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Contract Act - Business law

This document defines key concepts in law and contracts. It outlines 7 objectives of law including assuring basic rights and regulating business. It defines international law, constitutional law, criminal law, and civil law. It then discusses the definition of a contract, the process of forming a contract through various stages like drafting and approval, and 10 essential elements for a valid contract such as offer/acceptance, lawful consideration, and certainty.

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Introduction of LAW A system of “rules and regulations made and enforced by a government that regulate conduct of the people within a society”.
Objectives to be Achieved by Law • Objectives to be achieved by law may be broadly stated as follows: 1. To assure certain basic rights to the citizens 2. To ensure peace and internal security 3. To regulate international relations 4. To establish socio-economic justice 5. To regulate business, trade and employment 6. To regulate social customs and practices 7. To prevent crime and to punish offenders.
Need of law? Although it is not possible for the citizen of the country to have knowledge of every branch of law, yet it becomes necessary to know the law to which he is subject at a given point of time. One must remember that ignorance of law is no excuse .
Classification of Law • The various braches of law include, among others, the following: 1. International law 2. Constitutional law 3. Criminal law 4. Civil law
International law • International law is the law that governs laws between different countries. It regulates the relationship between various independent countries and is usually governed by treaties, international customs and so on. Examples of International law include the Universal Declaration of Human Rights, the African Charter on Human and People’s Rights etc.
Constitutional law • Constitutional law It is concerned with defining the powers of and the relationship between the principal institutions of state. This part of the law is also concerned with the relationship between the state, its institutions and the individual citizen and, in particular, the fundamental rights of citizens.
Criminal law • It deals with conduct on the part of the individual which the state regards as harmful to society generally and for the control of which the state assumes responsibility. • Criminal law or Law of Crimes is the branch of public Law. It deals with offenses punishable by State and is enforced in the name of the State.
Civil law • Civil law is concerned with the rights and duties of Individuals to one another and provides a system of remedies.e.g.LawofProperty,LawofContractetc.
Definition of Contract • According to Section 2 (h), “Contract is an agreement enforceable by law”. Agreement means a promise. It is created when a person makes an offer to another person and other accepts it for consideration. Agreement = Offer + Acceptance of Offer
Process of making contract
Stage 1: Contract Request: • Contract Life Cycle Management starts with the Contracts Requesting process where one party requests for or initiates the contracting process and subsequently uses that information for drafting or authoring the contract document. • When drafting or authoring the terms of the contract, it’s important to pay attention to specific wording. Information on what the contract should contain and critical dates such as contract start date, end date and any milestones.
Stage 2: Contract Authoring, Review and Red lining, Contract Negotiation • IntheContractAuthoringorDraftingstage,contractoragreement document is created which includes all clauses, terms and conditions.ItisusuallyinthisstageContractApproversandSigning parties are determined and approver and signing details are capturedinthecontractdocument • ContractorAgreementDocument,usuallyinMicrosoftWordor AdobePDFformatsavedinthedocumentmanagementsolution.
Stage 3: Approval and Lawyer or Legal Review • Agreement document prepared in previous step is submitted to internal or external approvers and then once they approve the document to proceed further, Contractual document moves to the next step in the life cycle. • Contract Approvals from designated stake holders.
Stage 4: Execution or Agreement Signing • Contract document which is approved is sent to respective parties for signature either online or using manual process. •
Stage 5: Contract Database or Repository Storage • Once the contract document is signed it is stored permanently in a easy to retrieve agreement database. Both contractual meta data and documents are indexed and saved for future reference. • Contract Document saved in document repository for future reference and accessible through contract
Stage 6: Records Management • This stage enables complete control of all critical business documents through reliable storage of records with backups and retention policy enforcement policies providing confidence that your critical records are in secure for global information management with high compliance.
Stage 7: Easy Search and Retrieval • This stage enables business users to quickly search, apply filters and retrieve relevant documents from the contract system.
Stage 8: User Activity and Reporting • Every stage captures user activity logs and the contract meta data and documents are properly indexed for easy retrieval. This stage ensures business users can quickly and efficiently retrieve and mine contract data and produce in depth reports.
Stage 9: Contract Renewal , Amendments and Disposition • Once the contract reaches its end date , it must be renewed to stay in active status. If the contract is not renewed on time it could cause financial risk for the parties involved in the contract. • Contract Document renewed to a later expiry date.
Elements of Contract 1. Offer & Acceptance 2. Legal relation 3. Capacity 4. Free consent 5. Lawful consideration 6. Lawful object 7. Agreement not declared avoid 8. Certainty 9. Possibility of Performance 10. Legal formalities
1.Offer & Acceptance •Offer (Proposal): “When one person signifies to another his willingness to do or to abstain from doinganythingwithaviewtoobtainingtheassent oftheothertosuchactorabstinence,heissaidto makeaproposal”. •Acceptance: “When the person to Whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal when acceptedbecomesapromise”
1.Offer & Acceptance The terms offer and proposal mean the same thing. The Contract Act uses the term proposal. Any agreement between two or more parties has to begin with one party putting forth a suggestion to other so that the other person or persons can consider the same and decide whether to agree with the same or not. For example, A may say to B that he wants to sell his car for Rs, 60000/- and whether B is interested in buying the same. Here, A is making an offer to B. Therefore, communication of a lawful offer by one party is the first step towards the formation of every agreement. It is obvious that without any offer there cannot be any agreement
2. Legal relation • The parties to the agreement must intend to create legal relations among them. Agreements which are social or friendly in nature, for example going for a picnic together or agreement to lunch together etc. are the agreements where there is no intention of the parties to create legal relationship between them. As such, these agreements are not contracts.
3. Capacity The parties entering into agreement must be competent to contracxt or must have legal capacity to enter into contract, otherwise such agreement is not a contract and therefore not enforceable bylaw. The term capacity should not be confused with the term ability. Any person may have the ability to enter into an agreement, but he may not be competent to contract.
3. Capacity For example, a minor person, i.e., one who has not completed his age of 18 years may enter into an agreement. But the Contract Act declares a minor to be not competent to enter into contract, except under certain circumstances. Therefore, the agreement entered into by or with a minor cannot be a contract and therefore not enforceable by law.
4.Free consent • According to Sec.13, ‘When two or more persons agree on same thing in the same sense, they are said to consent.’
5. Lawful consideration Each party of an agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, the price need not be in terms of money. The consideration must be real and lawful. Consideration is the price paid by one party for the promise of the other.
6. Lawful object The object of the agreement must be lawful and not one which the law disapproves. If the object with which an agreement is entered into is unlawful, it is a case of illegal agreement, and obviously such agreement cannot be a contract.
7. Agreement not declared void There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable by law • For e.g ‘Agreement in restraint of marriage, or agreement in restraint of trade, or a gambling agreement are some of the examples of agreements which can never attain the status of contract. They are declared to be void and not enforceable at law
8. Certainty • For a valid contract, the terms and conditions of an agreement must be clear and certain. • For e.g. ‘A’ agreed to sell 10 meters of cloth.There is nothing to show, what type of cloth was intended.The agreement is not enforceable for want of certainty of meaning.
9. Possibility of Performance • Agreementsmustbecapableofperformance.Anagreementtodo anactimpossibleinitselfisvoid,i.e.,notenforceableatlaw. • For example, A agrees with B to discover treasure by magic. The agreementcannotbeenforced.
10.Legal formalities • According to contract Act, a contract may be oral or in writing. Although in practice, it Is always in the interest of the parties that the contract should be made in writing so that it may be convenient to prove in the court. • For example, an oral agreement to buy or sell movable goods is perfectly enforceable by law as it is a contract. However, an agreement to buy or sell immovable property such as land or building ,has to be in writing and also it has to be registered with the competent authorities. If it is not written and registered, such agreement will not be a contract and therefore cannot be enforced in the court of law
•Classification of contracts
Classification of Contracts
1. Enforceability/Validity  Valid Agreement (Contract): A valid agreement is a contract enforceable by law. It has all essentials of contract under sec.10.  Void Contract: In general sense, the term ‘void’ means completely lacking something or empty. In legal sense, the term means ‘having no legal force.’ Void contract, therefore, means a contract which has no legal value or effect at all. According to the Contract Act – ‘A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable.’
1. Enforceability/Validity  Voidable Contract: A contract becomes voidable when the consent of one party has been obtained by fraud, undue influence, coercion or misrepresentation. Such contract is voidable at the option of the party whose consent was so obtained. However, the option to cancel the contract should be exercised by the aggrieved party within a reasonable time and before any third party interest is created. For example, ‘A’ agreed to sell and deliver to ‘B’ 100 quintals of sugar within 10 days. If ‘A’ does not supply the sugar within the specified time, the contract is voidable at the option of ‘B’
1. Enforceability/Validity  Illegal Agreement: Agreement is illegal if it is not approved by law, opposed to public policy, criminal or immoral in nature. Such agreements are void ab initio and any collateral agreement will also be void.  Unenforceable Contract: If a contract cannot be enforced due to some technical defects like incomplete legal formalities, stamp, signature etc. it is called unenforceable contract. As soon as technical defect is removed, contract becomes enforceable.
2. FORMATION Express contracts: Express contracts are those contracts where the offer and acceptance constituting the contract are made in words, spoken or written. So an agreement made over telephone or through correspondence is an example of express contract.
2. FORMATION Implied contract: Implied contract is one which is entered into by the parties not through the words, but through their conduct or behaviour. Thus, when a porter in uniform approaches you. For example: At a railway platform a porter takes up your luggage, and you show him the way to your compartment, there is an implied contract between you and the porter, under which you are required to pay for his services. Both offer and its acceptance have been communicated not by the words, but by the conduct
2. FORMATION Quasi contract; is a term used for such contractual relations between the parties which exist as if the parties have entered into a contract, without there being any contract between the two in the usual sense. Unlike other contracts, there is no offer or acceptance. The parties may not have met each other ever before and yet the relations that emerge between them are such as if they have entered into contract. In fact, the term quasi contract is not used under the Contract Act. It provides for the ‘certain relations resembling those created by contract.
QUASI CONTRACT • Quasi means almost or apparently but not reality or as if it were. • A quasi contact is a contarct that exists by order of a court not by agreement of parties. • Court creates quasi contacts to avoid the unjust enrichment of a party in a dispute.
Sections in Law ( Quasi contract) • Supply of necessaries(68) • Payment of lawful dues by interested person(69) • Person enjoying benefit of a gratuitous act(70) • Finder of goods(71) • Goods delivered by mistake(72)
3. PERFORMANCE  Executed Contract: A contract in which all the parties have performed their obligations, is an executed contract. E.g. X sells his car to Y for 1 lakh. X gives the car & Y makes the payment. It is executed contract.  Executory Contract: A contract in which the parties still have to perform their obligations, is called executory contract.
3. PERFORMANCE  Bilateral Contract: It is one in which both the parties exchange a promise to each other. One party promises to perform some act in the future in exchange for other party’s promise to perform some act. It is similar to executory contract. Each party is both promisor & promisee.  Unilateral Contract: A contract in which one party promises to the other to do something if he performs his desired work. E.g. A promises to pay Rs.100 by advertisement to anyone who finds his lost bag. Anyone can search his bag & bind A for payment. But A cannot bind any one to search his bag.
OFFER
Defining an Offer • As per Section 2 (a) of the contract Act, “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 an offer”. • Example • When A expresses his willingness to sell motor care for Rs 10,000 with a view to get B’s acceptance, A is said to make an offer.
Defining an Offer • The word offer of the English law the word proposal of the Indian Contract Act. • The person making the offer is called the offeror and the person to whom the proposal is made is offeree. • When the offeree accepts the proposal he is called as acceptor or promisor
Essential Characteristics of a valid offer: • The terms of an offer must be clear and certain or at least capable of being made certain. • Offer must be communicated to the offeree. • An offer must be made with an intention of creating legal obligations. • Invitation to an offer is not an offer.
Essential Characteristics of a valid offer: • Special terms attached to an offer must be communicated. • An offer may be to an individual or to the public at large. • Offer may be expressed or implied. • Offer must be made with a view to obtaining the assent of the other party • Offer may be conditional. • Offer should not contain a term, the non compliance of which would amount to acceptance.
Types of OFFER
Kinds of Offer •Express offer: In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. •Implied offer: In so far as such a proposal or acceptance is made otherwise than in words, the promise is said to be implied.
Kinds of Offer • Specific offer: A Specific offer is an offer that is made to a specific or ascertained person, this type of offer can only be accepted by the person to whom it is made. • General offer: If an offer is addressed to an unascertained body of individuals, it is called general offer. • Example • A issues a public advertisement that he would give Rs 100 to anyone who brings back his missing dog, it is a general offer. • A promises to give Rs 100 to B if he brings back his missing dog, it is a special offer.
Kinds of Offer • Counter offer: A counter order is rejecting the original offer and making a new offer. Example – A offers to sell his house for Rs 2 lakhs to B. B accepts to purchase it for Rs One lakh. This is a counter offer. • Continuous offer: An offer for a continuous supply of a certain article at a certain rate over a definite period is called a standing order. – Example – A, by means of an offer agrees to supply coal to B at a particular price for a period of two years. It is a continuous offer.
Kinds of Offer • Cross offer: When two parties make identical offer to each other in ignorance of each other’s, such offer is called cross offer. Example – A by letter offers to sell his car to B for Rs 50,000. B by letter offers A to buy the same car for Rs. 50,000. It is a cross offer.
ACCEPTANCE
Acceptance • Definition Section 2 (b) of the contract Act defines ‘Acceptance’ as follows: “When the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted.” • The offeree, when he accepts the offer, is called the acceptor. • Acceptance can be made by words, spoken or written. An offer can be accepted only by the person to whom it is made.
Legal rules of governing a valid acceptance Acceptance must be absolute and unqualified. • Example – A says to B, “ I offer to sell my house for Rs. 2 Lakhs.” B replies “ I will purchase it only for Rs 1 Lakh”. It is only a partial acceptance. Acceptance must be communicated to the offeror. Acceptance must be made within a reasonable time. Acceptance must be communicated in some usual and reasonable manner.
Legal rules of governing a valid acceptance Acceptance may be expressed or implied. Acceptance must be made by the offeree. Acceptor must be aware of the proposal at the time of the offer. Acceptance must be made only after the offer is made. Acceptance must be given before the offer lapses or is revoked. Acceptance concludes the contract.
CAPACITY OF PARTIES • As per Sec. 10 an agreement becomes a contract if it is entered into between the parties competent to contract. • As Sec. 11 declares following persons to be incompetent to contract; • a) Minors • b) Persons of unsound mind • c)Persons disqualified by from contracting
A) Minors • Minor’s agreement is absolutely void and minor cannot bind himself by a contract. But in the following cases, he attains majority when he completes 21 years: • When guardians has been appointed for minor under Guardians &Wards Act 1890. • When superintendence of minor’s property is under court of wards.
Law relating to minor’s Agreements: 1. Agreement with minor is void ab initio. 2. No Ratification after attaining majority: Ratification means approving a past contract. Minor’s agreements are void ab initio so they cannot be ratified. 3. Minor can be a beneficiary or can take benefit out of a contract. He cannot be asked to return or mortgage his property. 4. A minor can plead minority i.e. even if he does something wrong he cannot be held responsible for it, in the court.
B) Persons of Unsound Mind • According to Sec. 12, a person has sound mind if: • He is capable of understanding the contract at the time of making it. • He is capable of making rational judgment i.e. effect of contract on his interests. Types: Following are the persons who are considered as persons of unsound mind under the act: 1. Idiot: He is a person who has lost his mental ability to understand even ordinary things. It is permanent.
Types of Unsound Mind Persons 2. Lunatic: He is a person who is mentally affected due to strain or personal shocks. It is temporary & can be cured. He can make valid contract during lucid intervals. 3. Drunken or intoxicated person. 4. Hypnotized person. 5. Mental decay- There may be mental decay due to old age or poor health and such person is not capable of making a valid contract
C) Persons Disqualified by Law • The following persons are disqualified by law from entering into a contract: 1. Foreign Ambassadors: They have full capacity to contract in India but they cannot be sued in our courts unless central government permits. 2. Alien Enemy: It means a foreign citizen living in India. Contract with alien friend is valid subject to some restrictions. When alien is declared alien enemy (declaration of war) he cannot contract.
C) Persons Disqualified by Law 3.Companies: Company can only contract through his human agents. Company’s contractual capacity is determined by “Object Clause” of its memorandum of association. Contract made outside its scope is void. 4.Married Women: She can enter into a contract but her personal property (Streedhan) can be made liable but not property of her husband. A husband is liable for contract made by his wife for supply of necessaries of life. In this case, she is an agent of her husband by necessity.
C) Persons Disqualified by Law 5. Convicts: While imprisonment, convict cannot enter into contract & cannot sue on contracts made before conviction. If he gets a license i.e. ticket of leave he can lawfully contract. After imprisonment he can enter into contract. 6. Insolvent: Person declared insolvent cannot contract. His official receiver appointed by court can enter into contracts, sue & be sued on his behalf.
CONSIDERATION
Definition of Consideration • Section 25 of the Indian Contract Act, 1872 says that “an agreement made without consideration is void.” So, Consideration is necessary for the formation of contract i.e., a valid contract must include consideration for every party involved[1]. • Blackstone: According to Blackstone “Consideration is the recompense given by the party contracting to the other”[2]
Definition of Consideration • Pollock: In the words of Pollock, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”[3] • Justice Patterson: “Consideration means something which is of some value in the eyes of the law. It may be some benefit to the plaintiff or some detriment to the defendant”[4]
Legal Rules Regarding Consideration Consideration must move at the desire of the promissor: an act forming consideration that must be done at the desire or request of the promisor. If it is done unless a person offers to do something how can he be made liable to pay for that. • Example: A polished B’s car without any request from B. is B liable? Obviously not, as the polish on B’s car was done without his request.
Legal Rules Regarding Consideration  Consideration may move from promisee or any other person: The consideration may be given by the promisee or any other person on his behalf. • Example: A father gifted the whole of his property to his daughter on the condition that she should pay a certain sum of money annually to her uncle(father’s brother) on the same day, the daughter entered into an agreement with her uncle and agreed to pay the annually. Later on, the daughter refused to pay the amount that the uncle not received any consideration. The court held that the consideration was paid by the father on behalf of her uncle. Therefore, the uncle was entitled to recover the annuity.
Legal Rules Regarding Consideration  Consideration may be forbearance: This means that the consideration may be a promise not to file a legal suit against the person. • Example: A’s scooter is damaged by B negligently driving his car. B promises to pay Rs.1000 as repair charges for the scooter if A does not sue him in a court of law. Here, A’s forbearance to sue B is a good consideration.
Legal Rules Regarding Consideration  Consideration may be past, present or future. • Past: when a consideration by a party for a present promise was given in the past. Example: A found B’s purse and gave it to him . B promised to give A Rs.50 as a reward. Here, for B’s promise, the act of A in finding B’s purse is the past consideration. • Present consideration: when the promisor receives consideration simultaneously with the promise, it is present consideration. • Example: A purchase goods by paying money in cash here, the consideration is present consideration.
Legal Rules Regarding Consideration • Future consideration: When consideration for a promise is rendered in future it is future consideration • Example: A agreed to sell and deliver certain goods to B after a week at agreed price. B agreed to pay the price after fifteen. days. Here, as the price and the ownership of goods are to be Transferred in future. Therefore the consideration in future For both the parties
Legal Rules Regarding Consideration Consideration need not to be adequate: It is not Necessary that there must be full return for the promise. Example: A agreed to sell his watch worth Rs.100 only for Rs.10 .A’s consent to the agreement was given freely .the Consideration, though inadequate, will not affect the validity Of the contract.
Legal Rules Regarding Consideration Consideration must be real and not illusory: consideration must be real, it has some value in the eye of law . it should not be illusory Example: A promised to pay Rs.500 to B if he brings a star from the sky to earth. Here, consideration for A’s promise to pay Rs. 500 to B is “to bring a star from the sky”. The contract is void as the consideration is illusory. This promise is also physically impossible to perform
Legal Rules Regarding Consideration 8. It must be something which the promisor is not already bound to do: means preexisting legal and contractual obligations cannot be regarded as good consideration • Example: A promised to pay Rs. 1000 extra to a lawyer for winning the suit. A is not bound to pay Rs.1000 even if he wins the case . payment of one thousand rupees extra in this case is not a good consideration because the lawyer was legally bound to do.
Legal Rules Regarding Consideration  Consideration must not be illegal , immoral ,or opposed to public policy: means the consideration must be lawful • Example: A promised to pay Rs. 500 to B if he beats C. the agreement is void as the consideration involves an injury to C, which is unlawful.
Privity of a contract • The doctrine of privity of a contract is a common law principle which implies that only parties to a contract are allowed to sue each other to enforce their rights and liabilities and no stranger is allowed to confer obligations upon any person who is not a party to contract even though contract the contract have been entered into for his benefit.
Free Consent Definition • According to section 13.Two persons are said to have consented when they agree upon the same thing in the same sense. • In English law, this is called ‘consensus–ad-idem’.
Free Consent • Free consent when it is not caused by any of the following : 1. Coercion (Section15) 2. Undue influence(Section16) 3. Fraud(Section17) 4. Misrepresentation(Section18) 5. Mistake(Section 20, 21, 21)
1. Coercion (Section15) • It means threatening or use of physical force against a person to compel him to enter into a contract. E.g. Alia Slapped Bhim & dislocated some of his teeth & threatens to repeat the same if Bhim does not lend him Rs. 30,000. The contract is caused by coercion. • Essential Elements:- Committing or threatening to commit any act forbidden by Indian Penal Code;- E.g. murder, theft, physical compulsion. Threat of suicide is coercion.
Coercion (Section15) Unlawful detaining of any property or unlawful threatening to detain any property. The intention must be to compel the other person to enter into a contract. E.g. A beats B to take revenge for his insult. This is not coercion. Coercion may be from the party or from any other person/stranger. • Effects: 1) Contract becomes voidable, at the option of the party whose consent is taken by coercion. • 2) Restitution: Aggrieved party can restore the benefits given.
2. Undue influence(Section16) • It is a kind of moral coercion. When relation between parties are such that one party is in a position to dominate the will of the other & use that position to obtain advantage over the other.This is undue influence. • Essential Elements: - There must be close relation between the parties. One party should be in the position to dominate the will. It includes following situations: - a) Real authority over the other like master & servant, doctor & patient.
2. Undue influence(Section16) b) When relation of trust & confidence exist between parties. E.g. father & son, husband & wife. c) Undue influence can be used against the person whose mental capacity is affected by old age, illness etc. 3)The intention should be to take undue advantage. 4) Misuse of position to take advantage. • Effects: (1) Contract is voidable at the option of aggrieved party. • (2) Benefit received is restored to the aggrieved party.
3. Fraud(Section17) • Fraud means willful misrepresentation or concealment of material facts. The intention is to deceive (cheat) the other party & induce him to enter into an agreement. It include the following acts: i. Suggestion of that which is not true i.e. given by person who does not believe it to be true. ii. Concealment of fact by one who has knowledge of it. iii. Promise made without any intention of performing it. iv. Such act which law declares to be fraudulent.
Fraud(Section17) • Essential Elements:- Fraud may be done by a party to the contract or his agent. There must be representation which is false. E.g. A intends to deceive B & falsely represents that the car which he offers for sale is imported but actually it is Indian. False representation must be of material fact, not an opinion. A promise made without intention to perform is a fraud. The intention must be to induce the other party to act upon false representation. The other party must have been relied upon the statement & must have been deceived & suffered some loss.
Fraud(Section17) • Effects: Aggrieved party has the right to rescind (declare invalid) the contract (voidable). Sue for damages or loss suffered. Benefit received is restored. Aggrieved party can insist for performance & ask to put him in a position in which he would have been if representation made had been true.
4. Misrepresentation(Section18) • Any innocent or unintentional false statement of fact made by one party to the other during negotiation of contract is called misrepresentation. • Example: A says to B who intends to purchase his land, “my land produces 10 quintals of wheat per acre.” A belief the statement to be true, although he did not have sufficient ground for the belief. Later on, it transpires that the land produces only 7 quintals of wheat per acre. This is a misrepresentation.
4. Misrepresentation(Section18) • Essential Elements: Misrepresentation must be of fact & not mere opinion. Intention should not be to deceive the other party. Effects:) Contract is voidable at the option of aggrieved party.
5. Mistake(Section 20, 21, 21) Mistake means a wrong belief or misunderstanding about something. Generally, mistake does not affect the validity of the contract. According to Sec.20, where both the parties are under a mistake, the agreement is void. Essential Elements: (1)Both parties can be at mistake (bilateral mistake).
5. Mistake(Section 20, 21, 21) • Mistake can be of two types: Mistake of fact and Mistake of law. Mistake of fact is related to the subject matter of the contract. It may be a bilateral or unilateral mistake. If there is mistake of law, the contract is valid. •Effects: 1) Acc. To Sec. 22., Contract is not voidable due to unilateral mistake of facts. 2) Agreement made on bilateral mistake is void. 3) Mistake as to foreign law is treated as a mistake of fact & is excusable
Legality of Object and Consideration • The word object is used distinctly to mean ‘purpose or design’ of the agreement. The word ‘consideration’ is different from the object. Consideration means the benefit received or suffered under an agreement. Sec.10 implies that an agreement enforceable by law must be for a lawful consideration and with a lawful object. Every agreement of which the object or consideration is unlawful is void.
Legality of Object and Consideration • Object or consideration is considered as unlawful in following cases: • If the act is forbidden by law. E.g. X promised Y to pay Rs.3 lakh for murder of Z. It is unlawful. • If it is Fraudulent in nature. • If it involves injury to the person or property of another.
Legality of Object and Consideration • If Court considers it immoral: E.g. An agreement between husband and wife for future separation is immoral. • If court considers it opposed to public policy: It means no person can lawfully do something which can cause injury to public welfare. E.g. agreement to sell seat in medical or engineering college, agreement for getting votes in election for consideration, agreement to get a public title like ‘Bharat Ratna’ for consideration.
Discharge of Contract • Discharge of a contract means termination of contractual relation between the parties to a contract. • A contract is discharged when the obligation created between parties come to an end. • There are several methods of discharging the contracts namely: • 1) By performance of promise • 2) By mutual agreement • 3) By lapse of time • 4) By operation of law • 5) By impossibility of performance • 6) By breach of contract
1. Discharge by Performance of Promise • When parties perform their promises, then the contract comes to an end or is discharged. It can be performed in two ways – by actual performance or by attempted performance
2. Discharge by Mutual Agreement Methods of discharge of an existing contract by a fresh agreement by mutual consent are: • 1) Novation: It means substitution of a new contract in place of the existing contract. It may be done in two ways:- a. New contract with new terms with same parties. b. New contract on same terms with one party same & one new party. • 2) Alteration: It means change in one or more terms of the contract with the consent of all parties. A valid alteration discharges the original contract & a contract with new terms is created.
2. Discharge by Mutual Agreement • 3) Rescission: It means cancellation of contract. Cancellation may be by mutual agreement of both parties or by aggrieved party if free consent is not given. • 4) Remission: It means acceptance of a lesser performance in discharge of a whole promise made. • 5) Waiver: It means intentional withdrawal of rights. When a party entitled to claim performance releases the other party from his obligation to perform it, it is called waiver.
2. Discharge by Mutual Agreement • 6) Merger: - It means merger of two or more rights into one contract. When an existing inferior right of party merges into newly acquired superior right by the same party, it is merger of rights. In such case, inferior right automatically stands discharged. E.g. A person holding a property under a lease, buys the property in his name. His rights as a lessee are merged into the rights of ownership.
3. Discharge by Lapse ofTime • When time is fixed for the contract & a party does not perform it within that time, the contract is discharged by lapse of time
4. Discharge by Operation of Law • The contract discharges by operation of law in the following cases: 1) Merger: Inferior right is discharged & not required to be enforced. 2) Insolvency: When court declares insolvent, the person is discharged from all obligations of any contract & they are transferred to his official receiver. 3) Death: If contract involves use of personal skills of promisor then on his death the contract is discharged. In other cases, the obligation is transferred to legal representatives. 4) Unauthorized material alteration in the terms of the contract, without the knowledge & consent of other party, the contract may be discharged by other party (voidable).
5. Discharge by Impossibility of Performance • Where contract is impossible to perform, the contract is void. • According to Sec. 56, impossibility may be of two types: 1. Existing Impossibility: It refers to the impossibility at the time of agreement. 2. Subsequent or Supervening Impossibility: The contract becomes void when the act becomes impossible later on.
6. Discharge by Breach of Contract • It means non-fulfillment of the promise made by any of the parties to a contract.There are two types of breach of contract: 1. Actual Breach 2. Anticipatory Breach
6. Discharge by Breach of Contract 1. Actual Breach: It takes place when a party to a contract refuses or fails to perform his obligation when it is due. 2. Anticipatory Breach: When a party disables himself or declares that it will not perform the contract prior to the date of performance. It is also called anticipatory or constructive breach of contract.
Quasi contract • A Quasi-contract is not a contract at all because one or the other essentials for the formation of a contract are absent. It is an obligation imposed by law upon a person for the benefit of another even in the absence of a contract. • Quasi Contract is not a full-fledged contract because there is no offer and acceptance by the parties. But there are some circumstances where the contractual obligation arises.
Quasi contract • Sec. 68 -72 deals with following kinds of quasi contractual obligations; i. Supply of necessaries ii. Payment by an interested person iii. Obligation to pay for non-gratuitous iv. Responsibilities of finder of goods v. Mistake or Coersion vi. Quantum meruit >> ‘as much as erned’ vii.Compensation for failure to discharge obligation created by quasi contracts
Contract of Indemnity (Sec. 124)
Contract of Indemnity (Sec. 124) • According to Sec. 124, a contract of indemnity is ‘A contract by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any other person.’ • The person who promises to indemnify or make good the loss is called indemnifier. The promisee or whose loss is made good is called the indemnified or indemnity holder.
Contract of Indemnity (Sec. 124) • Rights of indemnity- holder or indemnified He has following rights against the indemnifier i.e. Promisor: 1. Right to recover damages: All damages he may be supposed to pay in any suit to which the indemnity applies. 2. Recovery of cost: All costs which he may be made to pay in defending the suit of indemnity. 3. Recovery of all sums paid: All sums he has paid in terms of any compromise of any suit.
Contract of Indemnity (Sec. 124) • Rights of Indemnifier : 1. Right of subrogation: After paying the amount of claim, indemnifier gets all the rights of indemnified against a third party. i.e. to sue & claim for damages & all sums paid against third party. 2. Right to refuse claim or indemnity: If loss caused is out of the scope of the contract or indemnified has not acted prudently, then indemnifier can refuse claim.
Contract of Guarantee • A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. • There are three parties involved i.e. the person who gives the guarantee known as the surety, the person in respect of whose default the guarantee is given known as the principal debtor and the person to whom the guarantee is given known as the creditor
Bailment
Bailment • Indian Contracts Act 1872 • ‘Bailment’ means ‘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 disposed off as per the directions given by the person delivering them. One who delivers called ‘Bailor’ and to whom delivered called ‘Bailee’.
Essential Elements of a valid bailment Agreement between bailor and bailee Delivery of goods. Ownership not change Only movable goods. Delivery for some purpose. Change in forms. Return of goods
Essential Elements of a valid bailment • There must be an agreement between the bailor and bailee. This agreement may be express or implied. However, a bailment may be implied by law as it happens in the case of finder of lost goods. • In bailment, it is necessary that the goods should be delivered to the bailee. It is the essence of the contract of bailment. Delivery may be of two types: 1-Actual delivery, 2- constructive delivery.
Essential Elements of a valid bailment • In a bailment the ownership remains with the bailor and is not transferred to the bailee or anyone as because if the ownership is transferred then it is not a bailment contract. It becomes a contract of sale. • Bailment is only for movable goods and not for immovable goods. • The goods must be delivered to the bailee for some purpose. The purpose could be the safe custody, use of the goods, transportation of the goods, repair of the goods etc.
Essential Elements of a valid bailment • If the goods which are bailed are changed like a cloth is converted into a shirt than still the contract remains a bailment. • The goods shall be returned to the bailor or disposed off according to his direction .
Types of Bailment • Bailment may broadly be classified into two categories, namely, 1. Gratuitous bailment, 2. Non-gratuitous bailment.
Types of Bailment 1. Gratuitous Bailment • A bailment with no considerations is called a gratuitous bailment. In this kind of bailment neither the bailor, nor the bailee is entitled to any remuneration or reward. Such a bailment may be for the exclusive benefit of either party, i.e., the bailor or the bailee, discussed as below:
Types of Bailment Bailment for the exclusive benefit of the bailor: • In this case the bailor delivers the goods for the exclusive benefits and the bailee does not derive any benefit out of it. For example, “A” leaves his pets with “B”, his neighbour to be looked after during A’s physical absence. In this case, A alone is being benefited by the bailment. Or, if you park your car in your neighbour’s premises to be taken care in your absence, you as a bailor derive the exclusive benefit from the bailment.
Types of Bailment Bailment for the exclusive benefit of the bailee: • This is the case where a bailor delivers the goods to the bailee for the exclusive benefits of the bailee and does not gain anything from the contract himself. For example, you lend your book to a friend of yours for a week without any charge or favour. In this case the recipient of the book as a bailee, is the sole beneficiary of this transaction of bailment.
Types of Bailment 2. Non-Gratuitous Bailment • Contrary to gratuitous bailment, a non-gratuitous bailment or bailment for reward is one that involve some consideration passing between the bailor and the bailee. Obviously in this case the delivery of goods takes place for the mutual benefit of both the parties. • For example, “A” hires “B’s” car. Here B is the bailor and receives the hire charges and A is the bailee and enjoys the use of the car. Similarly, when you give your PC or laptop for repair to some techie, both you and the computer techie are going to be benefited by this contract – while you get your computer repaired, he gets his fees or charges.
Pledge or Pawn • According to Sec 172, Contract Act, 1872, ‘ The bailment of goods for repayment of a debt or performance of a promise is called ‘pledge’. The bailor in this case is called the pawnor, the bailee is called the pawnee.
Rights & Duties of Pawnor & Pawee • Duties of a Pawnor: Duty to repay the loan. Duty to pay expenses in case of default. • Duties of a pawnee: Duty not use of pledged goods. Duty to return the goods.
Rights & Duties of Pawnor & Pawee • Right of Pawnor: Right to redeem the goods pledged Right to receive the increase • Right of Pawnee: Right to retain the pledged goods. Right to extra ordinary expenses Right in case of default of the pawnor.  Right to sell the goods

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Contract Act - Business law

  • 2.
    Introduction of LAW Asystem of “rules and regulations made and enforced by a government that regulate conduct of the people within a society”.
  • 3.
    Objectives to beAchieved by Law • Objectives to be achieved by law may be broadly stated as follows: 1. To assure certain basic rights to the citizens 2. To ensure peace and internal security 3. To regulate international relations 4. To establish socio-economic justice 5. To regulate business, trade and employment 6. To regulate social customs and practices 7. To prevent crime and to punish offenders.
  • 4.
    Need of law? Althoughit is not possible for the citizen of the country to have knowledge of every branch of law, yet it becomes necessary to know the law to which he is subject at a given point of time. One must remember that ignorance of law is no excuse .
  • 5.
    Classification of Law •The various braches of law include, among others, the following: 1. International law 2. Constitutional law 3. Criminal law 4. Civil law
  • 6.
    International law • Internationallaw is the law that governs laws between different countries. It regulates the relationship between various independent countries and is usually governed by treaties, international customs and so on. Examples of International law include the Universal Declaration of Human Rights, the African Charter on Human and People’s Rights etc.
  • 7.
    Constitutional law • Constitutionallaw It is concerned with defining the powers of and the relationship between the principal institutions of state. This part of the law is also concerned with the relationship between the state, its institutions and the individual citizen and, in particular, the fundamental rights of citizens.
  • 8.
    Criminal law • Itdeals with conduct on the part of the individual which the state regards as harmful to society generally and for the control of which the state assumes responsibility. • Criminal law or Law of Crimes is the branch of public Law. It deals with offenses punishable by State and is enforced in the name of the State.
  • 9.
    Civil law • Civillaw is concerned with the rights and duties of Individuals to one another and provides a system of remedies.e.g.LawofProperty,LawofContractetc.
  • 11.
    Definition of Contract •According to Section 2 (h), “Contract is an agreement enforceable by law”. Agreement means a promise. It is created when a person makes an offer to another person and other accepts it for consideration. Agreement = Offer + Acceptance of Offer
  • 12.
  • 13.
    Stage 1: ContractRequest: • Contract Life Cycle Management starts with the Contracts Requesting process where one party requests for or initiates the contracting process and subsequently uses that information for drafting or authoring the contract document. • When drafting or authoring the terms of the contract, it’s important to pay attention to specific wording. Information on what the contract should contain and critical dates such as contract start date, end date and any milestones.
  • 14.
    Stage 2: ContractAuthoring, Review and Red lining, Contract Negotiation • IntheContractAuthoringorDraftingstage,contractoragreement document is created which includes all clauses, terms and conditions.ItisusuallyinthisstageContractApproversandSigning parties are determined and approver and signing details are capturedinthecontractdocument • ContractorAgreementDocument,usuallyinMicrosoftWordor AdobePDFformatsavedinthedocumentmanagementsolution.
  • 15.
    Stage 3: Approvaland Lawyer or Legal Review • Agreement document prepared in previous step is submitted to internal or external approvers and then once they approve the document to proceed further, Contractual document moves to the next step in the life cycle. • Contract Approvals from designated stake holders.
  • 16.
    Stage 4: Executionor Agreement Signing • Contract document which is approved is sent to respective parties for signature either online or using manual process. •
  • 17.
    Stage 5: ContractDatabase or Repository Storage • Once the contract document is signed it is stored permanently in a easy to retrieve agreement database. Both contractual meta data and documents are indexed and saved for future reference. • Contract Document saved in document repository for future reference and accessible through contract
  • 18.
    Stage 6: RecordsManagement • This stage enables complete control of all critical business documents through reliable storage of records with backups and retention policy enforcement policies providing confidence that your critical records are in secure for global information management with high compliance.
  • 19.
    Stage 7: EasySearch and Retrieval • This stage enables business users to quickly search, apply filters and retrieve relevant documents from the contract system.
  • 20.
    Stage 8: UserActivity and Reporting • Every stage captures user activity logs and the contract meta data and documents are properly indexed for easy retrieval. This stage ensures business users can quickly and efficiently retrieve and mine contract data and produce in depth reports.
  • 21.
    Stage 9: ContractRenewal , Amendments and Disposition • Once the contract reaches its end date , it must be renewed to stay in active status. If the contract is not renewed on time it could cause financial risk for the parties involved in the contract. • Contract Document renewed to a later expiry date.
  • 23.
    Elements of Contract 1.Offer & Acceptance 2. Legal relation 3. Capacity 4. Free consent 5. Lawful consideration 6. Lawful object 7. Agreement not declared avoid 8. Certainty 9. Possibility of Performance 10. Legal formalities
  • 25.
    1.Offer & Acceptance •Offer(Proposal): “When one person signifies to another his willingness to do or to abstain from doinganythingwithaviewtoobtainingtheassent oftheothertosuchactorabstinence,heissaidto makeaproposal”. •Acceptance: “When the person to Whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal when acceptedbecomesapromise”
  • 26.
    1.Offer & Acceptance Theterms offer and proposal mean the same thing. The Contract Act uses the term proposal. Any agreement between two or more parties has to begin with one party putting forth a suggestion to other so that the other person or persons can consider the same and decide whether to agree with the same or not. For example, A may say to B that he wants to sell his car for Rs, 60000/- and whether B is interested in buying the same. Here, A is making an offer to B. Therefore, communication of a lawful offer by one party is the first step towards the formation of every agreement. It is obvious that without any offer there cannot be any agreement
  • 27.
    2. Legal relation •The parties to the agreement must intend to create legal relations among them. Agreements which are social or friendly in nature, for example going for a picnic together or agreement to lunch together etc. are the agreements where there is no intention of the parties to create legal relationship between them. As such, these agreements are not contracts.
  • 28.
    3. Capacity The partiesentering into agreement must be competent to contracxt or must have legal capacity to enter into contract, otherwise such agreement is not a contract and therefore not enforceable bylaw. The term capacity should not be confused with the term ability. Any person may have the ability to enter into an agreement, but he may not be competent to contract.
  • 29.
    3. Capacity For example,a minor person, i.e., one who has not completed his age of 18 years may enter into an agreement. But the Contract Act declares a minor to be not competent to enter into contract, except under certain circumstances. Therefore, the agreement entered into by or with a minor cannot be a contract and therefore not enforceable by law.
  • 30.
    4.Free consent • Accordingto Sec.13, ‘When two or more persons agree on same thing in the same sense, they are said to consent.’
  • 31.
    5. Lawful consideration Eachparty of an agreement must give or promise something and receive something or a promise in return. Consideration is the price for which the promise of the other is sought. However, the price need not be in terms of money. The consideration must be real and lawful. Consideration is the price paid by one party for the promise of the other.
  • 32.
    6. Lawful object Theobject of the agreement must be lawful and not one which the law disapproves. If the object with which an agreement is entered into is unlawful, it is a case of illegal agreement, and obviously such agreement cannot be a contract.
  • 33.
    7. Agreement notdeclared void There are certain agreements which have been expressly declared illegal or void by the law. In such cases, even if the agreement possesses all the elements of a valid agreement, the agreement will not be enforceable by law • For e.g ‘Agreement in restraint of marriage, or agreement in restraint of trade, or a gambling agreement are some of the examples of agreements which can never attain the status of contract. They are declared to be void and not enforceable at law
  • 34.
    8. Certainty • Fora valid contract, the terms and conditions of an agreement must be clear and certain. • For e.g. ‘A’ agreed to sell 10 meters of cloth.There is nothing to show, what type of cloth was intended.The agreement is not enforceable for want of certainty of meaning.
  • 35.
    9. Possibility ofPerformance • Agreementsmustbecapableofperformance.Anagreementtodo anactimpossibleinitselfisvoid,i.e.,notenforceableatlaw. • For example, A agrees with B to discover treasure by magic. The agreementcannotbeenforced.
  • 36.
    10.Legal formalities • Accordingto contract Act, a contract may be oral or in writing. Although in practice, it Is always in the interest of the parties that the contract should be made in writing so that it may be convenient to prove in the court. • For example, an oral agreement to buy or sell movable goods is perfectly enforceable by law as it is a contract. However, an agreement to buy or sell immovable property such as land or building ,has to be in writing and also it has to be registered with the competent authorities. If it is not written and registered, such agreement will not be a contract and therefore cannot be enforced in the court of law
  • 37.
  • 38.
  • 39.
    1. Enforceability/Validity  ValidAgreement (Contract): A valid agreement is a contract enforceable by law. It has all essentials of contract under sec.10.  Void Contract: In general sense, the term ‘void’ means completely lacking something or empty. In legal sense, the term means ‘having no legal force.’ Void contract, therefore, means a contract which has no legal value or effect at all. According to the Contract Act – ‘A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable.’
  • 40.
    1. Enforceability/Validity  VoidableContract: A contract becomes voidable when the consent of one party has been obtained by fraud, undue influence, coercion or misrepresentation. Such contract is voidable at the option of the party whose consent was so obtained. However, the option to cancel the contract should be exercised by the aggrieved party within a reasonable time and before any third party interest is created. For example, ‘A’ agreed to sell and deliver to ‘B’ 100 quintals of sugar within 10 days. If ‘A’ does not supply the sugar within the specified time, the contract is voidable at the option of ‘B’
  • 41.
    1. Enforceability/Validity  IllegalAgreement: Agreement is illegal if it is not approved by law, opposed to public policy, criminal or immoral in nature. Such agreements are void ab initio and any collateral agreement will also be void.  Unenforceable Contract: If a contract cannot be enforced due to some technical defects like incomplete legal formalities, stamp, signature etc. it is called unenforceable contract. As soon as technical defect is removed, contract becomes enforceable.
  • 42.
    2. FORMATION Express contracts:Express contracts are those contracts where the offer and acceptance constituting the contract are made in words, spoken or written. So an agreement made over telephone or through correspondence is an example of express contract.
  • 43.
    2. FORMATION Implied contract:Implied contract is one which is entered into by the parties not through the words, but through their conduct or behaviour. Thus, when a porter in uniform approaches you. For example: At a railway platform a porter takes up your luggage, and you show him the way to your compartment, there is an implied contract between you and the porter, under which you are required to pay for his services. Both offer and its acceptance have been communicated not by the words, but by the conduct
  • 44.
    2. FORMATION Quasi contract;is a term used for such contractual relations between the parties which exist as if the parties have entered into a contract, without there being any contract between the two in the usual sense. Unlike other contracts, there is no offer or acceptance. The parties may not have met each other ever before and yet the relations that emerge between them are such as if they have entered into contract. In fact, the term quasi contract is not used under the Contract Act. It provides for the ‘certain relations resembling those created by contract.
  • 45.
    QUASI CONTRACT • Quasimeans almost or apparently but not reality or as if it were. • A quasi contact is a contarct that exists by order of a court not by agreement of parties. • Court creates quasi contacts to avoid the unjust enrichment of a party in a dispute.
  • 46.
    Sections in Law( Quasi contract) • Supply of necessaries(68) • Payment of lawful dues by interested person(69) • Person enjoying benefit of a gratuitous act(70) • Finder of goods(71) • Goods delivered by mistake(72)
  • 47.
    3. PERFORMANCE  ExecutedContract: A contract in which all the parties have performed their obligations, is an executed contract. E.g. X sells his car to Y for 1 lakh. X gives the car & Y makes the payment. It is executed contract.  Executory Contract: A contract in which the parties still have to perform their obligations, is called executory contract.
  • 48.
    3. PERFORMANCE  BilateralContract: It is one in which both the parties exchange a promise to each other. One party promises to perform some act in the future in exchange for other party’s promise to perform some act. It is similar to executory contract. Each party is both promisor & promisee.  Unilateral Contract: A contract in which one party promises to the other to do something if he performs his desired work. E.g. A promises to pay Rs.100 by advertisement to anyone who finds his lost bag. Anyone can search his bag & bind A for payment. But A cannot bind any one to search his bag.
  • 49.
  • 50.
    Defining an Offer •As per Section 2 (a) of the contract Act, “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 an offer”. • Example • When A expresses his willingness to sell motor care for Rs 10,000 with a view to get B’s acceptance, A is said to make an offer.
  • 51.
    Defining an Offer •The word offer of the English law the word proposal of the Indian Contract Act. • The person making the offer is called the offeror and the person to whom the proposal is made is offeree. • When the offeree accepts the proposal he is called as acceptor or promisor
  • 52.
    Essential Characteristics ofa valid offer: • The terms of an offer must be clear and certain or at least capable of being made certain. • Offer must be communicated to the offeree. • An offer must be made with an intention of creating legal obligations. • Invitation to an offer is not an offer.
  • 53.
    Essential Characteristics ofa valid offer: • Special terms attached to an offer must be communicated. • An offer may be to an individual or to the public at large. • Offer may be expressed or implied. • Offer must be made with a view to obtaining the assent of the other party • Offer may be conditional. • Offer should not contain a term, the non compliance of which would amount to acceptance.
  • 54.
  • 55.
    Kinds of Offer •Expressoffer: In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. •Implied offer: In so far as such a proposal or acceptance is made otherwise than in words, the promise is said to be implied.
  • 56.
    Kinds of Offer •Specific offer: A Specific offer is an offer that is made to a specific or ascertained person, this type of offer can only be accepted by the person to whom it is made. • General offer: If an offer is addressed to an unascertained body of individuals, it is called general offer. • Example • A issues a public advertisement that he would give Rs 100 to anyone who brings back his missing dog, it is a general offer. • A promises to give Rs 100 to B if he brings back his missing dog, it is a special offer.
  • 57.
    Kinds of Offer •Counter offer: A counter order is rejecting the original offer and making a new offer. Example – A offers to sell his house for Rs 2 lakhs to B. B accepts to purchase it for Rs One lakh. This is a counter offer. • Continuous offer: An offer for a continuous supply of a certain article at a certain rate over a definite period is called a standing order. – Example – A, by means of an offer agrees to supply coal to B at a particular price for a period of two years. It is a continuous offer.
  • 58.
    Kinds of Offer •Cross offer: When two parties make identical offer to each other in ignorance of each other’s, such offer is called cross offer. Example – A by letter offers to sell his car to B for Rs 50,000. B by letter offers A to buy the same car for Rs. 50,000. It is a cross offer.
  • 59.
  • 60.
    Acceptance • Definition Section2 (b) of the contract Act defines ‘Acceptance’ as follows: “When the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted.” • The offeree, when he accepts the offer, is called the acceptor. • Acceptance can be made by words, spoken or written. An offer can be accepted only by the person to whom it is made.
  • 61.
    Legal rules ofgoverning a valid acceptance Acceptance must be absolute and unqualified. • Example – A says to B, “ I offer to sell my house for Rs. 2 Lakhs.” B replies “ I will purchase it only for Rs 1 Lakh”. It is only a partial acceptance. Acceptance must be communicated to the offeror. Acceptance must be made within a reasonable time. Acceptance must be communicated in some usual and reasonable manner.
  • 62.
    Legal rules ofgoverning a valid acceptance Acceptance may be expressed or implied. Acceptance must be made by the offeree. Acceptor must be aware of the proposal at the time of the offer. Acceptance must be made only after the offer is made. Acceptance must be given before the offer lapses or is revoked. Acceptance concludes the contract.
  • 63.
    CAPACITY OF PARTIES •As per Sec. 10 an agreement becomes a contract if it is entered into between the parties competent to contract. • As Sec. 11 declares following persons to be incompetent to contract; • a) Minors • b) Persons of unsound mind • c)Persons disqualified by from contracting
  • 64.
    A) Minors • Minor’sagreement is absolutely void and minor cannot bind himself by a contract. But in the following cases, he attains majority when he completes 21 years: • When guardians has been appointed for minor under Guardians &Wards Act 1890. • When superintendence of minor’s property is under court of wards.
  • 65.
    Law relating tominor’s Agreements: 1. Agreement with minor is void ab initio. 2. No Ratification after attaining majority: Ratification means approving a past contract. Minor’s agreements are void ab initio so they cannot be ratified. 3. Minor can be a beneficiary or can take benefit out of a contract. He cannot be asked to return or mortgage his property. 4. A minor can plead minority i.e. even if he does something wrong he cannot be held responsible for it, in the court.
  • 66.
    B) Persons ofUnsound Mind • According to Sec. 12, a person has sound mind if: • He is capable of understanding the contract at the time of making it. • He is capable of making rational judgment i.e. effect of contract on his interests. Types: Following are the persons who are considered as persons of unsound mind under the act: 1. Idiot: He is a person who has lost his mental ability to understand even ordinary things. It is permanent.
  • 67.
    Types of UnsoundMind Persons 2. Lunatic: He is a person who is mentally affected due to strain or personal shocks. It is temporary & can be cured. He can make valid contract during lucid intervals. 3. Drunken or intoxicated person. 4. Hypnotized person. 5. Mental decay- There may be mental decay due to old age or poor health and such person is not capable of making a valid contract
  • 68.
    C) Persons Disqualifiedby Law • The following persons are disqualified by law from entering into a contract: 1. Foreign Ambassadors: They have full capacity to contract in India but they cannot be sued in our courts unless central government permits. 2. Alien Enemy: It means a foreign citizen living in India. Contract with alien friend is valid subject to some restrictions. When alien is declared alien enemy (declaration of war) he cannot contract.
  • 69.
    C) Persons Disqualifiedby Law 3.Companies: Company can only contract through his human agents. Company’s contractual capacity is determined by “Object Clause” of its memorandum of association. Contract made outside its scope is void. 4.Married Women: She can enter into a contract but her personal property (Streedhan) can be made liable but not property of her husband. A husband is liable for contract made by his wife for supply of necessaries of life. In this case, she is an agent of her husband by necessity.
  • 70.
    C) Persons Disqualifiedby Law 5. Convicts: While imprisonment, convict cannot enter into contract & cannot sue on contracts made before conviction. If he gets a license i.e. ticket of leave he can lawfully contract. After imprisonment he can enter into contract. 6. Insolvent: Person declared insolvent cannot contract. His official receiver appointed by court can enter into contracts, sue & be sued on his behalf.
  • 71.
  • 72.
    Definition of Consideration •Section 25 of the Indian Contract Act, 1872 says that “an agreement made without consideration is void.” So, Consideration is necessary for the formation of contract i.e., a valid contract must include consideration for every party involved[1]. • Blackstone: According to Blackstone “Consideration is the recompense given by the party contracting to the other”[2]
  • 73.
    Definition of Consideration •Pollock: In the words of Pollock, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”[3] • Justice Patterson: “Consideration means something which is of some value in the eyes of the law. It may be some benefit to the plaintiff or some detriment to the defendant”[4]
  • 74.
    Legal Rules RegardingConsideration Consideration must move at the desire of the promissor: an act forming consideration that must be done at the desire or request of the promisor. If it is done unless a person offers to do something how can he be made liable to pay for that. • Example: A polished B’s car without any request from B. is B liable? Obviously not, as the polish on B’s car was done without his request.
  • 75.
    Legal Rules RegardingConsideration  Consideration may move from promisee or any other person: The consideration may be given by the promisee or any other person on his behalf. • Example: A father gifted the whole of his property to his daughter on the condition that she should pay a certain sum of money annually to her uncle(father’s brother) on the same day, the daughter entered into an agreement with her uncle and agreed to pay the annually. Later on, the daughter refused to pay the amount that the uncle not received any consideration. The court held that the consideration was paid by the father on behalf of her uncle. Therefore, the uncle was entitled to recover the annuity.
  • 76.
    Legal Rules RegardingConsideration  Consideration may be forbearance: This means that the consideration may be a promise not to file a legal suit against the person. • Example: A’s scooter is damaged by B negligently driving his car. B promises to pay Rs.1000 as repair charges for the scooter if A does not sue him in a court of law. Here, A’s forbearance to sue B is a good consideration.
  • 77.
    Legal Rules RegardingConsideration  Consideration may be past, present or future. • Past: when a consideration by a party for a present promise was given in the past. Example: A found B’s purse and gave it to him . B promised to give A Rs.50 as a reward. Here, for B’s promise, the act of A in finding B’s purse is the past consideration. • Present consideration: when the promisor receives consideration simultaneously with the promise, it is present consideration. • Example: A purchase goods by paying money in cash here, the consideration is present consideration.
  • 78.
    Legal Rules RegardingConsideration • Future consideration: When consideration for a promise is rendered in future it is future consideration • Example: A agreed to sell and deliver certain goods to B after a week at agreed price. B agreed to pay the price after fifteen. days. Here, as the price and the ownership of goods are to be Transferred in future. Therefore the consideration in future For both the parties
  • 79.
    Legal Rules RegardingConsideration Consideration need not to be adequate: It is not Necessary that there must be full return for the promise. Example: A agreed to sell his watch worth Rs.100 only for Rs.10 .A’s consent to the agreement was given freely .the Consideration, though inadequate, will not affect the validity Of the contract.
  • 80.
    Legal Rules RegardingConsideration Consideration must be real and not illusory: consideration must be real, it has some value in the eye of law . it should not be illusory Example: A promised to pay Rs.500 to B if he brings a star from the sky to earth. Here, consideration for A’s promise to pay Rs. 500 to B is “to bring a star from the sky”. The contract is void as the consideration is illusory. This promise is also physically impossible to perform
  • 81.
    Legal Rules RegardingConsideration 8. It must be something which the promisor is not already bound to do: means preexisting legal and contractual obligations cannot be regarded as good consideration • Example: A promised to pay Rs. 1000 extra to a lawyer for winning the suit. A is not bound to pay Rs.1000 even if he wins the case . payment of one thousand rupees extra in this case is not a good consideration because the lawyer was legally bound to do.
  • 82.
    Legal Rules RegardingConsideration  Consideration must not be illegal , immoral ,or opposed to public policy: means the consideration must be lawful • Example: A promised to pay Rs. 500 to B if he beats C. the agreement is void as the consideration involves an injury to C, which is unlawful.
  • 83.
    Privity of acontract • The doctrine of privity of a contract is a common law principle which implies that only parties to a contract are allowed to sue each other to enforce their rights and liabilities and no stranger is allowed to confer obligations upon any person who is not a party to contract even though contract the contract have been entered into for his benefit.
  • 85.
    Free Consent Definition •According to section 13.Two persons are said to have consented when they agree upon the same thing in the same sense. • In English law, this is called ‘consensus–ad-idem’.
  • 86.
    Free Consent • Freeconsent when it is not caused by any of the following : 1. Coercion (Section15) 2. Undue influence(Section16) 3. Fraud(Section17) 4. Misrepresentation(Section18) 5. Mistake(Section 20, 21, 21)
  • 88.
    1. Coercion (Section15) •It means threatening or use of physical force against a person to compel him to enter into a contract. E.g. Alia Slapped Bhim & dislocated some of his teeth & threatens to repeat the same if Bhim does not lend him Rs. 30,000. The contract is caused by coercion. • Essential Elements:- Committing or threatening to commit any act forbidden by Indian Penal Code;- E.g. murder, theft, physical compulsion. Threat of suicide is coercion.
  • 89.
    Coercion (Section15) Unlawful detainingof any property or unlawful threatening to detain any property. The intention must be to compel the other person to enter into a contract. E.g. A beats B to take revenge for his insult. This is not coercion. Coercion may be from the party or from any other person/stranger. • Effects: 1) Contract becomes voidable, at the option of the party whose consent is taken by coercion. • 2) Restitution: Aggrieved party can restore the benefits given.
  • 90.
    2. Undue influence(Section16) •It is a kind of moral coercion. When relation between parties are such that one party is in a position to dominate the will of the other & use that position to obtain advantage over the other.This is undue influence. • Essential Elements: - There must be close relation between the parties. One party should be in the position to dominate the will. It includes following situations: - a) Real authority over the other like master & servant, doctor & patient.
  • 91.
    2. Undue influence(Section16) b)When relation of trust & confidence exist between parties. E.g. father & son, husband & wife. c) Undue influence can be used against the person whose mental capacity is affected by old age, illness etc. 3)The intention should be to take undue advantage. 4) Misuse of position to take advantage. • Effects: (1) Contract is voidable at the option of aggrieved party. • (2) Benefit received is restored to the aggrieved party.
  • 92.
    3. Fraud(Section17) • Fraudmeans willful misrepresentation or concealment of material facts. The intention is to deceive (cheat) the other party & induce him to enter into an agreement. It include the following acts: i. Suggestion of that which is not true i.e. given by person who does not believe it to be true. ii. Concealment of fact by one who has knowledge of it. iii. Promise made without any intention of performing it. iv. Such act which law declares to be fraudulent.
  • 93.
    Fraud(Section17) • Essential Elements:- Fraudmay be done by a party to the contract or his agent. There must be representation which is false. E.g. A intends to deceive B & falsely represents that the car which he offers for sale is imported but actually it is Indian. False representation must be of material fact, not an opinion. A promise made without intention to perform is a fraud. The intention must be to induce the other party to act upon false representation. The other party must have been relied upon the statement & must have been deceived & suffered some loss.
  • 94.
    Fraud(Section17) • Effects: Aggrieved partyhas the right to rescind (declare invalid) the contract (voidable). Sue for damages or loss suffered. Benefit received is restored. Aggrieved party can insist for performance & ask to put him in a position in which he would have been if representation made had been true.
  • 95.
    4. Misrepresentation(Section18) • Anyinnocent or unintentional false statement of fact made by one party to the other during negotiation of contract is called misrepresentation. • Example: A says to B who intends to purchase his land, “my land produces 10 quintals of wheat per acre.” A belief the statement to be true, although he did not have sufficient ground for the belief. Later on, it transpires that the land produces only 7 quintals of wheat per acre. This is a misrepresentation.
  • 96.
    4. Misrepresentation(Section18) • EssentialElements: Misrepresentation must be of fact & not mere opinion. Intention should not be to deceive the other party. Effects:) Contract is voidable at the option of aggrieved party.
  • 97.
    5. Mistake(Section 20,21, 21) Mistake means a wrong belief or misunderstanding about something. Generally, mistake does not affect the validity of the contract. According to Sec.20, where both the parties are under a mistake, the agreement is void. Essential Elements: (1)Both parties can be at mistake (bilateral mistake).
  • 98.
    5. Mistake(Section 20,21, 21) • Mistake can be of two types: Mistake of fact and Mistake of law. Mistake of fact is related to the subject matter of the contract. It may be a bilateral or unilateral mistake. If there is mistake of law, the contract is valid. •Effects: 1) Acc. To Sec. 22., Contract is not voidable due to unilateral mistake of facts. 2) Agreement made on bilateral mistake is void. 3) Mistake as to foreign law is treated as a mistake of fact & is excusable
  • 100.
    Legality of Objectand Consideration • The word object is used distinctly to mean ‘purpose or design’ of the agreement. The word ‘consideration’ is different from the object. Consideration means the benefit received or suffered under an agreement. Sec.10 implies that an agreement enforceable by law must be for a lawful consideration and with a lawful object. Every agreement of which the object or consideration is unlawful is void.
  • 101.
    Legality of Objectand Consideration • Object or consideration is considered as unlawful in following cases: • If the act is forbidden by law. E.g. X promised Y to pay Rs.3 lakh for murder of Z. It is unlawful. • If it is Fraudulent in nature. • If it involves injury to the person or property of another.
  • 102.
    Legality of Objectand Consideration • If Court considers it immoral: E.g. An agreement between husband and wife for future separation is immoral. • If court considers it opposed to public policy: It means no person can lawfully do something which can cause injury to public welfare. E.g. agreement to sell seat in medical or engineering college, agreement for getting votes in election for consideration, agreement to get a public title like ‘Bharat Ratna’ for consideration.
  • 103.
    Discharge of Contract •Discharge of a contract means termination of contractual relation between the parties to a contract. • A contract is discharged when the obligation created between parties come to an end. • There are several methods of discharging the contracts namely: • 1) By performance of promise • 2) By mutual agreement • 3) By lapse of time • 4) By operation of law • 5) By impossibility of performance • 6) By breach of contract
  • 105.
    1. Discharge byPerformance of Promise • When parties perform their promises, then the contract comes to an end or is discharged. It can be performed in two ways – by actual performance or by attempted performance
  • 106.
    2. Discharge byMutual Agreement Methods of discharge of an existing contract by a fresh agreement by mutual consent are: • 1) Novation: It means substitution of a new contract in place of the existing contract. It may be done in two ways:- a. New contract with new terms with same parties. b. New contract on same terms with one party same & one new party. • 2) Alteration: It means change in one or more terms of the contract with the consent of all parties. A valid alteration discharges the original contract & a contract with new terms is created.
  • 107.
    2. Discharge byMutual Agreement • 3) Rescission: It means cancellation of contract. Cancellation may be by mutual agreement of both parties or by aggrieved party if free consent is not given. • 4) Remission: It means acceptance of a lesser performance in discharge of a whole promise made. • 5) Waiver: It means intentional withdrawal of rights. When a party entitled to claim performance releases the other party from his obligation to perform it, it is called waiver.
  • 108.
    2. Discharge byMutual Agreement • 6) Merger: - It means merger of two or more rights into one contract. When an existing inferior right of party merges into newly acquired superior right by the same party, it is merger of rights. In such case, inferior right automatically stands discharged. E.g. A person holding a property under a lease, buys the property in his name. His rights as a lessee are merged into the rights of ownership.
  • 109.
    3. Discharge byLapse ofTime • When time is fixed for the contract & a party does not perform it within that time, the contract is discharged by lapse of time
  • 110.
    4. Discharge byOperation of Law • The contract discharges by operation of law in the following cases: 1) Merger: Inferior right is discharged & not required to be enforced. 2) Insolvency: When court declares insolvent, the person is discharged from all obligations of any contract & they are transferred to his official receiver. 3) Death: If contract involves use of personal skills of promisor then on his death the contract is discharged. In other cases, the obligation is transferred to legal representatives. 4) Unauthorized material alteration in the terms of the contract, without the knowledge & consent of other party, the contract may be discharged by other party (voidable).
  • 111.
    5. Discharge byImpossibility of Performance • Where contract is impossible to perform, the contract is void. • According to Sec. 56, impossibility may be of two types: 1. Existing Impossibility: It refers to the impossibility at the time of agreement. 2. Subsequent or Supervening Impossibility: The contract becomes void when the act becomes impossible later on.
  • 112.
    6. Discharge byBreach of Contract • It means non-fulfillment of the promise made by any of the parties to a contract.There are two types of breach of contract: 1. Actual Breach 2. Anticipatory Breach
  • 113.
    6. Discharge byBreach of Contract 1. Actual Breach: It takes place when a party to a contract refuses or fails to perform his obligation when it is due. 2. Anticipatory Breach: When a party disables himself or declares that it will not perform the contract prior to the date of performance. It is also called anticipatory or constructive breach of contract.
  • 115.
    Quasi contract • AQuasi-contract is not a contract at all because one or the other essentials for the formation of a contract are absent. It is an obligation imposed by law upon a person for the benefit of another even in the absence of a contract. • Quasi Contract is not a full-fledged contract because there is no offer and acceptance by the parties. But there are some circumstances where the contractual obligation arises.
  • 116.
    Quasi contract • Sec.68 -72 deals with following kinds of quasi contractual obligations; i. Supply of necessaries ii. Payment by an interested person iii. Obligation to pay for non-gratuitous iv. Responsibilities of finder of goods v. Mistake or Coersion vi. Quantum meruit >> ‘as much as erned’ vii.Compensation for failure to discharge obligation created by quasi contracts
  • 117.
  • 118.
    Contract of Indemnity(Sec. 124) • According to Sec. 124, a contract of indemnity is ‘A contract by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any other person.’ • The person who promises to indemnify or make good the loss is called indemnifier. The promisee or whose loss is made good is called the indemnified or indemnity holder.
  • 120.
    Contract of Indemnity(Sec. 124) • Rights of indemnity- holder or indemnified He has following rights against the indemnifier i.e. Promisor: 1. Right to recover damages: All damages he may be supposed to pay in any suit to which the indemnity applies. 2. Recovery of cost: All costs which he may be made to pay in defending the suit of indemnity. 3. Recovery of all sums paid: All sums he has paid in terms of any compromise of any suit.
  • 121.
    Contract of Indemnity(Sec. 124) • Rights of Indemnifier : 1. Right of subrogation: After paying the amount of claim, indemnifier gets all the rights of indemnified against a third party. i.e. to sue & claim for damages & all sums paid against third party. 2. Right to refuse claim or indemnity: If loss caused is out of the scope of the contract or indemnified has not acted prudently, then indemnifier can refuse claim.
  • 123.
    Contract of Guarantee •A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. • There are three parties involved i.e. the person who gives the guarantee known as the surety, the person in respect of whose default the guarantee is given known as the principal debtor and the person to whom the guarantee is given known as the creditor
  • 125.
  • 126.
    Bailment • Indian ContractsAct 1872 • ‘Bailment’ means ‘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 disposed off as per the directions given by the person delivering them. One who delivers called ‘Bailor’ and to whom delivered called ‘Bailee’.
  • 127.
    Essential Elements ofa valid bailment Agreement between bailor and bailee Delivery of goods. Ownership not change Only movable goods. Delivery for some purpose. Change in forms. Return of goods
  • 128.
    Essential Elements ofa valid bailment • There must be an agreement between the bailor and bailee. This agreement may be express or implied. However, a bailment may be implied by law as it happens in the case of finder of lost goods. • In bailment, it is necessary that the goods should be delivered to the bailee. It is the essence of the contract of bailment. Delivery may be of two types: 1-Actual delivery, 2- constructive delivery.
  • 129.
    Essential Elements ofa valid bailment • In a bailment the ownership remains with the bailor and is not transferred to the bailee or anyone as because if the ownership is transferred then it is not a bailment contract. It becomes a contract of sale. • Bailment is only for movable goods and not for immovable goods. • The goods must be delivered to the bailee for some purpose. The purpose could be the safe custody, use of the goods, transportation of the goods, repair of the goods etc.
  • 130.
    Essential Elements ofa valid bailment • If the goods which are bailed are changed like a cloth is converted into a shirt than still the contract remains a bailment. • The goods shall be returned to the bailor or disposed off according to his direction .
  • 131.
    Types of Bailment •Bailment may broadly be classified into two categories, namely, 1. Gratuitous bailment, 2. Non-gratuitous bailment.
  • 132.
    Types of Bailment 1.Gratuitous Bailment • A bailment with no considerations is called a gratuitous bailment. In this kind of bailment neither the bailor, nor the bailee is entitled to any remuneration or reward. Such a bailment may be for the exclusive benefit of either party, i.e., the bailor or the bailee, discussed as below:
  • 133.
    Types of Bailment Bailmentfor the exclusive benefit of the bailor: • In this case the bailor delivers the goods for the exclusive benefits and the bailee does not derive any benefit out of it. For example, “A” leaves his pets with “B”, his neighbour to be looked after during A’s physical absence. In this case, A alone is being benefited by the bailment. Or, if you park your car in your neighbour’s premises to be taken care in your absence, you as a bailor derive the exclusive benefit from the bailment.
  • 134.
    Types of Bailment Bailmentfor the exclusive benefit of the bailee: • This is the case where a bailor delivers the goods to the bailee for the exclusive benefits of the bailee and does not gain anything from the contract himself. For example, you lend your book to a friend of yours for a week without any charge or favour. In this case the recipient of the book as a bailee, is the sole beneficiary of this transaction of bailment.
  • 135.
    Types of Bailment 2.Non-Gratuitous Bailment • Contrary to gratuitous bailment, a non-gratuitous bailment or bailment for reward is one that involve some consideration passing between the bailor and the bailee. Obviously in this case the delivery of goods takes place for the mutual benefit of both the parties. • For example, “A” hires “B’s” car. Here B is the bailor and receives the hire charges and A is the bailee and enjoys the use of the car. Similarly, when you give your PC or laptop for repair to some techie, both you and the computer techie are going to be benefited by this contract – while you get your computer repaired, he gets his fees or charges.
  • 137.
    Pledge or Pawn •According to Sec 172, Contract Act, 1872, ‘ The bailment of goods for repayment of a debt or performance of a promise is called ‘pledge’. The bailor in this case is called the pawnor, the bailee is called the pawnee.
  • 138.
    Rights & Dutiesof Pawnor & Pawee • Duties of a Pawnor: Duty to repay the loan. Duty to pay expenses in case of default. • Duties of a pawnee: Duty not use of pledged goods. Duty to return the goods.
  • 139.
    Rights & Dutiesof Pawnor & Pawee • Right of Pawnor: Right to redeem the goods pledged Right to receive the increase • Right of Pawnee: Right to retain the pledged goods. Right to extra ordinary expenses Right in case of default of the pawnor.  Right to sell the goods