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Agenda

Introduction

Definition of Contract

Proposal | Acceptance

Lawful Consideration | Capacity of Parties

Free and Genuine Consent

Lawful Objects | Void Contracts | Legal Formalities

Date: 15 Nov 2010 Source: Session Material LAB Group 10

Introduction


o Contract” : contractum meaning “drawn together”

o Voluntary and require an “exercise of the will of the parties”

o Contract law is said to be a part of “private law”

o A form of self regulation as distinguished from State regulation‐

o Basis for the other branches of Business Law

o Contract law in India is governed by the Indian Contract Act 1872

o Contract: “agreement enforceable by law”

Agreement


o “Agreement”: “Every promise and every set of promises, forming consideration for each other”

o “Promise”: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise”

o There must be two parties to an agreement

One party making the proposal (aka offer); the proposer, offeror or promisor

The other party accepting it; the proposee or offeree

When the offeree accepts the offer: the acceptor or promisee

o Consensus ad idem: Agreement in same sense and at the same time

Social and Legal Agreement


o Social agreement

o A invites B to a dinner and B accepts the invitation

o No intention to create legal relationships

o Legal agreements

o C agrees to let out his house to D for a monthly rent of Rs.5000

o An intention to create legal relationships

o The basic testing criterion is “intention of the party”

o All contracts are agreements, not all agreements are contracts

Legal Enforceability


o The right of a party, who is aggrieved by the breach of promise by the other party, to approach a court of law for relief

o The agreement should satisfy the conditions laid down in Section 10 of the Indian Contract Act, 1872

o “All agreements are contracts, if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.”

Essential Elements of a Contract


1. Proposal2. Acceptance3. Lawful consideration4. Capacity of parties5. Free and genuine consent6. Lawful object7. Not a contract expressly declared to be void8. Compliance with legal formalities

Introduction






Agenda


Proposal


o PROPOSAL (AKA OFFER)

o A person is said to have made a proposal when he “signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence.”

o Kinds of Offer

o General Offers

o Specific Offers

o Counter offer (offer to the original offer)

o Cross Offer

o Standing Offer

Legal Rules as to offer


o An offer must be made with a view to obtaining the assent of the other

o Terms of offer must be definite, certain and unambiguous

o Mere declaration of an intention or an announcement do not qualify as

legal offers

o An invitation to make an offer do not constitute offers

o Offer must be communicated

o An offer must not thrust the burden of acceptance on the offeree

Termination of Offer


An offer remains capable of acceptance until it is terminated. An offer may

terminated by the

o operation of law or by the act of parties. An offer lapses or comes to an end

o by communication of notice of termination of offer to the offeree

o by lapse of the specified or reasonable time

o by death or insanity of the offeror

o by not being accepted according to the prescribed or usual mode

o by non fulfillment of a condition precedent‐

Acceptance


o Acceptance is the act of assenting to the offer by the offeree

o Legal Rules as to Acceptance

o Acceptance must be made by the party to whom the offer is made

o Acceptance must be absolute and unqualified

o Acceptance must be expressed in reasonable manner

o Acceptance must be given within a reasonable time

o Acceptance cannot be made in ignorance of an offer

o Acceptance must be given before the offer lapses or is revoked

o Acceptance must be communicated to the offeror

o It cannot be implied from silence

Agenda

Introduction







Lawful Consideration


o Consideration means something in exchangeo Means an advantage or benefit moving from one party to the othero “Something in return” in simple wordso May not be in cash and kind, abstinence or promise to do or not to doo Legally enforceable only when parties give and get something in return

Need for Consideration

o Gratuitous or voluntary promises are often made rashly and without due deliberation

o Both parties to a contract shall have given and shall have received something as the “price” of the respective promises

o Law disfavors an exchange of promises, which would result on one of the parties obtaining “something for nothing”

Lawful Consideration - II


Rules Regarding Consideration

o It may be past, present or futureo Adequacy of Consideration

o Law simply provides that a contract should be supported by Considerationo Consideration must be something to which the law attaches valueo The “something in return” need not be equal in value to “something given”o Court do not exist to repair bargains, they only enforce the contracto Inadequacy of the Consideration may be taken into account by the court in

determining the question whether or not the consent of the promisor was freely given

o Applicable only if the judge thinks that inadequacy is too great for a free consent

How the thing works


Party A Party B

Past Consideration

Present Consideration

Future Consideration

‘A’ promises to pay in June

Buying giving cash/kind

‘A’ promises to pay

‘B’ performs a service in May

Selling taking cash/kind

‘B’ promises to do a service

Lawful Consideration - III


Rules Regarding Consideration

o Consideration must not be illegal, immoral or opposed to public policyo Courts do not allow action on agreement, if Consideration is unlawfulo Consideration is unlawful

o it is forbidden by lawo It is of such a nature that if allowed it would defeat some law of the countryo It is fraudulento It involves injury to the property or person of the othero Court regards it as immoral or opposed to the public policy

o One part of the Consideration may be lawful, other may be noto If the unlawful part cannot be separated from the lawful part, the whole

agreement can be deemed as void

Lawful Consideration - IV


Exceptions to the doctrine of Consideration

o A written and a registered based on natural love and affectiono A promise to pay for a past voluntary service is bindingo A promise to pay a time barred debt ‐ is enforceableo Completed gifts provision states that any gift actually made will not

affect the validity because of the absence of considerationo No Consideration is necessary to create an agencyo A contract of guarantee is made without Consideration and is valido Where the promisee on the strength of the promise makes commitments

o Ex - For a charitable subscription, even if the promisee changes his position, to his detriment, the agreement becomes valid even if it is not supported by Consideration

Capacity of Parties


o Parties to the agreement must be capable of entering into a valid contracto Every person is competent to contract provided he

o Is of the age of majorityo Is of sound mind ando Is not disqualified from contracting by any law

o Corollary is also applicableo Law puts restrictions on the powers of some persons to enter into a

contract in order to protect the public

Introduction






Agenda




A free and genuine consent of parties is required for the creation of contract, a consent is free when it is made free from any pressure or misunderstanding. There should be consensus ad idem i.e. that parties involved agree upon same thing in same way Consent is not free when given due to any of following reason

o Coerciono Under influenceo Misrepresentationo Fraudo Mistake

Coercion


Coercion iso Committing or threatening to commit an act forbidden by Indian

penal code 1860 oro Unlawful detaining or threatening to detain any property witho the intention of causing any person to enter in a contract is

necessary.Coercion can be o from third partyo directed towards third party

A coerced contract can be void or valid

Undue influence


When exercise of free will & judgment of a party is prevented due to influence of others, contract is called as under undue influence. It’s a kind of mental coercion.

Undue influence is said to have made when

o one of the parties is a position to dominate other’s will and

o dominant party uses his position to gain an unfair advantage

Influence can be exerted by a party not party to the contract

Test to check whether contract is under influence is or not

“would any reasonable man in full possession of his senses and not under the undue influence of some kind or the other do such a thing?”

Undue influence - II


A person is deemed to dominate the will of others when

o he holds real authority or apparent authority to other

o he stand in a fiduciary relation

o he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental/body distress

A contract made under undue influence can be void or valid.

Misrepresentation


Misrepresentation is o A false representation of fact made innocently without an intention

to deceive other party.o May also arise from suppression of vital fact

Consent is caused by misrepresentation wheno There was misrepresentation of facto Fact was materialo There was justifiable reliance on misrepresentation

However misrepresentation can not be pleaded if fact can be verified via due diligenceA contract for which consent was obtained by misrepresentation can be void or valid

Fraud


Fraud is intentional misrepresentation of facts.

Few common acts constituting fraud are

o Assertion of facts without belief in its truth

o Active concealment of fact by one having knowledge of the fact where one has a duty to disclose.

A fraudulent contract can be void or valid

Fraud and Misrepresentation are distinct in following ways

o Lack of intention in case of misrepresentation.

o Facts/suggestion are believed to be true in case of misrepresentation

o In case of misrepresentation contract can not be repealed if fact can be verified via due diligence. It can be in case of fraud

Mistake


Mistake is an erroneous belief about something.Two party can not believe same thing at same point when they are under mistake. A mistake by one or both of the parties assumes significance because it may make the contract void or voidable.Mistake may occur due too Mistake of lawo Mistake of fact

Mistake of lawo Mistake of one’s own law is not an excuse, contract is valido Ignorance of a foreign law as a cause of mistake can lead a contract

to be void

Mistake - II


Mistake of fact

o When a party believe something to be true which is otherwise as per real facts.

o It should be fact not an opinion

o Must exist at the time of contract

Effect of mistake of fact on contract

o If mistake is bilateral no contract exist

o If mistake is unilateral then contract is valid generally

Introduction






Agenda


Lawful Objects


o Object means the purpose of the contract

o Object should be lawful

o Both the consideration and the object must be lawful otherwise the agreement is void

o When is the object unlawful?o If it is forbidden by lawo If it is of such a nature, that if permitted, it would defeat the provisions of

any lawo If it is fraudulento If it involves injury to the person or property of anothero If the court regards it as immoralo Where the court regards it as opposed to public policy

Lawful Objects - II


o Examples of Agreements being opposed to public policy

o Agreements of trading with enemy

o Agreement to commit crime

o Agreement which interferes with administration of justice

o Agreements to defraud creditors or revenue authorities

Contracts expressly declared to be void


A void contract one which does not give rise to any legal consequence.

A contract may be treated as void because the Indian Contract Act has

declared it to be void.

Some contracts declared as void by the Act:

o Agreements in restraint of marriage

o Agreements in restraint of trade

o Agreements in restraint of legal proceedings

o Agreements having uncertain meaning

o Agreements to do impossible act

Legal Formalities


o Under the Act there is no difference between an agreement in

writing and a contract made by word of mouth.

o Both are valid as per the law of the land

o Some other laws might prescribe certain legal formalities for

particular types of contracts

Thanks

Download - 2010 11 pgp1-lab_group presentation_section b_group 10_15_nov2010

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