Essential elements of a valid contract and contract breach

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About Business Law and its essential and valid elements
also Breach of contract and types

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Essential elements of a valid contract and contract breach

  1. 1. 9/25/2013Mihir joshi 1
  2. 2.  Form / Lawful Consideration  Reality of consent  Offer acceptance  Legality of object  Intention to create Legal relations  Capacity of parties 9/25/2013Mihir joshi 2
  3. 3. An agreement made between two or more parties, giving rise to legal rights and obligations that the law will enforce. 9/25/2013Mihir joshi 3
  4. 4. 9/25/2013Mihir joshi 4 Terms: express / Implied Conditio ns Warrantie s Intention to create legal relations Legality of Object Reality of Consent Capacity of parties Offer acceptanc e Form/Lawf ul considerati on
  5. 5.  There must be a „lawful offer‟ and a „lawful acceptance‟ of the offer, thus resulting in an agreement. The adjective „lawful‟ implies that the offer and acceptance must satisfy the requirements of the contract act.  As per sec.2(a) “when one person signifies to another his willingness to do or 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.” 9/25/2013Mihir joshi 5
  6. 6.  An offer may be express or implied.  An offer must contemplate to give rise to legal consequences and be capable of creating legal relations.  The term of the offer must be certain and not loose or vague.  An invitation to offer is not an offer.  If no time is fixed by the offeror within which the offer is to be accepted ,the offer does not remain open for an indefinite period.  The offer must be communicated to the offeree before it can be accepted. 9/25/2013Mihir joshi 6
  7. 7.  An offer may be either by words or conduct.  Offer expressed by words, spoken or written is called an „‟express offer‟‟.  Offer inferred from the conduct of a person or circumstances of the case is called “implied offer”. 9/25/2013Mihir joshi 7
  8. 8.  If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eye of law 9/25/2013Mihir joshi 8
  9. 9.  When a person to whom the offer has been made signifies his assent thereto, the offer is said to be accepted. The acceptance of an offer may be express or implied.  It is express when the acceptance has been signified either in writing or by words of mouth or by performance of required act of the offeree.  E.g “X” loses his dog and announces a reward of Rs 1000 to anyone who brings his dog back. “Y” need not convey his acceptance to offer, which is a general one. If he finds the dog and gives it to A, he is entitled to the reward as he accepted the offer by doing the required act. 9/25/2013Mihir joshi 9
  10. 10.  Acceptance is implied when it is said to be gathered from the surrounding circumstances or the conduct of the parties.  E.g A‟s scooter goes out of order and he is stranded in the middle of a lonely road. B, mechanic who observes this starts correcting the fault. A allows B to do the same. From the nature of the circumstances a has given his acceptance to the offer of B. 9/25/2013Mihir joshi 10
  11. 11.  There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations.  Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract.  E.g An agreement to dine at a friend‟s house is not an agreement intended to create legal relations and therefore, is not a contract.  Business agreement does not amount to a contract if the parties have declared that agreement is not to create legal obligation. 9/25/2013Mihir joshi 11
  12. 12.  E.g XYZ company entered into an agreement with “R” company by means of which former was appointed as the agent of the latter. But one of the clause is as follows: “This arrangement is not entered into as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts”. So, it shows that there was no intention to create legal relations. 9/25/2013Mihir joshi 12
  13. 13.  It is the third essential element of a valid contract.  “Consideration is the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something.  The something given or obtained is the price for the promise and is called “consideration”. 9/25/2013Mihir joshi 13
  14. 14.  On the basis of Enforceability  On the basis of Extent of execution  On the basis of Mode of Creation 9/25/2013Mihir joshi 14
  15. 15.  Valid Contract: It is an agreement enforceable by law.  Voidable Contract: An agreement which is enforceable by law at the option of one or more of the parties but not at the option of other or others, is a voidable contract.  It becomes voidable when the consent of one of the parties to the contract is obtained by undue influence, misinterpretation or fraud 9/25/2013Mihir joshi 15
  16. 16.  Executed Contract: A contract is said to be executed when both the parties to a contract have ,completely performed their share of obligation and nothing remains to be done by either party under the contract.  Executory Contract: It is the one in which both the obligations are outstanding one on either party to the contract, either wholly or in part, at the time of the formation of the contract. 9/25/2013Mihir joshi 16
  17. 17.  Express Contract: Where both the offer and acceptance constituting an agreement enforceable by law are made in words spoken or written ,it is an express contract.  Implied Contract: Where both the offer and acceptance constituting an agreement enforceable at law are made otherwise than in words i.e. by acts and conducts of the parties, it is called an implied contract. 9/25/2013Mihir joshi 17
  18. 18.  The cases grouped under this type of contract have little or no affinity with contract.  Such a contract does not arise by virtue of any agreement, express or implied between the parties but the law infers or recognizes a contract under certain special circumstances.  For e.g A, a tradesman left his goods at B‟s place by mistake and B treated A‟s goods as his own unknowingly or knowingly. Here B is bound to repay A‟s goods.  A quasi contract is based upon the equitable principle that a person shall not be allowed to retain unjust benefit at the expense of other. 9/25/2013Mihir joshi 18
  19. 19. Illegal contract - An agreement forbidden by law. Unenforceable contract - It is valid but due to some technical defect the contract becomes void. In case defects are removed the contract is enforceable.(lack of registration, lack of signature etc.,) 9/25/2013Mihir joshi 19
  20. 20. DISCHARGE BY PERFORMANCE DISCHARGE BY AGREEMENT OR CONSENT DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE DISCHARGE BY LAPSE OF TIME DISCHARGE BY OPERATION OF LAW DISHARGE BY BREACH OF CONTRACT 9/25/2013Mihir joshi 20
  21. 21. ACTUAL PERFORMANCE  When both parties perform their promises & there is nothing remaining to perform.  But if one party only performs his promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach.  ATTEMPTED PERFORMANCE When the promisor offers to perform his obligation ,but promisee refuses to accept the performance. It is also known as “tender”.  The tender is not performance but is only an offer to perform under the contract. 9/25/2013Mihir joshi 21
  22. 22.  NOVATION (Sec 62): New contract substituted for old contract with the same or different parties  RESCISSION (Sec 62) : When some or all terms of a contract are cancelled  ALTERATION (Sec 62):When one or more terms of a contract is/are altered by the mutual consent of the parties to the contract  REMISSION (Sec 63) :Acceptance of a lesser fulfillment of the promise made.  WAIVER :Mutual abandonment of the right by the parties to contract  MERGER :When an inferior right accruing to a party to contract merges into a superior right accruing to the same party 9/25/2013Mihir joshi 22
  23. 23.  Impossibility at the time of contract: An agreement to do an act impossible in itself is void.  So, there is no question of discharge of contract which is entered into to perform something that is obviously impossible. E.g finding treasure by magic.  Subsequent Impossibility: A contract to do an act which, after the contract is made, becomes impossible or some event which promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. 9/25/2013Mihir joshi 23
  24. 24.  Destruction of the subject matter: Where the subject matter of a contract is destroyed without the fault of promisor or promisee, the contract becomes void by impossibility of performance. e.g a music hall been taken on rent but on the day of function its destroyed .  By Death or Disablement of party: The contract is discharged on the illness or physical disability or death of the promisor where the performance was to be executed by promisor himself.  Change of Law: A change in law may render the contract illegal and in such cases the contract is discharged.  Outbreak of war: Contracts made before the outbreak of war are discharged but can be revived after the end of war. 9/25/2013Mihir joshi 24
  25. 25.  THE LIMITATION ACT 1963, CLEARLY STATES THAT A CONTRACT SHOULD BE PERFORMED WITHIN A SPECIFIED TIME CALLED PERIOD OF LIMITATION  IF IT IS NOT PERFORMED AND IF THE PROMISEE TAKES NO ACTION WITHIN THE LIMITATION TIME, THEN HE IS DEPRIVED OF HIS REMEDY AT LAW 9/25/2013Mihir joshi 25
  26. 26.  DEATH: Death of a promisor results in termination of the contract in cases involving personal skill or ability.  MERGER: When a new contract is entered into by same parties and an inferior right contract merges into a superior right contract.  INSOLVENCY: When an order of discharge is passed by an insolvency court, a contract is discharged by the insolvency of one of the parties, exonerating the insolvent.  UNAUTHORISED ALTERATION OF THE TERMS OF A WRITTEN AGREEMENT: Where any of the parties alters any of the terms of the contract without seeking the consent of the other party to it, the contract is discharged. 9/25/2013Mihir joshi 26
  27. 27.  ACTUAL BREACH :  At the time of performance  During the performance  ANTICIPATORY BREACH:  It occurs before the time fixed for the performance has arrived.  By the act of promisor (implied repudiation)  By renunciation of obligation (express repudiation) 9/25/2013Mihir joshi 27
  28. 28. 9/25/2013Mihir joshi 28

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