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IMPORTANCE OF CONTRACT Boarding a bus, buying a cold drink, house we rent, electricity that is supplied to us, telephone and cable we use
Law of Contract
Governed by Indian Contract Act, 1872 The basic constituents of contracts: 1. Formation of agreements 2. Consideration 3. Setting aside of bad contracts 4. Damages and Compensation
Definition of Contract
Section 2(h) of the Indian Contract Act, 1872: A contract as an agreement enforceable by law Section 2(e): Every promise and every set of promises, forming consideration for each other Section 2(b): 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 This in other words means An agreement is an accepted proposal.
Classification of Contracts
A contract becomes voidable in the following two cases also: When a person promises to do something for another person for a consideration but the other person prevents him from performing his promise, the contract becomes voidable at his option. When a party to a contract promises to perform an obligation within a specified time, any failure on his part to perform his obligation within a fixed time makes the contract voidable at the option of the promisee.
Voidable Contract
When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. If the party rescinding the contract has received any benefit under the contract from another party to such contract he shall restore such benefit, so far as may be, to the person from whom it was received.
Agreements
Illegal agreements: An illegal agreement is one which transgresses some rule of basic public policy or which is criminal in nature or which is immoral. Such an agreement is a nullity and has much wider import than a void contract. All illegal agreements are void but all void agreement or contract are not necessarily illegal. Unenforceable contracts: An unenforceable contract is one which cannot be enforced in a court of law because of some technical defect such as absence of writing or where the remedy has been barred by lapse of time.
According to formation
Implied Contract: An implied contract is one which is inferred from the acts or conduct of the parties or course of dealings between them. It is not the result of any express promise or promises by the parties but of their particular acts. It may also result from a continuing course of conduct of parties. Where the proposal or acceptance if any promise is made otherwise than in words, the promise is said to be implied. Egg: gets into a public bus, takes a cup of tea in a restaurant.
According to formation
Quasi Contract: It is not a contract. A contract is intentionally entered into by the parties. A quasi contract on the other hand is created by law. It resembles a contract in that a legal obligation is imposed on a party who is required to perform it. It rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.
According to formation
Egg: T a tradesman leaves goods at Cs house by mistake. C treats the goods as his own. C is bound to pay for the goods. E- Commerce Contract: An E-Commerce contract is one which is entered into between two parties via internet. In Internet, different individuals or companies create networks which are linked to numerous other networks.
Offer
An offer may be made by express words, spoken or written. This is known as an express offer. An offer may be implied from the conduct of the parties or the circumstances of the case. This is known as an implied offer. Thus when a transport company runs a bus on a particular route there is an implied offer by the transport company to carry passengers for a certain fare. The offer is complete as soon as passenger boards the bus. ( Wikie vs London Passenger Transport board)
Types of Offer
Specific Offer: When an offer is made to a definite person it is called as an specific offer. It can be accepted only by the person to whom it is made. General Offer: When an offer is made to the world at large it is called as an general offer. Elements of an offer: Not every proposal made by an offeror is legally regarded as an offer.
Elements of an offer
1. The offer must show an obvious intention on the part of the offeror to be bound by it. That is the offeror must signify to the offeree his willingness to do or to abstain from doing something. The offeror must make the offer with a view to obtaining the assent of the offeree to such act or abstinence. The offer must be definite It must be communicated to the offeree.
Offer
Cross Offer: When two parties make identical offers to each other, in ignorance of each other offer, the offers are cross offers. In such a case the Court will not construe one offer as the offer and the other as the acceptance and as such there is no concluded the contract. P agreed to purchase a machine and signed a contract to the effect. The contract contained several clauses in small print which P did not read. Held P was bound by those clauses. (L Estrange vs Graucob Ltd)
Acceptance
A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offeree to an offer. In other words it is the manifestation by the offeree of his willingness to be bound by the terms of the offer. When the offeree signifies his assent there to the offeror the offer is said to be accepted. Acceptance may be express or implied. It is express when it is communicated by words, spoken or written or by doing some required act. It is implied when it is to be gathered from the surrounding circumstances or the conduct of the parties.
Acceptance
A widow promised to settle some immovable property on her niece if the niece stayed with her in her residence. The niece stayed with her in her residence till her death. Held the niece was entitled to the property. ( v rao vs a rao) When an offer is made to a particular person, it can be accepted by him alone. If it is accepted by any other person, there is no valid acceptance. The rule of law is clear that is you propose to make a contract with A, B cannot substitute himself for A without your consent. General offer.
Consideration
Section 2(d) defines consideration as follows: When at the desire of the promisor the promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing, something such act or abstinence or promise is called a consideration for the promise.
Consideration
An act that is doing of something. In this sense consideration is in an affirmative form. An abstinence or forbearance that is abstaining or refraining from doing something. A return of promise. Abdul Aziz vs Masum: The secretary of a Mosque committee filed a suit to enforce a promise which the promisor had made to subscribe Rs. 500 to the rebuilding of a mosque. Held the promise was not enforceable because there was no consideration in the sense of benefit as the person who made the promise gained nothing in return for the promise made. And the seceratry of the committee to whom the promise was made suffered no detriment as nothing had been done to carry out the repairs. Hence the suit was dismissed.
Capacity to Contract
Capacity means competence An agreement becomes a contract if it is entered into between the parties who are competent to contract. According to section 11 every person is competent to contract who (a ) is of the age of majority according to the law to which he is subject (b) is of sound mind (c ) is not disqualified from contracting by any law of which he is subject to.
Minors
According to Section 3 of Indian Majority Act, 1875 a minor is a person who has not completed eighteen years (18) of age. In the following two conditions he will attain majority after 21 years of age: 1. Where a guardian of a minors person or property has been appointed under the Guardians and Wards Act, 1890 2. Where the superintendence of a minor property is assumed by a Court of Wards.
Minors
Basic rules for minors (2): Law protects minors against their own inexperience and against the possible improper designs of those more experienced Law should not cause unnecessary hardship to persons who deal with minors. Minors agreements: An agreement with or by a minor is void and inoperative ab initio:
Minors
Mohiribibi vs Dharmodas Ghose: In this case a minor mortgaged his house in favour of a money lender to secure loan of Rs. 20,000/- out of which the mortgagee (the money lender) paid the minor a sum of Rs. 8000/-. Subsequently the minor sued for setting aside the mortgage stating that he was underage when he executed the mortgage. Held the mortgage was void and therefore it was cancelled. Further the money lenders request for returning back his money was also rejected.
Minor
He can be a promisee or a beneficiary His agreement cannot be ratified by hi on attaining his majority. If he has received any benefit under a void agreement he cannot be asked to compensate for it or pay for it. He can always plead for minority. Egg: S a minor by fraudulently representing himself to be of full age, induced L to lend him 400 pounds. He refused to repay it and L sued him for the money. Held the contract was void and S was not liable to repay the amount.
Minor
The court may where a loan or some property is obtained by the minor by some fraudulent representation and the agreement is set aside, direct him, on equitable considerations to restore the money or property to the other party, Where as the law gives protection to the minors, it does not give them liberty to cheat men.
Minor
There can be no specific performance of the agreements entered into by him as they are void ab initio He cannot enter into a contract of partnership He cannot be adjudged insolvent He is liable for necessaries supplied or necessary services rendered to him or anyone whom he is legally bound to support. He can be an agent
Minor
His parents/guardian are/is not liable for the contract entered into by him even though the contract is for the supply of necessaries to the minor. But if the minor is acting as an agent for the parents/ guardian shall be liable under the contract. A minor is liable in tort (a civil wrong) : But where a tort arises out of a contract a minor is not liable in tort as an indirect way of enforcing an invalid contract.
Minor
Minor is liable for necessaries. That is his properties will be liable for meeting the liability arising out of the contract. He will not be physically responsible. Necessaries not defined. Necessary goods doesnt mean that which are needed for bare needs but includes articles which are reasonably necessary to the minor having regard to his station in life. Services which are necessary: Education, Training for a trade, medical advice, legal advice, provision of a funeral for deceased husband of a minor widow, house given on rent for minors education and living purposes Loan taken for his necessities also makes him liable.
Free consent
Consent means acquiescence or act of assenting to an offer. Two or more persons are said to consent when they agree upon the same thing in the same sense. Free Consent : Consent is said to be free when it is not caused by Coercion Undue influence Fraud Misrepresentation Mistake
Discharge of a contract
A contract may be discharged by any of the following means: 1. By performance 2. By agreement or consent 3. By impossibility 4. By lapse of time 5. By operation of law 6. By breach of contract.
By performance
Actual performance Attempted performance or tender: Tender is not actual performance but is only an offer to perform the obligation under the contract. Where the promissor offers to perform his obligation under the contract but the offeree refused to accept the performance (Attempted performance) Tender is equivalent to actual performance except in case of tender of money (Tender)
Rescission
When a contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is absolved of all his obligations under the contract. Court will not accept under the following circumstances: where the plaintiff has expressed his ratification, owing to circumstances it is impossible to restore back to their original positions, where only one part of the contract is sought to be rescinded but it cannot be rescinded.
Rescission
When a party treats the contract as rescinded he makes himself liable to restore any benefits he has received under the contract to the party from whom such benefits were received, if he has rightfully rescinded then he has to be rightfully compensated.
Damages
Damages are monetary compensation allowed to the injured party by the court for the loss or injury suffered by him by the breach of a contract. Types of damages: Ordinary damages: When a contract has been broken the injured party can recover from the other party such damages as naturally and directly arose in the usual course of things from the breach. Egg: A agrees to sell B and deliver 50 quintals of wheat at 475/- per quintal and B agreed to pay at the time of delivery but at the time of delivery it rose to 500/- per quintal. A refused to deliver B can go to a court of law for that 25/- of loss per quintal.
Damages
Special Damages: Damages in contemplation of the parties. Damages other than those arising from the breach of a contract may be recovered if such damages may reasonably be supposed to have been in the contemplation of both the parties as the probable result of the breach of the contract. Such damages are known as special damages. Simpson vs London & NW Rail.co (goods coming late to the show and loss has to borne by the railway company)
Damages
Vindictive damages: Damages for the breach of a contract are given by way of compensation for loss suffered and not by way of punishment for wrong inflicted. For breach of a promise to marry and dishonour of a cheque court may order exemplary damages.
Damages
Nominal damages: Where any loss has not been suffered by either of the parties then the damages awarded will be nominal to the effected party. Damages for loss of reputation: Damages for inconvenience and discomfort: Damages can be recovered for physical inconvenience and discomfort. The general rule in this connection is that the measure of damages is not affected by the motive or the manner of the breach .
Quantum meruit
The phrase quantum meruit literally means as much as earned. A right to sue on a quantum meruit arises where a contract partly performed by one party has become discharged by the breach of the contract by the other party.
Specific performance
The court may in some circumstances direct the party in breach to carry out his promise according to the terms of the contract. This is a direction by the court for specific performance of the contract at the suit of the party not in breach.
Injunction
Where a party is in breach of a negative term of a contract (that is where he is doing something which he is promised not to do) the court may by issuing an order restrain him from doing what he promised not to do. Such an order of the court is known as an injunction.
Contract of indemnity
A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200/This is a contract of indemnity. A and B claim certain goods from a railway company as rival owners. A takes delivery of the goods by agreeing to compensate the railway company against loss in case B turns out to be the true owner. There is a contract of indemnity between A and the railway company.
Contract of indemnity
Rights of indemnity holder: 1. all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. 2. All costs which he may be compelled to pay in bringing or defending such suits. 3. All sums which he may have paid under the terms of any compromise of any such suit. The compromise should not be contrary to the orders of the indemnifier and should be prudent or authorised by the indemnifier.
Rights of Indemnifier
Indian contract is silent regarding indemnifier rights. Contract of guarantee: A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety, the person in respect of whose default the guarantee is given is called as principal debtor and the person to whom the guarantee is given is called the creditor. A guarantee may either be oral or written. It may be express or implied and may even be inferred from the course of conduct of the parties concerned.
Contract of Guarantee
S stands for surety, P stands for principal debtor and C stands for creditor. S requests C to lend 500/- to P and gurantees that if P fails to pay the amount he will pay. This is a contract of guarantee. S in this case is the surety C the creditor and P the Principal debtor.
It is not necessary for the 4. It is necessary that the surety should indemnifier to act at the request of give the guarantee at the request of the
Types of guarantee
Specific guarantee: When a guarantee extends to a single transaction or debt it is called as a specific or simple guarantee. It comes to an end when the guaranteed debt is duly discharged or the promise is duly performed. Continuing guarantee: When a guarantee extends to a series of transactions it is called a continuing guarantee. The liability of the surety in case of a continuing guarantee extends to all the transactions contemplated until the revocation of the guarantee.
Discharge of a guarantee
By revocation, By the conduct of the creditor( variance of the terms of the contract, release or discharge of principal debtor, compounding by creditor with principal debtor, creditors act or omission impairing surety's eventual remedy, loss of security), By invalidation of a contract ( obtained by misrepresentation, obtained by concealment, failure of a cosurety to join a surety, failure of consideration)
Requisites of bailment
Contract Delivery of possession For some purpose Return of specific goods Bailment is concerned only with goods Generally the consideration will be in the form of money being paid
Classification of goods
For the exclusive benefit of the bailor For the exclusive benefit of the bailee For the mutual benefit of bailor and bailee Gratuitous bailment Non Gratuitous bailment
Duties of bailee
To take reasonable care of the goods bailed, not to make unauthorised use of goods, not to mix the goods bailed with his own goods, not to set up an adverse title, to return any accretion of goods, to return the goods Rights of bailor: enforcement of rights, avoidance of a contract, return of goods lent gratuitously, compensation from a wrong doer
Rights of a bailee
Delivery of goods to one of several joint bailors of goods, delivery of goods to bailor without title ( if the bailee doesn't know about the defective title of the bailor and if he returns to the bailor he that is bailee is not responsible), right to apply to court to stop delivery, right of action against trespassers, bailees lien (lien: means the right of a person to retain the possession of some goods belonging to another until some debt or claim of the person in possession is satisfied.
Termination of bailment
A contract of bailment can be terminated in the following cases: On the expiry of the period On achievement of the object Inconsistent use of the goods Destruction of the subject matter Gratuitous bailment
Pledge
The bailment of goods as security for payment of a debt or performance of a promise The promise is called as pledge The bailor is in this case called as pledger or pawnor and the bailee is Pawnee. A bailment is for security. It is a different kind of bailment. Any kinds of movable property that is goods, documents, or valuables may be pledged.
Rights of pawnor
Right to get back the goods, right to redeem debt, preservation and maintenance of the goods, rights of an ordinary debtor
Types of agency
Agency by implied agreement ( A woman allowed her son to drive a car for her, she paying all the expenses of maintenance and operation. The son caused an accident injuring his wife. Held the wife could sue the mother as the son was an implied agent of the mother (smith vs moss)
Agency by ratification
The agent must purport to act as agent for a principal who is in contemplation and is identifiable at the time of contract. The principal must be in existence at the time of a contract The principal must have contractual capacity Ratification must be with full knowledge of facts It should be done within reasonable time The whole transaction must be ratified Must be communicated It should not put a third party to damages.
Classification of agents
Special agents: To perform a particular act General Agent: To do all the acts connected to a particular trade, business or employment Universal agent: His authority is unlimited. He can bind his principal by any act which he does provided it should be legal and agreeable to the law of the land
Duties of an agent
To carry out the work undertaken according to the directions given by the principal To carry out the work with reasonable care, skill and diligence To render proper accounts to his principal To communicate with the principal in case of difficulty Not to deal on his own account
Duties of an agent
To pay sums received for the principal To protect and preserve the interests of the principal in case of his death or insolvency Not to use the information obtained in the course of the agency against the principal Not to make secret profit from agency Not to put himself in a position where interest and duty conflicts Not to delegate authority
Rights of an agent
Right of retainer Right to receive remuneration Right of lien Right of indemnification
Duties of principal
To indemnify agent for the acts done in good faith To indemnify agent for the acts done lawfully To indemnify agent for injury caused by principals neglect To pay the agent the commission or other remuneration
Rights of Principal
To recover damages SALE OF GOODS ACT Sale: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract with one part of the owner. Essentials of sale: Two parties, Goods, Price and Transfer of general property
Types of goods
Goods: Every kind of movable property other than actionable claims and money and include stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Existing goods, Future goods, Perishable goods, Durable goods, Contingent goods
Implied condition
Condition as to title Sale by description Condition as to quality or fitness Condition as to merchantability Condition implied by custom Sale by sample Condition as to wholesome ness
Implied warranty's
Warranty of quiet possession Warranty of freedom from encumbrances Warranty to as to quality of fitness by usage of trade Warranty to disclose dangerous nature of goods Caveat Emptor
Partnership
Governed by Indian Partnership Act, 1932 Partnership: Is the relation between persons who have agreed to share the profits of a business carried on bay all or any of them acting for all. Persons who have entered into partnership with one another are called individually partners and collectively as a firm.
Types of partners
Actual or ostensible partners: By an agreement joins and takes active participation in the business. Sleeping or dormant partner: Who does not take part in the business but shares profits and invests capital Nominal partner: Just lends his name to be utilised and no share in profits and no investment. Partner in profits only: only for profits Sub partner: When a partner agrees to share his profits derived from the firm with a third person that third person is known as a sub partner Partner by estoppel: Becoming a partner by holding out ( a retired businessman becoming a honorary president for a firm and later on to share the losses if occurs)
Characters of a firm
Association of two or more persons Agreement Business Sharing of profit Mutual agency Minor may be admitted for the benefits of partnership Consideration no need to be present All people who are eligible to enter into a contract are liable to enter into a partnership deed.
Registration of Partnership
An application form of a statement giving the necessary information to be filed with the Registrar of Firms of the area The name of the firm The place or principal place of business of the firm The names of other places where the firm carries on business The date when each partner joined the firm The names and full permanent addresses of all the partners The duration of the firm
Process of registration
The statement should be signed by all the parties or by their agents. When the registrar is satisfied that the above provisions have been duly complied with, he shall record an entry of the statement in the Register of Firms . Then a certificate of registration will be issued. Registration will be effective from the date of entry in the register of firms
Duties of a partner
To carry on the business for the greatest common advantage To be just and faithful To render true accounts and full information of all things affecting the firm To indemnify for fraud To attend diligently Not to claim remuneration To share losses To indemnify wilful neglect To hold and use property of the firm exclusively for the firm To account for personal profits
Termination of Partnerships
Dissolution of firm: By agreement Compulsory dissolution( Partner becoming insolvent, less than two members) Dissolution on the happening of certain contingencies Dissolution by notice of partnership at will Dissolution by court: Insanity, Permanent capacity, Misconduct, persistent breach of agreement, transfer of interest, business working at a loss, any other ground