Download VTU (Visvesvaraya Technological University) MBA 2nd Semester (Second Semester) 17MBA24-Business Law Law of Contract Important Lecture Notes (MBA Study Material Notes)
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
FirstRanker.com - FirstRanker's Choice
CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
FirstRanker.com - FirstRanker's Choice
CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
Things suited to the condition of the minor can
be classified as Necessaries, which are as
follows:
(a) Wedding presents for a bride of a minor.
(b) Debt incurred for performing funeral
obligations of the father of a minor.
( c) Funds supplied to a minor for the marriage
of a minor female in the family.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
Things suited to the condition of the minor can
be classified as Necessaries, which are as
follows:
(a) Wedding presents for a bride of a minor.
(b) Debt incurred for performing funeral
obligations of the father of a minor.
( c) Funds supplied to a minor for the marriage
of a minor female in the family.
(d) Expenses reasonably incurred in defending
litigation threatening minor?s property.
(f) Loan to a minor to save his property from
sale in execution of a decree.
(g) Things without which an individual cannot
reasonably exists?
(h) Articles required to maintain a particular
person in the state and degree in life, in which
he is living.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
Things suited to the condition of the minor can
be classified as Necessaries, which are as
follows:
(a) Wedding presents for a bride of a minor.
(b) Debt incurred for performing funeral
obligations of the father of a minor.
( c) Funds supplied to a minor for the marriage
of a minor female in the family.
(d) Expenses reasonably incurred in defending
litigation threatening minor?s property.
(f) Loan to a minor to save his property from
sale in execution of a decree.
(g) Things without which an individual cannot
reasonably exists?
(h) Articles required to maintain a particular
person in the state and degree in life, in which
he is living.
Insolvent : An un discharged insolvent cannot
be appointed as a magistrate, or elected to any
office of local authority.
Sec 274. Of Companies act 1956, a person who
is un discharged insolvent is disqualified from
becoming a Director.
Foreign Sovereigns and Ambassadors: Foreign
Sovereigns and Ambassador (accredited
representatives of a foreign state) enjoy a
special privilege in that they can not be sued in
our courts, but they can, if they choose to enter
into a contract and then enforce these contracts
in our courts.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
Things suited to the condition of the minor can
be classified as Necessaries, which are as
follows:
(a) Wedding presents for a bride of a minor.
(b) Debt incurred for performing funeral
obligations of the father of a minor.
( c) Funds supplied to a minor for the marriage
of a minor female in the family.
(d) Expenses reasonably incurred in defending
litigation threatening minor?s property.
(f) Loan to a minor to save his property from
sale in execution of a decree.
(g) Things without which an individual cannot
reasonably exists?
(h) Articles required to maintain a particular
person in the state and degree in life, in which
he is living.
Insolvent : An un discharged insolvent cannot
be appointed as a magistrate, or elected to any
office of local authority.
Sec 274. Of Companies act 1956, a person who
is un discharged insolvent is disqualified from
becoming a Director.
Foreign Sovereigns and Ambassadors: Foreign
Sovereigns and Ambassador (accredited
representatives of a foreign state) enjoy a
special privilege in that they can not be sued in
our courts, but they can, if they choose to enter
into a contract and then enforce these contracts
in our courts.
? An Alien Enemy : An Alien ( the subject of
foreign state)is a person who is not a subject of of
the Republic India. He may be alien friend or
alien enemy. Contract with alien enemy( An alien
whose state is at war with the Republic of India)
During the continuance of war, an alien enemy
can neither contract with an Indian subject nor
can be sue in Indian court.
? Contracts made before the war may either be
suspended or dissolved.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
Things suited to the condition of the minor can
be classified as Necessaries, which are as
follows:
(a) Wedding presents for a bride of a minor.
(b) Debt incurred for performing funeral
obligations of the father of a minor.
( c) Funds supplied to a minor for the marriage
of a minor female in the family.
(d) Expenses reasonably incurred in defending
litigation threatening minor?s property.
(f) Loan to a minor to save his property from
sale in execution of a decree.
(g) Things without which an individual cannot
reasonably exists?
(h) Articles required to maintain a particular
person in the state and degree in life, in which
he is living.
Insolvent : An un discharged insolvent cannot
be appointed as a magistrate, or elected to any
office of local authority.
Sec 274. Of Companies act 1956, a person who
is un discharged insolvent is disqualified from
becoming a Director.
Foreign Sovereigns and Ambassadors: Foreign
Sovereigns and Ambassador (accredited
representatives of a foreign state) enjoy a
special privilege in that they can not be sued in
our courts, but they can, if they choose to enter
into a contract and then enforce these contracts
in our courts.
? An Alien Enemy : An Alien ( the subject of
foreign state)is a person who is not a subject of of
the Republic India. He may be alien friend or
alien enemy. Contract with alien enemy( An alien
whose state is at war with the Republic of India)
During the continuance of war, an alien enemy
can neither contract with an Indian subject nor
can be sue in Indian court.
? Contracts made before the war may either be
suspended or dissolved.
Corporations and Joint Stock Companies:A
company or corporation is a artificial person
created by law and having a separate legal entity.
It cannot enter into contracts which are personal
in nature.E.g. it cannot enter into contract to
marry.
Convicts : A Convict is one who is ? found guilty?
and is imprisoned, during the period of
imprisonment, a convict is incompetent.
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CONTRACT
? ?IGNORANTIA JURIS NON EXCUSAT?
? Means ? Ignorance of law is no excuse?.
? Every person presume to know the law of the land to
which he is a subject.
BUSINESS LAW ( BL )
? Business law is also known as Mercantile law or
Commercial Law or Corporate Law.
? LAW : ? Rule made by authority for the proper
regulation of a community or society or for correct
conduct in life?
? Law is the body of principles recognize and applied
by the state in administration of justice. ? Salmond.
? CONTRACT: Section 2(h) of ICA ? An agreement
enforceable by law is known as contract?
? Definition of an AGREEMENT Sec.2(e) of ICA ?
Every promise and every set of promises, forming
the consideration for each other.?
? Sec.2(b) of ICA defines PROMISE as ? 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 ?
? On analyzing the definitions of agreement, the
following definitions of an agreement are
? Plurality of persons : There must be two or more
persons to make a contract because one person
can not enter into an agreement with himself.
? Consensus-ad-idem : Both the parties to an
agreement mut agree about the subject matter of
the agreement in the same sense and at the same
time.
? Legal Obligation Or Enforceability : An
agreement is said to be enforceable if it is
recognize by the courts.
DIFFERENCE BETWEEN AGREEMENTS
AND CONTRACTS
? Sec.10 of ICA ? All agreements are
contracts if they are made by the free
consent of the parties competent to
contract, for a lawful consideration and
with lawful object not hereby expressly
declared to void ?
ESSENTIALS OF A VALID CONTRACT
? Following are the essentials of a valid or complete contact:
? Plurality of persons.
? Consensus-ad-idem.
? Valid offer and acceptance.
? Capacity of parties.
? Free Consent.
? Lawful Consideration.
? Lawful Object.
? Agreement Not Expressly Declared Void.
? Legal formalities.
? Certainty.
? Possibility of performance.
? Intention to create Legal Relationship.
EXPLANATION
? Explanation of above essentials:
1. Plurality of persons : There must be two or more persons to make a
contract because one person cannot enter into a contract with himself.
? 2. Consensus-ad-idem : Both the parties to a contract must agree about
the subject matter of a contract in the same sense and at the same time. i.e.
meeting of minds.
? 3.Valid Offer and Acceptance : There should be atleast two parties one is
?offerer? and ? offeree?. An offer to be valid must fulfil certain conditions,
such as it must tend to create legal relations , its terms should be certain
and unambiguous , it must be communicated to the offeree e.t.c.
? An acceptance must fulfil certain conditions such as it must be absolute and
unqualified, in a prescribed manner, communicated by an authorized person
before the offer lapses.
? 4. Capacity of Parties : Sec.11 of ICA ? Every person is competent to contract who is of
the age of Majority and who is of sound mind and must not be declared Disqualified
from contracting by any law to which he is subject.?
? 5. Free consent : Consent means that the parties must have agreed upon the
same thing in the same sense.
? There is absence of ?free consent?, if the agreement is induced by
? a. Coercion.
? b. Undue Influence
? c. Misrepresentation.
? d. Fraud. or
? e. Mistake.
? If the agreement is vitiated by any of the first four factors, the contract would be
voidable and can not be enforced by the party guilty of coercion or undue
influence etc.
? 6.Lawful Consideration : Consideration is ? something in
return?.
? No consideration, no contract? .
? A promise to do something or to give something for nothing in
return is not enforceable by law.
? With certain exceptions.
? The consideration is lawful if it is Forbidden by law, or Such a
nature that it would defeat the provisions of any law, or
Fraudulent ,or Involves or implies injury to the person or
property of another, or Oppose to Public Policy.
? 7. Agreement Not Expressly Declared Void : The ICA itself
has declared some agreements specifically void under section
24 to 30 and 56. Agreements like ? in restraints of marriage?
? in restraint of trade? ?in restraint of legal proceeding? ,
involving uncertainty; wagering and impossible are void.
? 8. Legal Formalities : A contract must be oral or in writing.
And in some cases it must be in writing and registered.
? Eg To make gift for natural love and affection.
? Exceptions: Implied contracts, Quasi contracts.
? 9. Certainty: The contract must be certain or at least must be
made certain. Eg. Quality or quatity of subject matter.
? 10. Possibility of Performance : The agreement must be
capable of being performed. This is based on Latin maxim ?
lex non cogit ad impossiblia? ? which means law does not
compel to do what is impossible.
? Impossibility can be
? Pre contractual impossibility : Agreement is void ab initio.
? Post contractual impossibility : Contract becomes void. Known
as ?Doctrine of Supervening Impossibility? or
? Doctrine of Frustration?
? 11.Intention to Create Legal relationship : The intention of
both the parties entering into an agreement must be to create
legal relationship among them. Agreements of social or
domestic nature do not create legal relations.
? Eg. If ?D? agrees to go to cinema with ?B? ,this is not a contract
enforceable by law. Social obligations are not enforceable by
law.
? The elements mentioned above must all be present.
? If any one of them is absent, the agreement does not become
a contract.( With certain exceptions).From this it follows that ?
Every contract is an agreement but all agreements are not
contracts.?
OFFER OR PROPOSAL
? Sec.2(a) of ICA defines OFFER as ? when one person signifies to
another his willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such an act or
abstinence , he is said to make an offer (proposal)?.
?For a lawful offer , the following conditions (Nature/Features )
must be fulfilled .
?There shall be atleast two persons ( Offeror and Offeree) who are
competent to contract.
?The person (expressing willingness) has the intention to get consent
of that other person to such an act or abstinence.
?One person expresses (signifies) his willingness to another, ?A? to do
or ?b? to abstain from doing anything.
?Offeror or promisor is the person making the proposal or offer to
another.
?Offeree or Promisee is the person to whom offer or proposal is
made.
LEGAL RULES RAGARDING A VALID OFFER
?An offer must be ? Expressed or Implied?.
?An offer must contemplate to give rise to ?legal
consequence? and be capable of creating legal
relationship.
?The terms of the offer must be certain and not
vague or loose.
??An invitation to an offer is not an offer?.
?An offer may be ? Specific or General?.
?An offer must be communicated to the offeree.
?An offer should not contain a term the non
compliance of which would amounts to
acceptance.
?An offer can be made subject to any terms and
conditions.
?Two identical cross offers do not make a contract.
Explanation???
? An offer may be Expressed or Implied: That offer can be in writing or
expressed in words etc. At the same time offer can be implied e. g. K.SR.T.C
runs buses in different routes at the scheduled time.
The offer must disclose the intention to create legal relationship: To
constitute an offer, the offerer must intend to create legal obligation. Invitation
to negotiation, Social invitation, Invitation to offer, offer made in test or
Excitement are the examples of a lack of contractual intention on the part of the
offerer.
The terms of an offer must be certain, not loose or vague: L.J. Morgan
observes ? Unless all the material terms of the contract are agreed, there is no
binding obligation?.
E.g. ?X? purchased horse from ?Y? and promise to by another if first one proves
lucky. ?X? refuse to purchase second horse ?Y? cannot enforce. (Tailor Vs
Porting ton)
An invitation to an offer is not an offer : An offer is different from ?
Invitation to Receive offer? or ? Invitation to Treat?(judicial language),
because its objective is mere ? Circulation of Information?.
E.g. (a) An advertisement for sale of goods by Auction is not an offer.( Harris
Vs Nickerson ).
(b) Quotations, Catalogues of prices and Display of goods.
Grainer and son Vs Gough.
Case:? The transmission of price list does not amount to an offer to
supply an unlimited quantity or quality specified?.
An offer may be Specific or General : General offer is made to to the
world at large or public in general. While Specific offer is made to some
specific individual or individuals. It follows that an offer need not be made
to an ascertained person, but it must be accepted by a definite person.
Case : ?Carlill Vs Carbolic Smoke Ball Co.?
Reward of 100 pound to any person who contracts ?inluenza? after
consuming smoke balls.( Gen. Offer.)
6. An offer must be communicated to the offeree : Until the offer is
known to the offeree there is no contract. Communication means to bring
to the knowledge of the offeree.
? Doing anything in ignorance of an offer can never be treated as its
acceptance, for there was never a consequences of wills.This applies to
to both general and specific offer?.
Case : Lalman shukla Vs Gauridatt.
Servant found the absconded nephew of defendant without the
knowledge of the reward. Plaintiff cannot claim the reward.
Communication of ?Special Terms?
In case of the contract as contained in Credit cards, Ticket receipts or
Standard form Documents the more adopted rules by the courts are as follows
:
If the acceptor or promisee had no knowledge of special terms, before or at
the time of contract they are not binding upon courts.
Case.1. : Henderson Vs Stevenson. ( Steamer ticket _ ? Dublin to White
Haven?. No reference for ?special conditions? ( PTO).Plaintiff lost the luggage
and won the claim for the damages.)
Case.2. Parker Vs South East Railway Company.
Deposited luggage at clock room. Special terms reference given on the
ticket (see back). Defendant not responsible for damages. ( Special terms- Not
responsible for luggage exceeding 10 pounds, unless extra charges.)
Exemption to above rule :
? The Doctrine of Fundamental Breach and Strict Construction?--- This
Doctrine protects the unreasonable consequences if wide and sweeping
exemption of clauses.
Case.3. M . Siddaligappa Vs T. Nataraj.
Dry cleaner?s terms that he will pay only eight times the amount of cleaning
charges, for any damage to or loss of the garment, held unreasonable.
? Terms and conditions must be reasonable, so that they should not exploit
any body.
An offer should not contain a term the non
compliance of which would amounts to acceptance :
Thus, an offeror can not say that if acceptance cannot
communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeror does not
reply, there is no contract, because no obligation to reply
can be imposed on him, on the ground of justice.
An Offer can be made subject to any terms and
conditions : An offeror may attach any terms and
conditions to the offer he make. He may prescribe the
mode of acceptance. ? ?By Registered Post Only? ?
Telegram? Etc.
Two Identical Cross Offers do not make a contract:
When two parties make identical offers to each other, in
ignorance of others offer, the offers are ?Cross Offers? ,
which do not make a contract.
ACCEPTANCE
Sec.2(b) of ICA ? A Proposal when accepted becomes
Promise?
Acceptance defined as
? When the person to whom proposal is made
signifies his assent thereto, the proposal is said to be
accepted?.
Acceptance is the manifestation of offeree of his
assent to the terms of the offer.
Legal rules Regarding Valid Acceptance :
( Essentials of Valid Acceptance )
? Only a valid acceptance to a valid offer can establish legal relationship between the
offeror and acceptor (offeree).
?Following are the essentials and legal rules of a valid acceptance:
Acceptance must be given only by the person to whom offer is made.( Bolton Vs
Jones , A sold B his business without telling c , a customer. C sent an order for goods
to A. B received the order and executed it. C refused to pay the price. Held, no contract
between C and B because C never made any offer to B).
Acceptance must be ?Absolute and Unqualified?.
Sec.7(2) ? Even a slightest deviation from the terms of the offer makes the
acceptance invalid.?
Acceptance must be Expressed in some usual and Reasonable Manner,
unless the proposal prescribes the manner in which it is Expressed or
Implied ( Tacit) Acceptance.
Sec.7 (2) says in case of deviated acceptance, ?The proposer may , within a
reasonable time after the acceptance is communicated to him, insists that his
proposal shall be accepted in the prescribed manner and not other wise but, if
he fails to do so , he accepts the deviated offer.?
Mental acceptance is ineffective. Acceptance must be communicated to
the offeror , otherwise it has no effect.
This rule is based on ? Consensus Ad Idem? (meeting of minds). The offeror
cannot impose a condition that offeree?s silence will be regarded as equivalent
to acceptance.
Case:1. Felthouse Vs Bindley ( F offered to buy horse from his nephew.
Nephew not replied but told B his auctioneer not to auction horse. B auctioned it
by mistake. F filed case. Held, no contract because there was no
communication of acceptance by nephew to F)
Case:2. BrogdenVs Metropolitan Railway ( Letter of acceptance not posted,
kept in drawer).
An Acceptance must be communicated by the
acceptor:
Case: Powel Vs Lee ( ? Post of Head Master?- Not
informed about selection- Post canceled- No contract.)
Acceptance must be given within a Reasonable Time
and Before the offer Lapses or Revoked :
Case: Shree Jayamahal co-op. Housing society Vs
Zenith Chemical Works Limited. (Applied for share ?
allotment till five months ? refuse to accept- No
contract.)
Acceptance must succeed the offer : E.g. Allotment of
shares prior to application of shares.
Rejected offer can accepted only, if Renewed:
Privity of contract:
The basic principle underlying law of
contracts is that a stranger to a contract
cannot maintain a suit for remedy. The law
entitles only those who are parties to the
contract to file suits for exercising their
rights. This is known as ? privity? of contract
CONSIDERATION
?EX NUDO PACTO NON ORITUS ACTIO?
[ From a Nude or Bare Promise, No Right of Action can
arise]
Consideration is the one of the essential element of the valid
contract (sec.10).
Pollock ? Consideration is the price for which the promise of
the other is bought?
Sec.2 (d) of ICA defines ? When at the desire of the promisor,
the promisee or any other person has done or abstain from
doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a Consideration
for the promise?.
Types of Consideration :
Present Consideration :
Past Consideration :
Future Consideration:
ESSENTIALS OF A VALID CONSIDERATION OR LEGAL
RULES OF A VALID CONSIDERATION:
Consideration Must Move at the Desire of the
Promisor: The act or abstinence must have
been done at the desire of the promisor, not at
the desire of any third party.
Case : Durga Prasad Vs Baldeo. ( Construction
of the shops in the market at the desire of
collector by D- Shopkeepers promised to pay
commission to D on sold articles-D sued them for
not paying-Held Cannot collect commission from
shopkeepers because shops are not built at their
desire)
Consideration may move from the Promisee or any other
person: Sec.2(d). ? Consideration need not move from the
promisee alone but may proceed from a third person?.
? A Stranger to Consideration Can sue on a contract,
provided he is a Party to the Contract??Called THE
DOCTRINE OF CONSTRUCTIVE CONSIDERATION?.
Chinnaiah Vs Ramayya?.
?A? an old lady gifted her property to her daughter ?R? ? ?R?
should pay annuity to A?s brother ?C? ? Held that ?C? can sue ?R?
A Stranger to Contract Cannot Sue : As per ?The
Doctrine of Privity of Contract?- Privity is essential for
enforcing contract ( he must be a party to the contract)
stranger cannot sue?.
Case: Dunlop Pneumatic Tyre Co. Vs Selfridge and
Co.(1915)
A dealer purchase tyre from the Dunlop Co. and sold them
to a retailer (selfridge &Co).Retailer sold below Co list
price.Dunlop co cannot file a case against Sefridge &co.,
because there is no privity of contract between Dunlop and
selfridge.
Case Iswaram Pillai Vs Sonnivaveru.
?A? mortgage his property to ?B? in consideration of B?s
promise to pay A?s debt to ?C?. ?C? cannot file a case
because he is not a party to the contract.
? A Stranger to contract cannot Sue,but a Stranger to
Consideration can sue?.
? Exceptions to ? A Stanger to Contract Cannot Sue?
[ Exceptions To ? Doctrine of Privity of Contract? ]
?There are special Clause in contract act called as ?
Cardinal Principles? That says that stranger to contract cannot
sue.
? But there are certain exceptions to this law and in the
following cases the ?Third Party? [Stranger To contract] can
sue:
?Marriage Settlements , Partition And other Family
arrangements:
?Assignment of the Contract: The Assignee can sue.
?Beneficiary of a Trust:
?Contract Entered through an Agent: A principal can sue.
?Estoppel or Acknowledgement: When the promisor by his
conduct admits or acknowledges liability, or constitute himself as
the agent to the third party? he shall be estopped from denying
any liability.
?Charge Created in favour of certain person on Specific
Immovable Property. The beneficiary can enforce the charge.
?The Consideration may be Past (Executed),
Present or Future: The words used in Sec.2(d) are ?
??..
has done or abstained from doing( Past), does or
abstain from doing (Present) or promises to do or
abstain from doing (Future Consideration).
?Consideration must be something of Value in the
Eyes of Law: Where consideration is Physically
impossible (make a dead man alive),
Legally Impossible, Uncertain Consideration (uncertain
or vague), Illusory or Deceptive consideration.
(Promise to perform public duty or perform a contract
already made with the promisor.)
.
?Consideration may be an act, abstinence or return promise:
The consideration may be positive (to act) Negative (Abstinence).
?Consideration must be lawful: Not some illegal act, such as
paying one to do crime.
?A Contract must be supported by Consideration:
? No consideration no contract?.
?Consideration need not be adequate: But must have some
value, however slight. Inadequate of consideration will not be
invalidate a contract. E.g. Ram involuntarily agreed to sell his
bicycle for Rs. 50.( of Rs. 500) to Karan. it becomes a valid
contract.
There must be Mutuality: i.e. Each party must do or agree to
do something. A gratuitous promise, as in the case of
subscription for charity, is not enforceable
EXCEPTION TO THE RULE ? NO CONSIDERATION
NO CONTRACT?.
Sec.25 of ICA, specifically states that ? Subject to
certain exceptions, agreements without
consideration are void?
? Exceptions to the Rule ?No Consideration no
contract? are as follows:
Agreement made on Natural Love and Affection:
Agreement to Compensate for Past Voluntary
Services:
Agreement to Pay a Time Barred Debt:
Completed Gift:
In case of Contract of Agency:
Permission by the Promisee of performance of the
promise:
Contribution to Charity:
Explanation to above Exceptions:
(1) Agreement made on account of Natural Love and
Affection { Sec.25(1) }: An agreement without consideration is
valid provided:
It is made on account of love and affection.
It is between parties standing in near relation to each other.
It is expressed in writing. It is registered under the law for
the time being in force.
All these above essentials must be present to enforce an
agreement made without consideration.
Case: Rajlakhi Devi Vs Bhootnath. ( Husband given property
to wife due to some dispute - But not out of love and affection-
Not enforceable.)
(2) Agreement to compensate for Past Voluntary
Services:[Sec.25(2)] A promise to compensate, wholly or in part,
a person who has already voluntarily done something for the
promisor, is enforceable, even though without consideration.
E.g. ?A? saves ?B? from an accident. ?B? promises to ?A? Rs. 1000.
The contract is valid.
(3) Agreement to Pay a ?Time Barred Debt?
{Sec.15(3)}- is enforceable by law. Provided following
should fulfill:
* There must be an Expressed promise to pay a Time
Barred Debt .
* The debt must be such that, the creditor might have
enforced payment but for the ?Law of Limitation of Suit?
* Writing and signed.
* The promisor himself must be liable for the debt.
Case: Pestonji Vs Meher Bai. (Widow cannot execute
her husbands promissory note. It must be an express
promise, In writing and Signed.)
(4) Completed Gift {Sec.25}: If a person gives certain
property to another according to the provision of the
?Transfer of Property Act? He cannot subsequently
demand the property back on the ground that there was
no consideration.
(5) In case of contract of Agency: According to Sec.185
of ICA, no consideration is required to create an Agency.
(6) Remission by the promise, of performance of the
promise: (Sec.63) for compromising a due debt .i.e.
agreeing to accept less than what is due, no consideration
is necessary.
(7)Contribution to Charity : A promise to contribute to
charity, though gratuitous, would be enforceable; if on the
faith of the promised subscription, the promisee incur
liability.
Case.1: Kedarnath Vs Gorie Mohammed ( Town Hall
construction- Incurred liability. (Valid contract.)
Case.2: Abdul Azeez Vs Masum Ali. ( Fund for
construction of Mosque- Liability not incurred ?Cannot
claim.
FREE CONSENT
Sec.13. of ICA defines CONSENT as ? Two or more
persons to have said to have consented when they
agree upon the same thing in the same sense?
?Consensus Ad ?Idem? is a condition essential to the
formation of a valid contract.
Absence of consent may arise from a number of
causes, namely-
?By reason of an error as to the identity of the party
with whom the contract is entered into;
?By reason of an error as to the nature of the contract
itself;
?By reason of an error as to the subject matter of the
agreement.
FREE CONSENT Sec.14 define Free Consent as ?
Consent is said to be Free when it is not caused by :
Coercion (Sec.15)
Undue Influence (Sec. 16)
Fraud ( Sec.17)
Misrepresentation(Sec.18)
Mistake subject to the provision of Sec.20,21 and 22.
In the absence of ? Free Consent? the contract may turn
out to be either Voidable or Void depending upon the
nature of the flaw in consent. If the contract is caused by
?bilateral mistake? the agreement is void.
COERCION
Sec.15 defines Coercion as ? Coercion is the
committing or threatening to commit, any act
forbidden by Indian Penal Code, or the unlawful
detaining or threatening to detain? any property,
to the prejudice of any person to enter into an
agreement.?
In short , it can be said coercion is there when
consent is obtained by ?
?Threatening to commit any act which is
forbidden by the IPC.
?Threatening to detain any property.
?Committing any act which is forbidden by IPC.
? Unlawful detaining any property.
Effect of Threat to Commit Suicide:
A ? Suicide? and a ? Threat to Commit Suicide? are not
punishable but an ? attempt to commit suicide? is punishable
under IPC.
A Threat to commit suicide does not amount to coercion was
considered by Madras high court in the case of ?Chikkam
Amiraju Vs Chikkam Sheshamma?.
In this case husband threatens to commit suicide if his wife
and son did not execute a release deed in favour of his
brother in respect of certain property.
Effect of Threat to File a Suit:
To threaten a criminal or Civil prosecution does not constitute
Coercion because it is not a act forbidden by law. But a threat
to file a suit on a false charge constitute coercion, for such an
act is forbidden by the IPC.
As per Sec.64., if the aggrieved party opts to rescind the a
voidable contract, he must restore any benefits received from
the other party.
DURESS : (jures) In English law coercion is
called as Duress-means ? illegal imprisonment or
either actual or threatened violence over the
person (body/ Physical) or another party or his
wife or children with a view to obtain the consent
of that party to the agreement.?
UNDUE INFLUENCE :( UI)
Sec.16(1) defines UI as ? A contract is said to be induced by
?UI? where the relations subsisting between the parties is
in a position to dominate the will of the will other and uses
that position to obtain an unfair advantage over the other.?
A person is Deemed to be in a position to dominate the will of
the other;( Presumption of UI)
(A) 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 , Promoters and Company
And Guardian and Ward.
(B) Where he holds a Real or Apparent Authority over the other,
e.g. Relationship between Master and Servant, Doctor and
Patient , Solicitor and Client.
? C. Where a Party Makes a contract with a person whose Mental
capacity is Temporarily, or Permanently affected by reason of age,
Illness, or Mental or Bodily Distress.
Presumption of UI is not there in the following cases in which UI has
to be proved.
? Husband and Wife.
? Mother and Daughter.
? Grand son and grand father.
? Land lord and Tenant.
? Creditor and Debtor.
? When consent to an agreement is got with UI the agreement is a
voidable contract at the option of the aggrieved party.
? MISREPRESENTATION (SEC 18)
? A Representation is a ?statement or assertion made by one party
to the other, before or at the time of contract, regarding some
matter or circumstance essential to the formation of the contract,
with an intension to induce other party to enter in to contract.?
? A Representation when wrongly made, either innocently or
intentionally is termed as Misrepresentation.
? Misrepresentation includes ______
? a. The positive assertion in a manner not warranted by the
information of the person making it, of that which is not true ;
? b. Any breach of duty which, without an intent to deceive, gains
an advantage to person committing it; or any one claiming under
him by misleading another to his prejudice or to the prejudice of
any one claiming under him.
? C. Causing, however innocently a party to an agreement to make a
mistake as to the substance of the thing which is the subject of
the agreement.
Essentials of Misrepresentation:
1. In this a representation should be made innocently with an
honest belief as to its truth and without any desire to deceive the
other party, either expressly or Impliedly.
2. The representation must relate to facts material to the contract.
3. The representation must be untrue; or must have become untrue.
4. The representation must have induces or have become
instrumental in inducing the other party to enter into contract.
? FRAUD ( Sec.17)
? Definition: Fraud means and includes any of the following acts
committed by a party to contract, with his connivance or by his
agent with intent to deceive another party there to or his agent ; or
induce him to enter into contract:
? The suggestion as to a fact, of that which is not true, by one who
does not believe it to be true.
? The active concealment of a fact by one having knowledge or belief
of fact.
? A promise without any intention of performing it.
? Any other act fitted to be deceive.
? Any such act or omission as the law specially declares to be
fraudulent.
Mistake
? Mistake may be defined as a erroneous belief on the
part of the parties to the contract concerning
something pertaining to the contract.
? Different kinds of Mistake
? i] Mistake of fact
? a) Bilateral
? b) unilateral
? ii] Mistake of Law
? a) mistake of law of land
? b) mistake of foreign law
Capacity of Parties.
? Sec.11.of ICA states that ? Every person is competent
to contract who is of the age of majority according to
the law to which he is a subject, and who is of sound
mind, and not Disqualified from contracting by any
law to which he is a subject.?
? Sec.11 states that following persons to be
incompetent to enter into contract:
? (a) Persons Disqualified by any law to which
they are subject,e.g. Alien Enemies, Foreign
Sovereigns and Ambassadors, Insolvents and
Convicts etc.
? (b) Minors.
? (c) Persons of Unsound Mind i.e.Idiots,
Lunatics and Drunken Person.
? Persons Incapable to Enter into Contract By
Status: Following categories of persons are
included as Disqualified Persons :
(a)Alien Enemy. (b) Corporations and Joint
Stock Companies.
? (c) Convicts. (d) Insolvent.
? (e) Foreign Sovereigns and Ambassadors. (f)
Married Women.
? (g) Trade Unions:
? MINOR (INFANT)
? Sec.3. Of ICA,? a Minor is one who has not
completed his 18
th
year of age.?So a person
becomes major after the completion of 18
th
year of life.
? Exception to above rule: When a minor?s
property is taken over by ?court of wards? for
management.In either cases minority
continues up to the completion of the 21
st
year.
? The Rules Governing Minor?s Agreements:
Which are based on two principles:
? (1) Law protects minors against their own
inexperience and against the possible
improper designs of those more
experienced.
It has been rightly observed that ? the law
protects minors and preserves their rights
and estates, excuses their negligence or
undue delay in enforcing a right such as to
disentitle their counselors, the jury their
servant and law is their guardian.?
(2) In pursuing the above object, the should
not cause unnecessary hardship to persons
who deal with minor.
? MINOR?S AGREEMENTS:
Indian contract act 1872, has given a specially
privileged position to a minor. He is allowed to
take advantage of his acts but does not incur
any kind of obligation. The law regarding the
minor?s agreements can be summed up as
follows.
(1) A minor?s contract is altogether void and a
minor therefore cannot be bind himself by a
contract.
(2) Minor can be a promisee or a beneficiary.
(3) Minor?s agreement cannot be ratified by
him on attaining the age of majority.
(4) No rule of Estoppel applicable against
minor.
(5) Minor cannot asked to refund the benefit.
(6) A minor can always plead minority.
(7) Minor?s parents are not liable.
(8) Minor cannot be adjudicated as Insolvent.
(9) Minor cannot enter into contract of
partnership.
(10) Minor?s Estate is is liable for necessaries
supped to him.
(11) Minor can be a agent.
(12) Minor cannot be the member of a
company.
(13) No specific performance of an agreement
entered into by minor.
(14) Surety for a minor.
EXPLANATION TO ABOVE RULES.
(1) A minor?s contract is void ab-initio: Law
acts as the guardian of minor and protects
their rights, because their mind is not matured
enough to take the decision.
The Privy council affirms this view in ? Mohiri
bibi Vs Dharmodas Ghosh?.( Minor mortgage
property for Rs. 20,000.-Received Rs.8000.
It was held that the mortgage was void and
repayment of advance Rs.8000 not accepted,
as he has used that amount.
(2) A minor can be a beneficiary or promisee:
If a contract is beneficial to a minor it can be
enforced by him.Thus a minor can purchase a
immovable property or can execute a
promissory note.
(3) Minor?s agreement cannot be ratified by
him on attaining majority. A minor borrowed
a sum of money by executing a simple
pronote for it and after attaining majority
executed a second pronote is not
maintainable.
(4) No rule of Estoppel against a minor: ?
Estoppel arises when one is precluded from
denying the truth of anything which he has
represented as a fact, although it is not a
fact.?
When a man has, by words spoken or , written,
or by conduct, induced another to believe that
a certain state of things exists.
(5) Minor cannot asked to refund to refund the
benefit: If the minor has obtained any benefit
by taking advantage of his minority, such as
money on a mortgage, he cannot be asked to
refund, nor can his mortgaged property be
made liable.
(6) A minor can always plead minority.Law
protects minor from contracted liability. Even
if a minor makes a fraudulent
misrepresentation as to his age agreements
with him are void and a minor is not precluded
from setting up the plea of minority as there
cannot be any estoppel against the statute..
(7) Minor? parents are not liable: However he is
acting as an agent of the guardian, guardian
could be held liable for his act. A contract with
the guardian of minor is valid and can be
enforced by or against guardian,but such
agreement should be for the benefit of minor
and should be within authority.
(8) Minor cannot be adjudicated as Insolvent :
Even for necessaries of life he is not personally
held responsible, only his property is liable.He
cannot be declared insolvent.
(9) Minor cannot enter into a contract of
partnership: But under Sec.30.of Indian
Partnership Act, minor can be admitted to the
benefits of partnership.
(10) Minor?s estate is liable for Necessaries
supplied to him: (Sec.68)Necessaries are
those things without which an individual can
not reasonably exist.
Things suited to the condition of the minor can
be classified as Necessaries, which are as
follows:
(a) Wedding presents for a bride of a minor.
(b) Debt incurred for performing funeral
obligations of the father of a minor.
( c) Funds supplied to a minor for the marriage
of a minor female in the family.
(d) Expenses reasonably incurred in defending
litigation threatening minor?s property.
(f) Loan to a minor to save his property from
sale in execution of a decree.
(g) Things without which an individual cannot
reasonably exists?
(h) Articles required to maintain a particular
person in the state and degree in life, in which
he is living.
Insolvent : An un discharged insolvent cannot
be appointed as a magistrate, or elected to any
office of local authority.
Sec 274. Of Companies act 1956, a person who
is un discharged insolvent is disqualified from
becoming a Director.
Foreign Sovereigns and Ambassadors: Foreign
Sovereigns and Ambassador (accredited
representatives of a foreign state) enjoy a
special privilege in that they can not be sued in
our courts, but they can, if they choose to enter
into a contract and then enforce these contracts
in our courts.
? An Alien Enemy : An Alien ( the subject of
foreign state)is a person who is not a subject of of
the Republic India. He may be alien friend or
alien enemy. Contract with alien enemy( An alien
whose state is at war with the Republic of India)
During the continuance of war, an alien enemy
can neither contract with an Indian subject nor
can be sue in Indian court.
? Contracts made before the war may either be
suspended or dissolved.
Corporations and Joint Stock Companies:A
company or corporation is a artificial person
created by law and having a separate legal entity.
It cannot enter into contracts which are personal
in nature.E.g. it cannot enter into contract to
marry.
Convicts : A Convict is one who is ? found guilty?
and is imprisoned, during the period of
imprisonment, a convict is incompetent.
Married Women : A women married or
single, in Indian law is under no disability as
regards entering into contract.Only in
English law it was applicable.Since 1935 this
disability is not applicable.
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This post was last modified on 18 February 2020