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The Contract Act 1872
Sem II
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Index
Definitions
Classifications of Contracts
Essential Elements of a Valid Contract Discharge of a Contract
Contingent contracts
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Definitions
When one person signifies to another his willingness to door to abstain from doing anything, with a view to obtainingthe assent of that other to such act or abstinence, he is saidto make a PROPOSAL or OFFER
A proposal, when accepted, becomes a PROMISE of theofferer
When a person to whom the proposal is made, signifies his
assent thereto, the PROPOSAL is said to be ACCEPTED
The person making the proposal is called the"PROMISOR", and the person accepting the proposal iscalled "PROMISEE
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Definitions
When, at the desire of the promisor, the promisee or anyother person has done or abstained from doing, or does orabstains from doing, or promises to do or to abstain fromdoing, something, such act or abstinence or promise is
called a CONSIDERATION for the promise;
Every promise and every set of promises, forming theconsideration for each other, is an AGREEMENT;
Promises which form the consideration or part of theconsideration for each other are called RECIPROCALPROMISES
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Definitions
When, at the desire of the promisor, the promisee orany 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 orabstinence or promise is called aCONSIDERATION for the promise;
Every promise and every set of promises, formingthe consideration for each other, is anAGREEMENT;
PASTConsideration
FUTURE
Consideration
PRESENT
Consideration
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Definitions
An agreement enforceable by law is aCONTRACT
Therefore CONTRACT = Agreement +Enforceability by Law.
AGREEMENT = Offer + Acceptance +Enforceability by Law
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Classifications of Contracts - An agreement becomes acontract when all the essential elements of a contract are present. In such case such agreement
becomes a contract. If any of the essential elements are missing then such contact is voidable, void,
illegal or unenforceable BASED ON THE VALIDITY:. VOIDABLE CONTRACT: An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of the other or others, is a voidable contract.
VOID AGREEMENT: An agreement not enforceable by law is said to be void. A void agreement doesnot create any legal right or obligation. Such agreement is void-ab-initio from the beginning itself.
VOID CONTRACT: A contract which ceases to be enforceable by law becomes void when it ceases tobe enforceable. In this case when the contract was entered into, may be valid and binding on theparties as per law, but subsequently it has become void. E.g., in the case of import contract, theagreement is enforceable, but if subsequently war brakes out then the agreement becomes voidcontract.
ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic rule ofPublic Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID, BUT ALL
VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between theimmediate parties but has its further effect that even the collateral transactions to it become tinted withillegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principalcontract.
UNENFORCEABLE CONTRACT: An unenforceable contract is one which cannot be enforced in acourt of law because of some technical defect such as absence of consideration or absence of contract inwriting. The parties to the contract may fulfill their obligations but in the event of breach of contract theother party cannot enforce it.
E.g., agreement with minor or an agreement withoutconsideration is void-ab-initio
Ex: Mr. B borrows Rs.5,000 from Mr. A and enters into acontract with an alien to import prohibited goods. Mr. A
knows of the purposes of agreement. The transactionbetween Mr. B and Mr. A is collateral to the mainagreement. It is illegal since the main agreement is illegal.
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Classifications of Contracts
BASED ON FORMATION:
Express contracts: If the terms of the contract are expressly agreed upon(whether by words spoken or written) at the time of formation ofcontract.
Implied contracts: in this case the contract comes into existence by theacts or conducts of the parties -E.g., Getting into a Public bus.
Quasi contract: strictly speaking quasi contracts are not contracts. Acontract is one, which is entering into with the consent of the parties tothe contract. A quasi contract is one, which is created by law. It is basedon the principle that a person shall not be allowed to enrich himselfunjustly at the expense of another.
Case Law: a fire broke out in Ss firm. He called upon theupton fire brigade to put out the fire which the latter did. Mr. Sfirm did not come under the free service zone although hebelieves to be so. Held, he was liable to pay for the servicerendered, since the services was rendered on the impliedpromise to pay (Upton Rural District Council vs. Powell)
Example Trader leaves the goods at Mr. A s house bymistake. Mr. A treats the goods as his own. Mr. A is
bound to pay for the goods.
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Classifications of Contracts
BASED ON PERFORMANCE:
Executed Contract: A contract in which both the parties to thecontract have completely performed their share of obligation andnothing remains to be done by either of the parties
Executory Contract: A contract in which both the parties or any oneparty to the contract has to still perform their share of obligation
Unilateral Contract where any one party to the contract has to still
perform their share of obligation
Bilateral Contract - where any both the parties to the contract has to stillperform their share of obligation
Example Mr. A entered into a contract with the porterfor lifting his 5 bags. Porter agreed and lifts all the 5bags for Rs. 100. So here the porter has lifted the bagsand Mr. A has paid him.
Example Mr. A entered into a contract with the porterfor lifting his 5 bags. Porter agreed to lift all the 5 bagsfor Rs. 100. So here the porter has not lifted the bagsand Mr. A has not paid him.
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Essential Elements of a Valid ContractA
ll agreements are contracts if they are made with:
Offer and Acceptance
Intention to create a legal relationship
Lawful Consideration
Capacity of the Parties
Free Consent
Lawful Object
Certainty and Possibility of Performance Legal formalities
If any of the above is missing, the contract becomes void.
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Essential Elements of a Valid Contract -Offer and Acceptance
There must be minimum two parties to anagreement. I.e. one party making the offer (also called as
offerer/proposer/promisor)and
the other accepting it (also called asofferee/proposee/promisee/acceptor)
The terms of offer must be definite
Acceptance must be unconditional.
E.g., Mr. A has 3 cars. He asked Mr. B are you ready
to purchase my car for Rs. 2 lakhs.
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Essential Elements of a Valid Contract Offer Meaning:
A person is said to have made aproposal/offer,
when he signifies to another his willingness
to do or to abstain from doing anything,
with a view to obtaining the assent of thatother to such act or abstinence
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Offer - Kinds of offer:
Expressed offer - When offer is made by express spoken or writtenwords
Implied offer - An offer may also be implied from the conduct ofthe parties or the circumstances of the case.
Specific offer - When an offer is made to a definite person, it is saidto be Specific Offer. It can be accepted by the person to whom it ismade.
General offer When an offer is made to the world at large
E.g., When A says to B, Will you purchase my house
at Chennai for Rs. 3 lakhs. .
E.g., When a transport company runs a bus on a
particular route, there is an implied offer by the transportco. to carry passengers for a certain fare. The acceptance
of the offer is complete as soon as a passenger boards
the bus.
E.g., If Mr. A asks to B, for his blue car for Rs.2,00,000/-, Mr. C cannot accept the offer.
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Legal rules to offer The offer must be given with an intention to create legal relationship - A social invitation
even if it is accepted, does not create a legal relationship because it is not intended so.
The terms of the offer must be definite: the terms of the offer must be definite and certainand must not be ambiguous or vague.
Offer must be communicated: an offer to be complete must be communicated to theperson to whom the offer is made. Mere by acting to the terms of the offer without
knowledge, the offer cannot be treated as accepted. An acceptance of offer in ignorance ofoffer is no acceptance and does not confer any right on the acceptor.
Offer may be conditional: When the offer is subject to conditions, they must be clearlycommunicated to the offeree. If the person accepts the offer without the knowledge of theconditions the offeror cant claim the fulfillment of conditions. But the conditions areclearly expressed, then offeree can plead ignorance.
Offer must not contain a term that non-compliance of which may be assumed to amountto acceptance: the person making the offer cannot say that if acceptance is notcommunicated by a certain time, the offer would be considered as accepted
statement of price is not an offer: a mere declaration of intention or a a mere statement of
price is not construed as an offer to sell.
E.g., Mr. A has 3 cars. He asked Mr. B are you ready to
purchase my car for Rs. 2 lakhs. The offer is not definite.
Case Law: Lalmann v/s Gauri Dutt- E.g. G sent his servant L in search of his
missing nephew. Subsequently G announced a reward for information
concerning the boy. L brought back the missing boy, without the knowledge
of reward. It was held that there was no contract between L & G and thereward cannot be claimed.
Case Law: A hotel put a notice in a bed room, exempting the proprietor from liability
for loss of clients goods. Held, the notice was not effective as it came to the
knowledge of the client only when the contract to take a room had already been
entered into.
P deposited a bag in the cloak room of a railway station. On the face of the ticket,
issued to him, was written see back. One of the printed conditions limited the
liability of the company for loss of a package to Rs.10/- The bag was lost and P
claimed Rs. 24.50/- as its value. Held, P was bound by the conditions on the back
of the ticket even if he had not read.
Eg: A offers his black kinetic to B for Rs. 20,000/- and tells him that if I
dont here anything. From you within 15 days, I will assume that you
have accepted my offer. This offer is not valid
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Offer and other forms
There is a clear difference between offer, invitation to offer or an announcement:
An announcement: a declaration by a person that he intends to do something gives noright of action to another. Such a declaration only means that an offer will be made orinvited in the future and not that an offer is made now. E.g., Auction sale, will, etc.
An invitation to make offer: display of goods by the shopkeeper with a price markedon it does not make an offer, but merely gives an invitation to the public to make anoffer to buy the goods at the price marked on it. E.g., quotations, catalogues,advertisements, prospectus issued by the company, etc.
Tender is an offer to the invitation of an offer. (public ad).
Tender can be definite offer to supply specified goods and services.
Tender can be standing offer.
Eg: A invites tenders for the supply of 100 bricks. X, Y, and Z
submit the Tender. A accepts the tender given by X. There is
binding contract between A and X
Eg; a railway Co. invited tender for certain Iron articles which
it might require over a year. Ws tender was accepted. He
supplied goods for some time. He refused to supply at a later
time. But the contract is binding on W
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Essential Elements of a Valid Contract
Acceptance Meaning: When a 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
Acceptance may be implied or expressed. Inexpress acceptance, while that given by conduct istermed as implied acceptance.
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Legal rules to acceptance
Unconditional - An acceptance in order to be binding must be absolute/completeand unconditional. The acceptance must be to all terms of offer.
Communicated to the offeror
Must be given in the prescribed mode - if the acceptance is not according to modeprescribed, or some usual or reasonable, there is no contract.
Given in a reasonable time - if any time limit is specified, the acceptance must begiven within that time. If no time limit is specified by the offeror, then it must begiven within a reasonable time and it depends on the facts of the case
Must be given by the parties, to whom the offer is made - When an offer is made toa particular person, it can be accepted by him alone. If it is accepted by anotherperson, there is no valid acceptance
Must be given before the offer lapses or withdrawn
It cannot precede an offer
Once the offer is rejected it cannot be accepted by the offeree, unless the offeror
renews the offer
It cannot be implied for the silence - the acceptance of an offer cannot be impliedfrom the silence of the offeree, unless the offeree has, by his previous conductinducted that his silence means the acceptance.
Eg; A offers his car to B for Rs. 50,000/- B accepted the offer and
paid Rs. 49,000/- cash down and promised to pay balance of Rs.
1,000/- by tomorrow. This is no acceptance
Case Law: Lalmann v/s Gauri Dutt - G sent his servant L in search of his
missing nephew. Subsequently G announced a reward for information
concerning the boy. L brought back the missing boy, without the knowledge
of reward. It was held that there was no contract between L & G and the
reward cannot be claimed.
Eg: a makes an offer to B and says if you accept the offer
reply by wire. B sends the reply by post. It is not a valid
acceptance.
Case Law: on 08th June, Mr. M offered to take shares in R Co. He received a
letter of acceptance from R Co. on November 23. He refuses to take the shares.
Held, Mr. M, was entitled to refuse, as his offer has lapsed as the reasonableperiod during which it could be accepted had elapsed (Ramsgate Victoria
Hotel Co., vs. Monteflore)
Company allotted the shares to a person who had not
applied for them. Subsequently, when he applied for
shares he was unaware about previous allotment. Thus,
previous allotment is void.
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Lapse or termination of offer
I. By communicating the notice of revocation - Offeror can give notice ofrevocation to offeree but before the acceptance is complete as against him. e.g., At an auction sale, A makes the highest bid of Bs goods. He withdraws the bid
before the fall of the hammer. The offer has been revoked before its acceptance.
II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed
time is over, otherwise after the reasonable time. e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to
accept. The purchaser accepted the offer on Monday, by that time A had sold the wool.Held, the offer had lapsed.
III. By non-fulfillment by the offeree of a condition precedent to acceptance E.g., S a seller agrees to sell certain goods subject to the condition that B, the buyer,
pays the agreed price before a certain date. S had sold the wool. If before the date buyer
did not pay then the offer is revoked.
IV. By death or insanity of the offeror provided the offeree comes to know itbefore acceptance. But If he accepts an offer in ignorance of the death or insanityof the offeror, the acceptance is valid.
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Lapse or termination of offer V. By counter offer - When offer is accepted with some modifications in the terms of the offer,
then it amounts to counter offer. By putting counter offer the original offer comes to an end.
E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you readyto sell it to Rs. 8 lakhs. Bs question to A is a counter offer.
E.g. An offeree agreed to accept half the quantity of goods offered by the offeror on theterms and conditions as would have applied to the full contract. Held, there was nocontract as there was a counter offer to the offer.
VI. If an offer is not accepted according to the prescribed or usual mode provided the offerorgives notice to the offeree within a reasonable time that the acceptance is not according to the
prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted theacceptance.
VII. If the law is changed. An offer comes to an end if the law is changed so as to make thecontract contemplated by the offer illegal or incapable of performance.
VIII. Destruction of subject matter: - A offers B his cow for Rs. 4500/- In the mean time, thecow dies due to snake bite. The offer is lapsed.
Rejection of offer: - An offeree may reject the offer. Once he does that he cannot subsequentlyaccept it.
Rejection of the offer may be express or implied. Express Rejection: The offeree may reject the offer expressly, i.e., by words written or
spoken. This is effective only when notice of rejection reaches the offeror. Implied Rejection: Rejection of the offer is implied by law- where the offeree makes a
counter-offer or where the offeree gives a conditional acceptance
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Communication ofOffer.
The communication of a proposal is complete- when it comes to theknowledge of the person to whom it is made.
The communication of an acceptance is complete
as against the Proposer, when it is put in a course oftransmission to him so at to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of theProposer
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The
letter is posted 10th July. It reaches B on 12th July. The communication
of the offer is complete when B receives the letter, i.e., on 12th July.
E.g., in the above case, when B accepts As Proposal, by a letter sent by post on
13th instant. The letter reaches on 15th instant. The communication of acceptance
is complete, as against A, when the letter is posted, i.e., on 13th, as against B,when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao)
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Revocation ofOffer
Revocation means
taking back or
Withdrawal or
cancellation.
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Communication ofRevocation ofOffer
The communication of a revocation is complete -asagainst the person who makes it (i.e. for therevoking party), when it is put into a course of
transmission to the person to whom it is made, so asto be out of the power of the person who makes it;(i.e. when the letter of revocation is posted.)
(For the opposite party) as against the person towhom it is made, when it comes to his knowledge(when the letter reaches him)
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
against A when the telegram is dispatched, i.e., on 19th May. It is complete as
against B when he receives it, i.e., on 21st May.
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Time for Revocation of Proposals and
Acceptance A proposal may be revoked at any time
before the communication of its acceptance iscomplete as against the proposer, but not
afterwards.
An acceptance may be revoked at any time
before the communication of the acceptanceis complete as against the acceptor, but notafterwards.
Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the
letter is posted on the 1st of the month. Mr. B accepts the proposal by a
letter sent by post on the 4th. The letter reaches Mr. A on the 6th.
Mr. A may revoke his offer at any time before Mr. B posts his letter ofacceptance, i.e., 4th but not afterwards
Mr. B may revoke his acceptance at any time before the letter of acceptance
reaches Mr. A, i.e., 6th, but not afterwards
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Loss of letter of acceptance in postal
transit: Acceptance is complete as against the offeror as
soon as the letter of acceptance is posted.
The contract is complete even if the letter ofacceptance goes astray or is lost through an accidentin the post.
But in order to bind the offeror, it is important that
the letter of acceptance is correctly addressed,adequately stamped and posted,
Otherwise the acceptance is not complete
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Revocation how made
A proposal is revoked
(1) by the communication of notice of revocation by the Proposerto the other party;
(2) by the lapse of the time prescribed in such proposal for itsacceptance, or, if no time is so prescribed, by the lapse of areasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfill a condition precedent to
acceptance; or
(4) by the death or insanity of the Proposer, if the fact of thedeath or insanity comes to the knowledge of the acceptor beforeacceptance.
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Essential Elements of a Valid Contract
Consideration Meaning: When a party to an agreement promises to
do something,
he must get something in return.
This something in return is defined as
consideration.
.
E.g., A agrees to sell his car to B for Rs.15000/-, for As promise the
consideration is Rs.15000/- and for Bs promise the consideration is the car.
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Legal Rules to Consideration
Move at the desire or request of promisor -A
n act constituting consideration must have been done at the desireor request of the promisor, if it is done at the desire of the third party or without the desire of the promisor it willnot be a good consideration.
It may move from the Promisee or any other Person This means that as long as there is a consideration for apromise it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if he is aparty to the contract
It may consist of an Act or Abstinence (means not doing something)
Consideration can bepast, present or future -
It need not be adequate - Consideration as said something in return and something this something in returnneed not be equal in value to Something given. The law requires that the contract must be supported byconsideration and not the adequate consideration.
Must be real & not illusionary - There is no real consideration in the following cases: Physical impossibility: A promises to put life into Bs dead wife on the consideration of Rs.999. As promise
is physically impossible to perform. Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn
promise to dischargeA
from the liability.T
his is legally impossible, because C cannot dischargeA
from thedebt due to B. Uncertain consideration: A engages B for doing certain work and promises to pay a Reasonable some.
There is no recognized method of ascertaining the Reasonable Some. The promise is unenforceable due touncertainty.
Should not be illegal - the consideration given for an agreement must not be unlawful. A consideration to thecontract must not be against Public Policy, Immoral and illegal
It must be something which the promisor is not already bound to do: a promise to do what one is alreadybound to do, either by general law or under an existing contract, is not a good consideration for the new promise,since it adds nothing to the pre-existing legal or contractual obligation.
E.g.,A borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
is now about to file a suit and A agrees now to pay a higher rate of interest. B agrees for
not filing a suit. This forbearance is a valid consideration.
E.g., supari to kill someone.CL: There was a promise to pay to the vakil an additional sum if the suit wassuccessful. Held, the promise was void for the want of consideration. The vakil
was under a pre-existing contractual obligation to render the best of his services
under the original contract. (Ramachandra Chintaman vs. Kalu Raju)
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Exception to the rules of consideration
Where an agreement is expressed in writing and registeredunder the law for the time being in force for the registration ofthe documents and is made on account of natural law andaffection between parties standing to the near relation to eachother, it is enforceable even if there is no consideration
Promise to pay a time-bared debt: A promise to pay a time-bared debt by the debtor is enforceable provided it is made inwriting and signed by the person to be charged therewith or byhis agent. The debt must be such of which the creditor mighthave enforced payment but for the law for the limitation of suits
Completed gifts Compensation for the past voluntary services
Charitable subscription
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.
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Exception to the rules of consideration
Completed gifts The rule No consideration, no contract does not apply to
completed gifts.
In order to attract this exception there need not be natural
love and affection or nearness of relationship betweendonor and donee. The gift must, however, be complete.
Compensation for the past voluntary services - isbinding. E.g. P finds Ss purse and gives it to him. S promises to give
P Rs. 100/- This is a contract i.e., A promise, to compensate,wholly or in part, a person, who has already voluntarilydone something for the promisor, is enforceable, eventhough without consideration.
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Exception to the rules of consideration
Contribution to Charity:
A person to contribute to charity , though gratuitous, would be enforceable,if on the faith of the promised subscription, the promisee takes definite stepsin furtherance of the object and undertakes a liability, to the extent of liabilityincurred, not exceeding the promised amount of subscription.
E.g. The defendant had agreed to subscribe Rs. 100/- towards theconstruction of a Town hall at Howrah. The plaintiff (secretary of the townhall) on the faith of the promise entrusted the work to a contractor andundertook liability to pay him. The defendant was held liable. But where thepromisee had done nothing on the promise, a promised subscription is notlegally recoverable.
E.g. The defendant promised to subscribe Rs. 500/- to a fund started forrebuilding a Mosque but no steps had been taken to carry out the repairs.The defendant was held not liable and the suit was dismissed.
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Doctrine of Privity of Contract
Meaning: The general rule is that only the parties to a
contract can sue and be sued upon the contract.
In other words, if a person is not a party to thecontract (i.e., a stranger to contract), he cannotsue.
It implies the mutuality of will and legal bondingbetween the parties.
It refers to the relationship between the partieswho have entered into a contract.
Stranger to Contract V. Stranger to Consideration
Dunlop Pneumatic Tyre Co. V Selfridge and Co.
# D entered into a contract of sale of certain tyres to P.
# The contract provided that P shall not sell the tyres below thelist price. Also, the contract provided that P shall, at time of resale,impose a condition on the retailer that sale by retailer shall not bemade below the list price.
# P sold certain tyres to S. S resold certain tyres below the listprice.
# In a suit instituted by D against S, the court held that such suitwas not maintainable since there was no Privity of contractbetween S and D.
A who is indebted to B, sells his property to C. C promises to payoff the debt to B. When C fails to pay; B has no right to sue C,because he is a stranger to contract.
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Exceptions Stranger to Contract has theright to sue in the following cases:
Trust or Charge
Marriage Settlement, Partition and otherfamily arrangements; and such agreements is
reduced to writing. Acknowledgement of liability; by past
performance thereof
Assignment of a Contract
Contracts entered into through an Agent
Covenants running with land
Beneficiary, in whose favour a Trust of other interest in someimmovable property has been created can enforce it, eventhough he is not a party to the Contract (Madhu Trading Co. V
UOI).
A husband who was separated from his wife executed a separation deedby which he promised to pay to the Trustees all the expenses for hermaintenance. Held, the agreement created a trust in favour of his wife andcould be enforceable by her (Gandy V. Gandy).X receives money from Y for paying it to Z. X admits the receipt of that
amount to Z. Z can recover the amount from X, even though the moneyis due from y.
A holder in due course is entitled to the amount on a NegotiableInstrument, even though there is no agreement between him andthe maker/drawer.
The Purchaser of immovable property who has notice that the owner ofthe land is bound by certain conditions or covenants created by anagreement affecting the land, shall be bound by such conditions, eventhough he is not a party to the original agreement containing thoseconditions or covenants.
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Essential Elements of a Valid Contract Capacity To ContractMeaning Every person is competent to contract who is of:
the age of majority according to the law to which he is subject, sound mind, and is not disqualified from contracting by any law to which he is subject.
Section 11 declares the following persons to be incompetent to contract. Minors Persons of unsound mind Persons disqualified by any law for the time being in force. Idiot Lunatic with unsound mind Alien enemy Convicts
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Minor - Meaning
Minors:
according to Section 3 of the Indian MajoritiesA
ct, 1875, a minor isa person who has not completed eighteen years of age. In the following twocases, he attains majority after twenty one years of age:
Where a guardian of a minors person or property has been appointedunder the guardian and wards Act, 1890, or
Where the superintendence of a minors property is assumed to be courtof wards.
The rules governing minors agreements are based on two fundamentalrules:
The first rule is that the law protects minors against their owninexperience and against the possible improper designs of those moreexperienced.
The second rule is that, in pursuing the above object, the law should notcause unnecessary hardship to person who deals with minors.
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Legal rules of Minors:
An agreement with minor is void- ab-inito:
He can be a Promisee or a Beneficiary: incapacity of minor to enter into acontract means incapacity to bind him-self by a contract. There is nothingthat debars him from being a beneficiary. Such contract may be enforced atthe option of the minor and not the other party.
Minor cannot ratify his contract, on attaining majority: Considerationwhich passed under earlier contract cannot be implied into the contractwhich the minor enter on attaining the majority. Thus consideration givenduring the minority is no consideration. If it is necessary a fresh contractmay be entered into by the minor on attaining the majority provided it issupported by a fresh consideration
He can always plead minority: even if he has, by misrepresenting his age,
induced the other party to contract with him, he cannot be sued either incontract or in tort for fraud because if the injured party were allowed to suefor fraud, it would be giving him an indirect means of enforcing the voidagreement.
Remember in the case we discussed, a minor mortgaged his house in favour of a
money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for
setting a side 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 lender requested for the repayment of the amount advanced to the
minor as part of the consideration for the mortgage was also not accepted (Mohiri
Bibi vs. Dharamodas Ghose)
Case law: M, Aged 17, agreed to purchase a second hand scooter for Rs.5000/-
from N. he paid Rs.200/- as advance and agreed to pay the balance the next day
and collect the scooter. When he came with the balance money next day, N told him
that he has changed his mind and offered to return the advance. N cannot avoid thecontract, though M may, if he likes. (Sharafat Ali v/s Noor Mohd)
Case law: M, A minor, borrowed Rs.5000/- from L and executed a Promissorynote in favour of L. after attaining the majority, he executed another Promissorynote in settlement of the first note. The second Promissory note is void for thewant of consideration. (Indran Rama Swamy v/s Anthiappa Chettiar)
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If he has received any benefit under a void agreement, he cannot beasked to compensate or pay for it: section 65 which provides forrestitution in case of agreements discovered to be void does not applyto the minor
There can be no specific performance of the contract with minor,since agreement with minor is void-ab-inito: Cant file a suit forspecific non performance. But if a contract is entered into on hisbehalf by his Parents / guardian then the same can be enforced by oragainst the minor provided the contract is (a) within the scope of theauthority of the Parent / guardian, and (b) for the benefit of theminor.
He cannot enter into a contract of Partnership: a minor can beadmitted as a beneficiary of Profits of a Partnership firm already in
existence, with the consent of all the existing Partners. But he cannotbe admitted as a Partner He can be an agent: an agent is merely connecting link between
Principal and third Party. The movement the Principal and third partycomes into contract with each other, the agent drops out with anypersonal liability, hence a minor can act as agent.
Legal rules of Minors:
Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable torefund the loan not only that, even his mortgaged property cannot be made liableto pay the debt.
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Legal rules for a Minor His Parents / guardian are / is not liable for the contracts of the minor: the
exemption to this rule is that where the minor act as an agent of his Parent /guardian, the Parent / guardian shall be liable for his acts.
He cannot be adjudged as an insolvent.
He cannot be a shareholder in a Company.
He can be member in a Trade union: A Person who attained the age of 14 years canbe admitted as a member.
Minors liability for necessaries: a minor is liable to pay out of his property fornecessaries supplied to him or to anyone whom he is legally bound to support(Section 68). The claim arises not out of contract but out of what are called Quasi-Contracts. Again it is only the property of the minor, which is liable for meeting theliability arising out of such contracts. He is not personally liable.
Case law: G, a minor, entered into a contract with R, a noted billiards player, topay him certain sum of money to learn the game and play matches with him duringhis world tour. R spent time and money in making arrangements for billiardsmatches. Held, G was liable to pay as the agreement was one for necessaries as
it was in effect for teaching, instructions and employment and was reasonableand for the benefit of the infant. (Robarts v/s Gray)
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Legal rules for a Minor
No rule of Estoppel to minor
Estoppel means A person making a statement by words spoken orwritten which induces others to believe and acted upon.
Rule preventing a person from denying the truth of such a statementmade previously by words spoken or written, by which he has led
another to believe and acted upon. Therefore, he is stopped from denying the said statement.
i.e. cant say no, so should act.
Minor is liable for Tort
Surety for a Minor: a person who stands as surety for a minor can be suedthough the minor himself would not be liable
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Unsound Mind
A person is said to be of sound mind for the propose of making acontract, if, at the time when he makes it, he is capable of understanding the
terms of the contract and To form a rational judgment as to its effect upon his interest.
Therefore, if both of the above is not satisfied, then is a personsuffering of unsound mind.Eg: Idiots Lunatics Drunkards
A person, who is usually of unsound mind, but occasionally ofsound mind, may make a contract when he is of sound mind
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Lunatics
Lunatic is a person who suffers fromintermittent intervals of sanity and insanity.
All agreements made by lunatics duringintervals of sanity are valid
P
roperty of lunatic is liable for necessities oflife contracts but a lunatic cannot be heldpersonally liable
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Idiots
Idiot is a person who has completely lost hismental balance.
An agreement with an idiot is absolutelyvoid.
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Drunkards
A high level of intoxication make adrunkards contract void
A contract made by a person so intoxicatedas not to know the consequences of his act isnot binding on him
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Few other Persons are also Prohibited toenter into a contract.
Alien Enemy.
Insolvent.
Foreign Sovereigns, their diplomatic staffand accredited representatives of theforeign states.
Corporations (beyond MOA and AOA).
Convicts
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Contract by the other person disqualifiedby law Alien enemy Contracts with an alien enemy (who is a citizen of a foreign country which
is not in peaceful terms with India) are void on the grounds of public policy.Contracts may be suspended during the war and may be revived after the war is over,provided they are not time-barred.
I Position of Contracts during War An alien enemy can neither enter into contract norcan be sued in an Indian Court except by the license by the Government.
II Position of contracts during the war:
If such contracts are against the public policy or are such that may benefit the enemy, then suchcontracts are dissolved.
If such contracts are not against public policy, then such contracts are merely suspended for theduration of the war and revived after the war is over unless they have already become time barredunder the Law of Limitation.
E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract with Ywho carries on business in India. Immediately after the formation of the contract, a warbroke out between India and Pakistan. In this case, X becomes an alien enemy though he isIndian and contract between x and y (if not against the public policy) will be suspended forthe duration of the war and revived after the war is over.
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Few other Persons are also Prohibited toenter into a contract Foreign Sovereign and Ambassadors: - They can enter contract and enforce those
contracts in our courts but they cannot be sued in our courts without the sanction ofthe Central Govt.
Company under the companies act or statutory corporation under the special act ofparliament: - The contractual capacity of the company is determined by objectsclause of its Memorandum of Association, whereas that of the statutory corporation
is determined by the statute creating it. Any act in excess of the power given is ultravires and hence void.
Insolvents - When a person is declared insolvent, it is only the Official Receiver orOfficial Assignee who can enter into contracts relating to his property and sue and besued on his behalf. Thus, as soon as a person is declared insolvent, he looses hiscontractual capacity.
Convicts: A convict cannot enter into a contract while he is undergoingimprisonment. Thus, this incapacity is only during the period of sentence.
Insolvent after the order of discharge he is competent to enter into contracts.
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Essential Elements of a Valid Contract
Free consent Meaning The consent of parties are said to be free when they are of same
mind on all material terms of contract. The parties are said to beof same mind when they agree on 3s
Same subject matter
Same sense Same time
If any one of the following elements are in agreement, we can saythat there is absence of free consent
Coercion
Undue Influence
Fraud
Mistake
Misrepresentation
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Coercion
Coercion" is the committing, or threatening to commit, any
act/crime or
the unlawful detaining, or threatening to detain,any property or any act
forbidden by the Indian Penal Code 1860
with the intention of causing any person to enter
into an agreement.
Threat to commit Suicide amount to Coercion
E.g. A threatens B to shoot him if he does not release him fromdebt which A owes to B. This is coercion.
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Undue Influence
Undue Influence means:
When a special kind of relationship exists between the parties
such that one party is in a position to exercise undue influenceover the other.
A
nd such party uses his position to dominate the will of the otherparty to obtain an unfair advantage over the other party
Essentials:
There must be two persons.
The relationship should satisfy between them.
One should dominate the other.
There must be unfair advantage.
It is a moral character
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Undue Influence
Some of the examples where undue influence existsbetween the following relations:
Superior and subordinate
Principal and agent
Doctor and Patent
Promoter and Company
Solicitor and Client
Father and Son Teacher and Student
Spiritual guru and devotee
Case Laws: A Spiritual guru induced his devotee to gift him the whole ofhis property in turn of a promise of salvation of the devotee. Held, theconsent of the devotee was given under the undue influence. (Mannu
Singh v/s Umadat Panday)
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Undue Influence
Under the following relationship there is noassumption of undue influence.
Husband and Wife
Landlord and tenant
Debtor and Creditor
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COERCION UNDUE INFLUENCE
Consent is given under threat The consent is given by a personwho is so situated in relation toanother that the other person is ina position to dominate his will
Coercion need not proceed from
parties to the contract but can bedone thro/by a stranger
Undue influence is between the
parties to the agreement
Contract is voidable at the optionof one of the parties of the contract
The contract is either voidable orthe court may enforce it in amodified form
Coercion is mainly of physicalnatureU
ndue influence is of moral andpsychological nature
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Fraud
Essentials: There must be a representation There must be two persons There must be an active concealment of the fact
The person making the representation does not believe it tobe true There must be an intention of the proposer or the promiser
to deceive the other person The other person must have relied upon the representation
and must have been deceived and suffered loss The representation must have been made before the
Commencement of the contract The representation must relate to a material fact which
exists now or existed in the past
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Fraud
The party defrauded has the followingremedies:
The contract can be rescinded within reasonable
time limit He can insist on the performance of the contract
on the condition that he shall be put in theposition in which he would have been if the
representation made had been true He can sue for damages
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Misrepresentation
Essentials:
It must be representation of material fact
It must be made before the conclusion of the
contract It must be wrong but the person making it
believes it to be true
It must have been made without any intention ofdeceiving the other Person
It need not be made directly made to the Plaintiff
CL: A companys prospectus contains a representation that it hasstatutory powers to run its tramways by steam provide that the consentof the government was obtained. The directors issued prospects statingtherein that the company had the right to use steam power. They honestlybelieve that the permission for the use of steam power would be granted.The permission was refused. The company was that wound up. Held, thedirectors were guilty of misrepresentation (Derry vs. Peek)
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MISREPRESENTATION FRAUD
It is a false statementwithout any intention todeceive
It is a false statementdeliberately, or recklesslymade to deceive another
It is also called innocent
misrepresentation
It is also called intentional
misrepresentation
It makes the contractvoidable at the option of
the party injured
It besides avoiding thecontract. The aggrieved
party also has right to suefor damages
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Mistake
Mistake may be defined as an erroneous beliefabout something.
It may be of two kinds mistake of law
Mistake of own country
Mistake of foreign country
mistake of fact A bilateral mistake
Unilateral mistake
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Mistake of law
Mistake of law of the country is no excuse,is a well-settled rule of law. A Party to thecontract cannot be allowed to ask for relief on
the ground that the act was done inignorance of law.
Mistake of law of a foreign country: suchmistake is treated as mistake of fact, and suchagreement is treated as void.
E.g. A & B purchases and sells a plot of land of 195 sq.mts. in Dublin,believing that a house can be constr ucted over it. Actually in Dublinhouse cannot be constructed on a plot less than 200 sq.mts. The contractcan be avoided.
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Mistake of fact Unilateral Mistake - Unilateral means only one party to a contract is under a mistake offact. A contract can be avoided on the ground of unilateral mistake, if it can be shown thatmistake was caused by Fraud or misrepresentation. Types:
A unilateral mistake may be- Mistake as to the nature of transaction Mistake as to identity of party
Bilateral Mistake - Where both the parties to an agreement are under a mistake as to amatter of fact, the agreement is void.
TypesMistake as to existence of subject-matter
Identity of subject-matterTitle of subject-matterQuality of subject-matterQuantity of subject-matter
Price of subject-matterE.g. A agrees to buy a horse from B at certain price. The horse was dead at the time of
bargain and neither party was aware about the fact. Held, the agreement is void.
E.g. A person was induced to sign a gift deed (will), on the presentation that it
was a power attorney.
E.g. X goes to a shop and introduces himself as Y and purchases some goods
on credit. The contract is void.
E.g. X goes to a shop and introduces himself as Y and purchases somegoods on credit. The contract is void.
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MISTAKE OF FACT MISTAKE OF LAW
It vitiates a contract It does not vitiate a contract unlessit relates to:
Private rights of property
Willful representation of law
Mistake as to any foreign law inwhich case it vitiate the contract
If it is a mutual mistake as to anexisting fact material to the
agreement, the contract is void
The contract is not voidable,unless the mistake happens to be
of foreign law
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Lawful objects The consideration or object of an agreement is
lawful, unless It is forbidden by law; or is of such nature that, if permitted it would defeat the
provisions of any law or is fraudulent; of involves or implies, injury to the person or property of
another; or the Court regards it as immoral, or opposed to public policy
Every agreement of which the object orconsideration is unlawful is void.
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Object or consideration are unlawful incase of the following: Forbidden by law Performance defeats the provisions of law Fraudulent purpose Injurious to any person or property Immoral Are against public policy:1. Interference with course of justice2. Agreement to restrain prosecution3. Agreement of maintenance and champerty4. Marriage brokerage contract5. Unfair or unreasonable dealings
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Lawful objects It is forbidden by law - An act is forbidden by law when it is punishable
under the criminal law or is prohibited by special legislation or regulationsmade by the competent authority.
is of such nature that, if permitted it would defeat the provisions of anylaw
is fraudulent - an agreement if any made for any fraudulent purpose is
void. Thus, an agreement with an intention of fraud of creditors with aview to defeat their right is void.
of involves or implies, injury to the person or property of another - injurymeans wrong, harm or damage. Person means ones body, propertyincludes both movable and immovable.
the Court regards it as immoral - an agreement, the consideration or objectof which is immoral, e.g., agreement between husband and wife for futureseparation, is unlawful (Sumitra Devi v/s Sulekha Kundu)
opposed to public policy An agreement which is injurious to the generalpublic or is against the interest of the society
Opposed to Public Policy Lawful objects
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Opposed to Public Policy - Lawful objects Agreement of trade with enemy: an agreement made with alien enemy in
the time of war is illegal on the ground of public policy. This is base uponone of the following two reasons: either that the further performance
involves commercial transactions with the enemy, or that the continuedexistence of agreement would confer upon the enemy immediate or futurebenefit.
Agreement to commit crime: where the consideration in an agreement is tocommit a crime, the agreement cannot be enforced in the court of law, andsuch agreement is against public policy. The court will not enforce such anagreement. Likewise an agreement to indemnify a person againstconsequences of his criminal act is opposed to public policy and hence
unenforceable Mr. A promises to indemnify Mr. B in consideration of his beating Mr. C.
the agreement is opposed to public policy Agreement which interfere with the administration of justice: an
agreement the object of which is to interfere with the administration ofjustice is unlawful, being opposed to public policy. It may take any of thefollowing forms:
Interference with the course of justice: an agreement which obstructs theordinary process of justice is unlawful. Thus an agreement for usingimproper influence of any kind with the judges or officers of the justice isunlawful.
Stifling prosecution: it is in public interest that if a person has committed acrime, he must be prosecuted and punished. Hence an agreement not toprosecute an offender is an agreement for stifling prosecution is unlawful.T
hat is in the case of non compoundable offence, such agreement isunlawful.
Opposed to Public Policy - Lawful objects
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Opposed to Public Policy Lawful objects Maintenance and Champerty: Maintenance is an agreement to give
assistance, financial or otherwise, to another to enable him to bring or defendlegal proceedings when the person giving assistance has got no legal interest ofhis own in the subject matter. Champerty is an agreement whereby one party
is to assist another to bring an action for recovering money or property, and is toshare in the proceeds of the action. Under English law both the agreement arevoid. Under Indian law, however does not make them absolutely void.
Agreements in restrain of legal proceedings, void (Section 28) Every agreement, by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by the usual legalproceedings in the ordinary tribunals, or which limits the time within which hemay thus enforce his rights, is void to the extent.
Exception 1: Saving of contract to refer to arbitration dispute that may arise. Thissection shall not render illegal contract, by which two or more persons agreethat any dispute which may arise between them in respect of any subject or classof subject shall be referred to arbitration, and that only and amount awarded insuch arbitration shall be recoverable in respect of the dispute so referred.
Exception 2: Saving of contract to refer question that have already arisen - Norshall this section render any illegal contract in writing, by which two or morepersons agree to refer to arbitration any question between them which hasalready arisen, or affect any provision of any law in force for the time being as toreference to arbitration.
trafficking in public offices and titles: agreement of the sale or transfer ofpublic offices and titles or for the procurement of a public recognition likeParam Veer Chakra for monetary consideration are unlawful, being opposed topublic policy. Such agreements, if enforced would lead to inefficiency andcorruption in public life.
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Opposed to Public Policy - Lawful objects
Agreements tending to create interest opposed to duty: if a person
enters into an agreement whereby he is bound to do somethingwhich is against his public or professional duty, the agreement isvoid on the ground of public policy.
CL: An agreement by a newspaper proprietor not to comment onthe conduct of a particular person is unlawful being opposed toPublic Policy (Neville vs. Dominion of Canada News Co., Limited)
Agreement in restraint of parental rights: a father or in his absencehis mother is the legal guardian of a minor child. This right cannotbe bartered away of an agreement. A father cannot enter intoagreement which is inconsistent with his duties arising out of suchcustody. If he enters into any such agreement such agreement isvoid on the ground of public policy.
Agreement restriction personal liberty: agreements that unduly
restrict the personal freedom of the parties to it are void as beingagainst public policy. Agreement in restraint of marriage: every agreement in restraint of
the marriage of any person, other than a minor, is void.
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Opposed to Public Policy - Lawful objects Marriage brokerage or brokerage agreement: an agreement by
which a person, for a monetary consideration, promises in return toprocure the marriage of another is void, being oppose to publicpolicy. Similarly, an agreement to pay money to the parent of aminor child in consideration of his/ her consenting to give theminor in marriage is void, being opposed to public policy.
Agreement interfering with marital rights: any agreement whichinterferes with the performance of marital duties is void, being
opposed to public policy. CL: An agreement to lend money to a women in consideration of
her getting a divorce and marrying the lender, is against publicpolicy (Tikyat vs. Manohar)
Agreement to defraud creditor or revenue authorities: anagreement the object of which is to defraud the creditors or revenueauthorities is not enforceable, being oppose to public policy. Acontract by which an employee gets an expense allowance grossly inexcess of the expenses actually incurred by him is illegal and a fraudon revenue authorities.
Agreement in restraint of trade: an agreement which interfere withthe liberty of a person to engage him-self in any lawful trade,profession or vocation is called an agreement in restrain of trade is
void, Subject to some exemptions. (Ex:
sale of goodwill, outgoingartner in a artnershi firm
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VOID AGREEMENTS
Agreements by incompetent parties
Agreements under mutual mistake of fact material to theagreement
Agreement with unlawful consideration or object (a) immoral& illegal agreements (b) agreements opposed to public policy
Agreements unlawful in part
Agreements without consideration
Agreements in restraint of marriage
Agreements in restraint of legal proceedings
Agreements which are uncertain and ambiguous
Agreement by way of wager or wagering agreements
Agreements to do impossible acts
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Wagering Agreements
Definition: Agreement between two parties
One promises to pay money or moneys worth
O
n happening of some uncertain event In consideration of other partys promise to pay
If that event does or does not happen
Example: P
and Q enter into an agreement that ifAustralias team wins the test match, P will pay Rs.100 and if it loses Q will pay Rs. 100 to P
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Bailment, Bailor and Bailee
Bailment is The delivery of goods, by one person to another, for some
purpose, Upon a contract that they shall, when the purpose is
accomplished, Be returned or otherwise disposed of, According to the instructions of the person delivering
them. (Section 148)
Bailor
is the person delivering the goods Bailee
is the person to whom the goods are delivered.
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Essentials ofBailment
Contract
Delivery of the Goods Delivery ofpossession of goods by Bailor to Bailee
Possession (not ownership) is transferred Modes of Delivery
Purpose (goods must be returned after aspecific purpose is accomplished)
Consideration (generally in the form ofmoney payment)
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Duties of the Bailor
Disclose faults in goods (Sec 150)
Bear Expenses (Sec 158)
Indemnify(secure in respect of harm) Bailee(Sec 159 & Sec 164)
Receipt of Goods back on termination ofbailment
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Duties ofBailee (or) Rights ofBailor
Care of Goods (Sec 153)
To act consistently with the terms (Sec 153)
Compensation for damage to goods (Sec 154)
Not to mix goods bailed with others With bailors consent (Sec 155)
Without bailors consent
Return of the goods bailed (Sec 160)
Compensation for failure to return (Sec 161) Increase or profit from goods bailed (Sec 163)
Delivery of goods to Joint Bailors (Sec 165)
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Rights ofBailee
Enforcement of Bailors duties
Delivery of goods to Joint Bailors
Delivery of goods when Bailors title isdefective (Sec 166)
Right of Lien (Secs 170 & 171)
Wrongful deprivation of goods (Secs 180 &
181)
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Pledge
Pledge is a Bailment of goods as security forpayment of a debt or performance of apromise
Pawnor is the Bailor of such goods
Pawnee is the Bailee of the goods
Eg., A borrows Rs.200 from B and keeps his
watch as security for payment of the debt, thebailment of watch is a pledge.
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Essential Elements of a Contract ofPledge
Delivery of Goods (may be actual orconstructive)
Security
Goods Only goods can be pledged. Goodsincludes Shares, Documents, PromissoryNotes, Bills of Exchange or Valuable things.
However, money i.e., currency notes, cannotbe pledged.
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Rights of a Pawnee/Pledgee
Right of Retainer (Sec 173)
Retainer for subsequent advances (Sec 174)
Reimbursement of Expenses (Sec 175)
Rights in case of default by Pawnor (Sec 176) Suit
Retention/Sale of Goods
Surplus/Deficit on Sale
No Notice
Right against true owner (Sec 178A)
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Rights of a Pawnor
To get back goods
To redeem goods before sale (Sec 177)
Right to Notice of Sale
Goods in proper condition
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Pledge V. Bailment
Pledge Purpose: specific
Sale of goods: Pledgeehas a right of sale ofpledged on default ofpawnor
Use of goods: No right
Bailment Purpose: other purposes
like repairs, safe custody,etc.,
Sale of goods: No right
Use of goods: Can use asper the terms of thecontract
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Law of Agency
Definitions (Sec 182)
Agent Is a person employed To do any act for another, or
To represent another in dealings with third parties
Principal Is the person
For whom such act is done, or
Who is so represented
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Who can appoint Agent (Sec 183)
Any person who
Has attained the age of majority
and
Is of sound mind,can appoint another person as his agent to
act on his behalf with an authority to bind him.
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Who may become Agent (Sec 184)
As between Principal and the third party,any person can become an Agent.
Even a person who
Has not attained majority; or
Is of unsound mind, can become an agent ofanother.
l f f A
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Essentials of a Contract of Agency
Test for Agency
Rules as to Agency (Maxim: qui facit peralium facit per se)
Elements of Agency
Intention
Express/Implied Agreement
Consideration not necessary Capacity to employ agent
Capacity to be employed as agent
i d f A
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Kinds of Agents
Based on Authority
Universal Agent
General Agent
Special Agent
Based on Nature of Work
Commercial or Mercantile Agents
Non-mercantileA
gents
D i f A /Ri h f h P i i l
The Principal instructed his agents to deliver goods only against
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Duties of an Agent/Rights of the Principal
To act as per Principals directions (Sec 211)
Skill and diligence (Sec 212)
Render proper Accounts (Sec 213)
Communicate with Principal (Sec 214) Not to deal on his own account (Secs 215 &
216)
P
ay all sums received (Sec 218) No remuneration for business misconducted
(Sec 220)
The Principal instructed his agents to deliver goods only againstcash but agent delivered them on credit. Held Agent was liable forthe price which the purchaser failed to pay (Paul Bier V. Chottalal)A, an agent for sale of goods, having authority to sell on credit,
sells to B on credit, without making proper and usual enquiries asto his solvency. B, at the time of such sale is insolvent. A mustmake compensation to his principal in respect of any loss therebysustained.
A employs B to recover Rs. 1 lac from C. Through Bs misconductthe money is not recovered from C. B is not entitled toremuneration for his services, and shall make good the losssustained.
C d
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Contd.,
Not to make secret profits
Not to disclose information
Upon termination of agency (Sec 209)
Not to delegate authority (Sec 190)
Liable to pay damages
Ri h f A /D i f h P i i l
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Rights of an Agent/Duties of the Principal
Right of Retainer (Sec 217)
Right to Remuneration (Secs 219 & 220)
Right of Lien (hold property to recover debtSec 221)
Right to be indemnified (Secs 222, 223, & 224)
Right to compensation (Sec 225)
Right of stoppage in transit
Liability of Principal inducing others (Sec237)
M d f i f A
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Mode of creation of Agency
Express Agreement
Implied Agreement
Agency by Estoppel
Agency by Holding Out
Agency in case of Necessity
Agency by Ratification
By operation of Law
A residing in Delhi and has a house at Kolkata. Heappoints B in Kolkata, by a Power of Attorney, as acaretaker of his house.A owns a shop in Noida but lives in Delhi. He visits the shop
occasionally which is managed by B. B usually orders from C inAs name for the shop, and pays them out of As funds with Asknowledge. B has an implied authority from A to order goods fromC in his name for the shop.
P consigns goods to N with instructions not to sell below a fixed price. Jenters into an agreement with N (who also does not indicate the reserveprice) for the purchase of entire lot at a sum below reserve price. P keepsquiet. P is stopped from later denying that N did not have the authority tosell below the reserve price.
P allows his servant A to buy goods for him on credit from C and pays for them regularly. On one occasion, P pays A cash to purchase goods. Apurchases goods on credit and pockets the money. C can recover the price
from P since through previous dealings, P has held out A as his Agent.
* Partners are considered as Agents of each other and also of theFirm.
* The management of a Company is considered to act as anAgents of the Company.
Meaning: When a person does some act on behalf of anotherwithout such others knowledge, the act may be ratified(to
approve or sanction or confirm) or disown by the other person.When he opts to ratify the same, he is bound by the acts as if hehad expressly authorised the person to do the act on his behalf(Sec 196).
A without authority, buys goods, for B. Later B sells them to C on hisown account; Bs conduct implies a ratification of purchase made forhim by A.
* Agent may have to sell goods instantly if it is of perishable natureand cannot withstand until further instructions from Principal.
* A horse sent by rail was not taken delivery at the destination. Thestation master has to feed the horse. The Station master becomesan Agent by necessity and hence the owner shall compensate him.
C di i f R l i hi b
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Conditions for a Relationship to be anagency by necessity:
Agent should neither be in a position nor have anyopportunity to communicate with his Principalwithin the time available.
Actual and definite commercial necessity to actpromptly.
Acted bonafide and for the benefit of his Principal.
Adopted the most reasonable and practicable cause.
Possession of the goods belonging to his principaland which are subject of contract.
T i i f A
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Termination of Agency By Act of Parties
Agreement (mutual agreement) Revocation by Principal thro notice Renunciation by Agent thro reasonable notice
By Operation of Law Completion of Business
Impossibility of performance Expiry of fixed period of time Insanity or death of Principal or Agent Destruction of subject matter Insolvency of Principal
Termination of Sub-agents authority Dissolution of a Company Principal or Agent becoming Alien enemy
P f f C
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Performance of Contract
Obligations of Parties to Contracts
Actual Performance: If the promisor makes anoffer of performance to the promisee and the offer
to perform is accepted by the promisee. Attempted Performance: If the promisor makes an
offer of performance to the promisee; but the offerto perform is not accepted by the promisee (also
called offer to perform or tender)
P li bl f d titl d t
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Persons liable for, and entitled to,Performance (Sec 40 & Sec 42)
Persons liable forPerformance: Promisor
Agent of Promisor
Any of the several jointpromisors
Legal Representatives ofa Promisor
Persons entitled toPerformance: Promisee
Agent of Promisee
All the joint promiseestogether
Legal Representatives ofa Promisee
P f f J i t P i
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Performance of Joint Promise
Jointly and severally liable unless otherwiseprovided
Claim from other joint promisors, if he is
compelled to perform the whole promise ormakes a default in performance of hispromise
Where one of the joint promisors is released,other joint promisors shall continue to be
liable.
Di h f C t t
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Discharge of a Contract
Means termination of contractual relationsbetween the parties to a contract.
Modes of Discharge of Contract:
By performance
By impossibility of performance
By mutual agreement
By lapse of time By operation of law
By breach of contract
*A agrees to sell his bicycle to B and both performed theirrespective obligations, the contract is said to be discharged.
* In case of Attempted Performance, since the offer is notaccepted by the other party, the promisor is discharged.
Where the time of performance by a party is due but the partyfails to perform within the time specified, the contract isdischarged by non-performance provided that the contractcontained such specific mentioning.
Discharge by Impossibility of
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Discharge byImpossibility ofPerformance
Meaning: If no impossibility existed at thetime of formation of the contract; but theimpossibility arises subsequent to the
formation of the contract; and theimpossibility is of such nature that it makesthe performance of contract is impossible orillegal is called supervening impossibility.
Reasons for SI:
may arise because of changein law or of change in circumstances beyondthe contemplation of parties.
E.g.,
Destruction of subject matter
Incapacity to perform a contract of personal service
Outbreak of war
Non-existence or non-occurrence of things forming the basis of a
contract, etc.,Krell V Henry Case law:
X hired a room from Y for viewing the coronation process of KingEdward.
The procession was cancelled because of Kings illness
Since the ultimate and only purpose of the contract was defeated,the contract was discharged.
Not called as supervening impossibility:
Commercial impossibility (rise in prices, currency fluctuations)
Default by third party
Strikes, Civil disturbances
Self induced impossibility (deliberate act or negligence)
Partial failure of objects or partial impossibilityIn H.B.Steamboat Co., V Hulton Case law:
X agreed to hire a boat from Y for the purpose of viewing thenaval review on the eve of coronation of king and for sailingaround the fleet.
Due to Kings illness, the naval review was cancelled, but the fleetwas assembled.
X used the boat for sailing around the fleet.
Although the primary purpose of the contract was defeated, thesecondary purpose was fulfilled and, therefore, the contract wasnot discharged by supervening impossibility.
Di h r b M t l A r t
means substitution of a new contract in place of the original
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Discharge by Mutual Agreement
Novation
Alteration
Remission
Rescission (cancellation of a contract by oneor all the parties to the contract)
Merger (conversion of an inferior right into a
superior right and the effect is due toconversion inferior right is discharged)
means substitution of a new contract in place of the originalcontract. The consideration for the new contract is thedischarge of the original contract.
* means a change in one or more of the terms of a contract with mutualconsent of parties.
*Discharges the original contract and creates a new one
* Parties remain the same
Where a promisee agrees to dispense with the performance of apromise made to him or
Extend the time of performance due by the promisor or
Accept any other consideration than agreed to in the contract,etc.,
Dis h r b p r ti n f l
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Discharge by operation of law
Death (Contracts involving personal skills,knowledge or ability of the deceased partyare discharged automatically on the death of
the promisor). Insolvency
Unauthorized material alterations
Discharge by Breach of Contract
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Discharge byBreach of Contract
Meaning: Failure of a party to perform hispart of contract
Consequences:
The other party is relieved from performing itspart of obligation.
The other party is entitled to proceed against theparty at fault.
Actual Breach (on the due date or duringperformance)
Anticipatory Breach
Where the promisor declares his intention of not performing thecontract even before the time stipulated for performance ofcontract has arrived, it is called as anticipatory breach.
Express Repudiation: If before the time or performance ofcontract has arrived, a party expressly refuses to perform thecontract, it is called as express repudation.
Party disables himself: Impossible for him to perform thecontract, this is called as anticipatory breach by disablement of
a party.Effects Option 1: The aggrieved party may wait till the due date,i.e., it may treat the contract as operative.
Option 2: The aggrieved party may decide not to wait till the duedate. It may immediately rescind the contract and claimdamages for breach.
Remedies for breach of a contract
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Remedies for breach of a contract
Rescission (means a right available to anaggrieved party to terminate a contract)
Suit for damages
Suit for specific performances
Suit for injunction
Suit for Quantum Meriut
Effects: - The aggrieved party is not required to perform his part
of obligation;
- The aggrieved party can claim compensation for any loss caused tohim.
If a party prevents the other party from completing his obligation
under the contract, the aggrieved party may claim payment on
quantum meriut for the part of contract already performed by him.
Injunction means an order of the court restraining a party from
carrying ou
t a particu
lar act.The remedy is available when the court has the discretion whether
or not to grant injunction; where a party to the contract promises
to do an act which requires personal performance but afterwards
refuses to perform such act resulting in breach of contract, the
co rt ma restrain the defa lting part from performing s ch act
.Specific performance means seeking an order from the court that
the promise specified in the contract shall be carried out.
. When actual damages arising from breach are not measurable
and monetary compensation is not an adequate remedy, then SP is
allowed.. Where damages are an adequate remedy; where the performance
of contract involves numerous or minute details, and, therefore, it
is not possible for the court to supervise the performance of the
contract.
Meaning: Monetary compensation allowed for loss suffered by
the aggrieved party due to breach of a contract.
Object is Not to punish the party at default and To make good
the financial loss suffered by the aggrieved party due to
breach of contract.
A promises B to perform a concert for 3 weeks continuously. A
wilfully absents on the third week. B rescinds the contract. B can
claim for loss sustained for loss sustained due to non-
performance.
e.g., N, a film star, agreed to act exclusively for a particular
producer, for one year. During the year, she contracted to act for
some other producer. Held, she could be restrained by an
injunction (Warner Bros. V Nelson)E.g., A contracts with B to deliver to him 250 kilos of rice before
1st may. A could deliver only 130 kilos before 1st may, and could
not deliver anything later. B retains 130 kilos after that date. He is
b d t A f th