PRINCIPLES OF BUSINESS CONTRACTS

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LEGAL ELEMENTS OF CONTRACTS

• A contract is the result of a promise to do or not to do a certain thing in exchange for a promise or consideration from another person.

• The basic concept of contract is as evident from the following:– A contract irrespective of the content must be a binding

agreement, between the parties.– Contract consists of reciprocal promises that the law will enforce.– A contract is an agreement between two or more parties that

establishes an enforceable legal relationship.– An agreement between two or more parties, which creates an

obligation to do or not to do a particular thing.

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LEGAL ELEMENTS OF CONTRACTS…contd.– All contracts are agreements, but not all agreements are contracts– Agreements often deal with personal or social matters that cannot

be enforced by law.– If an agreement imposes a legal obligation, it results in an

enforceable contract.– However, if it imposes merely a social or moral obligation, it is not

a contract as it is not legally enforceable.

• All the definitions of contract refer to agreements between individuals; which are enforceable by law. Thus, the two basic requirements of a contract are:– An agreement,– Legal enforceability.

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AGREEMENT• An agreement comes into being only when one party makes a

proposal or offer to the other party and that other party signifies his assent thereto. Thus an agreement is an offer coupled with acceptance. There emerge two essentials of an agreement which are:– Plurality of persons,– Consensus ad idem.

Plurality of Persons• An agreement is between two or more persons as a person

cannot enter into an agreement with himself or with an inanimate object.

‘Consensus ad idem’• One of the most essential elements in the making of a contract

is that the promisor and the promisee must agree about the same thing in the same sense. There should be a meeting of minds. The identity of minds is called consensus ad idem.

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LEGAL ENFORCEABILITY‘ALL CONTRACTS ARE AGREEMENTS, BUT ALL

AGREEMENTS ARE NOT CONTRACTS.’• The basis for this statement is that the existence of a mutual

set of promises does not suffice for the courts to accord legal recognition to such promises unless the intention to create legal relations is clearly established. Unless the element of this intention exists the party aggrieved by the breach of contract would not be in a position to legally enforce his rights. To don the mantle of a contract, an agreement must give rise to a legal obligation i.e. a duty enforceable by law. A contract is therefore a species of agreement; the latter being the genus and a wider term than the former. Moreover agreements of moral, religious or social nature are mere agreements and not contracts as the parties to the agreement do not intend legal consequences to arise therefrom.

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ESSENTIALS OF A VALID CONTRACT• According to Section 10 of the Indian Contract Act, 1872, • “All agreements are contracts if they are made by the free

consent of parties competent to contract for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

• The following are the essential elements of a contract:– Free Consent,– Offer and Acceptance,– Capacity,– Consideration,– Lawful Object,– Certainty and Possibility of Performance,– Term of Contract should be clear,– Agreement must not be declared void,– Legal Formalities.

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FREE CONSENT• CONSENT(Sec. 13) – “Two or more persons are said to

consent when they agree upon the same thing in the same sense.”

• FREE CONSENT (Sec. 14) – Consent is said to be free when it is not caused by:1) Coercion as defined in Sec. 15, or2) Undue influence as defined in Sec. 16, or3) Fraud as defined in Sec. 17, or4) Misrepresentation as defined in Sec. 18, or5) Mistake, subject to the provisions of Secs. 20, 21 and 22.

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CAPACITY

• One of the essentials of a valid contract, mentioned in Sec. 10, is that the parties to the contract should be competent to make the contract.

• Thus, the law of contract declares that a person competent to contract shall be:– a major;– of sound mind; and– not disqualified under any existing law in force.

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CLASSIFICATION OF CONTRACTS/AGREEMENTSCONTRACTS

ENFORCEABILITY METHOD OF FORMATION EXTENT OF PERFORMANCE

OBLIGATION TO PERFORM

UNILATERAL

BILATERAL

VALID

VOIDABLE

VOID

UNENFORCEABLE

ILLEGAL EXECUTED

EXECUTORY

FORMAL

SIMPLE

EXPRESS IMPLIED QUASI STANDARD FORM

CONTINGENT

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CLASSIFICATION OF CONTRACTS/AGREEMENTS• A contract is based on an agreement. An agreement becomes a

contract when all the essential elements of a contract are present. In such a case, the contract is a VALID CONTRACT. If one or more of these elements is/are missing, the contract is either voidable, void, unenforceable or illegal.

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 [Sec. 2(i)]. This happens when the essential element of ‘free consent’ in a contract is missing.

• Example: A promises to sell his car to B for Rs. 50,000. His consent is obtained by use of force. The contract is voidable at the option of A. He may avoid the contract or elect to be bound by it.

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CLASSIFICATION OF CONTRACTS/AGREEMENTSVOID CONTRACT

• A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable [Sec. 2 (j)]. A contract, when originally entered into, may be valid and binding on the parties, eg., a contract to import goods from a foreign country. It may subsequently become void, eg., when a war breaks out between the importing country and the exporting country.

ILLEGAL AGREEMENT• An illegal agreement is one which transgresses some rule of

basic public policy or which is criminal in nature or which is immoral. All illegal agreements are void but all void agreements or contracts are not necessarily illegal. An illegal agreement is not only void as between the immediate parties but has this further effect that even the collateral transactions to it become tainted with illegality.

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CLASSIFICATION OF CONTRACTS/AGREEMENTSUNENFORCEABLE CONTRACT

• An unenforceable contract is one which cannot be enforced in a Court of Law because of some technical defect such as absence of writing or where the remedy has been barred by lapse of time. The contract may be carried out by the parties concerned; but in the event of breach or repudiation of such a contract, the aggrieved party shall not be entitled to the legal remedies.

EXPRESS CONTRACT• If the terms of a contract are expressly agreed upon (whether

by words spoken or written) at the time of the formation of the contract, the contract is said to be an express contract. Where the offer or acceptance of any promise is made in words, the promise is said to be express (Sec. 9). An express promise results in an express contract.

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CLASSIFICATION OF CONTRACTS/AGREEMENTSIMPLIED CONTRACT

• An implied contract is one which is inferred from the acts or conduct of the parties or course of dealings between them. It is not the result of any express promise or promises by the parties but of their particular acts. An implied promise results in an implied contract.

• E.g. There is an implied contract when Mr. A i. Gets into a public bus, orii. Lifts Mr. B’s luggage to be carried out of the railway station

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CLASSIFICATION OF CONTRACTS/AGREEMENTSQUASI CONTRACT

• A quasi-contract is not a contract at all. A contract is intentionally entered into by the parties. A quasi-contract, on the other hand, is created by law. It resembles a contract in that a legal obligation is imposed on a party who is required to perform it.

• E.g., T, a tradesman, leaves goods at C’s house by mistake. C treats the goods as his own. C is bound to pay T for the goods.

CONTINGENT CONTRACT• A contingent contract, is a contract to do or not to do

something, if some event, collateral to such contract does or does not happen.

• Eg., A contracts to pay B Rs. 10,00,000 if B’s house is burnt.

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CLASSIFICATION OF CONTRACTS/AGREEMENTSEXECUTED CONTRACT

• An Executed Contract is one in which both the parties have performed their respective obligations. In some cases, even though a contract may appear to be completed at once, its effects may still continue.

• Eg., A agrees to paint a picture for B for Rs. 100. When A paints the picture and B pays the price, i.e., when both the parties perform their obligations, the contract is said to be executed.

EXECUTORY CONTRACT• An Executory Contract is one in which both the parties have

not yet performed their obligations. Thus in the above eg, the contract is executory if A has not yet painted the picture and B has not paid the price.

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CLASSIFICATION OF CONTRACTS/AGREEMENTSUNILATERAL CONTRACT

• A unilateral or one-sided contract is one in which only one party has to fulfill his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence.

• E.g., A permits a railway coolie to carry his luggage and place it in a carriage. A contract comes into existence as soon as the luggage is placed in the carriage. But by that time the coolie has already performed his obligation. Now only A has to fulfill his obligation, i.e., pay the reasonable charges to the coolie.

BILATERAL CONTRACT• It is one in which the obligations on the part of both the

parties to the contract are outstanding at the time of the formation of the contract.

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WAGERING CONTRACT• The meaning of ‘wagering’ is staking something of value upon the result

of some future uncertain event, such as a horse race, or upon the ascertainment of the truth concerning some past or present event.

• The contract Act does not define a wagering agreement. Cotton, L.J. (Thacker v. Hardy) said: “The essence of gaming and wagering is that one party is to win and other to lose upon a future event which at the time of contract is of an uncertain nature, i.e., that if the future event turns out one way A will lose, but if it turns out the other way, he will win”.

• The essentials of an wagering agreement includes the following:– Uncertain event– Equal chances of gain or loss to the parties– Neither party to have control over the event.– Neither party should have any interest in the happening of the event

other than the sum or stake he will win or lose.• Agreements by way of wager are void; and no suit shall be brought for

recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.

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UBERRIMAE FIDEI• Uberrimae Fidei is a Latin expression, which literally means

‘the utmost good faith’.• In Jowitt’s 1977 Dictionary, the term was described as follows:• “A contract is said to be uberrimae fidei when the promisee is

bound to communicate to the promisor every fact and circumstance which may influence him in deciding whether to enter into the contract or not. Contracts which require uberrimae fidei are those entered into between persons in a particular relationship, as guardian and ward, solicitor and client (and) insurer and insured.”

• Contracts of insurance of every kind form the main group of contracts uberrimae fidei. Other examples generally included, though these are probably not all uberrimae fidei in the strict sense, are contracts to subscribe for shares in a company, family settlements etc.

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OFFER AND ACCEPTANCE• OFFER - An offer is a proposal by one party to another to enter into

a legally binding agreement with him. 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.” [ Sec. 2 (a)].

ESSENTIALS OF AN OFFER• Offer must be such as in law is capable of being accepted and giving

rise to legal relationship• Terms of offer must be definite, unambiguous and certain and not

loose and vague.• Offer must be distinguished from –

– A declaration of intention and an announcement– An invitation to make an offer or do business

• Offer must be communicated• Offer must be made with a view to obtaining the assent.

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OFFER AND ACCEPTANCE…contd.• ACCEPTANCE – Acceptance is an expression by the offeree of his

willingness to be bound by the terms of the offer. This means when the offeree signifies his assent to the offeror, the offer is said to be accepted.

ESSENTIALS OF AN ACCEPTANCE• It must be absolute and unqualified.• It must be communicated to the offeror.• It must be according to the mode prescribed or usual and reasonable

mode.• It must be given within a reasonable time.• It cannot precede an offer• It must show an intention on the part of the acceptor to fulfill terms of

the promise.• It must be given by the party or parties to whom the offer is made• It must be given before the offer lapses or before the offer is withdrawn.• It cannot be implied from silence

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OFFER AND ACCEPTANCE…contd.REVOCATION OF OFFER AND ACCEPTANCE

• Section 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

• Also an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

• According to Sec. 6, an offer is revoked– By communication of notice– By lapse of time– By non-fulfillment by the offeree of a condition precedent to

acceptance– By death or insanity of the offeror– If an offer is not accepted according to the prescribed or usual

mode.

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CONSIDERATION

• Consideration is one of the essential elements to support a contract. When a party to an agreement promises to do something, he must get “something” in return. This “something” is defined as consideration.

• In the words of Pollock, “ consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”

• E.g., A agrees to sell his car to B for Rs. 1,00,000. Car is the consideration for B and the price is the consideration for A.

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Section 2(d) of the Indian Contract Act, 1872 defines consideration as :

“ When at the desire of the promisor , the promisee or any other person has done or abstained from doing , or does or abstains from doing, or promises to do or to abstain from doing something , such act or abstinence or promise is called a consideration for the promise.

Consideration, if we analyze the definition is :1. An act of doing something, or2. An abstinence or forbearance, or3. A return promiseCase: L filed a suit against T his tenant, for possession of premises and arrears of rent . The suit was decreed in his favour. In execution Lobtained an order for attachment of movables of T. In consideration of T not to appeal against the decree, L allowed him one year’s time to pay the balance of decretal amount and vacate the premises.Is the agreement valid ?

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CONSIDERATION…contd.RULES OF CONSIDERATION

• Consideration must move at the desire of the promisor.• It may move from the promisee or any other person.• It may be an act, abstinence or forbearance or a return

promise• It may be past, present or future.• It need not be adequate.• It must be real and not illusory.• It must be something which the promisor is not already

bound to do.• It must not be illegal, immoral or opposed to public policy.

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CONSIDERATION….contd.KINDS OF CONSIDERATION

A consideration may be:• PAST CONSIDERATION – It is one which is paid for a past

act or forbearance. An act constituting consideration which took place, is complete before the promise is made. For e.g., if C pays a cheque of Rs. 100 to D for returning his lost purse.

• EXECUTED or PRESENT – Consideration which moves simultaneously with the promise is called present consideration. ‘Cash Sales’ provide an example of present consideration.

• EXECUTORY or FUTURE – When the consideration is to move at a future date, it is called future or executory consideration. It takes the form of a promise to be performed in the future

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CONSIDERATION….contd.EXCEPTIONS TO THE RULE OF CONSIDERATION

The general rule is that an agreement made without Consideration is void.Section 25 deals with the exceptions to this rule :

• Love and affection• Voluntary services• Time-barred debt• Gift• Agency• Charitable subscription

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CONSIDERATION….contd.LOVE AND AFFECTION

• The essential conditions required under Section 25(1) are:

• The agreement should be in writing,• It should be registered,• It is between parties who are closely related, and• It is on account of natural love and affection.

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CONSIDERATION….contd.VOLUNTARY SERVICES

• The essential conditions required under Section 25(2) are:• The service should be rendered voluntarily;• The service is rendered to the promisor and nobody else.

Hence, the act done should be for a person who is in existence at the time of doing the act;

• The promisor should have been capable of entering into a contract at the time of rendering the service,

• The promisor must have intended to compensate the promisee, and

• The services rendered should not be immoral.

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CONSIDERATION….contd.TIME-BARRED DEBT [Section 25(3)]

• The validity of a time-barred debt rests on the following conditions being fulfilled:

• The promise should be in writing;• It should be signed by the promisor or his agent;• The debt must be a time-barred one; and• There must be an express promise to pay, either the

whole or a part of the debt.

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MINORS• Section 10 of the Indian Contract Act, 1872 lays down that

the contracting parties should be competent to contract. Section 11 states that every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject to.

• The rules governing minors’ agreements are based on two fundamental rules:

• First Rule – law protects minors against their own inexperience

• Second Rule – in pursuing the above object, the law should not cause unnecessary hardship to persons who deal with minors.

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MINORS….contd.Minor’s Agreements – the position of a minor as regards his agreements may be summed up as under:

• An agreement with or by a minor is void and inoperative ab initio.• He can be a promisee or a beneficiary.• His agreement cannot be ratified by him on attaining the age of majority.• If he has received any benefit under a void agreement, he cannot be

asked to compensate or pay for it. Sec. 65 which provides for restitution in case of agreements discovered to be void does not apply to a minor.

• He can always plead minority.• There can be no specific performance of the agreements entered into by

him as they are void ab initio.• He cannot enter into a contract of partnership.• He cannot be adjudged insolvent.• He is liable for ‘necessaries’.• He can be an agent.• His parents/guardian are/is not liable for the contract entered into by

him.

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REMEDIES FOR BREACH OF CONTRACT• A contract gives rise to correlative rights and obligations. A

right would be of no value if there were no remedy to enforce that right in the Law Court in the event of its infringement or breach of contract. A remedy is the means given by law for the enforcement of a right.

• When a contract is broken, the injured party (i.e., the party who is not in breach) has one or more of the following remedies:– Rescission of the contract– Suit for damages.– Suit upon quantum meruit.– Suit for specific performance of the contract.– Suit for injunction.

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REMEDIES FOR BREACH OF CONTRACT…contd.SUIT FOR RESCISSION

• When a contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is absolved of all his obligations under the contract:

• Ex., A promises B to supply 10 bags of wheat on a certain day. B agrees to pay the price after the receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.

• The Court may grant rescission – a) Where the contract is voidable by the plaintiff; orb) Where the contract is unlawful for causes not apparent on its face and

the defendant is more to blame than the plaintiff.• When a party treats the contract as rescinded, he makes himself

liable to restore any benefits he has received under the contract to the party from whom such benefits were received (Sec. 64). But if a person rightfully rescinds a contract he is entitled to compensation for any damage which he has sustained through non-fulfillment of the contract by the other party (Sec. 75).

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REMEDIES FOR BREACH OF CONTRACT…contd.SUIT FOR DAMAGES

• Damages are a monetary compensation allowed to the injured party by the Court for the loss or injury suffered by him. The object of awarding damages for the breach of a contract is to put the injured party in the same financial position as if the contract had been performed, i.e., in the position in which he would have been had there been performance and not breach. This is called the doctrine of restitution. The fundamental basis of awarding damages is compensation for the pecuniary loss which naturally flows from the breach.

• When a contract has been broken, the injured party is entitled to –a) Such damages which naturally arose in the usual course of things from

such breach. This relates to ordinary damages;b) Such damages which the parties knew, when they made the contract, to

be likely to result from the breach. This relates to special damages. But –c) Such compensation is not to be given for any remote or indirect loss or

damage sustained by reason of the breach, andd) Such compensation for damages arising from breach of a quasi-contract

shall be same as in any other contract.

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REMEDIES FOR BREACH OF CONTRACT…contd.SUIT FOR QUANTUM MERUIT

• The phrase ‘quantum meruit’ literally means ‘as much as earned’. A right to sue on a quantum meruit arises where a contract, partly performed by one party, has become discharged by the breach of the contract by the other party. The right is founded not on the original contract which is discharged or is void but on an implied promise by the other party to pay for what has been done.

SUIT FOR SPECIFIC PERFORMANCE• In certain cases of breach of contract, damages are not an

adequate remedy. The Court may, in such cases, direct the party in breach to carry out his promise according to the terms of the contract. This is a direction by the Court for specific performance of the contract.

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REMEDIES FOR BREACH OF CONTRACT…contd.• Some of the cases in which specific performance of a contract may, in

the discretion of the Court, be enforced are as follows:– When the act agreed to be done is such that compensation in money for

its non-performance is not an adequate relief.– When there exists no standard for ascertaining the actual damage caused

by the non-performance of the act agreed to be done.– When it is probable the compensation in money cannot be got for the

non-performance of the act agreed to be done.• Specific performance will not be granted where –

a) Damages are an adequate remedy.b) The contract is not certain, or is inequitable to either party.c) The contract is in its nature revocable.d) The contract is made by trustees in breach of their trust.e) The contract is of a personal nature, eg., a contract to marry.f) The contract is made by a company in excess of its powers as laid down

in its Memorandum of Association.g) The Court cannot supervise its carrying out, eg., a building contract.

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REMEDIES FOR BREACH OF CONTRACT…contd.SUIT FOR INJUNCTION

• Where a party is in breach of a negative term of a contract (i.e. where he is doing something which he promised not to do), the Court may, by issuing an order, restrain him from doing what he promised not to do. Such an order of the Court is known as an ‘injunction’.

• Ex.,N, a film actress, agreed to act exclusively for W for a year and for no one else. During the year, she contracted to act for Z. Held, she could be restrained by injunction from singing for Z.

• The grant of an injunction by the Court is normally discretionary, but there seems no reason why the Court should refuse the grant of an injunction to restrain the breach of a contract –– Whereby a promisor undertakes not to do something– Which is negative in substance though not in form.

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CONTRACT OF AGENCY• To keep pace with the development in business and the

competitive environment, it is impossible for a businessman to carry on all his business transactions on his own. This impossibility necessitates him to allow another person to work on his behalf. This means he is delegating some of his powers to another person to carry on some of his business transactions on his behalf. Here, the other person is an ‘agent’ and the person who delegated the powers is the ‘principal’. The contract which binds the principal and the agent is called an ‘agency’.

• CREATION OF AGENCY• The relationship of principal and agent may arise –– By Express Agreement, or– By Implied Agreement

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CONTRACT OF AGENCY…contd.EXPRESS AGREEMENT

• An agreement is said to be express when it is given by words spoken or written. Under normal circumstances, an agency is created by an express agreement, specifying the scope of the authority of agent. The agent may, in such a case, be appointed either by word of mouth or by an agreement in writing. However, in certain cases, eg.,to execute a deed for sale or purchase of land, the agent must be appointed by executing a formal power of attorney on a stamped paper.

IMPLIED AGREEMENT• Implied agreement is, by inference from the circumstances of the case

and things spoken or written, or the ordinary course of dealing.• Implied agency comes into existence where there is no express

agreement appointing a person as agent. It arises from the conduct, situation or relationship of parties. This means the authority to act as an agent may be inferred from the nature of business, the circumstances of the case, the conduct of the principal or the course of dealing between the parties.

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CONTRACT OF AGENCY…contd.• As per Sec. 2(9) of the Sale of Goods Act, 1930 a Mercantile

Agent is one who has authority either to sell goods or to buy goods or to raise money on the security of goods. There are 5 kinds based on the nature of work they perform:– FACTOR – A Factor is a mercantile agent entrusted with the

possession of goods for the purpose of selling them. He has ostensible authority to do such things as are usual in the conduct of business. He sells the goods in his own name as an apparent owner upon such terms as he thinks fit. He can sell them on credit as well. He has also the authority to receive the price and give a good discharge to the purchaser.

– AUCTIONEER – An Auctioneer is an agent appointed by a seller to sell his goods by public auction for a reward generally in the form of a commission. He is primarily the agent of the seller, but after the sale has taken place, he becomes the agent of the purchaser also. He resembles a factor in all respects except that he has only a particular lien on the goods for his charges.

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CONTRACT OF AGENCY…contd.– BROKER – A Broker is an agent who is employed to buy or sell

goods on behalf of another. He is employed primarily to bring about a contractual relation between the principal and the third parties. He is not entrusted with the possession of the goods in which he deals. He cannot act or sue in his own name. And as he has no possession, he has no right of lien.

– COMMISSION AGENT – A Commission Agent belongs to a somewhat indefinite class of agents. He is employed to buy and sell goods, or transact business generally for other persons receiving for his labour and trouble a money payment, called commission.

– DEL CREDERE AGENT – A Del Credere Agent is one who, in consideration of an extra commission, guarantees his principal that the persons with whom he enters into contract on behalf of the principal, shall perform their obligations. He occupies the position of both the guarantor and an agent.

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CONTRACT OF AGENCY…contd.RIGHTS & DUTIES OF PRINCIPAL AND AGENT

Duties of Agent1. To carry out the work undertaken according to the directions given by

the principal.2. To carry out the work with reasonable care, skill and diligence.3. To render proper accounts to his principal.4. To communicate with the principal in case of difficulty.5. Not to deal on his own account.6. To pay sums received for the principal.7. To protect and preserve the interests of the principal in case of his

death or insolvency.8. Not to use information obtained in the course of the agency against

the principal.9. Not to make secret profit from agency.10. Not to set up an adverse title.11. Not to put himself in a position where interest and duty conflict.12. Not to delegate authority.

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CONTRACT OF AGENCY…contd.Rights of Agent

1. Right of retainer 2. Right to receive remuneration3. Right of lien4. Right of indemnification5. Right of compensation6. Right of stoppage in transit

Duties and Rights of PrincipalThe duties of an agent are the rights of the principal and the rights of an agent are the duties of the principal.

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CONTRACT OF AGENCY…contd.TERMINATION OF AGENCY

• According to Sec. 201, an agency is terminated by:– An agreement between the parties; or– The principal revoking his authority; or– The agent renouncing the business of agency; or– The business of agency being completed; or– Either the principal or the agent dying or becoming of

unsound mind; or– By the principal being adjudicated an insolvent under the

provisions of any Act for the time being in force for relief of insolvent debtors.

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CONTRACT OF AGENCY…contd.TERMINATION OF AGENCY

BY ACT OF THE PARTIES BY OPERATION OF LAW

AGREEMENT

REVOCATION BY THE PRINCIPAL

REVOCATION BY THE AGENT

PERFORMANCE OF THE CONTRACT

EXPIRY OF TIME

DEATH OF EITHER PARTY

INSANITY OF EITHER PARTY

INSOLVENCY OF EITHER PARTY

DESTRUCTION OF THE SUBJECT MATTER

PRINCIPAL BECOMING AN ALIEN ENEMY

DISSOLUTION OF A COMPANY

TERMINATION OF SUB-AGENT’S AUTHORITY

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COMMUNICATION OF OFFER, ACCEPTANCE & REVOCATION

Communication of an Offer is complete: (U/s 4, Para 1)• when it comes to the knowledge of the person to whom it is made.Communication of an Acceptance is complete : (U/s 4, Para 2)As against the Proposer –• When it is put in course of transmission to him, so as to be out of the

power of the acceptorAs against the Acceptor –• When it comes to the knowledge of the ProposerCase :

A proposes by a letter to B to sell his house at a certain price. The

letter is posted on 10th July. It reaches B on 12th July. B accepts A’s

proposal by a letter posted on 13th July. It reaches A on 15th July.

_________________________________________________________

When are the communications of offer and Acceptance complete ?

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Communication of Revocation is complete : ( U/s 4, Para 3)

As against the person who makes it –• When it is put in course of transmission to him, so as to be out of the power of the person who makes it

As against the person to whom it is made –• When it comes to his knowledge

Case :A proposes by a letter to sell his house to B at a certain price.The letter is posted on 15th July. It reaches B on 19th July.A revokes his offer by telegram on 18th July. It reaches B on 20th July.__________________________________________________________

When is communication of Revocation complete ?