Contract Act. meaning and forms and its types of it

meaning and essential of contract and its cases

1. Meaning The term BUSINESS LAW constitutes of two words Business and Law. Thus it means law relating to business world. Law should belong to the law of the land or self imposed by the members of a society

2. Need Unorganised society To regulate - specified set of rules and regulations evolved Rules and regulations converted into statutes (Bill Parliament Signed by president ACT)

3. Significance of Business Law Business law is an important aspect of law in general because, without the same, the corporate sector, manufacturing sector, and retail sector would be in tyranny. The aim of putting business and law together is to maintain safe and functional working spaces for all individuals involved in the business, whether they’re running it or working for the people running it.

4. Sources of Indian Business Law English Mercantile Law The Statutory Law(companies act , negotiable instruments) Judicial decisions or case law Customs and usages

5. Contract Act The Act came into force with effect from Sept 1 st 1872. Enacted by Parliament of India Total sections 238

6. Indian Contract Act consists of two parts General Principles(Sec 1 to 75) Special Kinds of contracts(Sec 124 to 238) These special contracts are indemnity, guarantee, bailment, pledge and agency Contract relating to Sale of Goods- Sections 76 to 123 Contracts relating to Partnership- Sections 239 to 266

7. Definition Contract is an agreement creating and defining obligations between the parties. Elements of a contract Agreement Enforceable by law

8. Definitions Acceptance 2(b ):- When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.   Promise 2(b ) :- A Proposal when accepted becomes a promise. In simple words, when an offer is accepted it becomes promise. Promisor and promisee 2(c)  :- When the proposal is accepted, the person making the proposal is called as promisor and the person accepting the proposal is called as promisee.

9. Consideration 2(d) :- Price paid by one party for the promise of the other meaning QUID-PRO-QUO i.e. something in return. Agreement  2(e)  :- Every promise and set of promises forming the consideration for each other. In short, {agreement= Offer+acceptance .}

10. An agreement consists of offer and acceptance . offer by one party and acceptance of the same by the other party. (consensus ad idem- two consenting minds)

11. Types of Agreement Unenforceable agreement Enforceable agreement All enforceable agreements are contracts

12. Elements of a contract Offer and acceptance Intention to create legal relationship Lawful consideration Capacity of parties Free consent Lawful object Certainty of meaning Possibility of performance Not declared to be void Legal formalities

13. Classification of contract On the basis of validity or enforceability Valid contract Void contract Void agreement Voidable contract Unenforceable contracts Illegal agreements.

14. Ex valid contract : A offers to sell his house for Rs. 5 lakhs to B. B agrees to buy it for the said price. It is a valid contract.

15. Void contract – legally enforceable initially later becomes void due to impossibility of performance. Contract b/w two persons who belong to two different countries during the time of war Voidable contract – agreement enforceable at the option of one party but not at the option of another due to absence of free consent

16. Example 1 Another example of a void contract would be if it involves illegal substances. Suppose Party A and Party B are entering into a dealership agreement that involves drugs or narcotic substances. This contract will be null or void as it involves illegal substances; therefore, there will be no legal enforcement.   Example 2  Suppose you are signing an agreement to sell your car to an individual. You have set a selling price, but the purchasing party wants to bargain. Now, if the buyer threatens to harm you if you do not sell your car at his price, the agreement will be void as there is involvement of force.  Example 1  Suppose, you are going to release your album, and you agreed on a 50-50 profit split with your producer. While signing the contract, you had been drinking at the bar. Considering the circumstances, the contract will be void or null as you were under the influence of alcohol while signing the contract.

17. Ex of voidable contract: A, a person of weak intelligence made a gift of his entire property to B, who was in a position to dominate him. The gift having been obtained by undue influence is voidable at the option of A

18. Unenforceable contracts Cannot be enforced due to technical defects like absence of written form or absence of a proper stamp. Illegal Agreement : prohibited by law All illegal agreements are void but all void agreements or contracts are not necessarily illegal.

19. On the basis of formation Express contracts Implied contracts Quasi contracts

20. Constructive or quasi contract No intention to make a contract but law imposes a contract. Ex: When books are delivered to the wrong addressee the addressee is under an obligation either to pay for them or return them. For example, if a package belonging to A is delivered to M, then M is legally obligated to return it to A. If M uses up the contents of the packaging for himself, then A has the right to sue him. In that case, the court can order M to reimburse A under Quasi-contract law.

21. On the basis of performance Executed contracts – completed contract Executory contracts – yet to be performed Unilateral contracts: if one party has to perform his obligation Bilateral contracts: if both the parties need to perform their obligations.

22. Offer A writes to B, I offer to sell you my house for Rs 20 lakhs. A is an offeror and B is the offeree . An offer is a promise in exchange for performance by another party When a person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of the other. How is an offer made Express offer - When offer is given to another person either in writing or in oral. Implied offer - When offer is given to another person neither in writing nor in oral.

23. To whom offer is made Specific offer - When offer is given to a specific person. General offer - When offer is given to public at large.

24. Essential elements of a valid offer Offer must be given with an intention to create a legal relationship.(Balfour Vs. Balfour) Offer must be definite. A offered to sell to B, hundred tons of oil. The offer is uncertain as there is nothing to show what kind of oil is intended to be sold. Offer must be communicated. (Fitch Vs. Snedkar )( Lalman Shukla V Gauri Dutt )

25. Facts of the Case: Balfour Vs. Balfour Mr. and Mrs. Balfour got married in August 1900. Mr. Balfour was a resident of Ceylon (now called Sri Lanka) and was a government employee in Ceylon. and both of them went to Ceylon as Mr. Balfour had to join his job again. In November 1915, Mr. and Mrs. Balfour visited England. Mr. Balfour was on leave for his stay in England. Mr. and Mrs. Balfour stayed in England until August 1916. The leave of Mr. Balfour was over; he came back to Ceylon. Mrs. Balfour developed rheumatic arthritis. Doctors advised her to avoid traveling until November 1916. Mrs. Balfour remained in England, and her husband decided to leave for Ceylon alone. As per their mutual discussion, Mr. Balfour decided to give a 24 GBP check to Mrs. Balfour and also promised her to send 30 GBP per month until he returned to England and took her back. For some time, Mr. and Mrs. Balfour followed the statements made by them, and everything was fine between them. Mr. Balfour was also following the decision to send 30 GBP per month. After some time, the relationship between Mr. and Mrs. Balfour deteriorated. Later on, Mr. Balfour wrote to Mrs. Balfour, asking her to make the separation permanent. In March of 1918, Mrs. Balfour initiated legal proceedings against Mr. Balfour for restitution of conjugal rights. In July 1918, the separation was made legally permanent which means Mr. and Mrs. Balfour were divorced. Mrs. Balfour sued her husband, Mr. Balfour, for the non-payment of the amount that he was supposed to pay.

26. Contention from the Side of Mrs. Balfour: Respondent in this Case Arguments made from Mrs. Balfour’s side were that the husband, Mr. Balfour, had to pay the maintenance amount to Mrs. Balfour as Mr. Balfour entered into a domestic contract with Mrs. Balfour. Due to the above-mentioned reason, he was legally compelled to send 30 GBP per month to his wife as maintenance and support for her medical treatment. Mrs. Balfour relied on this agreement made by Mr. Balfour to pay her monthly maintenance, and it was the only reason that she had agreed to remain in England for her medical treatment.

27. Conclusion The Balfour v. Balfour case is considered a landmark judgment because it dealt with creating a legally binding contract between a married couple. The judgment was decided in 1919, when the wife, Mrs. Balfour, filed the case in the lower court and got the judgment delivered against her husband, Mr. Balfour. However, Mr. Balfour appealed against the lower court’s judgment in the higher court, and the court of appeals reversed the judgment delivered by the lower court. The crux of the judgment establishes that the intention is really important to enter into any kind of contract, and the promise made between the husband and wife in the ordinary course of life does not come under the legal purview of contract law, nor is it legally enforceable if the intention to form a legally binding contract is absent. The court of appeals reversed the judgment passed by Justice Sargant of the lower court and gave the verdict in favor of Mr. Balfour. The agreement between Mr. and Mrs. Balfour was made as usual as a happily married couple. The agreement was purely a domestic agreement with mutual consent. So, it could not be held legally binding at all.

28. Mere statement of intention is not an offer(an announcement of a forthcoming auction sale) An offer may be conditional An invitation to offer is not an offer(display of goods in a shop with price tags is an invitation to offer) Offer should not contain a term the non compliance of which would amount to acceptance.

29. Difference between Invitation to offer and offer

30. Lapse of an offer: If either offeror or offeree dies before acceptance If it is not accepted within the specified time. If the offeree does not make a valid acceptance. It can lapse by revocation. Even before it is accepted.

31. Modes of Revocation of Offer By notice of revocation By lapse of time By non fulfilment of condition precedent By death or insanity By counter offer By the non-acceptance of the offer according to the prescribed mode By subsequent illegality

32. Offer – Legal Relationship – Case Balfour vs Balfour : A husband agreed with his wife to send her a certain sum of money until she could join him at his station of posting. On default to send money the wife filed a suit for recovery. Held there is no intention to create legal relationship.

33. Lalman Shukla V Gauri Dutt Offer must be communicated to the offeree : Lalman Shukla an employee with Gauri Dutt . When the nephew of Gauri Dutt was found missing, Lalman Shukla was sent for the search. It was announced later that who so ever finds the missing nephew will be rewarded with Rs. 5000.

34. Unaware of the announcement of the reward, Lalman Shukla located the missing nephew and brought him back. It was said that Lalman Shukla has no right in the reward because he has no knowledge of the proposal. Hence, an action without the knowledge of the proposal is no acceptance

35. Fitch v Snedeker Snedeker offered a reward to anyone who found and returned his dog. Fitch found the dog and returns it before being aware of the offer made by snedeker . The court held that Fitch would not be entitled to reward.

36. This is because acceptance of an offer, in ignorance of offer, is no acceptance. A person who gives information without knowledge of the offer of reward cannot claim the reward. 

37. Facts: Carlil vs carbolic smoke ball case[1] took place in the year 1983 in the court of appeal in UK which is considered as one of the landmark judgements in English law of contracts. lindley LJ, A L Smith and Brown LJ were the judges of this case. Carbolic smoke company has produced a new product called smoke ball to cure influenza and published newspaper advertisement in pall mall gazette and other newspaper stating that, if anyone gets sick with influenza even after using the prescribed course (to use the ball for two weeks daily thrice a day), they will be rewarded with 100 pounds. This advertisement is about the new product of smoke ball to cure influenza in the context of flu pandemic 1889-1890. According to the advertisement stated by them they have deposited 1000 pounds in the alliance bank, on the Regan Street. After looking at the advertisement Mrs. Louisa Elizabeth carlill got interested in the product and started using it in the mid November 1891 to January 1892.but unfortunately the course of smoke ball didn't work for her and she was eventually attacked by influenza. Then to claim the compensation carlill's husband wrote a letter to the carbolic smoke ball company.

38. Issue: In the carlill vs carbolic smoke ball case the main point which arises is that is the advertisement made by the smoke ball company regarding 100 pounds is a valid general offer. Did any sort of communication of acceptance was done by Mrs. carlil to the company or not? According to the contract act, 1872 section When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise[2] it is questionable if the promise has been made by the company has been made and the validity of the advertisement.

39. Plaintiff arguments: The arguments in favor of Mrs. carlill were that advertisement as issues by the company was not an invitation to an offer but offer in itself, as the company itself mentioned they will compensate if used by the prescribed in the paper. The whole aim of publishing that paper is to let people know about the validity of the offer and to assure that they have even paid a deposit in that bank. Defendant argument: The smoke ball company argued for three points:The defendant argued that there is no particular binding offer on Mrs. Carlill, as the offer was made to the word as whole and there exists no particular contract to make Mrs. carlill to take up the offer and act upon it. They further more stated that it was the fault on the plaintiff's part, that she may not have followed the written course properly or else she might be lying on the pretext to get compensation. They stated there was no particular consideration to constitute it as a contract. They conclude saying: In a contract there must be communication of acceptance from the offeree to the offeror. But it is not the case with the plaintiff, she could not communicate her acceptance to the company even though she was willing to. It can also be seen that the contract is too vague saying any person may claim that they were affected with influenza 10 years later. Giving it a too unreasonable time period.

40. Judgement: The Carbolic Smoke Ball Company, represented by H. H. Asquith, lost its argument at the Queen's Bench. It appealed straight away. The Court of Appeal unanimously rejected the company's arguments and held that there was a fully binding contract for �100 with Mrs. Carlill. Among the reasons given by the three judges were:That the advertisement was not a unilateral offer to all the world but an offer restricted to those who acted upon the terms contained in the advertisement. That satisfying conditions for using the smoke ball constituted acceptance of the offer. That purchasing or merely using the smoke ball constituted good consideration, because it was a distinct detriment incurred at the behest of the company and, furthermore, more people buying smoke balls by relying on the advertisement was a clear benefit to Carbolic. That the company's claim that 1000 was deposited at the Alliance Bank showed the serious intention to be legally bound. The judgments of the court were as follows.

41. Case analysis: Mrs. Carlill was entitled to reward. There was a contract between the company and Mrs. Carlill as the offer comes under a general offer, under which the offer was accepted by Mrs. Carlill by performing the prescribed use written on the package. There was a valid general offer made to the public. The smoke ball was not merely sale of puff as the company has deposited certain pounds as an evidence in the bank. The language was not too vague to be enforced. Although the rule of communication of acceptance is required, the offeror may dispense with the need for notification. It is implicit that the offeree did not need to communicate an intention to accept. Rather has performed the act showing the willingness to as in contract. The inconvenience suffered by Mrs. Carlill was itself a sort of consideration and to an added advantage the company has got beneficial increase in the sales.

42. Carlill V Carbolic Smoke Ball Co. Offer may be general or specific Carbolic Smoke Ball Co. manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, cold, or any other disease

43. After seeing the ad Carlill purchased the product and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract. Judgement for 100 pounds was entered for Carlill and Carbolic Smoke Ball appealed.

44. Boulton Vs Jones – Offer made to a particular person   Facts :  Jones used to have business dealings with Brockle Hurst. He sent an order (offer) to Brockle Hurst for the purchase of certain goods. By the time the order reached Brockle Hurst, he had sold his business to Boulton . Boulton receiving the order sent all the goods to Jones as per the order without informing Jones of the changing of the hands of the business.

45. When Jones learnt that the goods were not supplied by Brockle Hurst, he refused to pay for the goods. His contention was that he had never placed an order to Boulton , the offer being made to Brockle Hurst, and therefore had no intention to make a contract with Boulton . Jones was not liable to pay

46. An offer may be conditional: T who could not read took an excursion ticket on the railway. On the front of the ticket was printed ‘for conditions see behind’. One of the conditions was that the railway company would not be liable for personal injuries to passengers. T was injured by a railway accident. Held T was bound by conditions and could not recover any damages.

47. Acceptance Ex: A offers to sell his horse to B for Rs 50,000. B accepts the offer. This is acceptance. Acceptance may be expressed or implied An offer can be accepted only by the person to whom it is made.

48. Essentials Acceptance must be given as per the mode prescribed by the offerer. Acceptance must be given before the lapse of time or within reasonable time. Acceptance must be given before the offer lapses. Ex: A prospective resignation to quit a post is an offer and it can be withdrawn before the resignation is accepted by the authority. Acceptance must be unconditiona l. Acceptance may be given by any person in case of general offer .

49. Acceptance may be given by any specific person in case of specific offer. Acceptance must be communicated . ( Bordgon Vs. Metropolitan Rly . Co.) Mental acceptance is no acceptance or acceptance must not be derived from silence . Acceptance must not be precedent to offer.

50. Neele vs. Merret   Acceptance must be unconditional M, the defendant offered to sell land to N the plaintiff at £ 280. N accepted and enclosed 80 pounds with a promise to pay the balance by monthly instalments of £ 50 each. There was no contract between M and N as the acceptance was not qualified ( unconditional).

51. Brogden vs. Metropolitan Railway Co. Acceptance communication necessary A draft agreement relating to supply of coal was sent to the manager of a railway company viz. Metropolitan Railway company. For  his acceptance the manager wrote the words, approved and put the draft in his drawer of his table intending to send it to the companies solicitors for a formal contract to be drawn up. Through oversight the contract remained in the drawer.  There was no contract because there was no communication of acceptance.

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

53. A agrees to sell his car to B for Rs 1,00,000. A’s promise, the car, is B’s consideration and B’s promise, the price, is A’s consideration. So we can conclude that one’s promise is the others consideration. Consideration is mutual and has two sides Thus consideration = Promise/ performance that parties exchange with each other.

54. An act : A agrees to sell to B his horse at Rs. 10,000 A’s act of delivering the horse is B’s consideration and B’s act to pay the price is A’s consideration An abstinence: A agrees not to file a case against B if B pays back the money borrowed from A on time. A’s abstinence, not to sue B, is B’s consideration and B’s act to pay the money on time is A’s consideration.

55. LEGAL RULES AS TO CONSIDERATION 1)It must move at the desire of the promisor. [ Durga Prasad v. Baldeo ] 2)It may move by the promisee or any other person. [ Chinnaya v. Ramayya ] 3)It may be past ,present or future . 4)It need not be adequate . 5)It must be real . 6)It must not be illegal , immoral or opposed to public policy .(must be lawful) 7)It must be something which the promisor is not already bound to do.

56. Consideration must move at the desire of the promisor D had built at his own expense, a market at the request of the Collector of the District. The shopkeeper( Baldeo ) in the market promised to pay D a commission on all articles sold by them in the market. D sued the shopkeeper for non-receipt of commission.

57. Held that the promise to pay commission did not amount to a contract for want of consideration , because D (the promisee) had constructed the market not at the desire of the shopkeepers (the promisors) but at the desire of the Collector of the District to please him.  

58. Ramayya V Chinnayya A, an old lady, by a deed of gift, gave certain property to her daughter R, with a direction that the daughter should pay an annuity to A’s brother (R’s maternal uncle). R, the daughter, executed a writing in favour of her maternal uncle C agreeing to pay the annuity . Later on she declined to fulfil her promise saying that no consideration had moved from her maternal uncle i.e. the promisee.

59. Held that the words “the promisee or any other person” in Sec.2(d) clearly shows that a stranger to consideration may maintain a suit. Hence the maternal uncle, though a stranger to the consideration (as the consideration indirectly moved from his sister A) was entitled to maintain the suit.

60. Past consideration: rendering of services in the past at the request or desire of the promisor and a subsequent promise to compensate for the work done Ex: A asked B to deliver the goods on his behalf. B agreed to do it and delivered the goods. A later promised to compensate B for the service he had rendered to A. This is past consideration . Present Consideration: the consideration moves simultaneously with the promise Ex: In cash sales, the goods are delivered and the price is paid immediately

61. Future Consideration : When consideration in a contract will move from one party to another subsequent to making a contract. i.e. It will move on a future date. Ex: A will deliver goods to B after 10 days and B will pay in the future time.

62. STRANGER TO CONTRACT It is general rule of contract that only parties to contract can sue & be sued on that contract . This rule is known as ‘Doctrine of privity ’ i.e relationship between the parties to contract .

63. DUNLOP PNEUMATIC. V . SELFRIDGE Co ‘A ‘sold a large quantity of tyres to B at a certain price on entering into a covenant not to sell the tyres below the price mentioned in price list supplied by A. B sold the tyres to C a retail dealer under a contract stipulating the same covenant as between A and B. C sold the tyres at less than the list price. A sued C for the breach. It was held that A could not sue C as A was not a party to the contract between B and C.

64. STRANGER TO CONTRACT Exceptions 1)A trust 2)Marriage settlement , partition or other family arrangements 3)Acknowledgement(If promisor acknowledges himself to be liable to third party) 4)Assignment of contract .(transfer of rights) 5)Contract with agent . 6) Convenants running with land .

65. Trust: In case of a trust agreement the person in whose favour a trust or other interest in some specific immoveable property has been created can enforce the contract even if the person is not a party to the contract . Ex: A father created a trust in favour of his daughter along with his lawyer. The daughter being the beneficiary of such trust agreement can enforce the contract if she did not get her benefits under the contract.

66. Family Settlement: Any family arrangement made by the members of a family and reduced in writing can be enforced even by members of the family who were not a party to such agreement. Ex: Two brothers upon partition of joint property agree to pay a certain sum of money to their mother for maintenance. Held she was entitled to get the money from her sons. Marriage Settlement: When an arrangement is made in any marriage settlement, the person in whose favour it is made even if that person is not a party to the contract can enforce the contract.

67. Assignment: means transfer of rights. If a party to contract assigns his rights to another under a contract, the other party even not being a party to the contract can enforce the contract. The benefits of a contract may be assigned The assignee of a contract can enforce the benefits of a contract though he is not a party to it A had to pay B a sum of Rs. 5,000. B ordered A to pay the money to C. C not being a party to the contract can enforce the contract between A and B. Rahul assigns his insurance policy in favour of his wife. The wife can enforce it although she is not a party to it.

68. Acknowledgement: If a promisor acknowledges himself to be liable to a third party, a binding obligation is incurred by him to a third party. R pays S 500 rupees to be given to T, S acknowledges to T that he holds that amount for him. T can recover the amount from S.

69. No Consideration No Contract Every contract should be supported by consideration. The general rule is ex nudo pacto non oritur actio : an agreement made without consideration is void. There are certain exceptions to this rule.

70. No Consideration No Contract - Exceptions Natural Love & affection . It is expressed in writing It is registered under law, It is made on account of natural love and affection, it is between parties standing in near relation to each other Ex: A out of love and affection promises to give his son B, Rs 10,000. A puts his promise to B into writing and registers. This is a contract. Compensation for voluntary service . The service should have been done voluntarily, service should have been done for the promisor, the promisor must have been in existence at the time when the service was done, The intention of promisor must have been to compensate the promise, the service rendered must also be legal A finds B’s purse and gives it to him. B promises to give A Rs. 100. This is a contract.

71. Promise to pay a time – barred debt . A promise by a debtor to pay time-barred debt is also a valid contract, But the promise must be in writing, It must be signed by the promisor or his authorized agent, the promise may be to pay the whole or part of the debt Completed gift . Gifts once made cannot be recovered on the ground of absence of consideration, absence of consideration will not affect the validity of any gift already made Charity

72. Kedarnath Vs. Gorie Mohammad. A promise to subscribe to a charitable trust is unenforceable because there is no benefit to the promisor. But where the other party has undertaken a liability on the faith of the promise made by the promisor it is enforceable Gorie Md. Promised to contribute Rs.100000 towards construction of a Town Hall at Howrah but did not send his contribution.

73. Kedarnath , the Secretary of the Town Hall on the faith of the promise, entrusted the work to a contractor and incurred liability to pay him. Gorie Mohammed was held liable

74. Capacity of Parties For a valid contract the parties must be competent to contract. If one of the parties is not competent then the contract shall be void . Every person is competent to contract who is of the age of majority according to law and who is of sound mind and is not disqualified from entering into contract.

75. Persons incompetent to contract Minor Persons of unsound mind Persons disqualified by any law to which they are subject.

76. Rules regarding minors agreement Agreement with or by a minor is void No ratification Minor can be a promisee or beneficiary Liability for torts No insolvency Partnership

77. Minor can be an agent Joint contract by minor and adult Surety for a minor Minor as shareholder Liability for necessaries (any person who has supplied necessaries to a minor or to his family would be entitled to reimbursement out of the minor’s estate)

78. MOHIRI BIBI V. DHARMO DAS GHOSE A a minor borrowed Rs.20,000 from B and as a security for the same executed a mortgage in his favour. He became a major a few months later and filed a suit for the declaration that the mortgage executed by him during his minority was void and should be cancelled. It was held that a mortgage by a minor was void and B was not entitled to repayment of money. - An agreement with a minor is void.

79. General Insurance Co Ltd V. Madan Lal X a minor insured his goods with an insurance company. The insurance company took the plea that the person on whose behalf the goods were insured was a minor. The court rejected the plea and allowed the minor to recover the insurance money. -Minor can be a promisee or beneficiary

80. Persons of unsound mind Unsoundness of mind may arise from Lunacy or Insanity Drunkenness Hypnotism Mental decay

81. Persons disqualified by other law Alien enemies Insolvent Convict Corporations (cannot enter into a contract which is ultra vires i.e beyond the powers of its memorandum)

82. Free Consent It means the parties must have given their consent on their own without any force or threat The parties to the contract must have identity of minds. (Consensus ad idem)

83. Consent is not free when it is caused by Coercion Undue influence Fraud Misrepresentation Mistake.

84. Consent is not free when it is caused by Coercion Undue Influence Fraud Misrepresentation Mistake Contract is voidable Effect contract is void Bilateral Mistake Unilateral Mistake As to subject matter Possibility of Performance Nature of Contract As to Identity of Person

85. Coercion : is threat or force used by one party against another for compelling him to enter into an agreement. It also means committing or threatening to commit any act forbidden by IPC against another person or Unlawful detaining or threatening to detain the property of another person With a view to obtain consent of another person A threatens to kill B if he does not lend Rs.1 lakh to C. B agrees to lend the amount to C. The agreement entered into was under coercion.

86. An act will amount to coercion if the following essentials are fulfilled: There must be clear utterance of threat The threat should be to commit an act forbidden by the Indian Penal Code It must be uttered with the intention of causing the other party to enter into an agreement.

87. Who can exercise coercion: coercion may come from a person party to the contract or even third person not connected with the contract directly Effect of coercion : The consent obtained through coercion is voidable at the option of the party. Aggrieved party has the option to cancel the contract If the aggrieved party decides to rescind the contract, he must return

88. Undue Influence A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses the position to obtain an unfair advantage over the other.

89. A person is deemed to be in a position to dominate the will of another . Sec 16(2) Where he holds real or apparent authority over the other .E.g.,the relationship between master and servant, doctor and patient. (b) Where he stands in a fiduciary relation .[Relation of trust and confidence] to the other. E.g ., father and son, solicitor and client, trustee and beneficiary, and promoter and company. (c) Where he makes a contract with person whose mental capacity is temporarily or permanently affected by reason of age, illness . E.g., Between a medical attendant and his patient. NOTE : The burden of proving that the contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

90. There is presumption of undue influence in the following relationships Parent and Child Guardian and Ward Doctor and Patient Solicitor and Client Trustee and Beneficiary

91. Essentials One party is in the position to dominate the will of another. The dominating party has used his dominating position The dominant party has obtained unfair advantage. Effect The contract is voidable at the option of the party whose consent was dominated

92. Difference b/w Coercion and Undue Influence Coercion Undue Influence Consent is obtained through threat Consent is obtained through dominating the will of the other person Physical force Mental force Coercion can be used against any person even on a stranger Is exercised by a party to the contract who are related to each other The party must prove that his consent was given under coercion The party in the dominating position should prove that he has not used undue influence Liable according to Indian Penal Code – Criminal Liability No criminal liability

93. Fraud All acts committed by a person with an intention to deceive another person Elements of fraud Fraud must have been committed by a party to contract The act must have been committed with intention to deceive The representation must have been aimed to induce the other party to enter into contract The other party must have suffered losses .

94. Accg to Sec 17 fraud means and includes any of the following acts done with an intent to deceive or to induce a person to enter into a contract A false suggestion as to fact known to be false or not believed to be true. Active concealment of fact by one having knowledge of the fact Promise made without any intention of performing it Any other act fitted to deceive Any such act as declared by law to be fraudulent Note: Mere concealment is no fraud. But where steps are taken by a seller concealing some material facts so that the buyer even after a reasonable examination cannot trace the defects, it will amount to fraud.

95. Ex: X sells to Y domestically manufactured goods as imported goods charging a higher price, it amounts to fraud The directors of a company issued a prospectus containing false statements. A shareholder who had subscribed for the shares on the faith of the prospectus wanted to avoid the contract. It was held that he could do so because the false statement made by directors amounted to fraud.

96. Effect of fraud The party whose consent to an agreement was caused by fraud has two remedies Cancellation of contract If aggrieved party decides not to cancel the contract then he may continue the contract and claim damages from the other party If the aggrieved party decides to rescind the contract, he must return all the benefits received by such a person.

97. Mere Silence does not amount to fraud As per Section 17 mere silence does not amount to fraud even if such concealment is likely to affect the willingness of a person to enter into a contract. There are situations where keeping quiet would amount to fraud Duty to Speak: in case of contracts of absolute good faith, where material facts need to be disclosed as in case of contracts of insurance In certain contracts, the law requires the parties to make fullest disclosure of material facts. Failure to disclose such facts would make the contract void or voidable as the case may be. Such contracts are called Uberrimae fidei, i.e., contracts requiring utmost good faith. In such contracts, party having any information regarding the subject-matter which is likely to affect the willingness of the other party to enter into transactions, is bound to disclose the information

98. Deceptive Silence: Sometimes silence amount to speech, a person who keeps quiet knowing his silence will lead to a deceptive action then it results in fraud Again where silence is equivalent to speech, silence amounts to fraud. For example, B says to A "If you do not deny it, I shall assume that the horse is sound." A says nothing. Here A's silence is equivalent to speech and as such, it is fraud. Change of circumstance: sometimes a representation made is true but due to a change in circumstance becomes false. It is the duty of the person to communicate the changes

99. Contracts Uberrimae Fidei There are contracts in which the law imposes a special duty to act with the utmost good faith i.e. to disclose all material information. Failure to disclose such information will render the contract voidable at the option of the other party. Contracts of insurance of all kinds Company prospectus Contract for the sale of land Contracts of family arrangements

100. Misrepresentation Is false representation made innocently with an honest belief as to its truth by a party without any intention to deceive the other party. Ex: A intends to sell his horse to B and says, My horse is perfectly sound. A genuinely believes the horse to be sound, although he does not know that the horse has fallen ill yesterday. B there upon buys the horse. There is misrepresentation on part of A

101. If the false statement is known to be false by the person making it, it is called fraudulent misrepresentation If it is honestly believed to be true it is called misrepresentation. Effect: Agreement is voidable at the option of aggrieved party Aggrieved party has the option to cancel the contract If the aggrieved party decides to rescind the contract, he must return all the benefits received by such person

102. Mistake Mistake is an error in comprehending facts, meaning of words or the law, which causes one party or both the parties to enter into a contract without understanding the obligations or results. Mistake of Law Mistake of general law of the country Mistake of foreign law Mistake of fact Bilateral Mistake Unilateral Mistake

103. Mistake of law of the country When a party enters into a contract, without the knowledge of law in the country, the contract is valid and not void. A contract is not voidable because it was caused by a mistake as to any law in force in India The reason here is that ignorant a juris non excusat However, if a party induced(influenced) to enter into a contract by the mistake of law then such a contract may be avoided.

104. Bilateral Mistake Mistake as to the subject matter Mistake as to possibility of performance of contract

105. Mistake as to the subject matter Mistake as to the existence of the subject matter Mistake as to the identity of the subject matter Mistake as to the title of the subject matter Mistake as to the price of the subject matter Mistake as to quantity of the subject matter Mistake as to quality of the subject matter.

106. Mistake as to possibility of performance of contract. Physical impossibility of performance Legal impossibility of performance

107. Unilateral Mistake Mistake as to identity of the person or party Mistake as to the nature of transaction

108. Bilateral Mistake Is a kind of mistake committed by parties to contract where they misinterpret the terms of the contract.

109. Mistake as to the subject matter Mistake as to existence of subject matter The parties may be mistaken as to the existence of the subject matter, the contract is void if without the knowledge of the parties, the subject matter does not exist at the date of the contract. Ex: There is an agreement between A and B for the purchase of a certain horse. But the horse is dead at the time of the contract. The agreement is void.

110. Mistake as to identity of subject matter A mistake of both parties in relation to identity of the subject matter. (absence of consensus ad idem) one party has one subject in mind & other party another subject matter Ex: A agreed to buy from B 125 bales of cotton to arrive in a ship called pearless , there were two ships by that name one of which was in the minds of A and the other in the mind of B

111. Mistake as to title of the subject matter Sometimes the buyer is already the owner of a property which the seller wants to sell to him. But the concerned parties are not aware of the fact. It happens when both the parties are mistaken about this fact. In such cases, the agreement is void as there is a mistake about the title of the subject matter.

112. Ex: X agreed to take a lease of fishery from y. The fishery already belonged to X. But both X and Y were not aware of this fact. In this case there was a mistake as to the title of the parties to the subject matter.

113. Mistake as to the price of subject matter Where there is a genuine mistake in the price of an article for sale , the contract is void. Ex: A has agreed to buy a car from B, based on his letter in which he said the price was Rs 7,500 instead of Rs 75,000 due to a typing error. The agreement is void because there is a mistake as to the price of subject matter.

114. Mistake as to the quantity of the subject- matter There is no contract between the parties if there is a difference between the quantity sold and purchased.

115. Ex: P wrote to H inquiring the price of rifles and suggested that he may buy fifty. On receipt of reply from H, he wired ‘’ Send 3 rifles ‘’. The telegraph clerk by mistake transcribed the message as ‘’send the rifles’’. He sent 50 rifles. P accepted only 3 and returned the rest. He filed a case against P , for non acceptance of 47 rifles. The buyer was liable only for the 3 rifles.

116. Mistake as to quality of the subject matter Mistake committed by both the parties with regard to quality. Ex: Sale of a horse believed to be a race horse would be void if it turns out to be cart horse.

117. Mistake as to possibility of performance of contract Physical Impossibility of performance A contract is void if it is identified to be non-feasible(not possible) due to physical factors like time, distance,etc . Ex: A contract for hiring of a room for witnessing the coronation procession was held to be void because unknown to the parties the procession had been cancelled. Legal Impossibility of performance: Ex: A person cannot lease his own land.

118. Physical Impossibility A made an agreement with B to sell the goods and the agreement was done. A was not aware of the fact that the goods are perished due to some reason. In this case the contract would be void because the basis on which the contract was made does not exist.

119. Legal Impossibility An agreement is done between two parties belonging to two different countries, after a while there is war breakout between these countries Thus the contract is legally impossible to be performed.

120. Unilateral Mistake It is the mistake in which only one of the parties to an agreement is at mistake about the facts which are essential to the agreement. Generally a unilateral mistake does not render the agreement void.

121. H contracted with N corporation to build a number of houses. In calculating the cost of the houses, H by mistake deducted a particular sum twice and submitted his estimate accordingly. The corporation agreed to the terms which were naturally lower than actual cost. It was held that the agreement was binding even though it was based upon erroneous estimates.(Higgins Ltd V Northampton Corporation)

122. Mistake as to nature of the contract A contract shall be void if a party to the contract without any fault of his own makes a mistake about the very nature of the contract. It may be because of blindness, illiteracy Ex : A blind man signing the document read over to him wrongly will not bind him. This is because of the fact that the mind of signer does not accompany the signature.

123. Mistake as to the identity of the person contracted with: The person or with whom the contract is to be made must be identified correctly by the other party. It is a fundamental mistake on the part of the other party not to recognize the correct person.  A intends to contract only with B, but enters into a contract with C believing him to be B, the contract is vitiated.

124. Legality of Object & Consideration Object of an agreement should be legal and at the same time the consideration for both the parties should also be legal. An agreement in which object or consideration is unlawful is void.

125. The object of contract is unlawful: It is forbidden by law It is such that if allowed, it would defeat the provisions of law It is fraudulent It causes injury to a person or his property It is immoral in nature If the court regards it as opposed to public policy

126. Agreements Opposed to Public Policy Trading with enemy Stifling prosecutions( stop criminals from being punished ) An agreement in which one party agrees to drop criminal proceedings pending in a court in consideration of some amount of money, is unlawful. Therefore, such an agreement cannot be enforced except where crime is compoundable. Maintenance and Champerty : If a person agrees to maintain a suit in which he has no interest, the proceeding is known as Maintenance assisting a party to file a litigation to recover money whereby the assisting party will get a share in the proceeds is called champerty

127. Traffic relating to public offices- sale of public offices promotes corruption Example:  A  paid  B , a public servant a certain sum of money inducing him to retire from service, thus paving the way for  A  to be appointed in his place. The agreement was held to be void.

128. Agreements tending to create interest opposed to duty. Ex: A agrees to pay B, the colonel in the army Rs. 50,000 if he will assist her brother to desert the army. It is opposed to public policy.

129. Agreements tending to create monopolies Agreements to influence elections to public offices Agreement in restraint of personal liberty(restricts the liberty of an individual) Agreement in restraint of marriage: Ex: A agrees with B that for a sum of Rs.1,00,000 he will never get married. Such an agreement is against public policy

130. Agreement in restraint of personal liberty Harwood V. Miller’s Timber and Trading Co. A borrowed money from a money lender and agreed that he would not without the consent of the lender leave his job, dispose his property or move from house.

131. Void Agreement Agreement by a minor Agreement of which the consideration or object is unlawful Agreement made under a bilateral mistake of fact material to the agreement Agreement in restraint of marriage Agreement in restraint of trade Agreement in restraint of legal proceedings

132. Discharge of Contract Discharge means release of parties to an agreement. Agreement may be finished by completion or by breach of promise.

133. Modes for discharge of contract Discharge by agreement Discharge by operation of law Discharge by breach Discharge by performance Discharge by impossibility Discharge by lapse of time

134. Discharge by agreement Novation - old contract is substituted by new one Old contract is revoked & substituted by new Memorandum of understanding Parties or contract itself is substituted E.g., A owes money to B, agreement b/w A,B & C. A from now owes money to C Amalgamation of 2 companies. Creditors will direct their claim against newly formed company Essentials of novation : With consent of all the parties Enforced at law Done before the expiry of original contract

135. Alteration Change in one or more terms of the contract Change in terms but no change in parties E.g., supply of 1000 blades of cotton on 1 st July , both parties agreed to postpone the delivery date to 1 st September.

136. Rescission – cancellation of the contract By mutual consent By aggrieved party By the party whose consent is not free

137. Remission Receiving less than what is due CASE- Kapurchand V/S himayat ali khan- owes large sum of money, agrees to pay lesser amount with other persons consent

138. Waiver Waiver means “Abandoning” the rights. When a party to the contract abandons or waives his rights, the contract is discharged. Here, both the parties mutually agree that they shall no longer be bound by the contract. It amounts to a release of parties from their contractual obligations. - A promises to paint a picture for B. B later on forbids him to do so. A is no longer bound to perform the promise Accord and satisfaction accord  being the agreement and the  satisfaction  its execution or performance, -Promise to accept less than what is due. Satisfaction is fulfillment of smaller obligation

139. Discharge by performance- Performance is one of the ways of discharge of a contract If only one party performs his promise he alone is said to be discharged of contract and he acquires a right of action against the other who is guilty of breach.

140. Discharge by operation of Law Insolvency- rights and liabilities of insolvent is transferred to the officer of court Merger – acceptance of higher security in the place of lower - A holds certain property under lease, subsequently he buys the property. Lease is merged into right of ownership. Death – death of promisor discharges the contract, or transferred to legal representative

141. Discharge by Breach Actual Breach When performance is actually due- non performance of the contract at the time when it is due When performing the contract – when the party to a contract performs his part of the contract but the other party says it is not a proper performance CASE STUDY – cort v/s amber gate railway co.- supply 3900 railway chairs, after 1700 the co. said no more will be required

142. Anticipatory breach of contract Refusal by promisor to perform his part of contract before due date of performance. Premature destruction of the contract rather than failure to perform it. E.g., continental tour, last moment cancelled the appointment

143. Consequences of Anticipatory breach of contract: Whole contract is broken, claim for damages Contract is still operative & wait for time for performance

144. Discharge by impossibility of performance Doctrine of frustration- discharge of contract rendered impossible of performance due to external causes Act should have become impossible An event the promisor couldn’t fulfill Impossibility should not be self induced by promisor Act may be valid at time of entering, subsequently there may arise impossibility, which may prevent its performance

145. A contract may become impossible of performance after the date of contract by Destruction of subject matter : taylor v/s caldwell Ex: A music hall was agreed to be let out on certain dates, but before those dates it was destroyed by fire. 2. Death or personal incapacity : Robinson v/s davidson An artist was supposed to sing on a particular date, fell ill. Was not liable to pay damages

146. 3. Change in law : A contract which is lawful when it is entered into but becomes unlawful due to change in the provisions of law Ex: There was a contract to supply oil seeds. But the government rendered the sale and purchase of oil seed illegal under the Defense of India rules. Both parties were discharged from performance. 4. Non existing or non occurring of a particular state of things CASE - hall was booked for coronation ceremony of king. The king was unwell, so got cancelled. 5. Declaration of war

147. Exceptions to impossibility of performance Difficulty in performance – Supply coal on certain time, due to government restrictions it got delayed 2.Commercial impossibility – (increase in taxes, high profits not realized) 3.Failure of 3 rd persons on whose work promisor had relied Ex: D agreed to sell goods to P as and when he got the same from the mills with whom he had placed orders. The mill failed to supply. 4.Self induced impossibility - Arrested or conviction to crime 5.Failure of one of the object 6.Strikes, lockouts & civil disturbances

148. Discharge by lapse of time: The Limitation Act lays down that a contract should be performed within a specified period. If the contract is not performed and no legal action is taken by the promisee within the period of limitation, he is deprived of his remedy at law. Ex: A borrowed Rs. 5,000 from B a moneylender and agreed to repay the loan on 31 st March 2002. On 31 st March A failed to repay the loan. B does not demand payment for 3yrs. A is discharged from his liability.

149. Remedies for breach of contract Whenever there is a breach of a contract, the aggrieved party is entitled to damages, amongst other remedies such as specific performance and injunction Refusing to perform the right & obligation Cancellation or rescission: Revocation of a contract Entitled to compensation for damages E.g., A, a singer contracts with B, manager of a theatre to sing 2 times per week for 3 months, a week later the singer doesn’t turn up,B cancels the contract. B can sue singer & claim damages.

150. 2. Restitution: Return of the benefit received by one party from other party under a void contract- need not be performed by either party Person who has received benefit will have to restore it. A pays Rs.1lakh to B for marrying his daughter C, she dies before marriage. The agreement is void B has to pay back the money. 2. Specific performance: - Discretionary remedy allowed only under few specific cases. When monetary consideration is not an adequate remedy Aggrieved party files a suit for specific performance, court issues order to the promisor to perform what has been promised.

151. 3. Injunction: An order of court restraining the wrong doer from doing the wrongful act Granted to enforce negative stipulation when damages are not adequate relief CASE- Warner Bros V. Nelson N a film actress agreed to act exclusively for Warner Bros for one yr. During the year she contracted to act for X. It was held that she could be restrained by an injunction from acting for X 5. Quantum merit: Payment in proportion to the amount of work done Contract is partly performed by 1 party

152. 6. Damages: Must make compensation to the injured party Compensation in money as a substitute for the promised performance The primary purpose for awarding damages is to put the person in position he would be in case the performance was done as promised Kinds of damages: General or ordinary damages:which arise naturally in the usual course of things for the breach of contract. Compensating the injured party, not with the view to punish A has delivered 100 products to B, out of which 5 products were defective. B becomes entitled to claim for damages.

153. 2. Special damages : Unusual circumstances affecting the plaintiff Builder contracts to build a house within said period such that A can let it to B. he constructed so badly that before being let out it falls down. Builder is liable to pay back for damages, loss of rent, loss of time, reconstruction cost. Vindictive or exemplary damages : View to punish wrongdoer Breach of contract to marry Breach of contract by a banker having sufficient funds of the customer at the disposal, to honor the cheque . Loss of reputation is not determined by amount of cheque .

154. Nominal damages : Not suffered any actual damage. A person contracted to purchase vespa scooter, but failed to purchase, dealer didn’t find it difficult because it is in demand. Sells without loss of profit. Dealer is entitled only to nominal damages.

155. Measures of Damages Restitution- return of benefit 2. General damages – damages which arise naturally 3. Special damages 4. Remote damages

156. 5. Mitigation of loss- own neglect Cannot seek damages for loss which is not due to breach but due to his own neglect 6. Liquidated damages- specified sum becomes payable on breach of contract as agreed when entering into contract Damages that are stated and stipulated specifically in the contract are called liquidated damages; the amount is specified in the contract itself. 7. Vindictive damages 8. Damages in quasi contract – compensation for failure to discharge a contract 9. Difficulty in assessment