Escolar Documentos
Profissional Documentos
Cultura Documentos
1872
Introduction
The English Connection:
Common law: precedents & customs.
Equity: natural justice.
Pacta sunt servanda: agreements
must be honored.
Stare decisis: settled law should not be
disturbed.
Essential elements of a
valid contract: (Sec. 10)
Agreement - Offer & acceptance
Legal consequences - rights & obligations
Capacity of the contracting parties
Consideration
Legal object
Free consent
Certainty
Possibility of performance
Writing & registration
Not expressly declared to be void.
Offer: Sec.2(a)
Essentials of offer:
It must be an expression of the willingness to do
or abstain from doing something.
Such expression must be to another person.
Such expression must be made with the intention
to obtain the assent of the other person to such
an act or abstinence.
Rules regarding a valid
offer:
Offer may be express or implied.
Must give rise to legal consequences & be
capable of creating legal relationship.
Terms must be certain & not vague.
May be specific or general.
Must not be an invitation to offer.
Can be made subject to any terms & conditions.
Must be communicated to offeree.
Invitation to offer, cross offers & counter offers.
Communication of special terms
Prescribed mode of acceptance.
Lapse & revocation of an
offer:
Lapse of stipulated or reasonable time.
Acceptance not in prescribed mode.
Rejection.
Death or insanity of offeror or offeree before
acceptance.
Revocation.
Non-fulfillment of condition precedent.
Subsequent illegality or destruction of subject-
matter.
Acceptance: Sec 2(b)
Acceptance must be given only by the person
to whom the offer is made.
Must be absolute & unqualified.
Must be in prescribed mode or reasonable
manner.
Must be communicated.
Within reasonable time.
Acceptance must succeed an offer.
Rejected offers can be accepted only if
renewed.
Consideration: Sec2(d)
Essentials of consideration:
Consideration must move at the desire of offeror.
May move from offeree or any other person.
Stranger to a contract cannot sue; except in case
of trust created, an addressee of an insured article;
family settlement.
May be past, present or future.
Must be of some value.
Must be real.
“No Consideration, No
Contract”- Exceptions:
Natural love & affection.
Agreement to compensate for past
voluntary service.
Payment of time-barred debt.
Completed gift.
Contract of agency.
Contribution to charity.
Capacity of parties:
(Sec 11)
Minor :
Void & inoperative
No restitution
Beneficial agmts are valid
No ratification on attaining the age of majority.
Rule of estoppel does not apply.
Minor’s liability for necessaries.
Specific performance.
Minor partner
Minor agent
Minor & insolvency
Unsound mind: Sec 12
Usually of sound mind.
Usually of unsound mind
Causes:
idiocy
Lunacy
Drunkenness
Hypnotism
Mental decay
Effects:
Void & inoperative
Similar to agreements entered into by minors.
Disqualified persons:
Alien enemies
Foreign sovereigns & ambassadors
Convicts
Married women
Insolvents
Free consent: Sec 14
Coercion
Undue influence
Misrepresentation
Fraud
Mistake
Coercion: Sec 15
Committing or threatening to commit any act
forbidden by the IPC with an intention to cause any
person to enter into an agreement.
The unlawful detaining or threatening to detain, any
property with an intention to cause any person to
enter into an agreement.
The act constituting coercion, may be directed at
any person & not necessarily at the other party to
the agreement.
It does not matter whether the IPC is or is not in
force where the coercion is employed. If suit is filed
in India the said provision will apply.
Effects of Coercion:
Voidable
Sec 64
The party exercising coercion exposes himself
to criminal liability under the IPC, besides an
action in contract.
Burden of proof lies on the party who wants to
set aside the contract on the plea of coercion.
Undue Influence: Sec 16
A contract is said to be induced by
undue influence when the relation
subsisting between the parties is such
that one of the parties is in a position
to dominate the will of the other and
he uses this position to obtain an
unfair advantage over the other.
Presumption of Undue
Influence:
In the following cases undue influence is presumed to exist &
the burden of proof lies on the party who is in a position to
dominate the will of the other:
The person holds a real or apparent authority over the other,
e.g., master & servant, police officer & accused.
Fiduciary relationship e.g., father & son, doctor & patient.
The contracting parties mental capacity is temporarily or
permanently affected due to age, illness, mental or bodily
distress, e.g., old illiterate persons.
Contd..
Undue influence implies mental & moral coercion in such
a way that the consent given is not free.
The person in a position to dominate the will of the other
need not be a party to the contract or be benefited by the
contract; it is sufficient if the third party benefits as long
as he is interested in the third party.
Unreasonable bargains, high prices, high rate of interest
etc are instances of circumstances when undue influence
is presumed.
No presumption of
undue influence:
In the following cases law does not presume
undue influence & the burden of proof lies on
the party alleging that undue influence
existed:
Mother & daughter
Grandson & grandfather
Husband & wife
Creditor & debtor
Landlord & tenant.
Effects of Undue
Influence:
Voidable
Sec. 64: Court has the discretion to direct
the aggrieved party to refund the benefit in
part or in whole or set aside the contract
without any direction for refund of benefit.
There is no criminal liability in case of undue
influence.
Misrepresentation:
A representation means a statement of fact made
by one party to the other either before or at the
time of contract, relating to some matter essential
to the formation of the contract, with an intention to
induce the other party to enter into a contract.
It may be expressed by words spoken or written or
implied from the acts or conduct of the parties.
In law, a representation when wrongly made
without an intention to deceive the other party is
known as misrepresentation.
Sec 18:
Positive assertion of unwarranted statements of material
facts believing them to be true.
Where a statement when made was true but
subsequently before it was acted upon, it became false to
the knowledge of the person making it , then a duty is
cast upon the person to disclose the change of
circumstances to the other party.
Causing mistake about the subject matter innocently.
Effects of
misrepresentation:
Voidable
May choose to rescind the contract or
Affirm the contract & insist that he be put in
a position in which he would have been, if
the representation made had been true.
The remedy is lost if the other party had
sufficient means of discovering the truth
with ordinary diligence.
Fraud: Sec 17
Fraud means & includes any of the following acts committed
by a party with an intention to deceive or induce the other
party to enter into a contract:
1. A false statement made intentionally is fraud
2. Active concealment of a material fact by a person having
knowledge of the fact is fraud. However, mere non-disclosure
is not a fraud, if there is no duty to disclose.
3. A promise made without an intention of performing it.
4. Any cat or omission declared by law to be fraudulent.
5. Any other act fitted to deceive.
Silence & fraud:
Mere silence as to facts likely to affect the
willingness of a person to enter into a
contract is not fraud, unless:
1. Such a person is under a duty to speak or
2. Silence is in itself equivalent to speech.
Effects of fraud:
Right to rescind the contract.
Affirm the contract and ask for restitution,
i.e., to be put in a position, he would have
been, if the statement made had been true.
The aggrieved party can also claim
damages.
Fraud by a stranger to the contract does not
affect the contract.
Action for fraud:
Fraudulent statement must be instrumental in inducing
the party to enter into a contract.
The plaintiff must have been actually deceived by the
fraudulent statement.
No action will lie if the plaintiff does not sustain any loss
or injury.
The contract is not Voidable if the party had enough
means at its disposal to discover the truth with ordinary
diligence.
Loss of right of
rescission:
Affirmation: where the aggrieved party after becoming
aware of his right to rescind the contract, chooses to
affirm it, either by express words or through his conduct,
which shows an intention to affirm it, loses his right to
rescind the contract.
Restitution not possible: where the party seeking to
rescind the contract is not in a position to restore the
benefits received under the contract, cannot exercise his
right of rescission.
Contd..
Lapse of time: where the aggrieved party fails to
exercise his right of rescission promptly, may lose
his right to rescind the contract.
Right of third parties: where third parties acquire
bona fide rights in the subject matter of the
contract, before it can be rescinded, then such
rights are valid against the aggrieved party and the
right to rescind will no longer be available.
Mistake:
Mistake of law:
1. Mistake of law of the country.
2. Mistake of foreign law.
Mistake of fact:
1. Bilateral mistake
2. Unilateral mistake
Mistake of law:
Mistake of law does not give right to the parties to
set aside the contract & hence such a contract is
not Voidable. This is based on the maxim
“Ignorantia juris non-excusat” . Hence no relief
can be granted on the grounds of mistake of law.
However, if one of the parties makes a mistake of
law, through the inducement, whether innocent or
otherwise, of the other party, then the contract
may be avoided.
Mistake of foreign law:
Mistake of foreign law stands on the
same footing as mistake of fact. Here
the agreement is void in case of
bilateral mistake only.
Bilateral mistake:
Where the parties to an agreement
misunderstood each other & are at cross
purposes, there is a bilateral mistake.
In this case there is no agreement as there is no
consensus and hence the agreement is void.
In case of bilateral mistake of an essential fact,
the agreement is void ab initio.
Essentials of bilateral
mistake:
The mistake must be mutual, i.e., both the
parties must misunderstand each other so
as to nullify consent.
Mistake must relate to some fact and not
an opinion.
The fact must be essential to the
agreement: mistake as to the existence,
identity, title, quantity, quality of the
subject-matter of the contract.
Unilateral mistake:
Where only one of the contracting parties is under a
mistake, as to the matter of fact essential to the contract, it
is a unilateral mistake.
In case of unilateral mistake the contract is:
1. Valid: if the mistake is caused due to ones own neligence or
lack of reasonable care.
2. Voidable: if the mistake is caused by fraud,
misrepresentation, etc.
3. Void ab initio: where the mistake is with regard to the
identity of a person & where such identity is crucial to the
agreement or the mistake is with regard to the nature of a
written document
Lawful object &
consideration
‘Object’ means the design or purpose of the
contract.
‘consideration’ is said to be unlawful if it involves an
act or price which is unlawful.
“Illegal” or “unlawful’” means a transaction not
enforceable by courts. It does not necessarily refer
to a punishable offence, unless it is expressly
punishable by any criminal or special legislation.
Circumstances under which
object & consideration is held
to be unlawful:
Forbidden by law: an object or consideration is
said to be forbidden by law when it is a
punishable by the criminal law of the country or
by any special legislation or regulation made by a
competent authority under the powers derived
from the legislature.
If it is of such a nature that, if permitted it would
defeat the provisions of any law, that is it would
indirectly lead to the violation of law.
If it is fraudulent.
Contd..
Where it implies or involves injury to
the person or property of another.
If court regards it as immoral:
immorality extends to:
1. Sexual immorality
2. Furtherance of sexual immorality
3. Interference with marital relations
4. Acts against good public morals.
Contd..
If court regards it as opposed to public policy:
public policy is an illusive concept & is generally
governed by precedents. Some of the following cases
have been held to be opposed to public policy:
1. Trading with an alien enemy: as such trading tends to
aid the economy of the enemy country and is hence
considered unlawful. However such contracts can be
entered into with the special permission of the govt.
Contd..
2. An agmt. interfering with the course of justice
3. Agmts. for stifling criminal prosecution: any agmt. which seeks
to prevent the prosecution of a guilty party is opposed to
public policy & hence void. The court cannot give effect to an
agmt. Which attempts to take away the administration of law
out of the hands of the judges & put it in the hands of private
individuals. However there is an exception in cases of certain
compoundable offences under the CrPC which can be
compromised & agmts. For the compromise of such offences is
valid.
Contd..
4. Traffic in public offices: an agmt. for sale or transfer of
public offices or appointments to such offices in
consideration of money is void; cause if permitted it would
result in inefficiency & corruption.
5. Agmts creating an interest opposed to duty.
6. Agmts unduly restraining personal liberty.
7. Agmts interfering with parental duties
8. Agmts which tend to create monopolies.
Object or consideration
unlawful in part:
Where an agmt contains several distinct promises to
do certain legal things & also certain illegal things;
then, if the legal part cannot be separated from the
illegal part, i.e., there is a single consideration for
several distinct promises, then the entire agmt is
treated as illegal & hence void.
Where there is separate consideration for distinct
promises & the legal part can be separated from the
illegal part, then the legal part is valid contract &
hence enforceable.
Contd..
In the case of alternative promises, where one
branch is legal & the other branch is illegal, then
the legal branch alone can be enforced.
Transactions which are collateral or incidental to
illegal contracts are also tainted with illegality &
therefore not enforceable, provided the parties to
the collateral transactions had knowledge of the
illegal design of the primary agmt.
Effects:
Void
No restitution.
Void Agreements:
Agreements in restraint of marriage [Sec. 26]
Agreements in restraint of trade [Sec. 27]
Agreements in restraint of legal proceedings [Sec. 28]
Agreements the meaning of which is uncertain [Sec. 29]
Agreements by way of wager [Sec. 30]
Agreements contingent on impossible events [Sec. 36]
Agreements to do impossible acts [Sec. 56]
Void Agreements:
Agreements in restraint of marriage [Sec 26]:
Exception : an agreement restraining the marriage of a minor is valid.
Agreements in restraint of trade [Sec 27]: any kind of restraint of
trade, whether reasonable or not is void; however agreements restraining
freedom of action necessary for carrying on a business are not void.
Exception: Sale of goodwill (provided the restraint is reasonable in case
of time & space), partners agreements, trade combinations, negative
stipulation in service agreements.
Contd..
Agreements in restraint of legal proceedings [Sec 28]:
i. A party absolutely restricted from taking usual legal proceedings
, in respect of any rights arising from a contract.
ii. An agreement which limits the time within which a party can
enforce his rights under a contract, without regard to the time
allowed by the Limitation Act.
iii. An agreement which provides for forfeiture of any rights arising
from a contract, if suit is not brought within a specified period,
without regard to the time allowed by the Limitation Act.
Contd..
Agreements the meaning of which is
uncertain [Sec 29].
Agreements by way of wager [Sec 30]:
The term ‘wager’ means a ‘bet. The essence of
a wagering agreement is that, one party is to
win & the other to lose upon a future event,
which at the time of contract is of an uncertain
nature. If the event turns out one way ‘A’ will
lose & if it turns out the other way ‘A’ will win.
Essentials of wager:
1. There must be a promise to pay money or money’s
worth.
2. The promise must be conditional on an event
happening or not.
3. The event must be an uncertain one. If one of the
parties has the event in his own hands, then it is not
a wager.
4. Each party must stand to win or lose under the
terms of agreement.
5. No party must have proprietary interest in the event.
The stake must be the only interest which the
parties have in the agreement.
Exception:
“This sec. shall not be deemed to render
unlawful a subscription, or contribution,
or an agmt. to subscribe or contribute,
made or entered into for or toward any
plate, prize or sum of money, of the value
or amount of 500 rupees or upwards, to
be awarded to the winner or winners of
any horse race.”
Agreements contingent on
impossible events: [Sec.
36]
Such contracts can be performed only if the contemplated
event takes place. The performance of the contract depends on
the happening or non-happening of an event. Such an event
should be of an uncertain nature. The event must be incidental
to the contract, there should be a direct correlation between
the event & performance of the contract. If the event becomes
impossible, the contract becomes void.
If the contingent contract is to be performed within a stipulated
time & if the contingent event does not take place within the
stipulated time, the contract becomes void.
Agreements to do
impossible acts: [Sec 56]
An agreement to do an act impossible
in itself is void.
Effects:
Void
No restitution : no restoration of
benefit received is allowed in the case
of agreements, expressly declared
void under the Indian Contract Act.
Quasi contracts: [Sec
68-72]
In case of quasi contracts there is no offer,
acceptance or consensus; in fact there is no intention
on the part of either parties to enter into a contract;
still the law, from the conduct & relationship
between the parties, implies a promise, imposing
obligation on one party & conferring a right in favor
of the other party. Thus under certain special
circumstances, obligations resembling those created
by a contract are imposed by law although the
parties have never entered into a contract.
Doctrine of unjust
enrichment:
A quasi contract rests upon the doctrine of
unjust enrichment which declares that a
person shall not be allowed to enrich
himself unjustly at others expense.