Professional Documents
Culture Documents
Law of Contract
Dr. R. Rajesh Babu
Introduction
o Fundamental to all business/commercial transactions o The Indian Contract Act,1872 creates an obligation between the parties and not against the whole world (right in personam). o The Act lays down the general principles relating to formation, performance and enforceability of contracts and the rules relating to certain special types of contracts like, Indemnity and Guarantee; Bailment and Pledge, and Agency o Separate enactments: The Partnership Act; the Sale of Goods Act; the Negotiable Instruments Act.
What is a Contract?
A contract is An agreement enforceable by law
Every promise and every set of promises, forming the consideration for each other is an agreement.
All contracts are agreements but all agreements are not contracts.
1.3 Acceptantce
Acceptance must be absolute and unqualified (counter-offer) Acceptance must be communicated to the person making the offer (in the manner mentioned eg email/fax) Would silence imply acceptance? Eg. Discount on DVD for CC holder. Duty to deny? Offer and acceptance can be revoked by notice, expiry of time (reasonable time)
The letter of revocation can be effective only when received, that is Day 4. However, a contract was formed on Day 3 when the letter of acceptance was posted. It is too late for Ramesh to revoke the offer. Acceptance is from the date of letter not when offeror opens. Acceptance is complete as soon as the letter is put into the box. Telephone, fax, telex, email?
2. Consideration
An agreement made without consideration is void (Sec 25) Consideration means something which is of some value in the eye of law Consideration must be mutual. Both parties must receive something of value. Involvement of money is not required. It may be: the promisee has done or abstained from doing; or promises to do or abstain from doing; Including - forbearance, deteriment, loss or responsibility given, suffered or undertaken
Consideration must move from the promisee. If consideration moves from a third party? Consideration need not be adequate: A contract to sell horse worth Rs. 50000 for Rs. 1000? Whether consent is freely given? coercion, fraud, mistake! Forbearance to sue! Sufficient consideration? BUT consideration must be sufficient, i.e. not: performance of a public duty or a duty imposed by law performance of a previous contractual obligation
Promise to pay less than amount due no consideration. Part payment as full discharge.
2.2 Consideration
Not illusory: An agreement will not be enforced if the consideration is so vague as to be illusory. o Eg. A promises to give B his Rolls Royce car if he fetch it from garage o Vijaya Minerals Pvt. Ltd v. Bikash Chandra Deb (1996): Agreement to sell manganese and iron ore price in agreement only 16% of the current market value. o Bank of India v. Swaranakar (SC 2003) Agreement against revocation VRS once applied cannot withdraw promise to keep an offer open needs consideration to make it binding
Workmen of Appin Tea Estate vs. Industrial Tribunal (1966): The demand of the workers for bonus was accepted after a threat of strike. The question was, whether such a decision between the Union of the workers and the Indian Tea Association could be declared void on the ground that there was coercion?
It was held that because of the doctrine of collective bargaining under the Industrial Dispute Act the demand of the workers could be backed by a threat of strike. Such a threat was neither a threat to commit an offence under the IPC, nor was it unlawful detaining or threatening to detain any property and hence it did not amount to coercion, and as such the agreement was valid. Statutory Compulsion is no coercion
Shri Krishan Vs. Kurushetra University 1976 SC, ShriKrishan, acandidate for the LL.B. Part I exam, who was short in attendance, did not mention that fact in the admission form for the exam. Neither the Head of the law department nor the University authorities made proper scrutiny to discover the truth. Has he committed fraud? It was held by the Supreme Court that there was no fraud by the candidate and the University had no power to withdraw the candidature of the candidate. Silence is no fraud
5. Lawful object
The object is unlawful if It is forbidden by law, Is of such a nature if permitted it would defeat the provisions of any law, It is fraudulent The court regards it immoral, The court regards it opposed to public policy. Thus every agreement of which the consideration or object is unlawful is void.
Void contract: A contract ceases to be enforceable by law becomes void when it ceases to be enforceable.
Void Agreements
o Agreement without consideration is void o Agreement in restraint of marriage is void o Agreement in restraint of trade o Non-compete Agreements? o partial and not total; unreasonable; public interest o Agreement in restraint of legal proceedings o Agreements by way of wager/ bet. Wager contract is one in which parties professing opposing views on the result of an uncertain event, mutually agree that depending on the outcome of such event, one will pay or hand over a sum of money or other stake. o Section 294-A , IPC
Prenuptial Agreements
Privity of Contract
Only a Party to a Contract (not a stranger) can sue on it. The contract can confer rights or impose obligations only on the parties to the contract. There are two aspects of this doctrine. 1.Only parties to the contract are entitled under it. Rights or benefits may be conferred upon a third party but such a third party can neither sue under the contract nor rely on defenses based on the contract. 2.Secondly the parties to a contract cannot impose liabilities on a third party
Discharge of a contract
It means that the contract has been performed and is no longer a pending legal obligation. A contract may be discharged by: 1. Performance 2. Termination by time 3. Mutual agreement - by novation, alteration or recession (Sec.62), remission or waiver (Sec.63). 4. Operation of law 5. Impossibility of performance (ss 37-67) 6. Breach of contract
(iii) Alteration must be a material alteration Remission or waiver: A owes B 27 lakhs. A pays Rs. 20
lakhs and B accepts in satisfaction of his full claim on A.
4. By operation of law
1. Material alteration;
Contract not frustrated by mere commercial difficulty: Merely because the procurement of the goods becomes difficult because of a strike in the mill, or there is a rise in prices, or a person will not be able to earn the expected amount of profits, is not enough to frustrate the contract. Benefits from void contracts: When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it
Subsequent Impossibility: Performance of contract was quite possible when it was made, but some subsequently event rendered its performance impossible or unlawful.
A contracts to take in cargo for B at a foreign port. As Government afterwards declares war against the country in which the port is situated. The contract become void when war is declared.
when a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety
Cancel the contract which will relieve him from all contractual obligations (rescission) Cover and receive damages. Demand specific performance Demand injunction. Recover any consideration given to the breaching party (restitution) Recover proportionate payment for the work done (Quantum Meruit).