2. The Law of Contract
It is that branch of law which determines the
circumstances in which promises made by
the parties to a contract shall be legally
binding on them.
It defines:
Remedies available
Conditions under which remedies are
available
3. DEFINITION OF CONTRACT
Sec.2(h) “An agreement enforceable by law.”
DEFINITION OF AGREEMENT
Sec. 2(e), “Every promise and every set of promises,
forming consideration for each other”
Contract =Agreement + enforceability by law.
Agreement = Offer + Acceptance
4. ESSENTIAL ELEMENTS OF VALID
CONTRACT
Offer and acceptance – Two parties, offer & acceptance
Intention to create legal relationship –
(Balfour vs. Balfour- domestic, social agreements )
Lawful consideration- “QUID PRO QUO” i.e. something
in return either in cash or kind
Capacity of parties – Legal Abilities i.e.
a) Is of age of majority
b) he is of Sound mind
c) He is not disqualified from any Law
5. Incompetent persons to contract:
1.Minors
2.Persons of unsound mind.
3.Persons disqualified by any law to which they are
subject
Minors
a minor is a person who has not completed 18
years of age. In the following two cases, he attains
majority after 21 years of age.:
1.Where a guardian of a minor’s person or
property has been appointed under the Guardians
and Wards Act 1980
2.Where the superintendence of a minor’s property
is assumed by a court of wards
Case: Mohiri Bibi Vs Dharmodas Ghose
M is a minor who mortgaged his house in favor of
D a money lender. Subsequently M sued for
setting aside the mortgage. it was declared that a
contact with a minor is Void-ab-initio
6. Sound mind: A person is said to be of sound
mind for the purpose of making a contract if,
at the time when he makes it, he is capable
of understanding it and of forming a rational
judgment as to its effect upon his interest.
The following are persons of unsound mind.
.
1) Lunatics: A lunatic is a person who is
mentally deranged due to some mental strain
or other personal experience. He can enter
into a contract when he is of sound mind.
7. 2. Idiots: An idiot is a person who has
completely lost his mental powers. He dopes
not exhibit understandings of even ordinary
matters.
3.Drunken or intoxicated persons:
Drunken or intoxicated persons suffers from
temporary incapacity to contract i.e. at the
time when he is so drunk or intoxicated that
he is incapable of forming a rational
judgment.
The position of a drunken or intoxicated
person is similar to that of lunatic.
8. Other persons who are
Insolvents: An insolvent is a person who is
unable to repay a sum of rupees 500 to the
supplier ( creditor).
Allien enemies: An allien( the subject of a
foreign state) is a person who is not a subject
of Republic of India
Convicts: : A convict when undergoing
imprisonment is incapable of entering into a
contract.
9. ESSENTIAL ELEMENTS OF VALID
CONTRACT
“CONSENSES-AD-IDEM” which means same
thing in the same sense.
In other words “Two or more persons are said
to consent when they agree upon the same
thing in the same sense”
Free Consent is said to be not free when it is obtained
by
Coercion
Undue influence
Fraud
Misrepresentation.
Mistake.
11. Coercion:
When a person is compelled to enter into a contract by the
use of FORCE by the other party or under THREAT, a
Coercion is said to be employed.
Coercion includes fear, physical compulsion.
Ex:‘A’ threat to shoot ‘B’ : if he does not release him from
debt which ‘A’ owes to ‘B’
12. Undue influence
“ A contract is said to be induced by “undue influence”
where the relations subsisting between the parties are
such that one of the parties is in a position to dominate
the will of the other and uses that position to obtain an
unfair advantage over the other”
Ex: A spiritual guru induced his devotee to gift to him the
whole of his property in return of a promise of salvation
of the devotee, here the consent of devotee was under
undue influence (Mannu Singh vs Umadat Pandey)
13. Misrepresentation And Fraud
Misrepresentation of facts may be intentional or
innocent
Fraud:
Intentional misrepresentation has been termed as Fraud. Their
exist the active concealment of fact by one having the
knowledge or belief of the fact.
EX: A general example of recent time i.e. is Satyam computers
14. Misrepresentation
Misrepresentation is a false statement which the person
making it honestly believes to be true or which he does
not know to be false.(Innocence)
Ex:
A while selling his horse to B. tells him that the horse is
thoroughly sound. A genuinely believes the horse to be
sound although he has no sufficient ground for the belief.
Later on B finds that the horse to be unsound.
15. Mistake:
A mistake may be defined as an erroneous
belief about something.
It may be :
1. Mistake of law, or
2. Mistake of fact
16. Mistake of Law of the country
Ignorance of law is no excuse, is a well
settled rule of law. A party cannot be allowed
to get any relief on the ground that it had
done a particular act in ignorance of law.
Ex: A and B enter into a contract on the
erroneous belief that a particular debt is
barred by the Indian law of limitation. This
contract is not voidable.
.
Mistake of law of a foreign country:
Such a mistake is treated as a mistake of fact
and the agreement in such a case is void.
17. Mistake of Fact
Bilateral mistake:
Where both the parties to an agreement are
under a mistake as to a matter of fact
essential to the agreement, there is a
bilateral mistake
Ex: A agreed to purchase B’s motor car which
was lying in B’s garage. Unknown to the
either party , the car and garage were
completely destroyed by fire a day earlier.
The agreement is void.
18. Unilateral mistake:
In unilateral mistake, only one party is under
a mistake as to a matter of fact. A contract is
voidable merely because it was caused by
one of the parties to it being under a mistake
as to a matter of fact.
Ex:
‘A’ offers to sell his house to be for a sum of
Rs.44,000/-. By mistake he makes an offer in
writing as 40,000/-. He cannot plead mistake
as defence.
19. OFFER
A proposal made by a promisor to a promisee is an offer.
Classification
General offer: Made to public at large.
Specific Offer : Made to a specific person.
Counter offer: Rejection of original offer and Addition of
few conditions to the main offer.
Cross offer: When two parties exchange identical offers at
the same time in ignorance of each others offer
20. It must create a Legal relationship
It must be certain, definite and not Vague
The offer may be expressed or implied
It must be distinguished from an invitation to offer*
It may be specific or general.
It must be communicated to the Offeree
It must be made to obtain the consent of the oferee
*Invitation to offer is just a circulation of an offer
Example: Departmental store
Rules as to Offer
21. Acceptance
When a person to whom proposal is made signifies his
willingness or assent then it is said to be aceptence.
Rules as to Acceptance
Acceptance must be absolute and unqualified i.e. valid and without any
conditions.
It must be communicated to the Offeror.
It must be in the mode specified by the offeror.
It must be made with in time and before the lapse of offer
22. “QUID PRO QUO”
In general terms consideration is said to be something
in return.
Example:
‘A’ agrees to sell his car to ‘B’ for Rs 50,000.
Car is consideration for B and Price is consideration for A.
A contract without consideration is Void.
Consideration
23. Legal rules as to consideration
1. It must move at the desire of the promisor.
2. It may move from the promisee or any other
person.
3. It may be an act, abstinence or forbearance or
at a return promise.
4. It may be past, present or future.
5. It need not be adequate.
6. It must be real and not illusory.
7. It must not be illegal, immoral or opposed to
public policy.
24. Contract is said to be performed
1. Actual Performance
2. Attempted Performance / Tender of Performance /
Offer of Performance
Essentials of Valid Tender sec. 38
1. It must be unconditional
2. It must be made at proper time and place
3. A person to whom the tender is made must be given
opportunity of inspection of goods or articles
4. The tender must be whole and not of the part
5. The tender must be in proper form – tender of money in
current coins
Performance of Contract
25. 6. The tender must be made to proper person
7. Tender for the delivery of goods must be for the quantity and
quality as stipulated in the contract
8. A tender made to one of the several joint promisees has the
same legal consequences as a tender to all of them.
Effect of refusal to accept offer of performance (Sec.
38)
Where a promisor has made an offer of performance to the promisee
and the offer has not been accepted :
1)The promisor is not responsible for non-performance;
2) Nor does he thereby loses his rights under the contract
26. By the Promisor himself
By the Agent appointed by the promisor
By the Legal representatives or legal heirs of the
promisor
By Third Person that is stranger to the contract.
By the Joint Promisor i.e. two or more persons who
promise to perform the contract.
By Whom Must the Contracts be
Performed
27. Contracts which need not be
performed
1.When the performance becomes impossible
2.When the parties to it agree to substitute a
new contract or alter it.
3.When the persons to whose opinion it is
voidable
4.When the promisee neglects or refuses to
afford the promisor reasonable facilities for
the performance of his promise.
28. If no time is specified in a contract then the promise must be
performed within reasonable time.
If a promise is to be performed on a specific date and no time is
mentioned then it is to be made in usual business hours.
If place of performance is not fixed then it is the duty of the
promisor to ask the promisee to fix a reasonable place.
Time & Place of Performance Sec.46 -50
29. Source of Information
N.D.Kapoor – Elements of MercantileLaw
(Pg 1-106)
CA. Kiran Parsa – Law, Ethics & Communication
