Professional Documents
Culture Documents
Charu Marwaha
Essentials of a contract:
According to Section 10, "All agreements are contracts, if
they are made by the free consent of the parties, capacity of
parties to contract, for a lawful consideration with a lawful
object, and not hereby expressly to be void.
Charu Marwaha
6. Agreement not declared void or
illegal Agreements which have been expressly
declared void or illegal by law are not enforceable at
law; hence they do not constitute a valid contract.
7. Intention To Create Legal Relationships When
the two parties enter into an agreement, there must
be intimate relationship between them to create a
legal relationship between them. If there is no such
intention on the part of the parties. There is no
contract between them. Agreements of a social or
domestic nature do not contemplate legal
relationship; as such they are not contracts.
8. Certainty, Possibility Of Performance
Charu Marwaha
Definition
1. Offer(i.e. Proposal) [section 2(a)]:-When person
signifies to another his willingness to do or to abstain
from doing anything, with a view to obtaining the assent
of the other person to such act or abstinence, he is said
to make a proposal.
5. Consideration 2(d):
- When at the desire of the promisor, the promisee or
any other person has done or abstained from doing
something or does or abstains from doing something
or promises to do or abstain from doing something,
such act or abstinence or promise is called a
consideration for the promise.
Charu Marwaha
Price paid by one party for the promise of the other
Technical word meaning QUID-PRO-QUO i.e.
something in return.
REF- INDIAN CONTRACT ACT , 1872
- BARE ACT
6. Agreement 2(e) :- Every promise and set of
promises forming the consideration for each
other.
In short, Agreement = offer + acceptance
Charu Marwaha
Types of contract
On the basis of validity:
1. Valid contract: An agreement which has all the
essential elements of a contract is called a valid contract.
A valid contract can be enforced by law.
Charu Marwaha
3. Voidable contract[Section 2(i)]: An agreement
which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of
other or others, is a voidable contract. If the essential
element of free consent is missing in a contract, the
law confers right on the aggrieved party either to
reject the contract or to accept it. However, the
contract continues to be good and enforceable unless
it is repudiated by the aggrieved party.
4. Illegal contract: A contract is illegal if it is forbidden
by law; or is of such nature that, if permitted, would
defeat the provisions of any law or is fraudulent; or
involves or implies injury to a person or property of
another, or court regards it as immoral or opposed to
public policy.. Charu Marwaha
These agreements are punishable by law. These are
void-ab-initio
"All illegal agreements are void agreements but all
void agreements are not illegal.
Charu Marwaha
On the basis of formation:
1. Express contract: Where the terms of the contract are
expressly agreed upon in words (written or spoken) at the time
of formation, the contract is said to be express contract.
Charu Marwaha
examples
claim for necessaries supplied to person incapable of
contracting or on his account
Reimbursement of person paying money due to
another, in payment of which he is interested
obligation of person enjoying benefit of non gratuitous
act
Responsibility of finder of goods
Liability of person to whom money is paid or thing
delivered
Charu Marwaha
On the basis of performance:
Charu Marwaha
3. Unilateral contract: A unilateral contract is one in
which only one party has to perform his obligation at
the time of the formation of the contract, the other
party having fulfilled his obligation at the time of the
contract or before the contract comes into existence.
Charu Marwaha
, the terms of offer must be definite, unambiguous,
not loose and vague. For example "A" says to "B". "I
will sell you a car" "A" owns three different cars. The
offer is not definite. Third thing regarding offer is,
mere declaration of intention and announcement is
not an offer.
A declaration by a person that he intends to do
something, gives no right of action to another. Such a
declaration only means that an offer will be made or
invited in future and not an offer is made now
Charu Marwaha
Declaration of intention to do something did not create a
binding contract with those acted upon it and hence the
broker could not recover damages.
An offer should be made to obtain the assent of the
other.
The offer should be communicated to the offeree.
Unless an offer is communicated to the offeree by the
offerror or his duly agent, there can be no acceptance.
For example, "A" writes to "B", "i will sell you my horse
for Rs.10,000/- and if you do not reply I shall assume you
have accepted the offer". There is no contract if "B" does
not reply.
Charu Marwaha
Classification of Offer
1. General Offer: Which is made to public in general.
2. Special Offer: Which is made to a definite person.
3. Cross Offer: Exchange of identical offer in
ignorance of each other.
4. Counter Offer: Modification and Variation of
Original offer.
5. Standing, Open or Continuing Offer: Which is open
for a specific period of time. The offer must be
distinguished from an invitation to offer.
Charu Marwaha
Invitation to offer "An invitation to offer" is only a
circulation of an invitation to make an offer, it is an
attempt to induce offers and precedes a definite offer.
Acceptance of an invitation to an offer does not result
in formation of a contract and only an offer emerges
in the process of negotiation. A statement made by a
person who does not intend to bound by it but,
intends to further act, is an invitation to offer.
Charu Marwaha
Acceptance
According to Section 2(b), "When the person to whom
the proposal is made signifies his assent thereto, the
proposal is said to be accepted.
Rules:
1. Acceptance must be absolute and unqualified.
For example "A" says to "B" "I offer to sell my car fror
Rs.50,000/-. "B" replies "I will purchase it for Rs.45,000/-
". This is not acceptance and hence it amounts to a
counter offer.
2. It should be Communicated to the offeror.
Charu Marwaha
3. Acceptance must be in the mode prescribed.
For example "A" makes an offer to "B" says to "B"
that "if you accept the offer, reply by voice. "B" sends
reply by post. It will be a valid acceptance, unless "A"
informs "B" that the acceptance is not according to
the prescribed mode.
4. Acceptance must be given within a reasonable
time before the offer lapses.
5. Mere silence is no acceptance.
6.Acceptance must be unambiguous and definite.
Charu Marwaha
Lawful Consideration
In short, Consideration means quid pro quo i.e. something in
return.
An agreement must be supported by a lawful consideration on
both sides.
Essentials of valid considerations are:-
It must move at the desire of the promisor. An act constituting
consideration must have been done at the desire or request of
the promiser. For example "A" saves "B"'s goods from fire
without being ask him to do so. "A" cannot demand payment
for his service.
Consideration may move from the promisee or any other
person.
Consideration must be an act, abstinence or forebearance or
a returned promise. Charu Marwaha
Consideration may be past, present or future.
Consideration must be real. Consideration must be
real, competent and having some value in the eyes of
law.
- For example "A" promises to put life to "B"'s dead
wife, if "B" pay him Rs.1000/-. "A"'s promise is
physically impossible of performance hence there is
no real consideration.
Charu Marwaha
Consideration must be something which the promiser
is not already bound to do. A promise to do
something what one is already bound to do, either by
law, is not a good consideration., since it adds
nothing to the previous existing legal consideration.
Charu Marwaha
Charu Marwaha
trafficking in public offices and titles:agreements for
sale or transfer of public offices and title or for
procurement of a public recognition like padma
vibhushanor padma sree etc. for monetary
consideration is unlawful, being opposed to public
policy.
Agreements restricting personal liberty: agreements
which unduly restricts the personal liberty of parties
to it are void as being oppposed by public policy.
consideration may take in any form-money,goods,
services, a promise to marry, a promise to forbear
etc.
Charu Marwaha
Competent to contract
Section 11 of The Indian Contract Act specifies that
every person is competent to contract provided:
Charu Marwaha
2. He should be of sound mind while making a
contract. A person who is usually of unsound mind,
but occasionally of sound mind, can make a contract
when he is of sound mind. Similarly if a person is
usually of sound mind, but occasionally of unsound
mind, may not make a valid contract when he is of
unsound mind.
3. He should not be disqualified from contracting by
any law to which he is subject
Charu Marwaha
Free Consent
According to Section 14, " two or more persons are said to be
consented when they agree upon the same thing in the same
sense (Consensus-ad-idem).
A consent is said to be free when it is not caused by coercion
or undue influence or fraud or misrepresentation or mistake.
Charu Marwaha
5. Mistake of fact (Section 20): "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". A party cannot be allowed to get
any relief on the ground that he had done some
particular act in ignorance of law.
-Mistake may be bilateral mistake where both parties to
an agreement are under mistake as to the matter of
fact.
-The mistake must relate to a matter of fact essential to
the agreement.
Charu Marwaha
BREACH OF CONTRACT
It is a legal cause of action in which a binding agreement or
bargained-for exchange is not honored by one or more of the
parties to the contract by non-performance or interference
with the other party's performance.
Charu Marwaha
- Special Damage: A party to a contract can claim
special damages from the party in breach, only if at
the time of contract he gave notice to the other party
that such special damages were likely to result from
a breach of contract.
REF-INDIAN CONTRACT ACT 1872
-Dr. R.K Bangia
Charu Marwaha
MEASURES OF DAMAGE
Amount of recoverable loss is evaluated in terms of
money. It is evaluated keeping in following principles :
Charu Marwaha
EXAMPLE:
A contracts to buy B's ship for 60, 000 rupees, but
breaks the promise. A must pay to B, by way of
compensation, the excess, if any, of the contract price
over the price which B can obtain for the ship
at the time of breach of promise.
REF-INDIAN CONTRACT ACT 1872
-Dr. R.K Bangia
Charu Marwaha
Section74. Compensation for breach of
contract where penalty stipulated for
When a contract has been broken, if a sum is named in
the contract as the amount be paid in case of such
breach, or if the contract contains any other stipulation
by way of penalty, the party complaining of the breach is
entitled, whether or not actual damage or loss is proved
to have been caused thereby, to receive from the party
who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may
be, the penalty stipulated for.
Charu Marwaha
EXAMPLE:. : A contracts with B that, if A will not be
able to deliver goods to B within Calcutta and on
time, he will pay B Rs. 5, 000.
- A broke the promise as he was not able to deliver
goods on time and with in calcutta. B is entitled to
such compensation; not exceeding Rs. 5, 000 as the
court considers reasonable.
Charu Marwaha
Section75. Party rightfully rescinding
contract, entitled to compensation
A person who rightfully rescinds a contract is entitled to
consideration for any damage which he has sustained
through the no fulfillment of the contract.
Rescind means revoke, cancel, or repeal.
EXAMPLE:
A, a singer, contracts with B, the manager of a theatre, to
sing at his theatre for two nights in every week during the
next two months, and B engages to pay her 100 rupees for
each nights performance.
-On the sixth night, A wilfully absents herself from the theatre,
and B, in consequence, rescinds the contracts.
B is entitled to claim compensation for the damage which he
has sustained through the non-fulfilment of the contract.
Ref-INDIAN CONTRACT ACT 1872
- Pollock & Mulla Charu Marwaha
Article 299 :
Article 299 lays down three conditions which the
contracts made in the exercise of the executive power of
the Centre or a State must fulfill to be valid:
The contract must be expressed to be made by the
president or the Governor as the case may be;
These contracts made in the exercise of the executive
power are to be executed on behalf of the
President/Governor as the case may be; and
The execution must be by such person and in such manner
as the President or the Governor of the case as the case
may be, may direct or authorize.
Ref- INDIAN CONTRACT ACT 1872
- Pollock & Mulla
Charu Marwaha
PRINCIPLES UNDERLYING
GOVERNMENT CONTRACTS
REASONABLENESS: The principle of reasonableness
and rationality which is legally as well as philosophically
an essential element of equality or non-arbitrariness is
projected by Article 14 and it must characterize every
State Action, whether it be under the authority of law or in
exercise of executive power without making of law.
Charu Marwaha
CONTRACTUAL LIABILITY: In order to protect the
innocent parties, the courts have held that if government
derives any benefit under an agreement not fulfilling the
requisites of Article 299(1), the Government may be held
liable to compensate the other contracting party under
S.70 of the Indian Contract Act, on the basis of quasi-
contractual liabilities, to the extent of the benefit
received.
Section 70 lays down three conditions namely:
1. a person should lawfully do something for another
person or deliver something to him;
Charu Marwaha
2. in doing so, he must not intend to act gratuitously;
and
3. the other person for whom something is done or to
whom something is delivered must enjoy the benefit
thereof.
If under a contract with a government, a person has
obtained any benefit, he can be sued for the dues
under Section 70 of the Act though the contract did
not confirm to Article 299 and if the Government has
made any void contracts, it can recover the same
under Section 65 of the Indian Contract Act.
Charu Marwaha
Standard Form Contract
A standard form contract is a contract between two parties,
where the terms and conditions of the contract are set by one of
the parties, and the other party has little or no ability to negotiate
more favorable terms and is thus placed in a "take it or leave it"
position.
Charu Marwaha
Nature of standard form contract
1.- CONSENT
In the case of commercial contracts courts have
repeatedly held that contracts even if entered into the
standard format, are meant to be performed and not to be
avoided.
Unless it is shown that consent is obtained by fraud,
mistake a consent given by party to a contract cannot be
vitiated.
As defined under Section 13 of the Contract Act, 1872
two or more persons are said to consent, when they
agree upon the same thing in the same sense.
Charu Marwaha
Consent, according to Section 14, is free, when it is
not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
Thus where the parties with equal bargaining powers
have fairly consented to the terms of the contract
without any fraud, duress or mistake courts have
refused to interfere
Ref-.INDIAN CONTRACT ACT 1872
- Pollock & Mulla
Charu Marwaha
UNFAIR TERMS OF THE CONTRACT
Courts have looked into the terms of the contract in
relation to the bargaining powers of the parties and have
interfered in cases where the bargaining power of the
parties was not equal.
-
Charu Marwaha
In dotted line contracts there would be no occasion for a
weaker party to bargain or to assume to have equal
bargaining power.
- He has either to accept or leave the services or
goods in terms of the dotted line contract. His option
would be either to accept the unreasonable or unfair
terms or forego the service forever.
- With a view to have the services of the goods, the
party enters into a contract with unreasonable or
unfair terms contained therein and he would be left
with no option but to sign the contract".
Charu Marwaha
3.INEQUALITY OF BARGAINING
POWERS
Courts have strictly ruled against those standard contracts which exploit
the position of an employee vis a vis the employer.
-They have repeatedly held that in case of employment contract between
the employer and employee, there is a universal tendency on the part of
the employer to insert those terms, which are favorable to him in a
printed and standard form, leaving no real meaningful choice to the
employee except to give assent to all such terms.
5.Language Problems
-The law often hinges on language.
-Words have specific meanings in contracts, and though
your eye might gloss over words that sound right, you
must be aware that a simple word change can alter your
legal status.
-For example, use of the word "shall" has specific
connotations. If a contract says that you shall do
something, that means you are obligated to perform that
action. It is legally binding language.
-If this word is used regarding an action that you feel you
should not be obligated to perform, ask that it be
changed to "may. Charu Marwaha
Advantages of standard form of
contracts
SINGLE CONTRACT:
-For a business, using a standard form contract is
extremely efficient because they do not have to draft a
new contract for every single person they make an
agreement with.