LAW OF CONTRACT

Contract: An agreement made between two or more parties which the law will enforce.

An agreement comes into existence by the process of offer by one party and unqualified acceptance by the other party. Agreements are: Social & legal. Only a legal agreement is a Contract.

What

is an agreement ? When a person to whom a proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. Every promise and every set of promises, forming the consideration for each other is an agreement.

ESSENTIALS OF A VALID CONTRACT

There must be an offer: When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtain the assent of that other to such act or abstinence he is said to make a proposal.

Essentials of offer :
to the offeree.

Offer must be communicated It is the duty of the offeror to communicate all the terms of the offer to the offeree. Actual communication may not be required.

Offer constitutes a

willingness to do some act or abstinence.

Offer must be made to some

other person.

Offer to one particular person. Offer to a group of persons.. Offer to the whole world.. (Continuing offer Vs Offer of Reward for Information).

Offer may be expressed or

implied.
Offer must be made with a

view to obtaining the assent of the other and should not be an expression of intention or enquiry.

Offer may be conditional. Offer must be capable of

creating legal relationship.

The terms of the offer must

be certain.

 An offer must not thrust the

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burden of acceptance on the offeree. - Offer must be distinguished from:

Cross offers, - Counter offers, - Invitation to offer, - Declaration of intention, - Auctions & Tenders.
-

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Price

lists, catalogues and advertisements are not offers.

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An offer can be revoked, it may come to an end due to lapse of time, it may be revoked when the acceptor fails to fulfil the condition precedent to acceptance or it may be revoked by the death or insanity of the proposer.

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There must be unqualified acceptance of the offer :

is to an offer what a lighted match is to a train of gunpowder. ( But before a lighted match is brought in contact with gunpowder, it can be removed from the train)

Acceptance

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Elements of acceptance:
Must be made by the party to

whom the offer is made. It must be absolute & unqualified. It must be expressed in some usual or reasonable manner. It must be given within reasonable time.

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It cannot be made in

ignorance of the offer. It must be given before the offer lapses. It must be communicated to the offeror. Mere mental acceptance is no acceptance.

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Intention
e.g.

to create legal relationships:

A husband promises to pay a monthly allowance to his wife. This cannot be a contract as there is no intention on the part of the husband to create a legal relationship Balfour Vs Balfour

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Lawful

consideration: Consideration is the price for which the promise of the other is bought. Consideration means something in return (give something & get something) It may also be a loss or detriment suffered by one party & profit or benefit to another party.

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Justice
a

Lush in the Case Currie Vs. Misa

valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other

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According to the Contract Act: When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise.

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Essential elements: Consideration must move at the desire of the promisor. Consideration may move from the promisee or any other person. It is an act, abstinence, forbearance or detriment. Consideration can be past, present or future.

 Consideration need not be

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adequate. It must have some value in the eyes of law. It must be real not illusory. It must be something which one is not already bound to do.

 Consideration must be

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lawful..

It is not forbidden by law. It should not be of such a nature that if allowed it would defeat the provisions of some law of the country. It should not be fraudulent. It should not involve injury to the property or person of the other. Court should not regard it as immoral or opposed to the public policy.

 Subject

to certain exceptions, an agreement made without consideration is a nude contract and is void. Exceptions:
Love and affection. A written and registered agreement based on natural love and affection between near relatives.

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 Compensation for past

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voluntary services. Promise to pay a time barred debt.

Completed gift.

Transfer of property by one

person to another as a gift

according to the provisions of

Transfer of Property Act.

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Contract of agency does not

require consideration.
Consideration is not required

for remission of debt.

A contract of guarantee is

made without consideration.

 Competency

of Parties: The following persons are incompetent to contract: 1.Minors,

A contract with a minor is

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void abinitio. Payment can be made out of the property of a minor for the necessaries of life supplied to him.

Necessaries are those without which an individual cannot reasonably exist.

 A minor cannot ratify any

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contract made during his minority. A minor may be admitted to the benefits of a partnership. The minors contracts do not impose any liability on his parents even if the contract is for necessaries. A minor cannot be declared insolvent because he is incapable of contracting debts.

 2.

Persons of unsound mind

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Idiot Lunacy or insanity Drunkenness or intoxication

3. Disqualified persons
Alien enemies Foreign sovereigns &

ambassadors Convicts Undischarged insolvent

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What

about the following persons?

Married woman. Corporations.

Free & genuine consent:. Consent is said to be free when it is not caused by (i)coercion, (ii)undue influence, (iii)fraud, iv)misrepresentation or (v)mistake.

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Coercion: Coercion is : The committing or threatening to commit any act forbidden by the Indian Penal Code, 1860. Or the unlawful detaining, or threatening to detain any property to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

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 Even

threat to commit suicide amounts to coercion.

The threat need not proceed from the

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party to the contract, it may proceed from a third person also. A threat to file a civil or criminal suit is not forbidden by the Indian Penal Code. The burden of proving that the consent was obtained by coercion shall lie upon the aggrieved party who wants to set aside the contract.

Effect of Coercion:
The contract is voidable at the option of

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the party whose consent was so obtained. When the aggrieved party decides to set aside the contract, it must give back any benefit received from the other party under the contract. Moreover, the other party need not perform his part of the contract. If the aggrieved party does not opt to set aside the contract, it works as a valid contract.

 Undue

Influence: where 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.

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 When a person is in a position to

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dominate the will of the other: Real or apparent authority. Fiduciary relation. Persons with affected mental capacity. When a transaction appears to be unconscionable, it is presumed that the stronger party has exercised undue influence over the weaker party.

 Undue influence may be exerted by a Lack of foresight is not a ground for

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person who is not a party to the contract. establishing a case of undue influence.
The law presumes undue influence in a

contract with a pardanashin woman, and the courts throw the burden on the other party to prove that undue influence was not exercised.

Effect of undue influence:

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The contract is voidable at the option of the

party whose consent was so obtained. The court may direct the aggrieved party to refund the benefit whether in whole or in part or set aside the contract without any direction for refund of benefit. If the aggrieved party does not opt to set aside the contract, it works as any other valid contract.

Burden of proof: is on the party who is in a position to dominate the will of the other.

Fraud: Fraud exists when it is shown that a false representation has been made, knowingly, or without belief in its truth, or recklessly, not caring whether it is true or false, and the maker intended the other party to act upon it. It also exists when there is a concealment of a material fact.

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 The fraud cannot be

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committed by a stranger to the contract. The fraud must have been committed upon the other party. The following acts constitute a fraud:
Suggestion that a fact is true, by one, who does not believe it to be true. An active concealment of fact, by one, having knowledge of the act.

A promise made without any intention of performing it. Any such acts or omission which law specifically declares to be fraudulent.

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Mere silence is not fraud,

except;

When silence itself is equivalent to speech. When it is the duty of the person keeping silence to speak. When it is the duty of the seller to disclose latent or hidden defect.

Effect of fraud.
The contract is voidable at the

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option of the defrauded party. The defrauded party is entitled to compensation for any damage he has sustained. The defrauded party may insist that the contract shall be performed and that he should be put in the position in which he would have been if the representation made was true.

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Misrepresentation is a misstatement of a material fact made innocently with an honest belief as to its truth or non-disclosure of a material fact, without any intent to deceive the other party.
The effect of misrepresentation is

that the agreement is voidable by the party whose consent is obtained by misrepresentation.

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Mistake is erroneous belief about something. It may be mistake of law or mistake of fact.
Mistake of law does not result in a

voidable contract. Bilateral mistake of fact renders a contract void. (lack of consensus ad idem). The mistake must relate to fact, not opinion. The fact must be essential to the agreement & the fact must be existing at the time of contract.

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Instances of Bilateral Mistake:

Mistake as to.

1. the existence of the subject matter.

2. the identity of the subject matter.

3. title or rights.
4. the quantity of subject matter.

5. the quality of subject matter.

6. assumptions.

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Unilateral mistake does not effect the

validity of an agreement. However, if it can be proved that the mistake was caused by fraud or misrepresentation it can be avoided.
Instances

of Unilateral Mistake: Mistake as to. 1. Identity of the contracting party. 2. The character of document.

 Lawful

object: The object of an agreement is unlawful if: it is forbidden by law; or it is of such a nature that, if permitted, it would defeat the provisions of any law; or it is fraudulent; or it involves or implies injury to the person or property of another; or the court regards it as immoral, or opposed to public policy.

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Agreements

opposed to Public Policy

1. Trading with an enemy 2. Agreements interfering with the course of justice. 3. Stifling prosecution. 4. Maintenance and champerty agreement 5. Traffic in public offices 6. Agreements creating interest opposed to duty 7. Agreements unduly restraining personal liberty...................

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Agreements

opposed to Public Policy

8. Agreements interfering with parental duties 9. Marriage brokerage agreements 10. Agreements creating monopolies 11. Agreements to defraud creditors 12. Agreements to defraud revenue authorities

 Agreement

48 should not be expressly declared void by any law in force in the country. Agreements in restraint of marriage Agreements in restraint of trade (exception is the sale of goodwill, or agreements by partners under the partnership act) Uncertain agreements (the meaning of which is uncertain)......

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Agreements in restraint of legal

proceedings
Curtailing the period of

limitations
Wagering agreements

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Possibility of performance:
An agreement to do an impossible act is in itself void.

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Legal

formalities: A contract may be made by words spoken or written. It is in the interest of the parties that the contract should be in writing. In some cases the document in which the contract is incorporated is to be stamped. In some other cases, the contract, besides being a written one, has to be registered.

Case 1: Ficus wrote to his son-in-law that his daughter would have a share of what he left. Can the daughter claim her share? Case 2: Mrs. Thompson, a lady who could not read, took a ticket from a railway company. On the face of the ticket was written For conditions see back. One of the conditions absolved the Railway Company from liability for personal injuries to passengers. Mrs. Thompson was injured by a railway accident. Can Mrs. Thompson recover damages?

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Case 3: Felthouse offered to buy his nephews horse for $ 30 saying If I hear no more about it I shall consider the horse is mine for $ 30. The nephew did not write to Felthouse at all, but told his auctioneer who was selling his horses not to sell that particular horse because it had been sold to his Uncle. The auctioneer inadvertently sold the horse. What are Felthouses remedies?

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Case 4: Hornbill, who was badly in need of money offered to sell his piano worth Rs.5,000 to Chase for Rs. 4,000. Chase refused to buy. He gradually lowered his price until Rs. 1,000 was reached, which Chase accepted. Before the piano was delivered, Hornbill received an offer of a larger sum from Thomas, and refused to carry out the contract with Chase, claiming that the consideration was inadequate. Is Hornbill liable to pay damages to Chase for failure to carry out his part of the contract?

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Case 5: A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. Can one conclude that this contract has been induced by undue influence?.

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