basis of law

7/29/2019 basis of law

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INDIAN CONTRACT

ACT 1872

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What is law

A set of rules . It may be defined as the rules ofconduct and enforced by the state to control andregulate the conduct of people ,to protect and

contractual rights with a view to securing justice,peaceful living and social security

Purpose of knowing law is ignorance of law is ofno excuse

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Mercantile law

It is a part of civil law which deals with rightsand obligations of mercantile persons arising outmercantile transactions in respect of mercantile

property (e.g.) contracts, partnership, companies,

negotiable instruments ,insurance.

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Sources of mercantile law

Sources of mercantile law

Judicial decisionsIndian statute lawEnglish law Customs and usages

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Law of contract

Deals with

(a)general principles of law governing allcontracts.

(b) special provisions relating to specialcontracts like bailment,pledge,indeminity,guarantee and agency

(e.g.) when you purchase a newspaper youenter in to contract with newspaper agent

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Meaning of contract

According to section 2(h) of Indian contract act1872, an agreement enforceable by law is acontract

It has 2 elements .(a)an agreement, and

(b)Enforceability of an agreement.

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Agreement & promise

According to section 2(e) of the Indian contractact 1872, Every promise and every set ofpromises forming consideration for each other is

an agreement. According to section 2(b) of Indian contract act

1872, A proposal when accepted becomes apromise.

Agreement=offer +acceptance(promise)

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Enforceability of agreement

The parties to an agreement must bebound to perform their promises and incase of default by either of them must

intend to sue

(e.g.) in case of social or domesticagreements the usual presumptions is that

the parties do not intend to create legalrelations.

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Essentials of valid contract

1.Proper offer and acceptance(consensus adidem)

offer to be valid must satisfy certain

conditions like intend to create legal relations,certain and unambiguous communicated to theperson.

acceptance to be valid must satisfy certainconditions like it must be made in prescribedmanner and it must communicated to theconcerned person

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2.Intention to create legal relationship

In commercial and business agreements the

usual presumption is the parties intended tocreate legal relationship and in domestic andsocial agreements the parties does not createlegal relations because it is social agreements.

3.Free consent

According to section 14 consent is said to be

free and it should not caused by coercion, undue

influence, fraud, misrepresentation, mistake.

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4.Capacities of parties

The parties must be capable to enter in the

contract like he must be of sound mind, he must bemajor and he is not disqualified from any law.

5.Lawful consideration

According to section 23 of the Indian contractact 1872, the consideration is considered lawfulunless it is forbidden by law or is fraudulent orinvolves or implies injury to the person or property

of another or is immoral or is opposed to publicpolicy

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6.Lawful object

According to section 23 of Indian contract act,

the object is considered lawful unless it isforbidden by law or is fraudulent or involves orimplies injury to the person or property of anotheror is immoral or is opposed to public policy.

7.Agreement not declared void

As per the provisions of Indian contract act

section 24 to 30 agreement in restraint of marriage,

agreement in restraint of legal proceedings,agreement in restraint of trade .

(e.g.) x promises y that if y stops his business xpay Rs.20000 for closing of business.

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8.Certainity of meaning(id certum est quodcertum reddi potest)

According to section 29 of Indian contract act1872 the meaning of agreement which is not certainand or capable of being made certain are void

(e.g.) x agreed to sell 100 tones of oil to y ,the

agreement is void.

9.Possiblity of performance

According to section 56,an agreement to do an

impossible act is void

(e.g.) x agreed to discover treasure by magic to y

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10.Legal formalities

The agreements must comply with the

necessary formalities like writing,registration, stamping.

These are essential elements to make acontract to be a valid one.

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Classification of contracts

1.Contracts on the basis of creation

(a)Express contract made by words spoken or

written

(b) Implied contract made otherwise than byspoken or written. It is inferred from theconduct of a person or the circumstances of the

particular case(e.g.) x,a coolie picks a bag of y with beingasked to y

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2.Contracts on the basis of execution

(a)Executed contractboth the parties have to

fulfill their respective obligations under thecontract.

(e.g.)X offers to y that he sells his car and yaccepts the offer .X delivers the car and y makes

the payment.

(b) Executory contractboth the parties to thecontract have still to perform their respective

obligations.(c) partly executed and partly executory contract-one of the parties to the contract fulfill hisobligations but the other party has still perform his

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3.Contracts on basis of enforceability

(a)valid contract must fulfill all the essential

elements(b)void contract-a contract which was valid whenentered into but which subsequently became voiddue impossibility of performance, change of law or

some other reasons.(e.g.) x offers to marry y ,y accepts the offer but

later on y dies .

(c) void agreement- agreement not enforceable bylaw (void ab initio)

(e.g.)enter in to an agreement with minor

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(d)voidable contract- which can be set aside orrepudiated or avoided at the option of aggrievedparty.

(e)Illegal agreement- one of the object which isunlawful . Such agreement is void ab initio .

(e.g.)enter into an agreement for unlawfulobject.

(f)Unenforceable contract- contract which is validbut cannot be enforced because of sometechnical default

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Offer or proposal

Proposal is an expression of will orintention to do or not to do something

Section 2(a) of the contract act definesthe proposal as when one personsignifies to another his willingness to do orto abstain from doing anything with a view

to obtaining the assent of that other, tosuch act or abstinence, he is said to makea proposal

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Kinds of an offer

Expressed or implied.

Positive or negative.

Statement or question

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Essentials of valid offer

1.Offer must be capable creating legalrelations.

an offer to perform social, religious or moral

acts with out creating legal relations will not bea valid offer.

2.Terms of offer must be certain

the terms and conditions of offer must be

certain and unambiguous

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3.Offer may be specific or general

when an offer is made to general public

at large is called general offer(e.g) A made an offer to general public thatif anyone find his missing dog he will give

Rs.100when an offer is made to specific

individuals is called specific offer

(e.g) A made an offer to B that if B find Asmissing dog he will give Rs.100.

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4. Offer must be communicated to the offeree

The offer must be communicated to the offeree

by the offeror by choosing available means such asa word of mouth, mail, telegram ,messenger, awritten document, or even signs and gestures.

5.Invitation to offer is not an offer

There is no intention on the part of the person

sending out the invitation to obtain the consent ofother person to such an invitation. His aim is to

circulate the information.(e.g.)A price list of goods for sale

Railway time table

Prospectus issued by the company23


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6.Offer must be made to obtaining the assent

Mere enquiry is not an offer , the offerer must

get the assent from the acceptor.7.An offer should contain a term the non

compliance of which would amounts toacceptance

An offer must not contain any condition if

acceptor does not communicate his acceptancewith in the specified time, he is deemed to have

accepted the offer(e.g.)A writes to B , I shall sell my car for

Rs.100000 if you dont reply with in a week .I shall

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8.Offer may be conditional

The offeror is free to lay down the terms &

conditions in his offer if other party accepts theconditions.

9.General offer is different from tender

A person invites tender for the purchase or saleof goods does not make an offer .The person whosubmits the tender is said to make an offer.

10.Cross offers

identical offers made by the persons are knownas cross offers, they do not make a contract.

(e.g.)A offers to sell his scooter for Rs 15000 on the same

day B writes to A offering to buy his scooter for Rs.1500025


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Acceptance

A contract is formed when offer is accepted bythe acceptor.

Section 2(b) of the Indian contract act defines

acceptance as when the person to whom theproposal is made signifies his assent thereto, theproposal is said to be accepted.

E.g.- A offers to sell his house to B for

Rs.1000000,B accepts the offer to purchase thehouse. As offer is said to be accepted and itbecomes agreement between A and B

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Essentials of valid acceptance

1.Acceptance must be absolute and unconditional

Must correspond with all the terms of theoffer. Even the slightest deviations from the

terms of the offer makes the acceptance invalid.offer must be accepted in Toto.

E.g.- A offers to sell his ring for Rs 5500 to B.But B accepts to buy for Rs.5000.Thisacceptance is not valid

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2.Acceptance must be communicated

communication need not be in writing or by wordof mouth. When the parties are face to face

communication could be oral. When they are distantplace communication could be made by post , bytelegram, by a message on phone or in any otherreasonable manner.

3.Acceptance must be in the mode prescribed

The acceptance must be made by the acceptorin the mode prescribed ,if the acceptor made the

acceptance in any other mode the offerer if timepermits can ask the acceptor in prescribed mode

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4.Acceptance must be given within a reasonable time

The offer must be accepted within theprescribed time if no time is prescribed for

acceptance the offer must be accepted with inreasonable time

5.Acceptance must be given only by the offeree

If the acceptance accepted by any anotherperson, there is no valid acceptance.

6.Acceptance must be after an offer

acceptance must succeed the offer. In otherwords acceptance should follow the offer and notprecede it

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7.Acceptance must be given before the offer lapses orits revocation

Acceptance after the lapse of the offer cannot

give rise to a contract.

8.A proposal once rejected cannot be accepted unlessit is renewed

offer once rejected cannot be accepted againunless a fresh offer is made

These are the essentials to make acceptance tobe a valid one

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Revoking a proposal

Revocation means cancellation .Revocationof an offer means its withdrawal by theofferor.

Section 5 lays down, a proposal may berevoked at any time before thecommunication of its acceptance asagainst the proposer

E.g.- A proposes to B that he will sell hiscar. A can revoke his offer before B postshis letter of acceptance

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Methods

1.Revocation by communication of noticeAn offer may be revoked by the offeror by

giving notice of revocation to the other party beforeit is accepted.

2.Revocation by lapse of time

If time is prescribed for acceptance ,the offergets revoked by non acceptance within that time.

3.Revocation by non-fulfillment of conditionsAn offer is revoked when the acceptor fails to

fulfill a conditions to the acceptance of the offer

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4 R ti b d th i it f th ff


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4.Revocation by death or insanity of the offeror

An offer is revoked by the death or insanity ofthe offeror, in fact of his death or insanity comes to

the knowledge of the acceptor before acceptance.5.Revocation by counter offer

An offer is revoked if counter offer is made toit.

6.Revocation by failure to accept in the modeprescribed.

The acceptance must be made by the acceptorin the mode prescribed ,if the acceptor made theacceptance in any other mode the offerer if timepermits can ask the acceptor in prescribed mode

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Consideration

Something in return(Quid pro quo)

The price for which the promise of the other isbought.

E.g.- A agrees to sell his house to B forRs.1000000 . B accepts to buy his house forRs.1000000. here for A Rs 1000000 isconsideration and for B house is consideration.

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Legal rules as to consideration

1.Consideration must move at the desire of thepromisor

consideration must have been given at the

desire of the promisor ,here the promiseecannot force the promisor to give considerationfor the acts done.

E.g-A sees Bs house on fire and helps toextinguish it .Here B cannot claim any amountbecause A never asked help from B

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2.Consideration may move from promisee to anyother person

consideration may be given by the promisee orany other person on his behalf, so the stranger toconsideration can sue on the agreement

e.g.-A gifted property to her daughter B with

instruction that B should pay her uncle C, a certainamount annually .B refused. But B was liable to payC

3.Consideration may be past, present and future

under Indian law consideration may be past ,present, future But under English law considerationmay be present and future

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4.Consideration need not be adequate

consideration need not be adequate but itshould have some values in the eyes of law

E.g.-A agrees to sell a horse worth Rs.1000 forRs.10

5.Consideration must be real

consideration must be real and possible, it mustnot be legal, impossible, or illusory

E.g.- a promise to create treasure by magic

6.Considerationmust be lawfulIt must not be illegal, immoral, opposed to

public policy

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Exceptions(no consideration)

1.Promise made on account of natural love andaffection

An agreement made without consideration is valid if it is

writing and registered and is made on account of natural love andaffection.

2.Compensation for past voluntary services

A promise to pay a past voluntary service is binding.(e.g.) A

finds B purse and B promises to pay Rs 500 to A.

3.Contract of agency

According to section 185 of the contract act, no consideration

is necessary to create contract of agency

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4.Written promise to pay a time barred debt

A promise by a debtor to pay a time barred debt is also

enforceable. But the promise must be in writing

(e.g.) A owes B Rs.1000 but the debt is barred by thelimitation act. A signs a written promise to pay Rs.500 onaccount of debt. The promise will be valid and binding

without any fresh consideration.

5.completed gifts

Gift does not require any consideration . Absence of

consideration shall not affect the validity of any gift actually

made.6.Contract under seal

In English law a contract under seal is valid and

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Post consideration is no

consideration

1.Past consideration

Where the promisor has received the

consideration before the date of promise

2.Present consideration(executed)

Where the promisor receives consideration

along with promise

3.Future consideration(Executory)

Where the promisor has to receiveconsideration in future for his promise

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Capacities of parties

capacity to contract means competence of

the parties to enter into a valid contract.

According to section 10an agreement becomes

contract if it is entered into between the partieswho are competent to contract

According to section 11 Every person is

competent to contract who is of age of majorityand who is of sound mind and is not disqualifiedfrom any law to which he is subject

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Reasons for incapacity

A)Incapacity arising from status

1.Foreign sovereigns and ambassadors

Indian law- full capacity to enter into

contracts but they cannot be sued in our courtswith out the permission from our centralgovernment.

English law full capacity to enter but suitcan be instituted if they submit themselves tothe jurisdiction of England

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2 Alien enem alien means citi en of fo eign co nt


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2.Alien enemy- alien means citizen of foreign countryand alien enemy cannot have the capacity to enterin to contract.

3.convicts-A convict while undergoing imprisonmentcannot have a capacity to enter a contract butafter completed his sentence he can enter.

4.Professional persons-In England Barristers sufferfrom professional incapacity, they cannot sue fortheir fees .But in India no person can suffer fromprofessional incapacity

5.Corporation- can enter into contracts but cannotmake contracts of marriage.

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B)I i i i f l d fi i


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B)Incapacity arising from mental deficiency

The contracts entered with minor cannot beenforceable under Indian law and the contract isvoid .But contracts for necessaries supplied to theminor are enforceable against him .Under Englishlaw the contracts are void,valid,voidable

C) Incapacity arising from unsoundness mindThe contracts entered with unsound mind

cannot be enforceable and it is void .But forcontracts for necessaries can be enforced against

them

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Minor lawMinor- A person who is not attaining the age of

majority that is not completing the age of 18 andincase of the persons managed by their guardianshis majority age will be 21.

Minor under Indian law

1.Absolutely void-According section 11,a minor isnot competent to contract. Hence an agreement isvoid ab intio.

2.No ratification is possible-ratification means

subsequent approval of an act already done. Acontract by a minor is absolutely void ,he cannotratify the contracts entered in to by him during hisminority

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3 No estoppels against a minor A minor is not bound


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3. No estoppels against a minor-A minor is not boundby his misrepresentation, if a minor fraudulentlyrepresenting himself as a major he cannot be

prevented from pleading his minority as defenseand he compensate the other party

4.No restitution for fraud-If minor obtains the propertyor goods by fraud on credit, the court will order toreturn the property to the trader. If the propertycannot be traced or destroyed he need not pay backany money he has received.

5.Enforceablity of contracts by minor-A minor cannotbe a promisor but he can be a promisee orbeneficiary. so contracts which are beneficial tominor can be enforced by him.

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6 Minor and insolvency A minor cannot be declared


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6.Minor and insolvency- A minor cannot be declaredas insolvent because even for necessities of life heis not personally liable.

7.Minor and partnership- A minor cannot be admittedas partner but if all partners agree ,he can beadmitted as partnership for the benefits.

8.Minor and agency- A minor can be appointed asagent and he has to represent his dealings withprincipal to other parties.

9.Minor and negotiable instruments- A minor can

draw ,deliver, and endorse without himself beingliable.

10.Minor as a member of a company- A minor cannotbecome a member and with name of lawfuluardian he will be entered as a member

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11 Position of minor parents The parents of minor is


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11.Position of minor parents-The parents of minor isnot liable but if they act as their agents they areheld liable.

12.Minors liability for necessities-A minor is liable fornecessities supplied to him and it should reimbursedby the supplier if the minor have some property andif they minor does not have any property the sellerhas lose their price.

13.Minor and guardian-A contract entered into by aguardian on behalf of minor is binding on the minor

provided the contract is beneficial to the minor. Theguardian cannot sell any immovable property without permission of the court.

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14.Minor liability for tort-Minors are liable for causingany injury or damage for property that does notbelongs to them.

15.No specific performanceAn agreement with minoris void and the court will never direct specificperformance of such an agreement by him

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Consent

Two or more parties are said to beconsent when they agree upon the samething ,in the same sense. When the

parties agree upon the same thing ,in thesame sense , they are said to consensusad idem

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Free Consent

Free consent is the consent which hasbeen obtained by the free will of theparties out of their accord.

According to section 14, consent is saidto be free when it is not caused bycoercion or undue influence or fraud or

misrepresentation or mistake.

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Definition of Mistake

Erroneous (wrong) belief concerningsomething. consent is not free when it iscaused by mistake. If the consent is not

free the contract is invalid. Thus mistakeaffects the validity of contract.

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Mistake

of law

Indianlaw

Foreignlaw

Bilateral unilateral

As tosubjectmatter

As topossibility ofperformance

Identityof person

Nature ofcontract

Types ofmistake

Mistakeof fact

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Mistake of law


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Mistake of law

Mistake of Indian law

The contract is not voidable because every oneis supposed to know the law of his country.

But if one of the parties makes a mistake of lawthrough the inducement of the other party thecontract may be avoided.

Mistake of foreign law

The contract will be void if a mistake is made byone of the parties to the contract in regard toforeign law.

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Mistake of fact


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Mistake of fact

Mistake of fact can be either bilateral mistake orunilateral mistake.

a)Bilateral mistake-Where the both the parties to theagreement are under a mistake.

(e.g.) A agrees to buy from B a certain horse. It turns outthat the horse was dead at the time of the bargain,though neither party was aware of the fact. Theagreement is void.

b) Unilateral mistake-A mistake of fact in the mind of the oneparty to the contract is called unilateral mistake.

(e.g.) A buys an article that it worth Rs1000 when it isworth only Rs.500 .A cannot subsequently avoid thecontract.

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Coercion


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Coercion

Coercion is threat or force by one party against theother for making him enter into an agreement.

Section 15 of the contract act defines coercion as thecommitting or threatening to commit any act

forbidden by the penal code ,or the unlawfuldetaining or threatening to detain any property, tothe prejudice of any person whatever ,with theintention of causing any person to enter into anagreement

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Any of the following acts amount to coercion


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Any of the following acts amount to coercion

1.Committing an act forbidden by the Indian penalcode

2.Threatening to commit an act forbidden by theIndian penal code

3.Unlawful detain of any property

4.Threatening to detain the property of any personwrongfully.

E.g.- A threatens to shoot B if he does not lend him

Rs.3000 and B lends the amount. Threat amountsto coercion

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Consequences of coercion

When an agreement is made undercoercion ,the consent is not free .Hence itis voidable at the option of the party

whose consent was not free.According section 72 of the contract act, aperson to whom anything has been

delivered or money paid under coercionmust return or repay it.

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Undue influence

- Improper use of any power possessed over themind of the other contracting party.

- Section 16 of Indian contract act as an

influence exercised by one party on the otherwhere the relations subsisting between theparties are such that one of the parties is in aposition to dominate the will of the other and

uses that position to obtain an unfair advantageover the other

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Essentials of undue influence

1.One of the parties must be in a position todominate the will of the other.

2.One the parties must use his dominant

position to obtain that unfair advantage.

3.The dominant party should obtain anunfair advantage over the other.

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Effects of undue influence

Consent given under undue influence is notfree consent .Hence the party who is subject toundue influence can avoid the contract.

(e.g) A advanced money to his minor son.After becoming major ,the son was induced bythe father to execute a bond for a greater

amount .A employed undue influence

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Contracts with pardanashin


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Contracts with pardanashin

womanPardanashin woman is one who observescomplete seclusion because of the custom of the

community to which she belongs.

The court when called upon to deal with a deed

executed by pardanashin woman must satisfyupon evidence

1.the deed executed actually by her with fullunderstanding of what she was about to do.

2.she had full knowledge about the contract.

3.She had independent and interest in thematter

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Misrepresentation

Representations may be of 2 types

(i)innocent representation

(ii)intention representation

Innocent representation will be calledas Misrepresentation and party doesnothave any intention to deceive any partyand intention representation will be calledas Fraud

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Essentials of Misrepresentation

1. By the party to a contract

2. False representation

3. Representation of fact.

4. Objective.

5. Actually acted

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Consequences of


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Consequences of

misrepresentationA contract caused by misrepresentation is voidable

.Misrepresentation does not entitle the aggrieved partyto claim damages .The aggrieved party has thefollowing remedies :

(a) he can avoid contract(b) he can insist that the contract be performed.

e.g.- A, innocently in good faith informs B thatAs estate isfree from encumbrance. B thereupon buys the estate.

The estate is subject to mortgage. B may either avoidthe contract or may insist on its being carried and themortgage debt redeemed

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Fraud

Representation made with an intention todeceive or cheat the other party

Essential elements of fraud

1.By the party to a contract.2.False representation

3.Representation as to

fact.(opinion,statements,intention)4.Actually deceived.

5.Suffered loss.

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Consequences of fraud

1.He may rescind the contract.

2.He may insist on the performance of thecontract.

3.He can also file a suit to claim damages.e.g-A, fraudulently informs B that As estate is free

from encumbrance. B thereupon buys theestate. The estate is subject to mortgage. B mayeither avoid the contract or may insist on itsbeing carried and the mortgage debt redeemed

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Legality of object and


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Legality of object and

considerationCircumstances under which the object or

consideration is deemed to be Unlawful:

a)If it is forbidden by law

If the object or the consideration of anagreement in doing of an act which is forbiddenby law ,the agreement is void.

(e.g)X, a Hindu already married and his wifealive entered into marriage agreement with Yan unmarried girl.

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b)If it defeats the provision of any law


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b)If it defeats the provision of any law

If the object or consideration of an agreement defeat

the provisions of any law, the agreement is void

c)If it is fraudulent

If the object of an agreement is to defraud others ,the

agreement is void

(e.g)A,B and C enters into an agreement of the divisionamong them of gains acquired or be acquired ,by them byfraud, the agreement is void.

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d)If it involves or implies injury to a person or


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) p j y pproperty of another

If the object of an agreement is to injure a person or

the property of another the agreement is void(e.g) X promised to pay Rs 10000 to Y when he agreed topublish a libel of Z the agreement is void because it involvesinjury to Z.

e) It the court regards it as immoral or opposed topublic policy

If the object or consideration is immoral or is opposed

to public policy the agreement is void

(e.g)X gave Rs.100000 to Y a married woman to obtain adivorce from her husband.X agreed to marry her as soon asshe obtained a divorce .It was held that X could not recoverback the amount.

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ILLEGAL AGREEMENTS


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ILLEGAL AGREEMENTS

Agreements which are

(a) void ab intio i.e void at the beginning

(b) punishable by the criminal law of thecountry.

Effects of Illegal agreements

(1)The collateral transactions to an agreements alsobecome illegal and hence cannot be enforced.

(2) No action can be taken for the recovery of moneypaid or property transferred under an illegal agreement.

(e.g) X promises to pay Y Rs.1000 if Y beats Z.Y beats Z andclaims Rs1000 but refuses to pay .Y cannot recover from Xbecause the agreement between X and Y is illegal.

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Agreements opposed to public


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Agreements opposed to public

policya)Agreements of trading with enemy-

All agreements made with an alien enemyare illegal on the ground of public policy

b)Agreements for stifling prosecutionAn agreements for stifling prosecution is

illegal on the ground of public policy

(e.g) X knows that Y has commited a murderreceives Rs 500000 for not exposing Y ,theagreements is illegal

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c) Agreements in the nature of maintenance and


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c)Agreements in the nature of maintenance andchamperty

When a person agrees to help another by money or

otherwise in litigation in which he is not himself interested it

is called maintenance .

When a person agrees to help another in litigation in

exchange for a promise to handover a portion of the fruits ofthe litigation is called champerty

d) Agreements for the sale/transfer of public officesand titles

The agreements for the sale or transfer of public officesor to obtain public titles like Padmashree are illegal on theground of public policy

(e.g) X promises to pay Y Rs 50000 if Y secures him an

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e) Agreements in restraint of parental rights


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e) g ee e ts est a t o pa e ta g ts

An agreement which prevent a parent toexercise his right of guardianship is void on the

ground of public policy

(e.g)G, the father of 2 sons agreed to transferhis guardianship to A and also agreed not to revoke

the transfer during his lifetime. Subsequently ,hefiled a suit for the recovery of boys. He got success

f)Agreements in restraint of personal liberty

An agreements in restraint of personal liberty of

any person is void on ground of public policy.

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g)Agreement tending to create monopoly


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g) g g p y

An agreement creating monopoly is void on the ground

of public policy

(e.g) A local body granted a monopoly to X to sellvegetables in a particular locality

h) Agreement interfering with court of justice

i) Agreements in restraint of marriage-other than minor

j) Agreement in restraint of trade-restraint from exercising histrade

k) Agreement in restraint of legal proceedings

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Void agreements


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Void agreementsA void agreements is one which is not enforceable by

law. Such an agreement does not give rise to anylegal consequences and is void ab initio

1.Agreements by incompetent parties.

2.Agreements made under a mutual mistake of fact.

3.Agreements the consideration or object of which is unlawful.4.Agreements the consideration or object of which is unlawful or part.

5.Agreements made with out consideration.

6.Agreements in restraint of marriage, trade, legal proceedings.

7.Agreeements the meaning of which is uncertain.

8.Agreements by way of wager

9.Agreements contingent on impossible events.

10.Agreements to do impossible acts.

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Wagering agreements (betting )


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Wagering agreements (betting )An agreements between 2 parties by which one

promises to pay money or moneys worth on thehappening of some uncertain event in considerationof other partys promise to pay if the event does nothappen.

e.g- A and B enters in to agreements that A shall payB Rs.100 if it rains on Monday and that B shall pay

A the same amount if it does not rain, it is wagering

agreements.

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Essentials of wagering


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g gagreements

1.Promise to pay money or moneys worth.2.Uncertain events.

3.Each party must stand to win or lose.

4.No control over the events.5.No other interest in the event.

Effects of wagering agreementsWagering agreements have been expressely declared to be

void in india.In the states of maharastra and gujrat theyhave been declared to be illegal.

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Performance of the contract


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Performance of the contract

Performance of the contract means fulfillment of legal

obligations created by a contract. when a contract isduly performed by both the parties, that contractcomes to a happy ending and nothing more remains.

Section 37 of the contract act lays down that partiesto a contract must either perform or offer to performtheir respective promises ,unless such performance

is dispensed with or excused under the provisions oflaw

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Wh d d f ?


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Who can demand performance?

It is only the promisee who can demandperformance of the promisee under thecontract.

A third party generally cannot demandperformance of the contract even if it wasmade for his benefit.

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Contracts which need not be


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performed

1.If the parties to a contract agree to substitute anew contractfor it or to rescind or alter it ,the original contract need notbe performed.

2.When its performance becomes impossible.

3.When the person at whose option it is voidable, rescinds it.4.When the promisee neglects or refuses to afford the promisor

reasonable facilities for the performance of his promise.

E.g-A contracts with B to repairs Bs house .B neglects or

refuses to point out to A the places in which his houserequires repairs.

5.When it is illegal.

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Tender


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TenderAn offer to perform ones obligations under a

contract is called tenderSection 38 lays down that where the promisor

,has made offer of performance to the

promisee and the offer has not beenaccepted ,the promisor is not responsible ,nordoes he thereby loses his rights under the

contract

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Kinds of an offer


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Kinds of an offer1.Tender of goods

Tender of goods amounts actual performance .Itdischarges the contract if the offeror or promisor producesgoods of the correct quality and quantity ,the rejection of hisoffer discharges him from further liablity. He can bring an

action for non acceptance .2.Tender of money

If the debtor makes a valid tender of money ,but the

creditor refuses to accept it , the debtor discharged from

making payment .Debtor is held liable for the payment ofdebt. He is ,however ,not liable for any interest on the debtfrom the date of valid tender

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Essentials of valid tender


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Essentials of valid tender1.It is must be unconditional

A tender should be exactly in accordance with theterms of the contract. A tender becomes conditional if it isnot in accordance with the terms of the contract.

2.It must be made at a proper time and place

3.Ready to perform4.Tender by minor-not a valid tender

5.Made to the proper person

6.It must be in respect of the whole promise

7.Reasonable opportunity to inspect by the promisee

8.Exact amount should be tendered(for the tender of money)

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Reciprocal promises


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Reciprocal promisesPromises which form consideration or part of the

consideration for each other are called reciprocalpromises such promise are mutual promises

When one party gives a promise in consideration ofthe others promise ,both the promises are called

reciprocal promises.

e.g-In contract of sale ,A promises to deliver the goodsto B at a fixed price B promises to give security for

the payment of the price .such promises are calledreciprocal promises.

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Kinds of reciprocal promises


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Kinds of reciprocal promises1.Mutual and independent promises

where each party must perform his promise independently withoutwaiting for the performance of the other the promise are mutual andindependent

e.g- A agrees to pay B, the price of the goods on 15th

and B promises to deliver the goods on 20th .The promise are mutual

and independent.2.Mutual and dependent promises

Where the promise of performance of the promise by one party dependson the prior performance by the other party

e.g- A agrees to build a house for B and B agrees to supply the necessary

timber for the construction of the house.

3.Mutual and concurrent promises

When the 2 promises are to be performed simultaneously.

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Rules regarding performance of


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reciprocal promises1.Contracts which consist of reciprocal promises to be

simultaneously performed.

When a contract consists of reciprocal promises to besimultaneously performed the promisor need not performunless the promisee is also ready and willing to perform his

part .

2.Order in which reciprocal promises are to be performed

Where the order in which reciprocal promises are to beperformed is expressly fixed ,they shall be performed in thatorder. When the order is not fixed ,reciprocal promises shallbe performed in that order which the nature of thetransactions requires

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3.Consequences where a party prevents performance

When one pa t p e ents the othe f om pe fo ming his p omise


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When one party prevents the other from performing his promise,the contract becomes voidable . The party prevents the performance ofthe other party is entitled to compensation.

4.Effect of non performance in case of mutual and dependent reciprocalpromises.

The party who is failing to perform his duties is liable to paycompensation to the other party for non performance of contract.

5.Effect of promise to do legal and illegal things

Where a contract consists of legal and illegal the legal part iscontract and illegal part is void

e.g-A and B agree that A shall sell B a house for Rs.10000 but that if Buses it as a gambling house he shall pay Rs.50000 for it.

6.Effect of alternative promise being illegal

In case of an alternative promise one branch is legal and otherbranch is illegal

e.g-A and B agree that A shall pay B Rs.1000 for which B shall afterwardsdeliver to A either rice or smuggled gold

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Devolution of joint liabilities


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Devolution of joint liabilities

Devolution means passing over from one person toanother

When two or more persons made a promise ,theyare known as promisors. unless a contrary intention

appears from the contract ,all joint promisors mustjointly fulfill the promise .If any of them dies ,hislegal representatives must jointly with the survivingpromisors fulfill the promise ,if all of them dies the

legal representatives of all them must fulfill thepromise jointly

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Rules regarding performance of joint


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promise1.Any one of the joint promisors may be compelled to perform

If there is no express agreement ,the promisee maycompel any one or more of the promisors to perform thewhole of the promise

e.g- A,B,C jointly promise to pay Rs10000 to D.D may

compel all or any or either A or B or C to pay him Rs10000.

2.A joint promisor compelled to perform may claim contribution

When a joint promisor has been compelled to performthe whole of the promise ,he may compel the other joint

promisors to contribute equally

e.g-A,B,C made promise to pay to D ,Rs30000 and Dcompelled A to pay Rs30000 ,A can recover Rs 10000 fromboth B and C

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3.Sharing of loss in case of default


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If any one of the promisors makes a default in thecontribution ,the remaining promisors has to bear the loss

arising from such promisor.E.g-A,B,C made a promise to pay D,Rs.30000 ,A is not in aposition to pay his contribution and A is being compelled byD in that case B can claim Rs.15000 from C

Devolution of joint rights

When a person (say A)has made a promise to severalpersons (B,C,and D) these persons are known as joint

promisees . If there is no agreement the right to claimperformance rests with all of the promisees (B,C,and D)when one of the promisees dies his legal representative mustclaim perform for the promise and if all of the promisees dieslegal representatives of all of them can claim performance

from the promisor 91

Discharge of the contract


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Discharge of the contract

A contract creates rights and obligations .When the

rights and obligations created by the contract cometo an end ,the contract is said to de discharged ordissolved or terminated. In simple words dischargeof contract means termination of contract.

Methods of discharge of the contract1.Discharge by performance

2.Discharge by agreement

3.Discharge by lapse of time

4.Discharge by operation of law

5.Discharge by breach

6.Discharge by impossibility of performance

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1.Discharge by performance


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It may be of 2 types

(a) actual performance-When parties fulfill thelegal obligations and the promises made under thecontract ,the contract is said to be performed.

(b)attempted performance-If the promisor offers

to perform the contract and the promisee refuses toaccept the performance the promisor is discharge

2.Discharge by agreement

(a) Novation-substitution of new contract in theplace of already existing contract in that case the oldcontract is discharged.

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b) alteration- change in one or more of the terms ofthe contract Alteration made by the mutual consent


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the contract. Alteration made by the mutual consentof the parties will be perfectly valid.

c)Rescission- It means cancellation Rescission may beof 2 types (1)total rescission-when all the terms arecancelled.

(2) partial rescission-When some of theterms are cancelled

d)Remission-acceptance of lesser perfomance thanwhat is actually due under the contract

e.g-A borrowed Rs500 from B.A agrees to repayRs 250 to B

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e) waiver- giving up or foregoing certain rights.Whent t i it i ht th t t i


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a party agrees to give up its rights the contract isdischarged

f)Accord and satisfaction- Accepting any othersatisfaction than the performance originally agreedis known as accord and satisfaction.

3)Discharge by lapse of timeEvery contract must be performed with in the

stipulated time or reasonable time .Lapse of timedischarges the contract.

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4) Discharge by operation of law


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(a) death

In contracts involving personal skill andability death terminates the contract, in other casesthe rights and liablities of the deceased person willpass on to his legal representatives.

(b)InsolvencyThe insolvency of promisor discharges the

contract

(c)Unauthorized material alterationAny change in terms of the contract which

affects or alters the rights and liablities of parties iscalled material alteration .If this is done without the

consent of other party the contract gets discharged96

d)merger-When inferior rights of a person under a contractmerge with superior rights under a new contract the


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merge with superior rights under a new contract ,thecontracts with inferior rights will come to an end

5) Discharge by breach-Breach means failure of a party to perform hisobligations .It may be 2 types

(a)actual-breach of contract takes place at the time

when actually performing the contract.(b)anticipated-takes place before the actual performanceby the parties.

6.Discharge by impossibility of performance

An agreement which is impossible is void because lawdoesnot compel people to do impossible things

e.g-A agrees to pay Rs1000 and B promises to bring for A starsfrom heaven .The agreement is void

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Remedies for breach of contract


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Remedies for breach of contractMeaning of breach

Failure of the party to perform his legalobligations.

Meaning of remedy

A remedy is the means given by law for the enforcementof a right

When a contract is broken ,the injured party has one ormore of the following rights.

1.Recission of the contract.2.suit for damages.

3.suit upon Quantum meruit

4.suit for specific performance of the contract.

5.suit for in unction 98

1.Recission


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When a contract broken by one party ,the otherparty may sue to treat the contract as rescinded

and refuse further performancee.g- A promises B to supply 10 bags of cement on acertain day.B agrees to pay the price after the

receipt of the goods.A does not supply the goods .Bis discharged from the liablity to pay the price.

2.Damages

Damages are a monetary compensation allowed

to the injured party by the court for the loss orinjury suffered by him by the breach of the contract.

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3.Quantum meruit


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It means payment in proportion to the amount of work

done. A right to sue on a quantum meruit arises where a

contract partly performed by one party has becomedischarged by the breach of other party

4.Specific performance

If damages are not an adequate remedy, the court order

specific performance of the contract .The defaulting party will

be forced to perform the act promised under the contract.

5.Injunction

An injunction is the preventive relief .It is an order of acourt restraining a person from doing a particular act

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Quasi contracts


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Quas co t actsA Quasi contracts is not a contract at all because

one or the essential for the formation of a contractare absent.

It is a obligation imposed by law upon a person forthe benefit of another even in the absence of a

contract .

It is based on the principle of equity which meansno person shall be allowed to unjustly enrich himself

at the expense of another.

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Kinds of quasi contracts


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1.Right to recover the price of necessaries supplied

The person who has supplied the necessaries toa person who is incapable is entitled to claim theirprice from the property of such incapable person

2.Right to recover money paid for another person

A person who is interested in the payment ofmoney which another is bound by law to pay

e.g- The goods belonging to A were wrongfully

attached in order to realise arrears of governmentrevenue due by G. A paid the amount to save thegoods from sale. It was held that A was entitled torecover the amount from G

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3.Right to recover for Non-gratuitous act.


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When a person does anything for anything person or

delivers anything to him, not intending to do so gratuitously

and such other enjoys the benefit thereof ,the latter is boundto make compensation

e.g-A ,a tradesman leaves goods at Bs house by mistake. Btreat the goods as his own. He is bound to pay A for them.

4.Responsibility of finder of goods

A person who finds goods belonging to another and

takes them into his custody is subject to the sameresponsibility as a bailee

e.g- X,a guest found a diamond ring at a birthday party of Y,Xtold Y and other guests about it .He has performed his dutyto find the owner ,if he is not able to find the owner heretain the ring as bailee

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5.Mistake or coercion


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A person to whom the money has been paidor anything delivered by mistake or under

coercion must repay or return it to the personwho paid it by mistake or under coercion

e.g-A owes money to B . It is really due to C.B

must refund to A

basis of law

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