‘CONTRACT’ [(OFFER + ACCEPTANCE) + ENFORCEABILITY]  

 

An agreement between two or more persons

can be enforced by a court of law

ESSENTIALS OF A `CONTRACT` Offer and AcceptanceAgreement Intention to create legal

relationship Free and genuine consent Parties competent to contract Lawful consideration Lawful object Agreement not declared void and illegal Certainty of meaning Possibility of performance

CLASSIFICATION OF CONTRACT Validity  Formation  Performance Classification according to Validity- voidable contract void contractClassification according to formation Express contract Implied contract Quasi contract

Classification according to Performance Executed contract Executory contract Unilateral contract

OFFER AND ACCEPTANCE

An offer is a proposal by one party to another party to enter into a legally binding agreement with him.

Example: A says to B, ‘Will you purchase my car for Rs.60000.

A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offeree to an offer. Acceptance may be express or implied.

CAPACITY TO CONTRACT Who may not contract

Minor                          Mental incompetency Insolvent Incompetency thru status

VOID AGREEMENTS Not competent to contract Mutual mistake of material fact Unlawful consideration Without consideration (Exception – Gift to a

near relative) Restraint of marriage/trade/legal proceedings Uncertainty Wager Against public policy To do impossible act

VOIDABLE CONTACT /FLAWS IN CONSENT

Coercion Undue influence Fraud Misrepresentation  

COERCION (Section15)

When a person is compelled to enter into a contract by the use of force by the other party or under a threat, ‘coercion’ is said to be employed.

Example – A threatens to shoot B if he (B)does not release him from a debt which A owes to B .

B releases A under the threat. The release has been brought about by coercion.

UNDUE INFLUENCE (Section16) A contract is said to be induced by undue

influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of other and uses that position to obtain an unfair advantage over the other.

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

MISREPRESENTATION (Section18)Misrepresentation is a false statement which the

person making it honestly believes to be true or which he does not know to be false. It also includes non-disclosure of a material fact or facts without any intent to decieve the other party.

Example- A, while selling his mare to B, tells him that the mare is thoroughly sound. A genuinely believes the mare to be sound although he has no sufficient ground for the belief. Later on B finds the mare to be unsound. The representation made by A is a misrepresentation.

FRAUD“Fraud” means and includes any of the following acts committed by a

party to a contract, or with his connivance, or by his agent with intent to deceive or to induce a person to enter into a contract:

1.The suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true.

2.The active concealment of a fact by a person having knowledge or belief of the fact

3.A promise made without any intention of performing it.

4.Any other act fitted to deceive

5. Any such act or omission as the law specially declares to be fraudulent.

Example- A informs B fraudulently that A’s property is free from encumbrance. B therefore buys the property. The property in fact is subject to mortgage. B may either avoid the contract or may insist on its being carried out and the mortgage deed redeemed.

CONSIDERATION Consideration [Ss.2(d), 23-25,185] The term consideration is used in the sense of quid pro que, i.e.,

“something in return”. This something or consideration need not be in terms of money.

Abstinence or promise is called a consideration for the promise”. “No Consideration, No Contract” [Ss.10 and 25]. A promise without

consideration cannot create a legal obligation. The benefit so received or the loss, damage or inconvenience so caused is regarded in law as the consideration for the promise.

Rules Regarding Consideration1. Consideration must move at the desire of the promisor2. Consideration may move either from the promisee or any other

person3. Consideration need not be adequate4. Consideration must be real and competent5. Consideration must be legal6. A consideration may be present, past or future

CONTINGENT CONTRACT Contingent Contract Defined (s.31). 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.

Examples. (i) A contracts to pay B Rs 10,000 if B’s house is burnt. This is a contingent contract. A contingent contract may be: contingent upon (i) the happening or non-happening; (ii) the happening or non-happening of some event within a specified time.

(ii) A contracts to pay B a sum of money when B marries C. Essential Characteristics of a Contingent Contract. (i) The

performance of a contingent contract. (ii) The event must be uncertain. (iii) The event must be collateral, i.e., incidental to the contract.

Types of Contingent Contracts. Example. A promises to pay B Rs 1,000, if A left Delhi for Mumbai,

it is a contingent contract, because going to Mumbai is an event within A’s will, but is not merely his will.

QUASI CONTRACTQuasi Contracts [Ss.68-72] (Certain Relations

Resembling those Created by Contracts) Meaning of Quasi Contracts. ‘Quasi Contracts’ are so-called because

the obligations associated with such transactions could neither be referred as tortious nor contractual, but are still recognised as enforceable like contracts, in courts. According to Dr Jenks, quasi contract is “a situation in which law imposes upon one person, on grounds of natural justice, an obligation similar to that which arises from a true contract, although no contract, express or implied, has in fact been entered into by them”.

Example. X supplies goods to his customer Y who receives and consumes them. Y is bound to pay the price. Y’s acceptance of the goods constitutes an implied promise to pay. This kind of contract is called a tacit contract. In this very illustration, if the goods are delivered by a servant of X to Z, mistaking Z for Y, then Z will be bound to pay compensation to X for their value. This is a quasi contract.

A quasi contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

DISCHARGE OF CONTRACTS

   

Different modes of Discharge of Contracts [Sec73-75] Discharge of Contracts by Performance

Discharge by Mutual Consent (s.62)(Novation, Rescission, alteration, Remission, Waiver)

Discharge by lapse of time(Limitation Act 1963)

Discharge by operation of law(death, insolvency, material alteration)

Discharge of Contracts by Impossibility of Performance

• “Subsequent or supervening impossibility” as a mode discharge of contract (s.56)

• Circumstances of supervening impossibility

i. Destruction of the subject matter of the contract

ii. By the death or disablement of the parties

iii. Subsequent illegality

iv. Declaration of war

v. Non-existence or non-occurrence of a particular state of things

Impossibility of Performance-not an excuse

1. Difficulty of performance

2.Commercial impossibility

3.Strikes, lockouts and civil didturbance

Discharge of Contracts by Breach

• Anticipatory breach of contracts

• Actual breach of contracts

• Breach during the performance of the contract

• Partial breach of a contract

CONTRACT OF GUARANTEE

Definition and Nature of the Contract of Guarantee (s.126). A contract of guarantee is defined as “a contract to perform the promise, or discharge the liability, of a third person in case of his default”. The person who gives the guarantee is called ‘surety’; the person for whom the guarantee is given is called the ‘principal debtor’, and the person to whom the guarantee is given is called the ‘creditor’. A contract of guarantee may be either oral or in writing.

Example: S and P go into a shop. S says to the shopkeeper C, Let P have the goods, and if he does not pay, I will. This is a contract of guarantee.

Birkmyr v. Darnell, (1704)

CONTRACT OF INDEMNITY

Contract of IndemnityMeaning of Indemnity. Sections 124 and 125 provide for a

contract of indemnity. Section 124 provides that a contract of indemnity is a contract whereby one party promises to save the other from loss caused to him (the promisee). A contract of indemnity may arise either by (i) an express promise or (ii) operation of law, e.g.

Rights of the Indemnified (i.e., the Indemnity holder). (i) All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies; (ii) All costs of suit which he may have to pay to such third party, (iii) All sums which may have been paid under the terms of any compromise of any such suit,

Rights of the Indemnifier. The Act makes no mention of the rights of

indemnifier. However, his rights, in such cases, are similar to the rights

of a surety under s.141, viz, he becomes entitled to the benefit of all

the securities which the creditor has against the principal debtor

whether he was aware of them or not.

Distinction between a contract of indemnity and a contract of Guarantee

1. Parties

2.Liability

3.Number of contracts

4.Request mode

BAILMENT(SECTION148)Definition of Bailment and Its KindsDefinition of Bailment . Bailment is defined as the

“delivery of goods by one to another person for some purpose. The person delivering the goods is called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’. From the definition of bailment, the following characteristics should be noted:

1. Delivery of goods

2. Bailment is based on a contract

3. Return of Specific goods

4. For some purpose

DUTIES AND RIGHTS OF BAILOR AND BAILEE

Duties of a Bailor1. To disclose known faults in the goods (s.150)2. To bear extra ordinary expenses of bailment3. To indemnify bailee for loss in case of premature

termination of gratuitous bailment. 4. Where the title of the bailor is defective and the bailee

suffers as a consequence, the bailor is responsible to the bailee for any loss.

Duties of a Bailee1. To take care of the goods bailed (s.151)2. Not to make unauthorised use of goods (s.154)3. Not to mix bailor’s goods with his own (Ss. 155-157)4. To return the goods bailed without demand (s.160)5. To return any accretion to the goods bailed (s.163)Rights of a Bailee1. The duties of the bailor2. Another right of bailee is the right of lien (Ss. 170-171)3. Right of action against trespassers.(Ss.180-181)

FINDER OF LOST GOODS

A finder of lost goods is treated as the bailee of the goods found as such and is charged with the responsibilities of a bailee, besides the responsibility of exercising reasonable efforts in finding the real owner.

Right to retain the goods (s.168). A finder of lost goods may retain the goods until he receives the compensation for money spent in preserving the goods and/or amount spent in finding the true owner.

Right to sell (s.169). When a thing which is commonly the subject of sale is lost, if the owner cannot with reasonable diligence be found or if he refuses, upon demand, to pay the lawful charges of the finder, the finder may sell it. (i) when the thing is in danger of perishing or of losing the greater part of its value; (ii) when the lawful charges of the finder in respect of the thing found, amount to two-third of its value.

DEFINITION OF PLEDGE OR PAWN

Section 172, defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise.

Delivery essential. A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance.

Advantages of Pledge:1. The goods are in the possession of the creditor and therefore,

in case the borrower makes a default in payment.2. Stocks cannot be manipulated as they are under the lender’s

possession and control.3. In the case of insolvency of the borrower, lender can sell the

goods and prove for the balance of the debt, if any.4. There is hardly any possibility of the same goods being

charged with some other party if actual possession of the goods is taken by the lender.

CONTRACT OF AGENCYDefinition of Agent and Agency Meaning of Agent and Agency (s.182). Agent is “a person employed

to do any act for another or to represent another in dealings with third person”. The function of agent is to bring about contractual relation between the principal and a third party. The agent is only a connecting link between the principal and the third party and is rightly called as ‘conduit pipe’.

Who can Employ Agent? Any person who is of the age of majority according to the law to which he is subject and who is of sound mind, may employ agent (s.183).

Who may be Agent? Since agent is a mere connecting link or a ‘conduit pipe’ between the principal and the third party, it is immaterial whether or not the agent is legally competent to contract.

Example. Rahim appoints Kiran, a minor, to sell his car for not less than Rs 90,000. Kiran sells it for Rs 80,000. Rahim will be held bound by the transaction and further shall have no right against Kiran for claiming the compensation for having not obeyed the instructions, since Kiran is a minor and a contract wit

DIFFERENT KINDS OF AGENCIES

A contract of agency may be created by an express agreement or by implication (implied agreement) or by ratification. Thus, there are different kinds of agencies.

Express Agency (s.187)

Implied Agency (s. 187)

Agency by Estoppel (s. 237)

Agency by Holding Out

Agency of Necessity (s.189)

Agency by Ratification (Ss.196-200)

Agency Coupled with Interest