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Law of Contract


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In this presentation, we will discuss the aspects of contracts and agreement. The concept of offers, acceptances, considerations. We will also talk about contractual capacity, mental incompetence, minor agreements and essential elements of coercion, undue influences, fraudulence, misrepresentations, public policies and contingent agreements.
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Law of Contract

  1. 1. Laws of Contract
  2. 2. 1-General Principals of the Law ofcontract ( Sec 1-75 )- General principals ofcontract such as ruleslaws relating tocommunication2-Specific kinds of Contracts viz i-Contracts of Indemnity and Guarantee(Sec124-147) ii-Contracts of Bailment and Pledge(Sec148-181) Iii-Contracts of Agency ( Sec182-238)
  3. 3. Every promise and every set of promises,forming the considerations for each other ,is an Agreement It implies that anagreement is an accepted proposal
  4. 4. 1-Plurity of Persons-Expression ofcommon intention2-Consensus ad-idem-The personsmaking an agreement must consent tosome determination3-Promise or Reciprocal promises-Everypromise or set of promises, forming the
  5. 5. 1-Social Agreements2-Legal ( Valid ) Agreements3-Void Agreements4-Voidable Agreements5-Unforeceable Agreements6-Illegal Agreements7-Agreements to Agree in future
  6. 6. All agreements are contracts if they aremade by the free consent of partiescompetent to contract, for a lawfulconsideration and with a lawful object, andare not hereby expressively declared to bevoid.An agreement enforceable by law is acontract
  7. 7. 1-Plurity of Persons-There must be minimumtwo persons2-Offer and Acceptance-Lawful proposal oroffer by one party to another3-Legal Relationship, Legal consequences,Promises and Obligations recognized by Law.-two or more parties intention to create a legalrelationship4-Lawful consideration-The agreement mustbe supported by consideration5-Contractual Capacity ( Competency ) ofParties-Parties must be capable of enteringinto a contract
  8. 8. 6-Free and Genuine consent-Free andgenuine consent7-Lawful object-The object of agreement mustbe lawful8-Agreement not declared void-theagreement must have not been declared voidby any law9-Certainity and Possibility of Performance-The terms of agreement must be certain10-Legal Formalities-The agreement may be
  9. 9. 1-Classification according to Validity2-Classification according to formation3-Classification on the basis of theObligation to Perform4-Clasiification on the basis of Execution
  10. 10. A- Enforceability-Avoidable or enforceablecontractB-Legal obligation-Certain agreementsmay not create any legal obligationC-Binding on Parties-Binding betweenAgreement and contractD- Specialty-Agreement has a widerconcept than a contract
  11. 11. i-Legality-Enforcement by a Partyii-Time of Enforceability-Whether it can beenforced from beginningiii-Restitution-Restitution is alwaysfollowediv-Compensation-Compensation based onperformancenon performancev-Collateral transactions-validity of
  12. 12. i-All inclusive-The word void is used inbroader senseii-Proofs-Void agreements are not illegalunless they are proved illegaliii-Collateral transactions-Void agreementdoes not involve collateral transactionsiv- Punish ability-Void agreements are notalways punishable
  13. 13. i-Defect in subject Procedure-Technicaland procedural requirementsii-Timing of enforceability-Illegalagreements are void from beginningiii-Collateral transactions –flaw inprocedural mattersiv-Punishment-Penalty clause
  14. 14. A contract is made by process of lawful offerby one party and the lawful acceptance ofthe offer by the other party to whom it ismade.Thus an offer is the starting point of makinga contract
  15. 15. 1-Express and Implied offer-An offermade by words ,spoken or written2-Specific and General offer-When anoffer is made to definite class of people3-Positive and negative offer-Whether theoffer is positive or negative
  16. 16. 1- The offer may be Express or Implied2-The offer may be positive or negative3-Offer must intend to create legalrelationship4-Terms of offer must be certain5-An offer may be made to specific personor class of persons or any one in the worldat large6- The offer must express the final
  17. 17. 7- Every offer must be communicated to theOfferee8-An offer must be distinguished from9-Offer must be made with a view toobtaining the assent10-Offer should not contain a term,the non-compliance of which would amount toacceptance11-An offer may be conditional
  18. 18. 1- By notice of revocation2-By lapse of time3-By failure of the Acceptor to fulfill acondition precedent to acceptance4-By failure to accept according to the modeprescribed5-By death or insanity of the Offeror6-By rejection7-By subsequent illegality or destruction of
  19. 19. An Acceptance is defined as ‘When theperson to whom the proposal is madesignifies his assent thereto ,the proposal issaid to be accepted. A proposal whenaccepted becomes a promise ( Sec 2 (b) )
  20. 20. 1-Acceptance must be absolute andunconditional2-Acceptance by usual mode as desired byofferor3-Acceptance can not precede an offer4-Acceptance must be express or implied5-Acceptance must be given within areasonable time6-Acceptance must show to fulfill a promise
  21. 21. 7- Acceptance must by an ascertainedperson8-Offer once rejected ca not be accepteduntil it is renewed9-Acceptance of offer means acceptance ofall terms attached to the offer10-Acceptance must be made before thelapse or revocation of an offer11- The acceptor must be aware of the
  22. 22. i-As against the person who makes it-When it is put into course of transmissionii-As against the person to whom it ismade.-When it comes to the knowledge ofthe person
  23. 23. 1- An offer sent by post is communicated onlywhen it reaches the offeree2-An acceptance sent through post iscompleted ,the moment the letter ofacceptance properly addressed and stamped isposted3-An acceptance binds the acceptor only whenit reaches the offeror4-The place where letter of acceptance isposted will be the place where the contract ismade
  24. 24. 1-Offer constitutes the first stage in theformation of a contract, where asacceptance constitutes the second stage inthe formation of a contract2-An offer is made by the offeror to theofferee .But an acceptance is given by theofferee to the offeror3-An offer is not held until it is brought to theknowledge of the offeree.
  25. 25. 1- The consideration is an act or abstinence2-Such act ,or abstinence should be done atthe desire of the promisor3-Such act or abstinence may be done bythe promisee or any other person4-Such act or abstinence is either alreadyexecuted or it is in process of execution ormay be still executor
  26. 26. 1- Consideration is required both forformation and discharge of an agreementor contract2-Consideration may be past, present orfuture3-Consideration may either be positive ornegative4- Consideration must move5-Consideration may be furnished by the
  27. 27. 6- Consideration must be lawful7-Consideration must be real and notillusory8-Consideration must be of some value inthe eyes of law9-Consideration need not be adequate10-Consideration must not be theperformance of existing duties
  28. 28. A- Natural love and AffectionB- Compensation for past voluntary servicesC-Promise to pay time barred debt.D-Completed giftE-AgencyF-RemissionG-BailmentH-Guarantee
  29. 29. 1-Beneficiary in a trust or charge2-Acknowledgement of payment orEstopped3-Agreement creating a charge on Land4-Family settlements5-Assignee of a contract
  30. 30. Every person is competent to contract whois of the age of the majority according to thelaw to which he is subject and who is ofsound mind and is not disqualified fromcontracting by any law to which he is subject
  31. 31. A-Idiots-A person who is devoid of anyfaculties of thinking or forming rationaljudgmentB-Lunatics and Insane persons-Whosemental power has been derailedC-Drunkards –A person under the influenceof intoxication
  32. 32. Minor is a person who has not completedthe age of 18 years. However ,a minor forwhom a guardian has been appointed by acourt or when his property is managed bythe court of wards
  33. 33. 1-Agreement void ab initio2-No ratification3-Can be a promise or beneficiary4-No estoppels5-No specific performance6-Liability for torts7-No insolvency8-Partnership by a minor is permitted
  34. 34. 9-Can be an agent10-Cannot bind parents or guardian11-Joint contracts by minor and adult12-Liability for necessaries13-Minor can be Shareholder14-Claim against the property and notagainst the person15-Restitution stops where repaymentbegins
  35. 35. i-Livery for an officer’s servantii- Horse, when Doctor ordered ridingexercisesiii-Goods supplied to a Minor’s wife for hersupportiv-Rings purchased as gifts to the Minor’sfiancéev- A racing bicycle
  36. 36. i-Goods supplied for the purpose of tradingii-A Silver gift gobletiii-Cigars and tobaccoiv-Refreshment to an undergraduate forentertaining
  37. 37. On the ground of status, some degree ofincapacity is imposed by lawA-Foreign Sovereigns ,Ambassadors andEnvoysB-Alien EnemyC- ProfessionalsD-CorporationE-BankruptF-Felons and ConvictsG-Marriage
  38. 38. To make a contract valid not only thepresence of a consent of the other party isnecessary but this consent should be freeand genuineIf there is no consent , the parties are notsaid to be ad idem
  39. 39. Coercion is i)-the committing or threatening to commitany act forbidden by the Indian Panel Codeorii)- the unlawful detaining or threatening todetain any property to the prejudice of anyperson whatsoever iii)-with the intension of causing any personto enter into an agreement .it is immaterialwhether the Indian Panel Code is or not inforce in the place where the coercion is
  40. 40. i-The Committing of any act forbidden by theIndian Panel Codeii-The Threat to commit any act forbidden byIndian Penal Code (IPC)iii-The unlawful detention of any propertyiv-threatening to detain any propertywronglyv-The Intention to get consent to theAgreementvi-Coercion may proceed from any party
  41. 41. 1-Does a threat to prosecute a man or file acivil or criminal suit against a man amount tocoercion?.2-Does a threat to charge high pricesamount to coercion?3-Does a threat to charge high rate ofinterest amount to coercion ?
  42. 42. A contract is said to be induced by undueinfluence wherei-One of the parties involved is in position todominate the will of the otherii-He has been in a position to obtain anunfair advantage over the other
  43. 43. Where a person who is in a position todominate the will of another, enters into acontract with him ,and the transactionappears, on the face of it or on the evidenceadduced, to be unconscionable, the burdenof proving that such contract was notinduced by undue influence shall lie uponthe person in a position to dominate the willof the other
  44. 44. 1-Property-The consent is obtained by threatof an offence2-Crime-Includes criminal act and criminalliability3-Character or force-Coercion is mainly ofphysical character4-Consent-Destroying the consent5-Place-may be committed outside India butundue influence is exercised in India6-Presumption-Has to be proved by a personwho alleges it7-Third party-May be directed against a third
  45. 45. Section 13 of the Indian Penal Code statesthat ‘Fraud’ means and includes variousacts committed by a party to a contract , orwith his connivance, or by his agent, withintent to deceive another party thereto or hisagent, or to induce him to enter into acontract.
  46. 46. i-Suggestion as to a factii-The active concealment of a factiii-The representation must relate to a factiv-Fraud by a party or his agent to thecontractv-The representation must in fact deceivevi-Actually deceived or suffered damage
  47. 47. 1- The general rule is that mere silence isnot fraud2- Silence is fraudulent3-Silence is fraudulent where thecircumstances are such that ‘ silence is initself equivalent to speech’
  48. 48. i- Statutory obligation to discloseii-Duty to disclose in contracts of ‘Uberrimaefidei ‘ ( utmost good faith )iii-Silence is , in itself ,equivalent to speech
  49. 49. Misrepresentation is any undue statementmade by a party to the contract to another,which is a material statement of fact andnot of law and which induced the other partyto act upon the statement and enter into thecontract. Misrepresentation arises when thepresentation or statement made isinaccurate but the inaccuracy is not due toany desire to defraud the other party.
  50. 50. In case of misrepresentation, the contractbecomes voidable and the aggrieved party cani-Avoid the agreementii-Insist that the contract be performed and heshall be put in the position in which he wouldhave been if the representation made had beentrue.iii-If the party to whom the innocentmisrepresentation is made had the means ofdiscovering the truth with ordinary diligence,
  51. 51. i-In both the cases ,a false ‘ representation ‘is made by a partyii-In both the cases ,the contract is ‘voidable’at the option of the party whose consent isobtained by fraud or misrepresentation
  52. 52. 1-Intention-The type of statement2-Damages-Suit for damages3-Rescission-When contract is vitiated byinnocent misrepresentation4-Where truth can be recovered withordinary diligence-Discovering the truth5-Criminal act-Criminal act punishableunder the Indian Panel Code6-Silence-Silence can be construed as
  53. 53. Mistake may be defined as erroneous beliefconcerning something, consent cannot besaid to be ‘free’ when an agreement isentered into under a mistake. An agreementis valid as a contract only when the partiesagree upon the same thing in the samesense
  54. 54. i-Mistake by Law a)-Mistake as to law in India b)-Mistake as to a foreign lawii- Mistake of fact a)-Bilateral b)-Unilateral
  55. 55. i- Mistake as to the subject matter a-Mistake as to the existence of the subjectmatter b-Mistake as to the identity of the subjectmatter c-Mistake about the quality of the subjectmatter d-Mistake as to the quantity of the subjectmatter e-Mistake as to the title of the subject matter f-Mistake as to the price of the subject
  56. 56. ii-Mistake as to the possibility ofperforming the contract a-Physical impossibility b-Legal impossibility
  57. 57. Section 23 of the Contract act states thatthe object or consideration of anagreement is unlawful in the followingcasesi-Where it is forbidden by lawii-Where it defeats the provisions of any lawiii-Where it is fraudulentiv-Where it is injurious to another person orhis property
  58. 58. 1-Forebidden by law2-The object and Consideration must notdefeat the Provisions of any law3-The Object and Consideration must not beFraudulent4-If it involves or implies Injury to the person orproperty of another5- The Object and Consideration must not beimmoral6- The Object and Consideration must not beopposed to the public policy
  59. 59. ‘ Public interest ‘ implies common good orgeneral social welfare .The term ‘ public interest’ is ,therefore , ‘ anelusive abstraction ,yet it indicates astandard of goodness for judging privateacts and conduct in the social context.
  60. 60. 1-Trading with an alien enemy2-Agreement to promote hostile action in afriendly state3-Agreement interfering with course of justice4-Agreements in restraint of Legal proceedings5-Agreements for stifling criminal prosecution6-Agreement tending to be an abuse of legalprocess7-Agreement to oust the jurisdiction of courts
  61. 61. 8-Agreements to vary periods of limitation9-Agreement for sale or to influence ofpublic offices10-Agreements to influence election inpublic offices11-Agreement tending to create interestopposed to duty12-Agreement tending to create monopolies13-Agreement to restraint of parental rights
  62. 62. 15- Agreement in restraint of marriage16-Marriage brokerage agreements17-Agreement interfering with marital duties18-Agreement in fraud of creditors19-Agreement to defraud revenueauthorities20-Agreement in restraint of profession21-Agreement tending to create monopolies22-Agreement in restraint of trade
  63. 63. When a person agrees to help another bymoney or otherwise in litigation in which heis himself is not interested ,it is called ‘Maintenance ‘. When a person helpsanother in litigation in exchange of apromise to handover a portion of the fruits ofthe litigation ,it is called ‘ champerty’.
  64. 64. An agreement which interferes with anindividual ‘s rights to engage himself in anylawful trade ,occupation or profession iscalled ‘ agreement in restraint of trade’.
  65. 65. 1-Sale of Goodwill-That seller will not carryany business2-Exceptions under Partnership act-TheIndian Partnership Act 19323-Service contracts-Employees workingelsewhere during the period of agreement4-Trade combinations-A voluntaryagreement among the members
  66. 66. 1-Agreement by persons who are notcompetent to contract2-Agreements under a mutual mistake offact material to the agreement3-Agreements with unlawful consideration orobject4-Agreements ,the consideration or object ofwhich is unlawful in part5-Agreement without consideration
  67. 67. 7- Agreements in restraints of Trade8-Agreements in restraint of legalproceedings9-Agreements the meaning of which isuncertain10-Wagering agreements11-Agreements to do impossible acts
  68. 68. Wager as a promise to give money ormoneys worth upon the determination orascertainment of an uncertain eventCovered under Sec 30 of Indian ContractAct 1872
  69. 69. 1-Uncertain event2-Mutual chances of gain or loss3-Neither party to have control over theevent4-No other interest in the event5-The promise must be to pay money ormoney’s worth
  70. 70. A wagering agreement being ‘ void’ can notbe enforced in any court of lawSec 30 of the Act lays down that all thewagering contracts are void
  71. 71. 1-Horse race2-Cross-word competitors and cross –wordpuzzle3-Sports competitions, Literary competitions4-Picture puzzle5-Lottery or Raffle6-Chit fund7-Flower show competition, Dog showcompetition ,beauty contest8-Contract of insurance
  72. 72. 1-Gambling-It is a game of chance2-Intention-The parties contemplate to geta certain sum of money on the happening ofan uncertain future event3-Insurable interest- The parties do notcover up their risk of future loss.4-Indemnity –It is not a contract ofIndemnity
  73. 73. 5-Legal effect –It is a void agreement abinitio6-Parties interest –Only one of the partiesis interested in protecting the subject matter7-Stakes-There is the same stake for boththe parties8-Risk – Neither of the parties is subject toany particular risk before entering into a
  74. 74. 1-Gambling –It is not a game of chance2-Intention – There is no such intention3-Insurable interest –One of the partiescovers up his risk for future loss .He hasinsurable interest4-Indemnity –General ( non-life) insuranceis a contract of indemnity
  75. 75. 5-Legal effect –It is a valid contract6-Parties interest –Both the contractingparties are interested7-Stakes –The stakes of the parties are notsame8-Risk – The insured ( subject matter ) issubject to risk
  76. 76. The term ‘ Illegal agreement ‘ may bedefined as the agreement which isexpressively or impliedly prohibited by lawi.e. By Indian Panel Code or by some otherspecial Legislation
  77. 77. i- Effects on main transaction-Void fromvery beginningii-Effects on collateral transactions-Anyincidental or parallel transactioniii-Plaintiff not relying on the illegalcontract-If the Plaintiff has parted withpossession of his property
  78. 78. 1-Restrictions from enforcing legal rights2-Agreeement which cuts short the limitationperiod3-An agreement which extinguishes therights of a party4-An agreement which discharges a partyfrom liability
  79. 79. A contingent contract is a contract indicatingto do or not to do something, if some event,collateral to such contract, does or does nothappen. The contract of insurance, contractof indemnity and guarantee are theexamples
  80. 80. 1- Its performance depends upon theuncertainty of happening or non- happeningin future of some event. it is thisdependence on a future which distinguishesa contract from other contracts.2-The event must be collateral i.e. incidentalto contract3-the contingent event should not be merewill of promisor.
  81. 81. 1-The happening of a Future Uncertainevent2-The non-happening of an uncertain Futureevent3-When Event to be is Deemed impossible4-The happening of an event within fixedtime5-The non-happening of an event within afixed time
  82. 82. 1-Mutual promise-Agreement consists ofmutual promises2-Validity-A wagering contract is absolutelyvoid3-Performance-Neither party intends toperform the contract4-Interest in the subject matter-Have noother interest in the subject matter5-Future event-future event is the soledetermining factor6-Nature-All contingent contracts are not of a
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