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CONTRACT
A contract is an agreement made between two or more parties which the law will enforce.
AGREEME NT
Every promise and every set of promises, forming consideration for each other. sec 2(e)
CONSENSUS AD IDEM
The
essence of an agreement is the Meeting of the Minds of the parties in full and final agreement .
OBLIGATI ON
An
An Offer
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. Sec 2(a)
An Acceptance
When
a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Sec 2(b)
contracts are agreements but all agreements are not contracts. A legal obligation having its source in an agreement only will give rise to a contract. Law of contracts creates rights in personam nor rights in rem .
Agreement Vs Contract
An agreement is a promise or set of promises (s). A contract is essentially an agreement, i.e., a promise or set of promise (s). Differences Enforceability
An agreement may or may not be enforceable at law. For example, social agreements are generally not enforceable while business agreements are enforceable at law. A contract is an agreement which is enforceable at law.
Effect
An agreement is not always a binding on the concerned parties. A contract is always concluded and binding on the concerned parties,
Scope
and acceptance Intention to create legal relationship Lawful consideration Capacity of parties Free and genuine consent Lawful object Agreement not declared Void Certainty & possibility of performance Legal formalities
Free Consent
Coercion (sec 15) Undue Influence (sec 16) Fraud (sec 17) Misrepresentation (sec 18) Mistake (sec 20 & 21)
Coercion is the commitment of threatening to commit any act forbidden by the Indian penal code or unlawful detaining or threatening to detain any property to the prejudice of any person whatever with the intention of causing the person to enter into an agreement.
Effect of coercion :
An agreement under coercion is voidable at the option of the party whose consent was so obtained.
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 the other and uses that position to obtain an unfair advantage over the other .
Holds a real and apparent authority over the other eg, Income tax authority and assessee, police and accused Stands in a fiduciary relation (relation of trust and confidence)
Eg. Solicitor and client, spiritual guru and devotee, husband and wife
Makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress The following relationships raise the assumptions of undue influence :
Parent and child Guardian and ward Trustee and beneficiary Religious advisors and devotees Doctor and patient Solicitor and client Fianc and fiance
Burden of proof:
The plaintiff who wants to avoid the contract entered into under undue influence has to establish that
The other party was in a position to dominate the will The other party actually used the influence to obtain the consent on the contract The contract is unreasonable
Contract is voidable at the option at the party whose consent is not free
Fraud means and includes any of the following acts committed by a party to a contract or connivance or by his agent with the intent to deceive or to induce a person to enter into a contract .
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. The active concealment of a fact by a person having knowledge or belief of the fact A promise made without any intention of performing it Any other act aimed to deceive Any such act of omission as the law specially declares to be fraudulent
Fraud
There should be a suggestion as to a fact The fact suggested should not be true The suggestion should have been made by the person who does not believe it to be true The suggestion should have been made by the person with an intention of inducing the other party to enter into the contract
Contracts on which law imposes a special duty to act with utmost faith to disclose all material information. eg. Contracts of insurance, Company prospectus inviting public to subscribe for shares, contract of sale of land, contract of family arrangements
Effects of fraud:
Voidable contract
Misrepresentation is the innocent or unconscious presentation of wrong facts by one party which are taken into account by the other party before entering into a contract.
When a person positively asserts that a fact is true when his information does not warrant it to be, though he believes it to be so . The misrepresentation should be made before the conclusion of the contract and with the intention of inducing the other party to act upon it The other party should have acted upon the misrepresentation
Consequences :
The aggrieved party may avoid or rescind the contract or accept the contract while insisting that he shall be placed in the position in which he would have been if the representation made had been true.
Mistake of Law
Ignorance
Mistake of law :
Mistake
of the law of the country Mistake of foreign law Mistake of private rights
Mistake of fact
Mistake of foreign law and mistake of private rights are treated as mistake of facts and may be declared as void.
Bilateral Mistake
Bilateral Mistake
As
per sec 20 where both the parties to an agreement are under a mistake as to the matter of fact essential to the agreement . Such a contract is declared as void. An agreement is void on ground of mistake if :
The mistake is mutual The mistake relates to a matter of fact essential to the agreement.
Mistake
as to subject matter :
Mistake regarding existence Mistake regarding identity Mistake regarding title Mistake regarding price Mistake regarding quantity Mistake regarding quality
Mistake
as to possibility of performance
Mistake of fact
Unilateral mistake :
Where
one of the parties to the contract is under a mistake it is called Unilateral mistake. The one sided mistake with regard to either the subject matter, terms of contract or legal implications of the contract
Effect :
Sec
22 provides that a contract is not voidable merely because it is caused by one of the parties to it being under a mistake of fact. In the following cases unilateral mistake will render a contract void :
Identity of persons contracted with Nature of contract or character of document that is being signed
CLASSIFICATION OF CONTRACTS
Valid Contract - According to section 2(i), it isan agreement enforceable by law, an agreement becomes enforceable by law when all the essential elements of a valid contract Void contract - Section 2(j) defines: A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. Voidable contract- According to 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 the other or others, is a voidable contract. Unenforceable contract - An unenforceable contract is one which is valid in itself, but is not capable of being enforced in a court of law because of some technical defect such as absence of writing, registration, requisite stamp, etc., or time barred by the law of limitation.
Express contract - Where both the offer and acceptance constituting an agreement enforceable at law are made in words spoken or written, it is an express contract. Implied contract - Where both the offer and acceptance constituting an
A note in addition : Illegal Vs Void Similarities These agreements are not enforceable at law. Differences Scope
The illegal agreements are narrower in scope. All illegal agreements are void. The void agreements are wider in scope. An agreement may be void because of a reason other than illegality. Collateral transaction of an illegal contract also becomes illegal and contract cannot be enforced. Collateral transaction of an agreement which is void for a reason other than illegality are enforceable at law. Parties may be punished for making illegal agreement. Being void does not make a contract punishable.
Punishment
CLASSIFICATION OF CONTRACTS
Executed contract a contract where both the parties have duly fulfilled their obligations in the contract. Executory contract a contract where the work is not wholly performed or in which something still remains to be done.
Void Agreements
Agreements by incompetent parties (sec 11) Agreements made under a mutual mistake of fact (sec 20) Agreements the object or consideration of which is unlawful (sec 23) Agreements the object or consideration of which is unlawful in part (sec 24) Agreements made without consideration (sec 25) Agreements in restraint of marriage (sec 26) Agreements in restraint of trade (sec 27) Agreements in restraint of legal proceedings (sec 28) Agreements the meaning of which is uncertain (sec 29) Agreements by way of wager (sec 30) Agreements to do impossible acts (sec 56)
Sale of goodwill. The seller of the goodwill of a business can be restrained from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided the restraint is reasonable in point of time and space (Exception to Sec. 27). Partners agreements. An agreement in restraint of trade among the partners or between any partner and the buyer of firms goodwill is valid in certain circumstances. Trade combinations. An agreement, the primary object of which is to regulate business and not to restrain it, is valid. Thus, an agreement in the nature of a business combination between traders or manufacturers e.g., not to sell their goods below a certain price, to pool profits or output and to divide the same in an agreed proportion, does not amount to a restart of trade and is perfectly valid
an agreement is discovered to be void When a contract after its formation becomes subsequently void
Sec 65 does not apply to persons who are wholly incompetent to enter into contract. Sec 65 does not apply to agreements which were known to be void when they were entered into.
Discharge of Contract
Discharge
contract :
By Performance (sec 37) By tender (sec 38) By breach of contract (sec 39) By agreement :
Novation Rescission Alteration Remission Waiver Merger
Discharge of Contract
By
Performance of Contract
Performance
may be :
one of the parties to the contract Offers to perform the contract but, The other party does not accept it, There is an attempted performance.
It must be unconditional It must be made at proper time and place. It must be made by the person who is able and willing. In case of tender of goods it must be for the quality/quantity of goods agreed upon. In case of tender of goods reasonable opportunity must be given to the promisee to examine the goods. It must be made to the promisee or his authorized agent.
By the promisor himself (para 1 of sec 40) By the agent (para 2 of sec 40) By the legal representative (sec 37) By the third parties (sec 41) By Joint promissors (sec 43)
promisee can demand performance. In case of death of promisee the legal representative of that person can demand performance. In case of joint promisee then the right to demand performance is to be exercised jointly.
Performance
is to be done without any request of the promisee, promise is to be performed within a reasonable time.
The
and The promisor has undertaken to perform it without request by the promisee Then the promisor can perform the obligation within the official hours of business on such day and at the place stated.
At
The
promisee must apply for performance at a proper place and within usual hours.
a promise is to be performed without request by the promisee No place is fixed for its performance It is the duty of the promiser to apply to the promisee to appoint a reasonable place for the performance of the promise and to perform it at such place.
performance of the promise may be made in any manner or at any time which the promisee prescribes or sanctions
Discharge by Novation
Novation :
A
parties to a contract agree to substitute a new contract in place of an old one Either between the old parties or The new parties With the consent of the parties to the contract.
Rescission : It means cancellation of all or some of the terms of contract or one party fails to perform the contract and other party rescinds the contract.
Discharge by alteration
Changing
contract
Bilateral
Discharge by remission
Remission Exempting the party to perform the contract. It may be full or partial.
Discharge by breach
Actual Breach when the party refuses to perform the contract on the date of contract. The promisee is discharged but not the promisor. Anticipated Breach It takes place before the date of actual performance.
Express Implied
Discharge by death
Contracts
Discharge by Impossibility
(Doctrine of Frustration)
death of party By destruction of subject matter Object becoming illegal or unlawful Out-break of war By non-existence of a state of things the continued existence of a state formed the basis of contract.
damages Special damages Vindictive or exemplary damages Nominal damages Damages for personal inconvenience and discomfort