MEANING & ESSENTIALS OF A VALID CONTRACT - iCED
36
MEANING & ESSENTIALS OF A VALID CONTRACT By: Naveen Singhvi, Deputy Director of Audit
Transcript of MEANING & ESSENTIALS OF A VALID CONTRACT - iCED
MEANING &
ESSENTIALS OF A VALID CONTRACT
By:
Naveen Singhvi,
Deputy Director of Audit
CONTRACT : AN OVERVIEW
o Function of Contracts:
o Fundamental to business,
o Creates rights and duties between parties,
o Provides stability and predictability.
o Parties are Promisor (makes the promise) andPromisee (accepts the promise).
o Good faith in commercial agreements.
29 December 2014
By: Naveen Singhvi
2
CONTRACT : DEFINITION
o Agreement that can be enforced in a
court of law,
o Formed by two or more parties,
o Failure to perform results in breach and
damages,
29 December 2014
By: Naveen Singhvi
3
CONTRACT : CLASSIFICATION
29 December 2014
By: Naveen Singhvi
4
CONTRACT : CLASSIFICATION
29 December 2014
By: Naveen Singhvi
5
VALID CONTRACT : ESSENTIALS
o Offer and Acceptance,
o Contractual capacity,
o Free Consent,
o Consideration,
o Legal Purpose,
o Agreement in Written.
29 December 2014
By: Naveen Singhvi
6
OFFER AND ACCEPTANCE
29 December 2014
By: Naveen Singhvi
7
OFFER AND ACCEPTANCE
o First essential of a valid contract is
agreement,
29 December 2014
By: Naveen Singhvi
8
ACCEPTANCEOFFER
OFFER : AN OVERVIEW
o When a person makes an offer/
proposal, he signifies to another his
willingness to do or to abstain from
doing something,
o Offer must be given with an intention to
create a legal relationship,
o There is a clear cut difference between
offer and invitation to make an offer,
29 December 2014
By: Naveen Singhvi
9
OFFER : AN OVERVIEW
o Expression of Opinion, Preliminary
Negotiations etc are not offers,
o Offer must be definite,
o Offer must be communicated,
o Mere statement of price of a piece is
not an offer,
29 December 2014
By: Naveen Singhvi
10
ACCEPTANCE : AN OVERVIEW
o When a person made a proposal to
another and the proposal is assented
there to, it is called acceptance,
o Voluntary act by the Offeree that shows
assent to terms of original offer,
o Mirror Image Rule:
o Offeree must unequivocally accept
offer,
29 December 2014
By: Naveen Singhvi
11
ACCEPTANCE : AN OVERVIEW
o Additional terms may be considered a
counteroffer,
o Acceptance must be given as per the
mode prescribed by the offerer,
o Acceptance must be given before the
lapse of time or within reasonable time,
o Acceptance may be given by any
person in case of general offer.
29 December 2014
By: Naveen Singhvi
12
ACCEPTANCE : AN OVERVIEW
o Acceptance must be communicated,
o Mental acceptance is no acceptance
or acceptance must not be derived
from silence,
o Acceptance must not be precedent to
offer.
29 December 2014
By: Naveen Singhvi
13
CONTRACTUAL CAPACITY
29 December 201414
By: Naveen Singhvi
CONTRACTUAL CAPACITY : AN OVERVIEW
o The condition for a person to enter
into contract :
o He/She must be major,
o He/She must be of sound mind,
o He/She must not be disqualified by any
other law.
29 December 2014
By: Naveen Singhvi
15
FREE CONSENT
29 December 201416
By: Naveen Singhvi
FREE CONSENT : AN OVERVIEW
o Two or more persons are in consent
when they agree upon the same thing in
the same sense,
o Consent is free when it is not caused by:
o Coercion,
o Undue influence,
o Fraud,
o Misrepresentation,
o Mistake.
29 December 2014
By: Naveen Singhvi
17
FREE CONSENT : AN OVERVIEW
o A has two cars, one blue and other red. Hewants to sell his blue car. B who knows ofonly A’s red car, offer to purchase A’s carfor 20000 Dollars. A accept the offerthinking that it is for his blue car. This isno consent because both the parties arenot understanding the same things in thesame sense.
o If B goes to A and on the point of pistolasks A to sell his red car for sum of 20000Dollors to him, there is consent becauseboth are understanding that red car is thesubject matter of the consent, but theconsent is not free because it has beenobtained by Coercion.
29 December 2014
By: Naveen Singhvi
18
NO FREE CONSENT : COERCION
o Committing or threaten to commit any
act forbidden by law of the land or
unlawful detaining or threating to
detaining any other persons property with
a view to enter into an agreement,
o The threat amounting to coercion need
not necessarily be from a party to
contract , it may also proceed from a
stranger to the contract.
29 December 2014
By: Naveen Singhvi
19
NO FREE CONSENT : UNDUE INFLUENCE
o A contract is said to be induced by
undue influence where:
o 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,
o uses that position to obtain an unfair
advantage over the other.
29 December 2014
By: Naveen Singhvi
20
NO FREE CONSENT : UNDUE INFLUENCE
o The person deemed to be in position to
dominate the will of the other:
o Where he holds a real or apparent
authority over the other like master
and Servant, child and parents, etc,
29 December 2014
By: Naveen Singhvi
21
NO FREE CONSENT : UNDUE INFLUENCE
o Where he stand in a fiduciary
relationship (Mutual trust and
confidence) like religious guru and
follower, lawyer and clients, etc,
o 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.
29 December 2014
By: Naveen Singhvi
22
NO FREE CONSENT : FRAUD
o It means and includes any of those actscommitted by a party to contract,
o or with his connivance.
o or by his agent,
o With an intent to deceive or induce aperson to enter a contract:
o The suggestion that a fact is true whenit is not true and the person making itdoes not believe in it to be true,
29 December 2014
By: Naveen Singhvi
23
NO FREE CONSENT : FRAUD
o The active concealment of a fact by aperson having knowledge or belief ofthe fact,
o A promise made without any intentionof performing it,
o Any other act fitted to deceive,
o Any such act or omission as the lawspecially declares to be fraudulent.
29 December 2014
By: Naveen Singhvi
24
FRAUD : ESSENTIALS
o There must be a representation orassertion and it must be false,
o The representation must relate to a fact,
o The representation must have beenmade with the intention of inducing theother party to act upon it,
o The representation must have beenmade with a knowledge of its falsity,
o The other party must havesubsequently suffered some loss.
29 December 2014
By: Naveen Singhvi
25
NO FREE CONSENT : MISREPRESENTATION
o There is misrepresentation:
o When a person positively asserts a factis true when his information does notwarrant it to be so, though he believes itto be true,
o When a party causes howeverinnocently the other party to theagreement to make a mistake as to thesubstance of the thing which is thesubject of the agreement.
29 December 2014
By: Naveen Singhvi
26
DIFFERENCE IN FRAUD & MISREPRESENTATION
29 December 2014
By: Naveen Singhvi
27
Nature Fraud Misrepresentation
Intention to
DeceiveExists Doesn’t Exist
Consequence
Damage can be
available to the
affected party for the
loss suffered
No such damage are
available
Defense
The guilty party does
not have any defense
in its favor
The guilty party have
defense in its favor
M was a marriage broker who gave Y thephotograph of a man and told him that theman was young and rich. Y conveyed thesame to his daughter who agreed for theproposal. But on the day of marriage it wasdiscovered that the man was of the age of60.
There is fraud between M and Y, whereas theis misrepresentation between Y and hisdaughter.
29 December 2014
By: Naveen Singhvi
28
DIFFERENCE IN FRAUD & MISREPRESENTATION
NO FREE CONSENT : MISTAKE
o It means an error in understanding thefact relevant for formation of a contract,
o Where both the parties to an agreementare under a mistake as to a matter offact essential to the agreement, theagreement is void,
o Ex: A agrees to buy from B a certainhorse. It turns out that the horse wasdead at the time of the bargain, thoughneither party was aware of the fact. Theagreement is void.
29 December 2014
By: Naveen Singhvi
29
CONSIDERATION
29 December 201430
By: Naveen Singhvi
CONSIDERATION : OVERVIEW
o When at the desire of the promisor,
o 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,
o such an act or abstinence or promise is
called a consideration for the promise,
o Consideration is value given in return for a
promise,
29 December 2014
By: Naveen Singhvi
31
CONSIDERATION : OVERVIEW
o That is bargained-for-exchange between
the parties,
o Consideration need not be adequate
/sufficient,
o Consideration must be real and not illusory,
o It must not be illegal, immoral or opposed
to public policy.
29 December 2014
By: Naveen Singhvi
32
LEGAL PURPOSE
29 December 201433
By: Naveen Singhvi
LEGAL PURPOSE : OVERVIEW
o If the object of an agreement is the
performance of an unlawful act, the
agreement is unenforceable.
o A contract would be valid only if the
object and the consideration are legal.
29 December 2014
By: Naveen Singhvi
34
UNLAWFUL AGREEMENTS
o An agreement forbidden by law,
o An agreement defecting any provisionsof law,
o An agreement opposed to publicpolicy,
o An immoral agreement,
o A fraudulent agreement,
o An agreement creating damage toperson or property,
29 December 2014
By: Naveen Singhvi
35
OPEN HOUSE…
DOUBTS/QUESTIONS/COMMENTS
29 December 201436
By: Naveen Singhvi
