Professional Documents
Culture Documents
Sem II
Index
Definitions
Classifications of Contracts
Essential Elements of a Valid Contract
Discharge of a Contract
Contingent contracts
Definitions
When one person signifies to another his willingness to do
or to 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 or OFFER
ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic rule of
Public Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID, BUT ALL
VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between the
immediate parties but has its further effect that even the collateral transactions to it become tinted with
illegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principal
contract.
Unilateral Contract – where any one party to the contract has to still
perform their share of obligation
Bilateral Contract - where any both the parties to the contract has to still
perform their share of obligation
Essential Elements of a Valid Contract
All agreements are contracts if they are made with:
Offer and Acceptance
Intention to create a legal relationship
Lawful Consideration
Capacity of the Parties
Free Consent
Lawful Object
Certainty and Possibility of Performance
Legal formalities
If any of the above is missing, the contract becomes void.
Essential E.g.,
Elements of a Valid Contract -
Mr. A has 3 cars. He asked Mr. B “are you ready
to purchase my car for Rs. 2 lakhs.
Offer and Acceptance
There must be minimum two parties to an
agreement.
I.e. one party making the offer (also called as
offerer/proposer/promisor)
and
the other accepting it (also called as
offeree/proposee/promisee/acceptor)
Implied offerE.g.,
- AnIf Mr.
offer maytoalso
A asks behis
B, for implied
blue carfrom the conduct of
for Rs.
the parties or the2,00,000/-,
circumstances of the case.
Mr. C cannot accept the offer.
Offer must not contain a term that non-compliance of which may be assumed to amount
to acceptance: the person making the offer cannot say that if acceptance is not
communicated by a certain time, the offer would be considered as accepted
An invitation to make offer: display of goods by the shopkeeper with a price marked
on it does not make
Eg: Aaninvites
offer, but merely
tenders forgives an invitation
the supply of 100tobricks.
the public to and
X, Y, makeZan
offer to buy the Eg; a at
goods railway Co. invited
the price marked tender
it. for
E.g.,certain
on tender Iron articles
quotations, which
catalogues,
submit the Tender. A accepts the given by X. There is
it mightissued
advertisements, prospectus require over
by the W’s tender was accepted. He
a year.etc.
company,
binding contract between A and X
supplied goods for some time. He refused to supply at a later
time.
Tender is an offer to But the contract
the invitation is binding
of an offer. (public on
ad).W
II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed
time is over, otherwise after the reasonable time.
e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to
accept. The purchaser accepted the offer on Monday, by that time A had sold the wool.
Held, the offer had lapsed.
IV. By death or insanity of the offeror provided the offeree comes to know it
before acceptance. But If he accepts an offer in ignorance of the death or insanity
of the offeror, the acceptance is valid.
Lapse or termination of offer
V. By counter offer - When offer is accepted with some modifications in the terms of the offer,
then it amounts to counter offer. By putting counter offer the original offer comes to an end.
E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you ready
to sell it to Rs. 8 lakhs. B’s question to A is a counter offer.
E.g. An offeree agreed to accept half the quantity of goods offered by the offeror on the
terms and conditions as would have applied to the full contract. Held, there was no
contract as there was a counter offer to the offer.
VI. If an offer is not accepted according to the prescribed or usual mode provided the offeror
gives notice to the offeree within a reasonable time that the acceptance is not according to the
prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the
acceptance.
VII. If the law is changed. An offer comes to an end if the law is changed so as to make the
contract contemplated by the offer illegal or incapable of performance.
VIII. Destruction of subject matter: - ‘A’ offers ‘B’ his cow for Rs. 4500/- In the mean time, the
cow dies due to snake bite. The offer is lapsed.
Rejection of offer: - An offeree may reject the offer. Once he does that he cannot subsequently
accept it.
Rejection of the offer may be express or implied.
Express Rejection: The offeree may reject the offer expressly, i.e., by words written or
spoken. This is effective only when notice of rejection reaches the offeror.
Implied Rejection: Rejection of the offer is implied by law- where the offeree makes a
counter-offer or where the offeree gives a conditional acceptance
Communication of Offer.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The
letter is posted 10th July. It reaches B on 12th July. The communication
of the offer is complete when B receives the letter, i.e., on 12th July.
Revocation means
taking back or
Withdrawal or
cancellation.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
Communication of Revocation of Offer
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
against A when the telegram is dispatched, i.e., on 19th May. It is complete as
against B when he receives it, i.e., on 21st May.
The communication of a revocation is complete -as
against the person who makes it (i.e. for the
revoking party), when it is put into a course of
transmission to the person to whom it is made, so as
to be out of the power of the person who makes it;
(i.e. when the letter of revocation is posted.)
A proposal is revoked –
(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
.
Legal Rules to Consideration
Move at the desire or request of promisor - An act constituting consideration must have been done at the desire
or request of the promisor, if it is done at the desire of the third party or without the desire of the promisor it will
E.g.,not
A be a good consideration.
borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
is
now about to file a suit and A agrees now to pay a higher rate of interest. B agrees for
It may move from the Promisee or any other Person – This means that as long as there is a consideration for a
not filing
promisea itsuit. This forbearance
is immaterial is ait.valid
who has furnished But aconsideration.
stranger to the consideration will be able to sue only if he is a
party to the contract
It need not be adequate - Consideration as said “something in return” and something this something in return
need not be equal in value to “Something given”. The law requires that the contract must be supported by
consideration and not the adequate consideration.
Must be real & not illusionary - There is no real consideration in the following cases:
Physical impossibility: A promises to put life into B’s dead wife on the consideration of Rs.999. A’s promise
is physically impossible to perform.
Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn
promise to discharge A from the liability. This is legally impossible, because C cannot discharge A from the
CL: There was
debt due to B. a promise to pay to the vakil an additional sum if the suit was
Uncertain E.g.,
successful.
consideration:
Held, Akill
engages
thetopromise
supari B was
someone. for doing certain
void forwork
theand promises
want to pay a “Reasonable The
of consideration. some”.vakil
There is no recognized method of ascertaining the “Reasonable Some”. The promise is unenforceable due to
uncertainty.
was under a pre-existing contractual obligation to render the best of his services
under
Shouldthe
not original
be illegal - contract. (Ramachandra
the consideration Chintaman
given for an agreement vs.
must not be Kalu ARaju)
unlawful. consideration to the
contract must not be against Public Policy, Immoral and illegal
It must be something which the promisor is not already bound to do: a promise to do what one is already
bound to do, either by general law or under an existing contract, is not a good consideration for the new promise,
since it adds nothing to the pre-existing legal or contractual obligation.
Exception to the rules of consideration
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.
Where an agreement is expressed in writing and registered
under the law for the time being in force for the registration of
the documents and is made on account of natural law and
affection between parties standing to the near relation to each
other, it is enforceable even if there is no consideration
Promise to pay a time-bared debt: A promise to pay a time-
bared debt by the debtor is enforceable provided it is made in
writing and signed by the person to be charged therewith or by
his agent. The debt must be such “of which the creditor might
have enforced payment but for the law for the limitation of suits”
Completed gifts
Compensation for the past voluntary services
Charitable subscription
Exception to the rules of consideration
Completed gifts –
The rule No consideration, no contract does not apply to
completed gifts.
In order to attract this exception there need not be natural
love and affection or nearness of relationship between
donor and donee. The gift must, however, be complete.
Compensation for the past voluntary services - is
binding.
E.g. P finds S’s purse and gives it to him. S promises to give
P Rs. 100/- This is a contract i.e., A promise, to compensate,
wholly or in part, a person, who has already voluntarily
done something for the promisor, is enforceable, even
though without consideration.
Exception to the rules of consideration
Contribution to Charity:
E.g. The defendant had agreed to subscribe Rs. 100/- towards the
construction of a Town hall at Howrah. The plaintiff (secretary of the town
hall) on the faith of the promise entrusted the work to a contractor and
undertook liability to pay him. The defendant was held liable. But where the
promisee had done nothing on the promise, a promised subscription is not
legally recoverable.
E.g. The defendant promised to subscribe Rs. 500/- to a fund started for
rebuilding a Mosque but no steps had been taken to carry out the repairs.
The defendant was held not liable and the suit was dismissed.
Doctrine of Privity of Contract
Dunlop Pneumatic Tyre Co. V Selfridge and Co.
# D entered into a contract of sale of certain tyres to P.
Meaning:
# The contract provided that P shall not sell the tyres below the
The
list price.general rule is
Also, the contract that that
provided only theat time
P shall, parties to
of resale, a
impose a condition on the retailer that sale by retailer shall not be
contract
made canlistsue
below the and be sued upon the contract.
price.
In other words, if a person is not a party to the
# P sold certain tyres to S. S resold certain tyres below the list
contract (i.e., a stranger to contract), he cannot
price.
sue.
# In a suit instituted by D against S, the court held that such suit
It not
was implies the mutuality
maintainable of no
since there was will and
Privity of legal
contractbonding
between
between S andtheD. parties.
A who is indebted to B, sells his property to C. C promises to pay
It refershe isto the relationship between the parties
off the debt to B. When C fails to pay; B has no right to sue C,
because a stranger to contract.
who have entered into a contract.
Stranger to Contract V. Stranger to Consideration
Exceptions – Stranger to Contract has the
Beneficiary, in whose favour a Trust of other interest in some
rightthough
to
UOI).
sue
he isin
not the
a partyfollowing cases:
immovable property has been created can enforce it, even
to the Contract (Madhu Trading Co. V
Trust who
A husband or Charge
was separated from his wife executed a separation deed
by which he promised to pay to the Trustees all the expenses for her
Marriage Settlement, Partition and other
maintenance. Held, the agreement created a trust in favour of his wife and
family arrangements; and such agreements is
could be enforceable by her (Gandy V. Gandy).
X receives money from Y for paying it to Z. X admits the receipt of that
reduced to writing.
amount to Z. Z can recover the amount from X, even though the money
is due from y.
Acknowledgement of liability; by past
A holder in due course is entitled to the amount on a Negotiable
performance
The Purchaser
Instrument,
the
even thereof
of though
immovable property
there who has notice
is no agreement betweenthat
himtheand
owner of
theland is bound by certain conditions or covenants created by an
maker/drawer.
Assignment
though he is not aof a toContract
agreement affecting the land, shall be bound by such conditions, even
party the original agreement containing those
conditions or covenants.
Contracts entered into through an Agent
Covenants running with land
Essential Elements of a Valid Contract –
Capacity To Contract–Meaning
Every person is competent to contract who is of:
the age of majority according to the law to which he is subject,
sound mind, and
is not disqualified from contracting by any law to which he is subject.
The first rule is that the law protects minors’ against their own
inexperience and against the possible improper designs of those more
experienced.
The second rule is that, in pursuing the above object, the law should not
cause unnecessary hardship to person who deals with minors.
Remember in the case we discussed, a minor mortgaged his house in favour of a
money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for
Legal rules of Minors:
Case law:
from N.
settingM,
he paid
mortgage.
Aged
a side 17, agreed
the mortgage,
Rs.200/-
Held,
tothat
stating
as advance
the mortgage
purchase a second
he was underage
andtherefore,
was void and,
when he
agreedit to
waspay
hand scooter
executed
the balance
cancelled.
the for Rs.5000/-
Further the next day
the money
and collect lender requested
the scooter. When forhethe repayment
came with of thebalance
the amount advanced
moneytonextthe day, N told him
minor as part of the consideration for the mortgage was also not accepted (Mohiri
that he has changed his mind and
Bibi vs. offered toGhose)
Dharamodas return the advance. N cannot avoid the
contract,
though M with
An agreement may, minor
if he likes. (Sharafat
is void- Ali v/s Noor Mohd)
ab-inito:
Case
He law: M, aAPromisee
can be minor, borrowed Rs.5000/-incapacity
or a Beneficiary: from L andof executed a Promissory
minor to enter into a
notecontract
in favour of L. after attaining the majority, he executed another
means incapacity to bind him-self by a contract. There is nothingPromissory
notethat
in settlement
debars himoffrom
the being
first note. The second
a beneficiary. Promissory
Such notebeisenforced
contract may void foratthe
wantthe
of option
consideration. (Indran
of the minor andRama Swamy
not the v/s Anthiappa Chettiar)
other party.
Minor cannot ratify his contract, on attaining majority: “Consideration
which passed under earlier contract cannot be implied into the contract
which the minor enter on attaining the majority. Thus consideration given
during the minority is no consideration. If it is necessary a fresh contract
may be entered into by the minor on attaining the majority provided it is
supported by a fresh consideration
He can always plead minority: even if he has, by misrepresenting his age,
induced the other party to contract with him, he cannot be sued either in
contract or in tort for fraud because if the injured party were allowed to sue
for fraud, it would be giving him an indirect means of enforcing the void
agreement.
Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable to
refund the loan not only that, even his mortgaged property cannot be made liable
Legal rules of Minors:
to pay the debt.
Surety for a Minor: a person who stands as surety for a minor can be sued
though the minor himself would not be liable
Unsound Mind
A person is said to be of sound mind for the propose of making a
contract, if,
at the time when he makes it, he is capable of understanding the
terms of the contract and
To form a rational judgment as to its effect upon his interest.
Lunatics
Drunkards
I Position of Contracts during War – An alien enemy can neither enter into contract nor
can be sued in an Indian Court except by the license by the Government.
If such contracts are against the public policy or are such that may benefit the enemy, then such
contracts are dissolved.
If such contracts are not against public policy, then such contracts are merely suspended for the
duration of the war and revived after the war is over unless they have already become time barred
under the Law of Limitation.
E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract with Y
who carries on business in India. Immediately after the formation of the contract, a war
broke out between India and Pakistan. In this case, X becomes an alien enemy though he is
Indian and contract between x and y (if not against the public policy) will be suspended for
the duration of the war and revived after the war is over.
Few other Persons are also Prohibited to
enter into a contract
Foreign Sovereign and Ambassadors: - They can enter contract and enforce those
contracts in our courts but they cannot be sued in our courts without the sanction of
the Central Govt.
Company under the companies act or statutory corporation under the special act of
parliament: - The contractual capacity of the company is determined by objects
clause of its Memorandum of Association, whereas that of the statutory corporation
is determined by the statute creating it. Any act in excess of the power given is ultra
vires and hence void.
Same sense
Same time
Undue Influence
Fraud
Mistake
Misrepresentation
Coercion
E.g.A threatens B to shoot him if he does not release him from
debt which A owes to B. This is coercion.
Coercion" is the
committing, or threatening to commit, any
act/crime or
the unlawful detaining, or threatening to detain,
any property or any act
forbidden by the Indian Penal Code 1860
with the intention of causing any person to enter
into an agreement.
It is a moral character
Undue Influence
Essentials:
There must be a representation
There must be two persons
There must be an active concealment of the fact
The person making the representation does not believe it to
be true
There must be an intention of the proposer or the promiser
to deceive the other person
The other person must have relied upon the representation
and must have been deceived and suffered loss
The representation must have been made before the
Commencement of the contract
The representation must relate to a material fact which
exists now or existed in the past
Fraud
Essentials:
CL: A company’s prospectus contains a representation that it has
statutory powers to run its tramways by steam provide that the consent
theItgovernment
of must be wasrepresentation of material
obtained. The directors issuedfact
prospects stating
therein that the company had the right to use steam power. They honestly
It that
believe must be made
the permission before
for the the conclusion
use of steam power would beof the
granted.
The permission was refused. The company was that wound up. Held, the
contract
directors were guilty of misrepresentation (Derry vs. Peek)
mistake of fact
A bilateral mistake
Unilateral mistake
Mistake of law
Bilateral
E.g. X goesMistake
to a- Where and
shop both introduces
the parties tohimself
an agreement
as Y are
andunder a mistakesome
purchases as to a
matter of fact, the agreement is void.
goods on credit. The contract is void.
Types
Mistake as to existence of subject-matter
Identity of subject-matter
Title of subject-matter
Quality of subject-matter
Quantity of subject-matter
Price of subject-matter
E.g. A agrees to buy a horse from B at certain price. The horse was dead at the time of
bargain and neither party was aware about the fact. Held, the agreement is void.
Lawful objects
The consideration or object of an agreement is
lawful, unless –
It is forbidden by law; or
is of such nature that, if permitted it would defeat the
provisions of any law or
is fraudulent;
of involves or implies, injury to the person or property of
another; or
the Court regards it as immoral, or
opposed to public policy
Bailment is
The delivery of goods, by one person to another, for some
purpose,
Upon a contract that they shall, when the purpose is
accomplished,
Be returned or otherwise disposed of,
According to the instructions of the person delivering
them. (Section 148)
Bailor
is the person delivering the goods
Bailee
is the person to whom the goods are delivered.
Essentials of Bailment
Contract
Delivery of the Goods – Delivery of
possession of goods by Bailor to Bailee
Possession (not ownership) is transferred
Modes of Delivery
Purpose (goods must be returned after a
specific purpose is accomplished)
Consideration (generally in the form of
money payment)
Duties of the Bailor
Disclose faults in goods (Sec 150)
Bear Expenses (Sec 158)
Indemnify(secure in respect of harm) Bailee
(Sec 159 & Sec 164)
Receipt of Goods back on termination of
bailment
Duties of Bailee (or) Rights of Bailor
Pledge Bailment
Purpose: specific Purpose: other purposes
Sale of goods: Pledgee like repairs, safe custody,
has a right of sale of etc.,
pledged on default of Sale of goods: No right
pawnor Use of goods: Can use as
Use of goods: No right per the terms of the
contract
Law of Agency
Based on Authority
Universal Agent
General Agent
Special Agent
Based on Nature of Work
Commercial or Mercantile Agents
Non-mercantile Agents
Duties of an Agent/Rights of the Principal
The Principal instructed his agents to deliver goods only against
cash but agent delivered them on credit. Held Agent was liable for
the
A, price which
an agent forthe purchaser
sale of goods,failed
havingto authority
pay (Paulto
Bier
sellV.on
Chottalal)
credit,
sells to B on credit, without making proper and usual enquiries as
to his solvency. B, at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby
To act as per Principal’s directions (Sec 211)
sustained.
Means termination
*A agrees to sell his bicycle of contractual
to B and both performedrelations
their
respective obligations, the contract is said to be discharged.
between the
* In case of parties
Attempted to a
Performance,contract.
since the offer is not
accepted by the other party, the promisor is discharged.
Modes of Discharge of Contract:
By performance
By impossibility of performance
By mutual agreement
By lapse of time
By operation
Where of law by a party is due but the party
the time of performance
fails to perform within the time specified, the contract is
By breach
discharged of contract provided that the contract
by non-performance
contained such specific mentioning.
Discharge by Impossibility of
Performance
Meaning:
Not called asIf
E.g., no impossibility
supervening impossibility: existed at the
time
• • of formation
Destruction
Commercial ofimpossibility
subject matter of inthe
(rise prices,contract; but the
currency fluctuations)
impossibility
Incapacity
• •Default bytothird
Outbreak
• •Strikes, Civil
perform
of war arises subsequent to the
partya contract of personal service
disturbances
formation
Non-existence
• •
contract,
or of
Self induced impossibility the
non-occurrence contract;
(deliberate
of things
act or
etc., of objects or partial impossibility
forming and
negligence)
the basis ofthe
a
impossibility
•
Krell
• • V Henry Case is
Partial failure
In H.B.Steamboat law:of
Co., suchCase
V Hulton nature
law: that it makes
the
• •
performance
XXhired
agreed
Edward.
a room from
to hire a boat of
Y forfrom contract
viewing
Y forthe is
thecoronation
purpose impossible
ofprocess
naval review on the eve of coronation of king and for sailing
viewingoftheKingor
illegal
•The isthecalled
procession
around supervening
was cancelled
fleet. because ofimpossibility.
King’s illness
Due to
Since
• • theKing’s illness,
ultimate the naval
and only purposereview wascontract
of the cancelled,
wasbut the fleet
defeated,
Reasons
the
wascontract
assembled.for SI: may arise because of change
was discharged.
in Although
law ortheofprimary change inofcircumstances
X used the boat for sailing around the fleet.
•
• purpose the contract was defeated,beyondthe
thesecondary
contemplation of
purpose was fulfilled parties.
and, therefore, the contract was
not discharged by supervening impossibility.
Discharge
contract. Theby Mutual Agreement
means substitution of a new contract in place of the original
consideration for the new contract is the
discharge of the original contract.
* means a change in one or more of the terms of a contract with mutual
consent of parties.
* Discharges the original contract and creates a new one
Novation
* Parties remain the same
Alteration
Remission
Rescission (cancellation
Where a promisee ofwith
agrees to dispense a the
contract byof one
performance a
orpromise
all the parties
made to him or
Extend the time to thedue
of performance contract)
by the promisor or
Merger (conversion of an inferior right into a
Accept any other consideration than agreed to in the contract,
etc.,
superior right and the effect is due to
conversion inferior right is discharged)
Discharge by operation of law