Publishing of Time Table by railways are example of expression of an intention.

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What is difference between Invitation to Offer and General Offer?Invitation to Offer: Aims at taking the customer to the advertiser to start negotiation.General Offer: Aims at leading the offeree (to whom offer made) to the performance of specified condition which would amount to acceptance of offer.

7.An Offer should not contain a term forcing an action on Offeree

e.g. B tells S that in case no reply is receiving from S within days , it will treated as acceptance of his offer.

S are not bound by this offer.

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The AcceptanceThe Acceptance

Sec. 2 (b) “When a person to whom the proposal is made , signifies his assent thereto, the proposal is said to be acceptance.”

A proposal , when accepted become a promise.Requirements for Valid Acceptance1.By a proper person-

-The proper person to accept the offer is the one to whom it is targeted.

-Offeror cannot be forced to be bound in a contract with a person with whom he did not want to be involved.

2..Within proper timeTime specified by Offeror.e.g. Advertisement of IPO

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3.Must be absolute and unqualified(total and without condition)

Offeree should neither add to nor reduce from the offer anything from his side.

-B offer to sell his Car to S at Rs.20,000. S accept the offer with the condition that payment shall take after a month.

This is counter offer from S to B. The offer from B stand rejected.

4.Must be CommunicatedMental acceptance is no acceptance.

5.Must be given in a proper Mode.-If Offeror prescribed ay mode of acceptance , it must be adopted by offeree for acceptance. E.g. by fax, by mail, by registered post etc

e.g. A makes an offer to B and says : “If you accept the offer, replay by e-mail only.” B send the reply by post.

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6.Accepatnce must succeed the offerTwo identical cross offers can not form an

agreement.e.g. A sends a letter to B containing an offer.

Almost at the same time, B also sends a latter to A containing an offer on exactly same lines The two offer cross each other during postal journey. So they called identical cross offer. Can both of them together form an agreement between A and B on the logic that they represent a common desire and common understanding ?

Only two offer are made and there is no acceptance.

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7. Offer once rejected can not be accepted.B makes an offer to give job to H at Rs. 7000 pm

salary. S says, “No, I want Rs. 8000 pm month. B refuses. S says, “ Alright , I will work for Rs.7000”. B says , “I am not interested in you.” There is no contract between B and S because B’s initial offer came in to end with its rejection by S through a counter offer. Now, it is S’s offer to work for Rs. 7000 which B is rejecting. (Hyde vs Wrench)

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1.Communication of OfferAn offer is said to have been made when it comes to knowledge of the other person for whom it was intended.

2.Communication of AcceptanceFor Acceptance two steps required: (i)

Offeree transmits his acceptance and (ii) Message reaches the Offeror.Brogden Vs Metropolitan railways Co.

i. Communication of acceptance from offeree is binding upon the Offeror as soon as the latter of acceptance is posted so as to be beyond the Offeree’s control.

ii. Communication of acceptance from offeree is binding upon the offeree himself only when it comes to the knowledge of the Offeror.

Communication of Offer, Acceptance and Revocation

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e.g. Mr. X sends a latter of offer to Y on August 5 which may reach Y on August 10. Y post his latter of acceptance on August 15 which may comes to knowledge of X on August 20.

Offer said to be made on = August 10Offer said to be accepted for Y on = August 15Offer said to be accepted for X on = August 20Position of time gap between August 15 to August 20

= This time is available for Y to withdraw his acceptance.

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3.Communication for RevocationSec 5 provide rule about revocation of offer and acceptance. It states:

“A proposal may be revoked at any time before the communication of its acceptance is complete from acceptor as against the proposer, but not afterward.”

“An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor ,but not afterward.”

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X makes an offer to Y on 5th May, it reach to Y on 10th May.

Y posted of his acceptance to X on 15th May. It reaches to X on 20th May.

X send withdrawal of his offer on 9th May, it reaches to Y on 14th May.-It will come to effect on 14th May only, even though X send on 9th May. It is called revocation of offer.

Y send withdrawal of his acceptance on 17th May , it

reaches to X on 19th May.-It will come to effect on 19th May only, not on 17th May. It is called revocation of Acceptance.

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1. X makes an offer to Y on 1th May, it reach to Y on 5th June. When Offer is completed?

-It is competed only on 5th June.

2. Y posted of his acceptance to X on 10th June. It reaches to X on 30th June. When acceptance is completed?

- It is completed only on 30th June.

3. X want to withdraw his offer, which is the last date?

-It must be before 10th June, not thereafter.

4. Y want to cancel his acceptance, which is the last date for cancellation?

-It must be before 30th June, not thereafter.

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• Loss of letter of Acceptance in the Postal transit– Acceptance is complete as against Offeror as

soon as the latter of acceptance is posted. The contract is completed even if the latter of acceptance lost in the post.

– But it is important that the latter of acceptance is correctly addressed, sufficiently stamped and posted.

• Contract over telephone or telex or oral communication– The offeree must make sure that his acceptance

is properly received i.e. heard and understood by the Offeror.

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When does an offer come to an end?

An offer come to end by Two Revocation or laps and Rejection of Offer.

A. Revocation or laps or Withdrawal of Offer (Sec.6)1.By communication of notice of revocation by

Offeror before its acceptance is completed against him

2. By laps of time - X offer Y to sell some goods on 1st May

and agreed to give him three days time to accept. Y accepted offer on 5th May.

3. By non-fulfillment of condition by offeree - X offer to sell some goods to Y, if Y give full amount before certain date.

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4.By death of Offeror- If offeree accept the offer in ignorance of the death of Offeror, the acceptance is valid.

5. If counter offer is made

6.If Offer is not accepted according to prescribed mode

7.If law is change

B. Rejection of Offer by Offeree 1. Express Rejection i.e. by words written or spoken2.Implied rejection

-when offeree make counter offer-When offeree make conditional acceptance-Not following prescribed time

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Case Law 1. A garment store gave the following

advertisement in a newspaper: “Special sale for tomorrow only. Men’s Suits reduced from Rs. 200 to Rs. 100.” Is it offer?

2. P says to Q, “I will sell you a camera.” Is it offer?

3. A advertises in ToI that he would pay Rs. Rs.200 to anyone who finds and return his knowledge. Is it offer?

4. A offer by a latter to sell his car to B for Rs. 15000. B, at the same time, offer by latter to buy A’s car for Rs.15000. The two letters cross each other in the post. Is there a contract between A and B?

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-“Something in Return”Sec. 2 (d) defines consideration as follow : “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 abstinences or promise is called a consideration for promise.”

Consideration

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1.Consideration at the desire of the promisore.g. A saves B’s goods from fire without being asked to do so. A can not demand payment for his service.

2. Consi. from promisee or any other person.It is immaterial who provides the consideration for a person’s promise so long as consideration is there.

3. Con. may be past, present or future.Past Con. : A finds B’s Son and B promises to pay A 10000.Present Con. : At the time of making promiseFuture Con. : A promises to deliver goods to B when the ship arrives and b promises to pay A Rs 1000 against the receipts of goods. Its future, as both the parties will perform after the arrival of ship.

Legal Rules as to Consideration

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4. Con. need not be adequatee.g. X sell his house worth Rs 1 lac for Rs. 100 to Y.

5. Con. must be real and not illusory.i. Physically Impossibility

e.g. X promises to put life into Y’s dead wife should Y pay him Rs. 500. ii. Legal Impossibilityiii. Uncertain Consideration

6.Con. must be something which promisor not already bound to due.e.g. There was a promise to pay to the Vakil an additional sum if the case was successful.

7.It must not be illegal, immoral or opposed to public policy.

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Exceptions (Sec. 25)1.Love and Affection

e.g. A father promises to pay his son 1000 out of affection and love and registers it. It’s a contract

2.Compensation for voluntary services

e.g. X finds Y’s purse and give it to him. Y promises to give X Rs. 50. This is contract.

3. Promise to pay a time-barred debt.

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‘Capacity’ means Competency of the parties to enter into a valid contract.

Sec.11 declares the following persons to be incompetent to contact:

i. Minor

ii. Persons of Unsounded Mind

iii. Persons disqualified from any other law.

Capacity to Contract

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Minor• According to Indian Minority Act,

1875., a person who has completed his 18th year of age is considered too be minor.

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• Law Relating to minor’s Agreements: “NO LEGAL ACTION TAKEN AGAINST MINOR”

1.Absolutly VoidAgree. of minor is absolutely void and nullify.e.g. A minor take loan of Rs. 20000 from moneylender and put mortgage of his house in favor of moneylender. Later, minor started an action to get the mortgage cancelled.

2. Agree. may be enforced for minor’s benefits.e.g. A minor may give loan to a person and the borrower may refuse to return money on the ground that agreement is void. -Fundamental rule, aim to protect the minor.

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3. “Rule of Estoppel” does not apply against minor-If minor mislead the other party to believe that

he is of the majority age, and then some benefits get under an agreement , he will be permitted to deny latter the fact that he was of minority age. Thereby , he will have no liability towards the other party.

4. Normally , no restitution would be permitted-No recovery from MinorLaw regarding restitution is according to Sec.33 of Specific Relief Act 1963

5.Apprenticeship agreements are enforceableSuch Agreement are made for minor’s benefit to enable him to acquire skill under trained person for future.-Agreement must be made under Apprentice Act 1961.

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6. Service argee. for minor is not enforceablee.g. Film Producer agreed with the guardian of minor girl to give to the girl the role in his film. Later, he gave role to other girl. Can girl make case on Film producer?

7. Normally , specific performance of promises shall not be ordered.Agree. By minor may be ordered for specific performance if some condition are satisfied.i. It is made by guardian on behalf ii. The Guardian is competent to make that agreement iii. The agreement for minor’s benefit

8. No ratification on attaining majority age.e.g. K (minor) take loan from B of Rs.10000 and give promissory note in favor of B .K will not be liable under this P/Note even after attaining majority age by K.

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9. Minor’s liability for necessariesIf person provide any support or necessities to minor who are not enable to make contract, this person who had provide necessity have right to reimburse from the property of the minor, because it is benefit of the minor.

10.Minor as a member of partnership firm -Minor can not be partner.

11.Minor as shareholderA minor can become a shareholder in a company

through his guardian who will act as his trustee. Minor directly can not entered into contract with

the company.12.Minor as an agent

A minor can be appointed as a agent because agent do not incur personal Liability

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13.Position of Minor’s Parents-Parents are not liable for Minor’s act

14. Position of a joint contract of major and minor-Minor will not be liable major (adult) are liable.

15. Insolvency of Minor- Court can not be declared insolvency by court.

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Continued

• Contracts by person of unsound mind– Contracts by lunatics– Contracts by drunkards

• Contracts with Parda-Nishin women.

• Contracts by married women

• Contracts by corporation

• Contracts by insolvents

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Free Consent

According to Sec. 13 ‘Two or more person are said to consent when they agree upon the same things in the same sense.’

This mean that there should be perfect identity of mind (consensus ad idem) regarding the subject-matter of contract.

According to Sec. 14 consent is said to be free when it is not caused by any of the following :

1. Coercion

2. Undue Influence

3. Fraud

4. Misrepresentation

5. Mistake

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• i. A has two cars, one blue and other red. He wants to sell his blue car. B who knows of only A’s red car, offer to purchase A’s car for Rs. 20000. A accept the offer thinking that it is for his blue car. This is no consent because both the parties are not understanding the same things in the same sense.

• ii. If B goes to A and on the point of pistol asks A to sell his red car for sum of Rs. 20000 to him, there is consent because both are understanding that red car is the subject matter of the consent, but the consent is not free because it has been obtained by Coercion.

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Undue InfluenceUndue Influence• Undue influence is the improper use of any power

possessed over the mind of the contracting party.• According to Sec. 16 a contract is said to be affected

by undue influence when:-(a) the relation subsisting between the parties are

such that one of the parties is in a position to dominate the will of the other, and

(b) Use that position to obtain an unfair advantages over other.

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• The person deemed to be in position to dominate the will of the other.

- Where he holds a real or apparent authority over the other like master and Servant , child and parents.

-Where he stand in a fiduciary relationship (Mutual trust and confidence) like religious guru and follower, doctor and patients, lawyer and clients.

- Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or body distress.

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Burden of Proof• The person who claim undue influence has to

prove that it was the cause of contract. He has to prove that pre-existing relationship, the position of domination, and the misuse of the position.

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Difference Between Coercion and Undue Influence

1.Mode of Obtaining Consent

- In Coercion ,Consent obtained by threatening to act.

- In U.I. , Consent obtained by using dominating power.

2. Type of Force

-In Coercion, physical force is exercised.

- In U.I. , Moral forced is used.

3. Existence of Relationship

-relationship between the promisor and the promisee is not necessary.

-Some sort of relationship MUST exist between the two parties to the contract.

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FRAUD• Fraud means method of misleading a person

deliberately to cause in him a wrong understanding of so as to obtaining that’s person’s consent for a contact.

• E.g. M falsely tells R that the car that he was offering to sell was once owned by Sachin Tendulkar. This is a fraud against R committed to obtain his consent to purchase the car.

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MISREPRESENTATION• Misrepresentation is a false representation made

innocently without any intention of deceiving the other party. It may include two things:(a) Wrong statement of a material facts not known

to be false(b) Non-disclosure of the facts where there is a

large duty to disclose without any intention to deceive.

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Diff. between Fraud and Misrepresentation

1. Intention:- In fraud, there is intention to deceive (mislead to somebody).-In Mis. , there is no intention to deceive.

2. Consequence: -In Fraud, damage can be available to the affected party for the loss suffered .-In Mis. , no such damage are available.

3. Defense:-In Fraud, the guilty party does not have any defense in its favor.In Mis. , the guilty party have defense in its favor.

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Mistake• A mistake means an error in understanding

the fact relevant for formation of a contract.

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Case law

- X , a poor widow, borrowed Rs. 3000 from a money-lender at 100% per annum rate of interest for the purpose of enabling her to establish her right of maintenance. Is she liable to replay the loan on these terms?

- No, this is an unconscionable transaction and thus amount to a contract caused by undue influence.

• A woman went to a jeweller, falsely represented herself to be a wife of Sachin Tendulkar and took with her a ring on the pretext of getting the approval of her husband . She deposit the ring with Mr. Kambli. Can the jeweller recover the ring from Mr. Kambli?

- Yes, because , there was a mistake of identity on the part of the jeweller, Thus the agreement was void.

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1. Agreement made by incompetent parties (Sec. 11)Everybody is able to make contract except Minor, Person of Unsounded mind, Person who are disqualified by any other law.

2. Agree. the consideration or object of which is unlawful in part. (Sec. 24)

I will kill you Mr. if you will give mw 100 bottle wine.

3. Agree. Made without consideration. (Sec. 25)

4. Agree. in restraint of marriage. (Sec.26)Freedom of choice in marriage has been

guaranteed to every person who is major in age.

Void Agreement

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5. Agree. in restraint of trade. (Sec. 27)X and Y were competitor shopkeeper in a locality in Surat.

Y agreed to pay X , a sum of money if he would close his business in that locality.. X did so but Y refuse to pay money.

6. Agree. in restraints of legal proceeding. (Sec. 28)7. Agree. the meaning of which is uncertain. (Sec. 29)8. Agree by way of wager. (Sec. 30)

A agrees with B that if there is a rain on a certain day, A will pay B Rs. 50. If there is no rain B will pay Rs. 50.

A bet on horse race.A bet on winning or loosing of cricket match.

9. Agree to do impossible act. (Sec. 56)10.Agreement made under a mutual mistake of the

fact. (Sec. 20)

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• Agreement void where both parties are under mistake as to matter of fact. Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

• Explanation.-An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.

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• Illustrations (a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the facts. The agreement is void.

• (b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.

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Effect of mistakes as to law

• .-A contract is not voidable because it was caused by a mistake as to any law in force in [India];

• Contract caused by mistake of one party as to matter of fact.- 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 fact.

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Consideration valid or not ??

• What considerations and objects are lawful and what are not.-The consideration or object of an agreement is lawful, unless- it is forbidden by law ; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent ; or involves or implies injury to the person or property of another or ; the Court regards it as immoral, or opposed to public policy.

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• . Illustrations (a) A agrees to sell his house to B for 10,000 rupees. Here

B's promise to pay the sum of 10,000 rupees is the consideration for A's promise to sell the house, and A's promise to sell the house is the consideration for B's promise to pay the 10,000 rupees.

(b) A promises to pay B 1,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here the promise-of each party is the consideration for the promise of the other party and they are lawful considerations.

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(c) A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is wrecked on a certain voyage. Here A's promise is the consideration for B's payment and B's payment is the consideration for A's promise and these are ________ considerations.

(d ) A promises to obtain for B an employment in the public service, and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for it is unlawful

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Agreement in restraint of trade void.-

• Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Saving of agreement not to carry on business of which good-will is sold.-

• Exception 1.-One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.

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Agreements in restraint of legal proceedings void.-

• Every agreement,- (a) 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; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent. Saving of contract of refer to arbitration dispute that may arise.-

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Agreements void for uncertainty.-

Agreements, the meaning of which is not certain, or capable of being made certain, are void.

Illustrations (a) A agrees to sell to B " a hundred tons of oil ". There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.

(b) A agrees to sell to B one hundred tons of oil of a specified' description, known as an article of commerce. There is no uncertainty here to make the agreement void.

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(c) A, who is a dealer in coconut-oil only, agrees to sell to B "one hundred. tons of oil". The nature of A's trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one hundred tons of coconut-oil.

(d) A agrees to sell to B " my white horse for rupees five hundred or rupees one thousand". 'There I is nothing to show which of the two prices was to be given. The agreement is void,

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Agreements by way of wager void.-

A wager agreement between two parties to the effect that if a given uncertain event happens, one party shall pay a certain sum to the other and on the contrary event happening. For eg. If the event turns out one way, one party shall lose and the other shall gain.

Agreements by way of wager are void ; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.

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CONTINGENT CONTRACTS

• "Contingent contract" defined.-A " contingent contract " is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. Illustration A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contingent contract.

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Enforcement of contracts contingent on an event happening

• Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void. Illustrations

• (a) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

• (b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse.

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Enforcement of contracts contingent on an event not happening.-

• Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.

• Illustration A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

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Expiry of time

• Illustrations • (a) A promises to pay B a sum of money if a

certain ship returns within a year. The contract may be enforced if the ship returns within the year, 'and becomes void if the ship is burnt within the year.

• (b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

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Agreement contingent on impossible events void.-

• Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.

• Illustrations • (a) A agrees to pay B 1,000 rupees if two parallel

lines should meet. The agreement is void. • (b) A agrees to pay B 1,000 rupees if B will

marry A's daughter C. C was dead at the time of the agreement

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Cases

• In carew Co. Ltd v North Bengal, where two sugar manufactures had entered into an agreement allocating zones to procure sugar for meeting the needs of their respective factories and each undertook not to draw any cane from the zones alloted to the other factory, it was held that the agreement was in restraint of trade and therefore void.

• Similarly where four ginning factories entered into an agreement fixing uniform rate for ginning cotton and pooling their earnings to be divided between them in certain proportions, it was held that such an agreement was valid and enforceable.

• A combination which tends to create monopoly and which is against the public interest is void.

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• IN Attwood v. Lamount where the contract of service is provided that on termination of employment the tailor would not carry on similar business within 10 miles of his employer, the agreement was void.

• But if same restriction is made while the term is on, it is not restraint from trade.

• A, in bombay, enters into a contract with B in madras with a condition that all disputes will be subject to bombay jurisdiction. This limits the right of B to sue only in Bombay court in case of dispute. Such an agreement is valid.

• A agrees to sell B hundred tons of oil. The agreement is void for uncertainty as there is nothing whatever to show what kind of oil was intended.

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• An agreement to pay certain sum when able to pay is void or not ?

• A agrees to sell B “ all the grains in my grainary at Ramnagar. Is there any uncertainty ?

• A contracts to pay B a sum of money when B marries to C. C dies without being married to B. The contract becomes void.

• A agrees to pay Re 1000 if two parallel lines meet. The agreement is void.

• A agrees with B to put life into a dead man. The agreement is void.

• Money lent for the purpose of gambling can be recovered even though lent with the knowledge of the parties.

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• A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance.

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• There is no offer, no acceptance, no consensus ad idem and in fact neither agreement nor promise.

• These contact constituted by the Law, and therefore termed as Quasi Contact.

Quasi Contract

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1. Supply of necessaries2. Payment by an interested person3. Obligation to pay for non-gratuitous acts

e.g. Mr. X , a trader, leaves goods at Y’s house by mistake. Y treats the goods as his own. He is bound to pay for them to X.

4. Responsibility of Finder of GoodsMr. X picks up a diamond on the floor of Y’s shop. He hands it over to Y to keep it till true owner is found out. No one appears to claim it for quite some weeks inspite of the wide advertisement in the newspapers. X claims the diamond from Y who refuse to return. Y is bound to return the diamond to X who is entitled to retain the diamond against the whole world except true owner.

Kinds of Quasi Contracts (Sec. 68 to 72)

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The finder can sell the goods in the following cases: • 1.When the things found is in danger of perishing• 2.When the owner cannot be found out• 3. When the owner is found out, but he refuse to pay

the lawful charges of the finder

5. Mistake or coercione.g. A and B jointly owe Rs. 100 to C. A alone pays the amount to C. and B not knowing this fact, and pays Rs. 100 to C again. C is bound to pay the amount to B.

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Quantum Meruit• Quantum Meruit means “as much as earned”.

• When a person has done some work under a contact, and some event happens which makes the further performance of the contact impossible, then the party who has performed the work can claim remuneration for the work he has already done.

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The claim for quantum meruit arises in the following cases

1. When an agreement is discovered to be void.

e.g. GE was employed as a managing director in a company. After he rendered service for three months. It was found that the director were not qualified to appoint him.

2. When something is done without any intention to do so gratuitously.

3. When there is an express or implied contract to render service, but there is no agreement as to remuneration.

In such cases, reasonable remuneration is payable.

e.g. There was an implied agreement between P and a fire brigade for the services of the brigade.

4. When an indivisible contract is completely performed but badly.

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Kinds of Contracts (Sec. 68 to 72)

Classification of Contract

Enforceability Mode of Creation

Extent of Execution

Implied Cont.Express Contr.

Valid VoidIllegal Unenforceable

ExecutoryExecuted

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1. Classification of Contract on the basis of Enforceability:a. Valid Contract:

Contract which satisfy all the essential elements of a valid contract as laid down be Section 10.b. Void Contract:

An agreement may be enforceable at the time when it was made but later on, due to certain reason, it become void and unenforceable. c. Illegal Contract:

All illegal agreement are void but all void agreement are not necessarily illegal.

e.g. An agreement with minor is void but not illegal.d. Unenforceable Contract:

Certain contract become void because the law court will not enforce them due to not fulfillment of certain formalities.

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2. Classification of Contract on the basis of Mode of Creationa. Expressed Contract:

Contract is made by words spoken or written.b. Implied Contract:

Contract which come into being on account of the act of the parties and not by their express words, written or spoken.

3. Classification of Contract on the basis of Extent of Executiona. Executed Contract

Where both the parties to the contract have fulfilled their respective obligation, the contact said to executed.b. Executory Contract

Where one or both the parties to the contact still to perform certain things in future or under the terms of the contract something remains to be done, the contract is termed as an executory contract.

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Thank You

1 Indian Contract Act, 1872. 2 B usiness Law Chapter – 1 Nature and Essential of a Contract.

Documents

Transcript of 1 Indian Contract Act, 1872. 2 B usiness Law Chapter – 1 Nature and Essential of a Contract.