Unit – I
The Indian Contract Act. 1872 : General Principals of Law Contract
Table of content:
INTRODUCTION
The Indian Contract Act, 1872 prescribes the law regarding contracts in India and is that the key act regulating Indian law.
The Act relies on the principles of English Common Law. It’s applicable to all or any the states of India. It determines the circumstances during which promises made by the parties to a contract shall be legally binding.
Under Section 2(h), the Indian Contract Act defines a contract as an agreement which is enforceable by law.
OBJECTIVE OF THE ACT
The purpose of the Contract Act is to make sure that the rights and obligations arising out of a contract are honored which legal remedies are made available to an aggrieved party against the party failing to honor a part of agreement. The Indian Contract Act makes it obligatory that this is often done and compels the defaulters to honor their commitments.
EXTENT AND COMMENCEMENT
- It extends to the entire of India except the State of Jammu and Kashmir
- It came into force on the primary day of September, 1872.
- The sale of goods was repealed from this Indian Contract Act in 1930. Contracts regarding partnership were repealed in 1932.
DEVELOPMENT
The Act as enacted originally had 266 Sections, it had wide scope
- General Principles of Law of Contract – Sections 01 to 75
- Contract regarding Sale of goods – Sections 76 to 123
- Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency – Sections 124 to 238
- Contracts concerning Partnership – Sections 239 to 266
At present the Indian Contract Act could also be divided into two parts:
- Part 1: deals with the overall Principles of Law of Contract Sections 1 to 75
- Part 2: deals with Special sorts of Contracts like Contract of Indemnity and Guarantee and Contract of Bailment and Pledge
STEPS INVOLVED WITHIN THE CONTRACT
1. Proposal and its communication
2. Acceptance of proposal and its communication
3. Agreement by mutual promises
4. Contract
5. Performance of Contract
DEFINATION -
CONTRACT
The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”. In other words, we will say that a contract is anything that's an agreement and enforceable by the law of the land.
This definition has two major elements in it viz – “agreement” and “enforceable by law”. So as to know a contract in the light of The Indian Contract Act, 1872 we need to define and explain these two pivots within the definition of a contract.
AGREEMENT
The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2 (e), the Act defines the term agreement as “every promise and each set of promises, forming the consideration for each other”.
Now that we know how the Act defines the term “agreement”, there may be some ambiguity within the definition of the term promise.
An agreement enforceable by law could also be a contract.
DIFFERENCE BETWEEN AGREEMENT AND CONTRACT
Let us see how a contract and agreement are different from one another. This can assist you summarize and make a map of all the important concepts that you simply have understood.
Contract Agreement
CONTRACT | AGREEMENT |
A contract is an agreement that's enforceable by law. | A promise or variety of promises that aren't contradicting and are accepted by the parties involved is an agreement.
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A contract is merely legally enforceable. | An agreement must be socially acceptable. It should or might not be enforceable by the law.
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A contract should create some legal obligation. | An agreement doesn’t create any legal obligations.
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All contracts also are agreements. | An agreement may or might not be a contract.
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TYPES/KINDS / CLASSIFICATION OF CONTRACTS
1. On the idea of validity
a) Valid contract: An agreement which has all the essential elements of a contract is named a legitimate contract. A legitimate contract is often enforced by law.
b) Void contract: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It’s going to subsequently become void. There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law-
c) Voidable contract: An agreement which is enforceable by law at the option of 1 or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it's repudiated by the aggrieved party.
d) Illegal contract: A contract is against the law if it's forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to an individual or property of another, or court regards it as immoral or against public policy. These agreements are punishable by law. These are void-ab-initio.
“All illegal agreements are void agreements but all void agreements aren't illegal.
e) Unenforceable contract: Where a contract is good in substance but due to some technical defect can't be enforced by law is termed unenforceable contract. These contracts are neither void nor voidable.
2. On the idea of formation
a) Express contract: Where the terms of the contract are expressly prescribed in words (written or spoken) at the time of formation, the contract is claimed to be express contract
b) Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is formed otherwise than in words, promise is claimed to be implied.
c) Quasi contract: A contract is made by law. Thus, quasi contracts are strictly not contracting as there's no intention of parties to enter into a contract. It’s legal obligation which is imposed on a celebration that is required to perform it. A contract is predicated on the principle that an individual shall not be allowed to complement himself at the expense of another.
3. On the idea of Performance
a) Unilateral contract: A agreement is one during which just one party has got to perform his obligation at the time of the formation of the contract, the opposite party having fulfilled his obligation at the time of the contract or before the contract comes into existence.
b) Bilateral contract: A contract is one during which the requirement on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts also are referred to as contracts with executory consideration.
4. On the bases of execution
a) Executed contract: An executed contract is one during which both the parties have performed their respective obligation.
b) Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract.
5. Other Contracts
Besides the above said classification, there are other kinds of contract also. Contingent Contract is one such type.
ESSENTIAL REQUIREMENTS OF A VALID CONTRACT
- Offer and its acceptance
- Free consent of both parties
- Mutual and lawful consideration for agreement
- It should be enforceable by law. Hence, intention should be to make legal relationship. Agreements of social or domestic nature aren't contracts
- Parties should be competent to contract
- Object should be lawful
- Certainty and possibility of performance
- Contract shouldn't be declared as void under Contract Act or the other law
OFFER AND ACCEPTANCE:
DEFINITION
PROPOSAL SECTION 2(A):
When one person 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, he is said to make an offer.
- May be express or implied
- May be positive or negative
- Must shall create legal relationship
- Terms of offer must be sure
- May be made to a selected person or class of persons or to anybody within the world at large
- Must be communicated to the offeree
- Must be made with a view to get the assent
- May be conditional
ACCEPTANCE SECTION 2(B):
- When the person to whom the offer is made, signifies his assent there to, the offer is said to be accepted.
A. ESSENTIALS OF A VALID OFFER AND ACCEPTANCE
RULES OF VALID OFFER
Here are some of the few essentials that make the offer valid.
1] Offer must create Legal Relations
The offer must cause a contract that makes legal relations and legal consequences just in case of non-performance. So, a social contract which doesn't create legal relations won't be a valid offer. Say for instance a dinner invitation extended by A to B isn't a valid offer.
2] Offer must be clear, not vague
The terms of the offer or offer should be very clear and definite. If the terms are vague or unclear, it'll not amount to a valid offer. See example the following offer – A offers to sell B fruits worth Rs 5000/-. This is often not a valid offer since what sorts of fruits or their specific quantities aren't mentioned.
3] Offer must be communicated to the Offeree
For a offer to be completed it must be clearly communicated to the offeree. No offeree can accept the offer without knowledge of the offer. It makes clear that acceptance in ignorance of the offer doesn't amount to acceptance.
4] Offer could also be Conditional
While acceptance can't be conditional, an offer could be conditional. The offeror can make the offer subject to any terms or conditions he deems necessary. So, A offers to sell goods to B if he makes half the payment in advance. Now B can accept these conditions or make a counteroffer.
5] Offer cannot contain a Negative Condition
The non-compliance of any terms of the offer cannot result in automatic acceptance of the offer. Hence it cannot say that if acceptance isn't communicated by a particular time it'll be considered as accepted. Example: A offers to sell his cow to B for 5000/-. If the offer isn't rejected by Monday it'll be considered as accepted. This is often not a valid offer.
6] Offer is often specific or general
As we saw earlier the offer are often to at least one or more specific parties. Or the offer might be to the public generally.
7] Offer could also be Expressed or Implied
The offeror can make an offer through words or maybe by his conduct.
An offer which is formed via words, whether such words are written or spoken (oral contract) we call it an express contract and when an offer is formed through the conduct and therefore the actions of the offeror it's an implied contract.
TERMINATION OF OFFER
- By notice of revocation
- By lapse of your time
- By failure of the acceptor to fulfill a condition precedent to acceptance
- By failure to simply accept consistent with the mode prescribed
- By death or insanity of the offeror
- By rejection
RULES FOR VALID ACCEPTANCE
- Acceptance must be absolute and unconditional
- Acceptance by usual mode as desired by the offer or
- Acceptance cannot precede the offer
- Acceptance could also be express or implied
- Acceptance must tend within an inexpensive time
- Acceptance must be by an ascertained person (offeree)
- Offer can't be accepted after it had been rejected unless it's renewed
- Silence doesn't imply acceptance
- Acceptance must be made before the lapse or revocation of the offer
- Acceptance of offer means acceptance of all terms attached to the offer
- An agreement not enforceable by law is claimed to be void.
CONSIDERATION (AS PER SECTION 2 AND 25)
CONCEPT
When at the desire of the promisor, the promise 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.
DEFINITION OF CONSIDERATION:
Consistent with Pollock, “Consideration is the price for which the promise of other is brought & the promise thus given for value is enforceable.”
According to section 2(d) when at the desire of the promisor, the promisee or any other person:
- Has done or abstained from doing ,or [Past consideration]
- Does or abstains from doing, or [Present consideration]
- Promises to do or abstain from doing something [Future consideration] such act or abstinence or promise are called a consideration for the promise.
EXAMPLE: ‘P’ aggress to sell his car to ‘Q’ for Rs.50, 000 Here ‘Q’s Promise to pay Rs.50, 000 is that the consideration for P’s promise and ‘P’s promise to sell the car is that the consideration for ‘Q’s promise.
IMPORTANCE OF CONSIDERATION
Consideration explains why a party is entering a contract and what they get from being a part of the contract. A contract must include consideration for each party involved so as to be valid. Essentially, consideration is that the benefit a party gets for entering a contract. During a basic contract, if you pay money for an item at the store and receive the item, that's your consideration. So as to qualify as consideration, each party must change their position.
Consideration usually results from:
• A promise to do something you are not legally obligated to try and do
• A promise to not do something you're allowed to do
What Happens Without Consideration?
If a court believes the contract doesn't have adequate consideration, it can step in and rule the contract unenforceable. This will happen for variety of reasons, including:
A party was already obligated to perform. If one among the parties is already legally obligated to do something, it is not actually consideration.
The promise may be a gift, not a contract. If one party gives something to the other party without expecting anything reciprocally, it's considered a present, not a contract. Because the other party didn't provide anything in exchange for the gift, they need no legal standing if the promise falls apart.
The exchange is past consideration. Consideration doesn't apply if the action has already taken place. For instance, a promise to pay money for a product that somebody has already given you isn't legally binding.
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LEGAL RULES REGARDING CONSIDERATION U/S 2
It must move at the will of the promisor: It must be offered by the promisee at the will or request of the promisor. An act done at the will or request of the third party doesn't form a legitimate consideration.
It’s going to move from the promisee or the other person: Consideration may move from the promisee or the other person i.e. even a stranger. It may be an act, abstinence or forbearance or a return promise.
The following are good consideration for the contract:
- Forbearance To Sue
- Compromise Of A Disputed Claim
- Composition With Creditors
It’s going to be present, past or future. i. Past Consideration ii. Present Or Executed Consideration iii. Future or Executory Consideration
Consideration needn't to be adequate but it must have some value. It must be real & not illusory.
There’s no consideration within the following cases:
1. Physical impossibility 2. Legal impossibility 3.Uncertain consideration
It must be something which the promisor isn't already sure to do A promise to try to what one is sure to do , either by general law or under an existing contract, isn't an honest consideration. It must not be illegal, immoral or against public policy
Unlawful consideration includes any activities:
- Is forbidden by law.
- Is fraudulent.
- Is of such nature that, it'll defeat a provision of any law.
- Involves any injury to the person or property of another.
- The Court regards it as immoral or against public policy.
EXCEPTIONS OF THE RULE “NO CONSIDERATION NO CONTRACT” (AS PER U/S 25)
1. On account of natural love & affection u/s 25(1): Such agreements are enforceable even inconsiderately.
2. For voluntary services u/s 25(2): A promise to compensate wholly or partially, an individual who has voluntarily done something for the promisor, is enforceable, even inconsiderately.
3. For promise to pay time-barred debts 25(3): A promise by a debtor to pay a time barred debt is enforceable provided it's in writing and signed by the debtor or his agent.
4. Within the case of completed gifts: The rule no consideration no contract doesn't apply.
5. Within the case of agency: to make workplace relationship consideration isn't necessary.
UNLAWFL CONSIDERATION (AS PER SECTION 23)
According to Section 23, within the following cases consideration or object of an agreement is unlawful:
1. If it's forbidden by law:
Where the object of a contract is forbidden by law, the agreement shall be void. An act is claimed to be forbidden if it's punishable by criminal law or any special statute, or if it's prohibited by any law or order made in exercise of powers or authority conferred by the legislature.
Example:
(1) A and B agreed to deal in smuggled goods. It is forbidden by law and thus void.
(2) A committed B's murder within the presence of C. A promise to pay Rs. 500 to C, if C doesn't inform the police about the murder
The agreement in example No. 2 given above is against the law as its object is unlawful. Besides, A and C are going to be responsible for the act of murder and its concealment under the Indian penal code.
2. If it's of such a nature that if permitted, it might defeat the provisions of the other law:
The object of an agreement might not be directly forbidden but indirectly, it's going to defeat the thing of any other law, and the agreement would be void in such a case.
Example:
(1) A failed to pay his land revenue. Therefore, his estate was sold for arrears of revenue by the govt. By the law, the defaulter is prohibited from purchasing the land again. A asks B to get the estate and afterward, transfer an equivalent to him at an equivalent price. The agreement is void because it will defeat the thing of the law which prohibits a defaulter to get back the land, for indirectly A will again become the owner of the estate.
The second agreement is additionally void because it would defeat the provision or object of the law of limitation.
3. If it's fraudulent:
If the object of an agreement is fraudulent, i.e., to cheat people, it's void. Example:
A, B & C enter into an agreement to sell bogus plots of land in Delhi the agreement is void because it is fraudulent and thereby unlawful.
4. If it involves or implies injury to the person or property of another: Law protects property and person of its citizens. It cannot permit any contract which ends up in an injury to the person or property of any one.
Examples:
(1) A promise to pay Rs. 500 to B if B beats C. It involves injury to C; hence it's unlawful and void.
5. If the Court regards it as immoral or against public policy: If the thing of an agreement is immoral or against public policy, it'll be void. Morality here means something which the law regards as immoral.
Examples:
(1) A agrees to offer his house on rent to a prostitute for her immoral purpose. A cannot recover the rent of his house if he prostitute refuse to pay. However, he could also be allowed to urge his house vacated from the prostitute because it will put an end to the immoral purpose.
(2) A agrees to offer his daughter on hire to B for concubinage. The agreement is void because it's immoral, though the letting might not be punishable under the Indian penal code.
Effect of Illegality:
1. An illegal agreement is void:
It is not enforceable at law.
2. Collateral transactions to illegal transactions also are void:
Not only the illegal agreement is void but also the collateral transactions are void.
Example:
A borrows Rs. 2,000 from B to shop for a revolver to shoot C. Since the thing of the transaction is against the law, B cannot recover his Rs. 2,000 if he has given the loan, knowing that A is taking the loan to get a revolver to shoot C.
Thus, people are going to be discouraged to finance or assist illegal transaction once they know that they're going to not be able to recover their loans.
3. Law doesn't help any party:
Where the agreement is against the law, the law won't help any of the parties. The rationale is that both the parties are equally guilty and therefore the law doesn't help a guilty person. The law wants to discourage both the parties.
Example:
A promise to pay a bribe of Rs. 200 to B, if B does his work The agreement is against the law cannot recover the amount of Rs. 200 after doing A's work. Similarly, if A has paid the bribe in advance, he cannot get it back if B doesn't do his work.
4. Indirectly defendant is helped:
Defendant may be a person against whom the suit is filed. When the law doesn't help any of the parties, it means the party who has paid the amount won't be ready to get it back as we've seen within the above example. The party who has received the quantity is thus helped to stay the money with it and isn't asked by the Court to return it. The Court is neutral and therefore the defendant gets the advantage of the Court's neutrality. Within the example given above, B can keep Rs. 200, even if B doesn't do the work of A. The Court won't ask B to return the quantity. Thus, B is indirectly benefited or helped by the refusal of the Court to intervene.
5. In cases of fraud, coercion, etc., money or property transferred is often recovered:
Where the illegality is that the results of coercion and fraud of the other party, the Court can compel the guilty to return the cash paid or property transferred.
6. Agreement partly legal and partly illegal (Sec. 24):
An agreement may contain promises which are legal and illegal. If the legal promise is often separated from the illegal one, the legal promise is often enforced. In Such a case the illegal part are going to be void.
Where the legal promise can't be separated from the illegal one, the entire of it might be void.
Where there's one consideration for one or more unlawful objects, the agreement is void.
Example:
(1) A promise to manage B's factory, where genuine and bogus motor parts are manufactured. B agrees to pay A (Manager) a salary of Rs. 1,000 per month.
The agreement is void as partly it's legal and illegal and therefore the legal part can't be separated because the salary is for both the parts.
7. Reciprocal promises, legal and illegal (Sec. 57):
Where persons reciprocally promise, firstly to do certain things which are legal, and secondly under specified circumstances to do certain other things which are illegal, the first set of promise may be a contract, but the second may be a void agreement.
Example:
A and B agree that A shall sell a house to B for Rs. 10,000 but that if B uses it as a gambling house, he shall pay A Rs. 50,000 for it.
The first set of promise, i.e., to sell the house and to pay Rs. 10,000 may be a contract.
The second set of promise, i.e., B may use the house as a gambling house and pay Rs. 50,000 may be a void agreement.
8. Alternative promise, legal and illegal (Sec. 58):
In the case of an alternate promise, one branch of which is legal and therefore the other illegal, the legal branch alone are often enforced.
Contractual Capacity
DEFINATION
The parties who enter into a contract must have the capacity to do the contract.
“Capacity “here means competence of the parties to enter into a legitimate contract. According Sec 10, an agreement becomes a contract if it's entered into between the parties who are competent to contract.
According Sec .11, every person is competent to contract who
- Is of the age of majority according to the law to which he's subject
- Is of sound mind
- Is not qualified from contracting by any law to which he's subject.
Thus Sec. 11 declares following persons to be incompetent to contract:
1. Minors
2. Persons of unsound mind
3. Persons disqualified by any law to which they're subject.
1. MINORS
According to Sec 3 of the Indian Majority Act, 1875, a minor is a person who has not completed eighteen years of age.
In following cases he attains majority after 21 years aged
- Where a guardian of minor person or property has been appointed under guardians and wards act,1890
- Where the superintendence of minor’s property is assumed by a court of wards.
The position of minor as regards his agreements could also be summed up as under:
- An agreement with or by a minor is void
- He is often a promisee or beneficiary.
- His agreement can't be ratified by him on attain the age of majority.
- If he has received any benefit under a void agreement, he can't be asked to compensate or buy it.
2. PERSONS OF UNSOUND MIND
One of the essential conditions of competency of parties to a contract is that they ought to be of sound mind.
Sec 12 lays down the soundness of mind “A person is said to be of sound mind for the purpose of making the contract if, at the time when he makes it, he's capable of understanding it and of forming a rational judgment as to its effect upon his interests.
A person, who is usually of unsound mind but occasionally of sound mind, may make a contract when he's of sound mind. A person, who is typically of sound mind but occasionally of unsound mind, might not make a contract when he's of unsound mind
E.g.: an individual may be a lunatic, who is at intervals of sound mind, may contract during those intervals.
Soundness of minds depends on two facts:
- His capacity to know the contents of the business concerned,
- His ability to make a rational judgment on its effect on his interests.
- If an individual is incapable of both, he suffers from unsoundness of mind.
CONTRACTS OF PERSONS OF UNSOUND MIND
- Lunatics: A lunatic may be a one that is mentally deranged due to some strain or personal experience. He suffers from intermittent intervals of sanity and insanity. He can enter contracts during the amount when he's of sound mind.
- Idiots: An Idiot may be a one that has completely lost his mental powers. He doesn't exhibit understanding of even ordinary matters. Idiocy is permanent lunacy denotes periodical insanity with lucid intervals. An agreement of an idiot like that of minor is void.
- Drunken or intoxicated persons: A drunken or intoxicated person suffers from temporary incapacity to contract i.e. at the time when he's so drunk or intoxicated that he's incapable of forming a rational judgment. The position of a drunken or intoxicated person is analogous thereto of a lunatic.
3. PERSONS DISQUALIFIED BY ANY LAW TO WHICH THEY'RE SUBJECT
- Alien Enemies: An Alien (the subject of foreign state) is an individual who isn't subject of the Republic of India. He could also be Alien friend of Alien enemy.
- Foreign sovereigns, their diplomatic staff and accredited representatives of foreign states: they need some special privileges and usually can't be sued unless of their own undergo the jurisdiction of our law courts. But an Indian citizen has got to obtain a previous sanction of central govt. So as to sue them in our law courts.
- Corporations: an organization is a man-made person created by law, having a legal existence aside from its members. It may be available to existence by a legislative act of legislature or by registration under the companies’ Act, 1956.
- Insolvents: When a debtor is adjudged insolvent, his property vests within the official receiver or official assignee. As such insolvent is bereft of his power to deal therein property.
- Convicts: A convict when undergoing imprisonment is incapable of getting into contract.
Void contract [Section 2(g)]: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It’s going to subsequently become void. -- There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law.
MODES OF DISCHARGE OF CONTRACT
- Discharge by performance.
- Discharge of Contract by Substituted Agreement.
- Discharge by lapse of your time.
- Discharge by operation of law.
- Discharge by Impossibility of Performance.
- Discharge by Accord and Satisfaction.
- Discharge by breach.
We shall examine each of them as follows.
Discharge by performance
Where both the parties have either carried out or tendered (attempted) to carry out their obligations under the contract, is mentioned as discharge of the contract by performance. Because performance by one party constitutes the occurrence of a constructive condition, the other party’s duty to perform is additionally triggered, and thus the one that has performed has the proper to receive the other party’s performance. The overwhelming majority of contracts are discharged during this manner.
Discharge of Contract by Substituted Agreement
A contract emanates from an agreement between the parties. It thus follows that; the contract must even be discharged by agreement. Therefore, what's required, inevitably, is mutuality. Discharge by substituted agreement arises when a contract is abandoned, or the terms within it are altered, and both the parties are in conformity over it.
For example, A and B enter into some agreement, and A wants to change his mind and to not perform his terms of the contract. If he does this unilaterally then he are getting to be in breach of contract to B. However, if he approaches B and states that he would adore to be released from his liabilities under the contract then the latter might agree. Therein case the contract is claimed to be discharged by (bilateral) agreement. In effect B has promised to not sue A if he doesn't perform a neighborhood of the contract and thus the consideration for his promise could also be a‘s promise to not sue B. Discharge by agreement may arise within the subsequent ways.
- Novation: The term novation implies the substitution of a fresh contract for the first one. This arrangement could even be either with the same parties or with different parties. For a novation to be valid and effective, the consent of all the parties, including the new one(s), if any, is vital. Moreover, subsequent or second agreement must be one capable of enforcement in law, the consideration that is that the exchange of promises to not enforce the first contract.
- Rescission: This refers to cancellation of all or few the fabric terms of the contract. If the contracting parties mutually decide to do so, the respective contractual obligations of the parties stand terminated.
- Alteration: This refers to a change in one or more of the terms of a contract with the consent of all the contracting parties. Alteration results in a replacement contract but parties thereto remain the same. Here the assumption is that both the parties are to understand a fresh but different enjoy the new agreement. Remission this means the acceptance (by the promisee) of a lesser sum than what was contracted for, or a lesser fulfillment of the promise made. As per Section 63, ‘every promisee may (a) remit or dispense with it, wholly or partially, or (b) extend the time of performance, or (c) accept the opposite satisfaction instead of performance’.
- Waiver: The term waiver implies abandonment or relinquishment of a right. Where a party deliberately abandons its rights under the contract, the other party is released of its obligations, otherwise binding upon it.
Discharge by lapse of your time
A contract stands discharged if not enforced within a specified period called the ‘period of limitation‘. The Limitation Act, 1963 prescribes the duration of limitation for various contracts. As an example , period of limitation for exercising right to recover an immovable property is twelve years, and right to recover a debt is three years. Contractual rights become time barred after the expiry of this limitation period. Accordingly, if a debt isn't recovered within three years of its payment becoming due, the debt ceases to be payable and is discharged by lapse of your time.
Discharge by Impossibility of Performance
Sometimes after a contract has been established, something might occur, though not at the fault of either party, which can render the contract impossible to perform, or illegal, or radically different from that originally undertaken.
However, if whatever happens to prevent the contract from being performee has not been caused by either party couldn't are foreseen, and its effect is to destroy the thought of the contract then the courts will, generality, state that the contract has become impossible to perform. If that happens then the contract is discharged and neither party will have any liability there under. Section 56 of the Indian Contract Act clearly provides that an agreement to undertake to an act impossible in itself is void
The performance of a contractual obligation may become subsequently impossible on sort of grounds.
They include the next
• Objective impossibility of performance
• Commercial impracticability
• Frustration of purpose
• Temporary impossibility
Discharge of operation of law
A contract stands discharged by operation of law within the subsequent circumstances.
Unauthorized material alteration of a document
A party can treat a contract discharged (i.e., from his side) if the other party alters a term (such as quantity or price) of the contract without seeking the consent of the previous.
- Statutes of Limitations
A contract stands discharged if not enforced within a specified period called the ‘period of limitation’. The Limitation Act, 1963 prescribes the duration of limitation for various contracts. As an example , limitation period for exercising right to recover an immovable property is twelve years and right to recover a debt is three years. Contractual rights become time barred after the expiry of this limitation period. Accordingly, if a debt isn't recovered within three years of its payment becoming due, the debt ceases to be payable and is discharged by lapse of your time.
- Insolvency
A discharge in bankruptcy will ordinarily bar enforcement of most of a debtor’s contracts.
- Merger
A contract also stands discharged through a merger that happens when an inferior right accruing to party during a contract amalgamates into the superior right ensuing to an equivalent party. As an example,a hires a factory premises from B for a couple of manufacturing activity for a year, but 3 months before the expiry of lease purchases that very premises. Now since A has become the owner of the building, his rights associated with the lease (inferior rights) subsequently merge into the rights of ownership (superior rights). The previous rental contract ceases to exist.
Discharge by Accord and Satisfaction
To discharge a contract by accord and satisfaction; the parties must suits accept performance that's different from the performance originally promised. It’s getting to be studied under the next sub-heads.
Accord
An accord is an executor contract to perform an act which can satisfy an existing duty. An accord suspends, but doesn't discharge, the primary contract.
Satisfaction
Satisfaction is that the performance of the accord, which discharges the primary contractual obligation.
If the obligor refuses to perform the oblige can sue on the primary obligation or seek a decree for performance on the accord.
BREACH OF CONTRACT
A contract is breached or broken when any of the parties fails or refuses to perform its promise under the contract. Breach of contract is a legal cause of action in which a binding agreement is not honoured by one or more parties by non-performance of its promise by him renders impossible.
Section 37 of the Indian Contract Act,1872 provides that the parties to the contract are under obligation to perform or offer to perform, their respective promises under the contract, unless such performance is dispensed with or excused under the provisions of the Indian Contract Act or of any other law.
According to Section 39, where the party has refused to perform or disabled himself from performing, his promise in its entirely, the other party may put an end to the contract,, unless that other party has expressly or impliedly signified its consent for the continuance of contract. If the other party chooses to put an end to the contract, the contract is said to be broken and amounts to breach of contract by the party not performing or refusing to perform its promise under the contract. This is called repudiation. Thus, repudiation can occur when either party refuses to perform his part or makes it impossible for him to perform his part of contract in each of the cases in such a manner as to show an intention not to fulfil his part of the contract.
REMEDIES FOR BREACH OF CONTRACT (AS PER SECTION 73-75)
A legal remedy may be a writ that seeks to uphold a person’s rights or to redress a breach of the law.
When one party breaches a contract, the opposite party may ask a court to supply a remedy for the breach. The court may order the breaching party to pay money to the non-breaching party.
TYPES OF REMEDIES
- Suit for rescission
- Suit for damages
- Suit for quantum meruit
- Suit for performance
- Suit for an i injunction
- Suit for Rescission
SUIT FOR RESCISSION
The term Rescission refers to the cancellation of contract.
In such cases, if one party has broken his contractual relations, the opposite party may treat the breach as discharge and refuse to perform his part of performance.
Thus, just in case of rescission of contract, the aggrieved or casualty is discharged from all his obligations of the contract.
UNDER FOLLOWING CASES THE COURT MAY REFUSE TO GRANT RESCISSION:
• The parties can't be restored to their original positions thanks to changed circumstances.
• The party(s) has acquired rights in straightness and value during subsistence of contract.
• Only a neighborhood of the contract is rescinded and this part can’t be separated from remainder of the contract.
• But if an individual rightfully rescinded, he's entitled to compensation for any damage which he has sustained through non fulfillment of the contract by the opposite party.
EXAMPLE:
'A' contract to provide 10kg of tea leaves for Rs.8, 000 to 'B' on 15 June. If 'A' doesn't supply the tea leaves on the appointed day, 'B' needn't pay the worth. 'B' may treat the contract as rescinded and should sit quietly reception. 'B' can also file a ‘suit for rescission’ and claim damages. 12 A B Breach of contract when ‘A’ don’t supply to ‘B
SUIT FOR DAMAGES
Damages are a monetary compensation allowed to the casualty for the loss or injury suffered by him as results of the breach of contract. The elemental principle underlying damages isn't punishment but to compensate the aggrieved party for the loss suffered by him within the original position as he would fare.
Rules regarding damages
• The damages must naturally arise within the usual course of things from such breach i.e. the damages must be the proximate or direct consequence of the breach of contract.
• The aggrieved party must have suffered damages by breach of contract.
• Damages are awarded to compensate the loss caused by a celebration but to not punish the party at default for the breach of contract.
• Amount of damages is often decided at the time of agreement by the mutual consent of both the parties.
Types of damages
• Ordinary
• Special
• Exemplary
• Nominal damages
• Damages for inconvenience and discomfort
• Liquidated damages and penalty
• Stipulation for interest
• Forfeiture of margin there are 8 sorts of damages
EXAMPLE: Mr. A to pay 3 lacs to Mr. On 1st April. Mr. Doesn't pay the cash thereon day. Mr. B is unable to pay her debts and suffer a loss. Mr. A is susceptible to pay B principal amount and also interest thereon. 16 A B Breach of contract when ‘A’ don’t give money to ‘B’. Payable money
SUIT FOR QUANTUM MERUIT
It means “AS much as EARNED” or “in proportion to the work done.”
Right to ‘Quantum Meruit’ literally means a right to say the compensation for the work already done.
EXAMPLES Mr. Engages Mr. a contractor, to create a 3 storied house. After a neighborhood is made ‘A’ prevents ‘B’ from working any longer. ‘B’ the contractor, is entitled to urge reasonable compensation for work done under the doctrine of quantum merit additionally to the damages for breach of contract. 18 Breach of contract when ‘A’ told ‘B’ to prevent building construction. A B
SUIT FOR PERFORMANCE
Suit for performance means demanding the court’s direction to the defaulting party to hold out the promise consistent with the terms of contract Cases where suit for performance isn't maintainable
i. Where compensatory damages arising from breach aren't measurable
Ii. Where monetary compensation isn't an adequate remedy.
Example agreed to sell an old painting to Y for Rs50, 000. Subsequently, X refused to sell the painting. Here, Y may file a suit against X for the precise performance of the contract.
SUIT FOR INJECTION
It means demanding court’s stay order.
An order of the court which prohibits an individual to try to a specific act
A party to a contract does something which he presumed to not do, the court may issue an order prohibiting him from doing so.
EXAMPLES: A, a singer contracts with B the Manager of a theatre to sing at his theatre for one year and to abstain from Singing at other theatres during the theatre. She absents herself, B cannot compel A to sing at his theatre, but he may sue her for an injunction restraining her from Singing at other theatres.
G agreed to require the entire of his supply of electricity from a particular company. The agreement was held to import a negative promise that he would take none from elsewhere. He was, therefore, restrained by an injunction from buying electricity from the other company.
The word contingent means when an event or situation is contingent, i.e. it depends on some other event or fact. Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’ as follows:
‘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’.
In simple words, contingent contracts are the ones where the promisor performs his obligation only when certain conditions are met. The contracts of insurance, indemnity, and guarantee are some examples of contingent contracts.
Illustration:- A contracts to pay to B Rs. 70,000 if B’s house is burnt. This is a contingent contract.
Essentials of Contingent Contract are as follows:
- There must be a valid contract to do or abstain from doing something
- Performance of the contract must be conditional
- The said event must be collateral to such contract
- The event shouldn’t be at the discretion of the promisor.
(Sec 68-72)
Quasi Contract: Quasi contracts are based on principle of Equity hence a person should not receive or accept any benefit unjustly. If so, he has an obligation to give it back to the right owner. Such obligation is called “Quasi Contractual Obligations”.
In such situation a person is obliged to compensate another although the basis of this obligation is neither a contract between the parties, nor any tort on the part of the person who is bound to compensate.
Every Contract has two parts:
Formative: It gives procedures as to how contract is formed step by step e.g. Offer, acceptance, agreement etc.
Consequential: It gives rise to rights and liabilities of the parties.
For valid contracts both the parts should be present
i.e., Formative part + Consequential part = Absolute Contract
But when Formative part of the contract is absent but Consequential part is present, such situation gives rise to Quasi Contracts.
The basis of the obligation under quasi contracts is that no one should have unjust benefit at the cost of the other.
e.g. a) A leaves his hand bag at B’s house by mistake. B has quasi contractual obligation to return it to A.
b) A and B jointly owe Rs. 100 to C, A alone pays the amount to C and B not knowing this also pays Rs. 100 to C. C is bound to repay the amount to B or A.
c) A receive some money in his account by mistake of bank.
Kinds of Quasi Contracts
Claim for supply of necessaries to incompetent person (Section 68)
Payment by an interested person (Section 69)
Non-Gratuitous act (Section 70)
Responsibility of finder of lost goods (Section 71)
Payment of Mistake or under Coercion (Section 72)
Explanation
Claim for supply of necessaries to incompetent person (Section 68): “Necessaries” means goods or services which are most eventual for the survival of human life. It includes food, clothing, shelter, education, medical, legal aid etc. to a person who are minor or of unsound mind by another person.
The claim cannot be enforced against such incompetent person but reimbursement can be claimed only from the property of such a person.
What is luxury to one person may be necessity to another and vice versa.
e.g. A supplied suits to the defendant who is a school going boy. When the boy becomes major, plaintiff demanded the price of 10 suits, the defendant refused. The court held that minor is not liable to pay for 10 suits because it was excessive of necessaries suited to life.
The necessaries supplied, could be to such person or his dependents.
e.g. A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.
Payment by an interested person (Section 69): A person who is interested in the payment of money which another is bound by law to pay, and therefore pays, is entitled to be reimbursed by the other.
B hold a land belongs to A. A has to give revenue to govt. Which is due. The govt. Advertises for the sale of land to recover its revenue. As per law, if this is done B’s lease will be nullified. B, to prevent the sale and the consequent annulment of his own lease, pays to the govt. The sum due from A. B is entitled to claim reimbursement from A.
The following two conditions must be satisfied for the application of this section:
One person is interested in the payment of money, and therefore he pays it
Another person is bound by law to pay the same, but he fails to pay.
E.g. A is the owner of the house and B is the tenant. There is water connection provided by the corporation and it was agreed that water expenses should be paid by ‘A’. The corporation asked for the payment from A but A failed to pay. B made the payment to avoid further consequences. Here B is entitled to recover the money so paid from A
Non-Gratuitous act (Section 70): Non-Gratuitous act means –an act or service done with the expectation of something in return.
When a person does something for another person or delivers anything to him non -gratuitously, he is entitled to claim compensation for the same from such other person.
e.g. A tenant of a property makes improvements and additions in the property and the landlord accepts the same, the presumption is that the tenant did not intend to do so gratuitously and he can recover compensation for the same from the landlord.
P.C. Wadhwa v. State of Punjab
In this case the appellant got selected in the service of the Forest Department of the Punjab State. He was given practical training and education for about 10 months. He was supposed to sign a bond to serve the department for 5 years after such training and education or otherwise to refund the cost of the same incurred by the State of Punjab.
He was selected in I.P.S and he left the training in between. The Punjab govt. Brought an action to recover a sum of Rs. 3250, being the cost of training and education.
He refused to pay and contended that he did not take any benefit from the training. This plea was rejected and it was held the act of the Punjab govt. Was not a gratuitous act but it was non-gratuitous act and he voluntary enjoyed the benefits of training.
Responsibility of finder of lost goods (Section 71): A finder is a person who finds goods belonging to another and takes the goods into his custody.
The position of the finder of goods is similar to that of a bailee. Like bailee the finder is bound to take as much care of the goods as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods found by him. The finder is entitled to claim the reward, if any offered.
The finder of goods however has been authorized to sell the goods found by him, when:
The owner of the goods cannot be found after reasonable search or if he refuses to pay the lawful charges of the finder and
If the goods found is of perishable nature or goods are not perishable but the lawful charges of the finder, amounts to 2/3rd of its value.
Payment of Mistake or under Coercion (Section 72): When a person receives any money or goods by mistake or under coercion, he must repay or return it.
e.g. a) A received Rs. 100000 in his account by mistake from the employee of the bank, A is obliged to return it.
b) A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover.
Even if some govt. Authority has charged some amount by mistake or illegally, the said authority is obliged to refund it.
No refund if the plaintiff did not pay from his own pocket
A paid excise duty by mistake, but A had already recovered the whole of the paid duty from their customers. A is not entitled to refund. Refund in such a case would amount to unjust enrichment of the petitioners.
Money not recoverable if there is no unjust enrichment of the defendant
If the receiver of the money is no longer the same and has further paid it under a similar mistake, he cannot be asked to repay the same.
E.g. A told to B that he had given B address to receive a courier. B received the courier and gave it to A. It was later found out by the courier company that the delivery was to a wrong person. They sued B. Court held B is not required to pay as B has enjoyed no unjust enrichment.
Disclaimer - This content published is the sole responsibility of the author. The company does not publish any study material which are not approved or validated by qualified professors or experts in the relevant field.
References
- Business Law for Management by Balchandani
- Business Law by Henry R. Cheeseman
- Business Law by B. B. Dam
Unit – I
The Indian Contract Act. 1872 : General Principals of Law Contract
Table of content:
INTRODUCTION
The Indian Contract Act, 1872 prescribes the law regarding contracts in India and is that the key act regulating Indian law.
The Act relies on the principles of English Common Law. It’s applicable to all or any the states of India. It determines the circumstances during which promises made by the parties to a contract shall be legally binding.
Under Section 2(h), the Indian Contract Act defines a contract as an agreement which is enforceable by law.
OBJECTIVE OF THE ACT
The purpose of the Contract Act is to make sure that the rights and obligations arising out of a contract are honored which legal remedies are made available to an aggrieved party against the party failing to honor a part of agreement. The Indian Contract Act makes it obligatory that this is often done and compels the defaulters to honor their commitments.
EXTENT AND COMMENCEMENT
- It extends to the entire of India except the State of Jammu and Kashmir
- It came into force on the primary day of September, 1872.
- The sale of goods was repealed from this Indian Contract Act in 1930. Contracts regarding partnership were repealed in 1932.
DEVELOPMENT
The Act as enacted originally had 266 Sections, it had wide scope
- General Principles of Law of Contract – Sections 01 to 75
- Contract regarding Sale of goods – Sections 76 to 123
- Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency – Sections 124 to 238
- Contracts concerning Partnership – Sections 239 to 266
At present the Indian Contract Act could also be divided into two parts:
- Part 1: deals with the overall Principles of Law of Contract Sections 1 to 75
- Part 2: deals with Special sorts of Contracts like Contract of Indemnity and Guarantee and Contract of Bailment and Pledge
STEPS INVOLVED WITHIN THE CONTRACT
1. Proposal and its communication
2. Acceptance of proposal and its communication
3. Agreement by mutual promises
4. Contract
5. Performance of Contract
DEFINATION -
CONTRACT
The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”. In other words, we will say that a contract is anything that's an agreement and enforceable by the law of the land.
This definition has two major elements in it viz – “agreement” and “enforceable by law”. So as to know a contract in the light of The Indian Contract Act, 1872 we need to define and explain these two pivots within the definition of a contract.
AGREEMENT
The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2 (e), the Act defines the term agreement as “every promise and each set of promises, forming the consideration for each other”.
Now that we know how the Act defines the term “agreement”, there may be some ambiguity within the definition of the term promise.
An agreement enforceable by law could also be a contract.
DIFFERENCE BETWEEN AGREEMENT AND CONTRACT
Let us see how a contract and agreement are different from one another. This can assist you summarize and make a map of all the important concepts that you simply have understood.
Contract Agreement
CONTRACT | AGREEMENT |
A contract is an agreement that's enforceable by law. | A promise or variety of promises that aren't contradicting and are accepted by the parties involved is an agreement.
|
A contract is merely legally enforceable. | An agreement must be socially acceptable. It should or might not be enforceable by the law.
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A contract should create some legal obligation. | An agreement doesn’t create any legal obligations.
|
All contracts also are agreements. | An agreement may or might not be a contract.
|
TYPES/KINDS / CLASSIFICATION OF CONTRACTS
1. On the idea of validity
a) Valid contract: An agreement which has all the essential elements of a contract is named a legitimate contract. A legitimate contract is often enforced by law.
b) Void contract: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It’s going to subsequently become void. There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law-
c) Voidable contract: An agreement which is enforceable by law at the option of 1 or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it's repudiated by the aggrieved party.
d) Illegal contract: A contract is against the law if it's forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to an individual or property of another, or court regards it as immoral or against public policy. These agreements are punishable by law. These are void-ab-initio.
“All illegal agreements are void agreements but all void agreements aren't illegal.
e) Unenforceable contract: Where a contract is good in substance but due to some technical defect can't be enforced by law is termed unenforceable contract. These contracts are neither void nor voidable.
2. On the idea of formation
a) Express contract: Where the terms of the contract are expressly prescribed in words (written or spoken) at the time of formation, the contract is claimed to be express contract
b) Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is formed otherwise than in words, promise is claimed to be implied.
c) Quasi contract: A contract is made by law. Thus, quasi contracts are strictly not contracting as there's no intention of parties to enter into a contract. It’s legal obligation which is imposed on a celebration that is required to perform it. A contract is predicated on the principle that an individual shall not be allowed to complement himself at the expense of another.
3. On the idea of Performance
a) Unilateral contract: A agreement is one during which just one party has got to perform his obligation at the time of the formation of the contract, the opposite party having fulfilled his obligation at the time of the contract or before the contract comes into existence.
b) Bilateral contract: A contract is one during which the requirement on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts also are referred to as contracts with executory consideration.
4. On the bases of execution
a) Executed contract: An executed contract is one during which both the parties have performed their respective obligation.
b) Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract.
5. Other Contracts
Besides the above said classification, there are other kinds of contract also. Contingent Contract is one such type.
ESSENTIAL REQUIREMENTS OF A VALID CONTRACT
- Offer and its acceptance
- Free consent of both parties
- Mutual and lawful consideration for agreement
- It should be enforceable by law. Hence, intention should be to make legal relationship. Agreements of social or domestic nature aren't contracts
- Parties should be competent to contract
- Object should be lawful
- Certainty and possibility of performance
- Contract shouldn't be declared as void under Contract Act or the other law
OFFER AND ACCEPTANCE:
DEFINITION
PROPOSAL SECTION 2(A):
When one person 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, he is said to make an offer.
- May be express or implied
- May be positive or negative
- Must shall create legal relationship
- Terms of offer must be sure
- May be made to a selected person or class of persons or to anybody within the world at large
- Must be communicated to the offeree
- Must be made with a view to get the assent
- May be conditional
ACCEPTANCE SECTION 2(B):
- When the person to whom the offer is made, signifies his assent there to, the offer is said to be accepted.
A. ESSENTIALS OF A VALID OFFER AND ACCEPTANCE
RULES OF VALID OFFER
Here are some of the few essentials that make the offer valid.
1] Offer must create Legal Relations
The offer must cause a contract that makes legal relations and legal consequences just in case of non-performance. So, a social contract which doesn't create legal relations won't be a valid offer. Say for instance a dinner invitation extended by A to B isn't a valid offer.
2] Offer must be clear, not vague
The terms of the offer or offer should be very clear and definite. If the terms are vague or unclear, it'll not amount to a valid offer. See example the following offer – A offers to sell B fruits worth Rs 5000/-. This is often not a valid offer since what sorts of fruits or their specific quantities aren't mentioned.
3] Offer must be communicated to the Offeree
For a offer to be completed it must be clearly communicated to the offeree. No offeree can accept the offer without knowledge of the offer. It makes clear that acceptance in ignorance of the offer doesn't amount to acceptance.
4] Offer could also be Conditional
While acceptance can't be conditional, an offer could be conditional. The offeror can make the offer subject to any terms or conditions he deems necessary. So, A offers to sell goods to B if he makes half the payment in advance. Now B can accept these conditions or make a counteroffer.
5] Offer cannot contain a Negative Condition
The non-compliance of any terms of the offer cannot result in automatic acceptance of the offer. Hence it cannot say that if acceptance isn't communicated by a particular time it'll be considered as accepted. Example: A offers to sell his cow to B for 5000/-. If the offer isn't rejected by Monday it'll be considered as accepted. This is often not a valid offer.
6] Offer is often specific or general
As we saw earlier the offer are often to at least one or more specific parties. Or the offer might be to the public generally.
7] Offer could also be Expressed or Implied
The offeror can make an offer through words or maybe by his conduct.
An offer which is formed via words, whether such words are written or spoken (oral contract) we call it an express contract and when an offer is formed through the conduct and therefore the actions of the offeror it's an implied contract.
TERMINATION OF OFFER
- By notice of revocation
- By lapse of your time
- By failure of the acceptor to fulfill a condition precedent to acceptance
- By failure to simply accept consistent with the mode prescribed
- By death or insanity of the offeror
- By rejection
RULES FOR VALID ACCEPTANCE
- Acceptance must be absolute and unconditional
- Acceptance by usual mode as desired by the offer or
- Acceptance cannot precede the offer
- Acceptance could also be express or implied
- Acceptance must tend within an inexpensive time
- Acceptance must be by an ascertained person (offeree)
- Offer can't be accepted after it had been rejected unless it's renewed
- Silence doesn't imply acceptance
- Acceptance must be made before the lapse or revocation of the offer
- Acceptance of offer means acceptance of all terms attached to the offer
- An agreement not enforceable by law is claimed to be void.
CONSIDERATION (AS PER SECTION 2 AND 25)
CONCEPT
When at the desire of the promisor, the promise 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.
DEFINITION OF CONSIDERATION:
Consistent with Pollock, “Consideration is the price for which the promise of other is brought & the promise thus given for value is enforceable.”
According to section 2(d) when at the desire of the promisor, the promisee or any other person:
- Has done or abstained from doing ,or [Past consideration]
- Does or abstains from doing, or [Present consideration]
- Promises to do or abstain from doing something [Future consideration] such act or abstinence or promise are called a consideration for the promise.
EXAMPLE: ‘P’ aggress to sell his car to ‘Q’ for Rs.50, 000 Here ‘Q’s Promise to pay Rs.50, 000 is that the consideration for P’s promise and ‘P’s promise to sell the car is that the consideration for ‘Q’s promise.
IMPORTANCE OF CONSIDERATION
Consideration explains why a party is entering a contract and what they get from being a part of the contract. A contract must include consideration for each party involved so as to be valid. Essentially, consideration is that the benefit a party gets for entering a contract. During a basic contract, if you pay money for an item at the store and receive the item, that's your consideration. So as to qualify as consideration, each party must change their position.
Consideration usually results from:
• A promise to do something you are not legally obligated to try and do
• A promise to not do something you're allowed to do
What Happens Without Consideration?
If a court believes the contract doesn't have adequate consideration, it can step in and rule the contract unenforceable. This will happen for variety of reasons, including:
A party was already obligated to perform. If one among the parties is already legally obligated to do something, it is not actually consideration.
The promise may be a gift, not a contract. If one party gives something to the other party without expecting anything reciprocally, it's considered a present, not a contract. Because the other party didn't provide anything in exchange for the gift, they need no legal standing if the promise falls apart.
The exchange is past consideration. Consideration doesn't apply if the action has already taken place. For instance, a promise to pay money for a product that somebody has already given you isn't legally binding.
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LEGAL RULES REGARDING CONSIDERATION U/S 2
It must move at the will of the promisor: It must be offered by the promisee at the will or request of the promisor. An act done at the will or request of the third party doesn't form a legitimate consideration.
It’s going to move from the promisee or the other person: Consideration may move from the promisee or the other person i.e. even a stranger. It may be an act, abstinence or forbearance or a return promise.
The following are good consideration for the contract:
- Forbearance To Sue
- Compromise Of A Disputed Claim
- Composition With Creditors
It’s going to be present, past or future. i. Past Consideration ii. Present Or Executed Consideration iii. Future or Executory Consideration
Consideration needn't to be adequate but it must have some value. It must be real & not illusory.
There’s no consideration within the following cases:
1. Physical impossibility 2. Legal impossibility 3.Uncertain consideration
It must be something which the promisor isn't already sure to do A promise to try to what one is sure to do , either by general law or under an existing contract, isn't an honest consideration. It must not be illegal, immoral or against public policy
Unlawful consideration includes any activities:
- Is forbidden by law.
- Is fraudulent.
- Is of such nature that, it'll defeat a provision of any law.
- Involves any injury to the person or property of another.
- The Court regards it as immoral or against public policy.
EXCEPTIONS OF THE RULE “NO CONSIDERATION NO CONTRACT” (AS PER U/S 25)
1. On account of natural love & affection u/s 25(1): Such agreements are enforceable even inconsiderately.
2. For voluntary services u/s 25(2): A promise to compensate wholly or partially, an individual who has voluntarily done something for the promisor, is enforceable, even inconsiderately.
3. For promise to pay time-barred debts 25(3): A promise by a debtor to pay a time barred debt is enforceable provided it's in writing and signed by the debtor or his agent.
4. Within the case of completed gifts: The rule no consideration no contract doesn't apply.
5. Within the case of agency: to make workplace relationship consideration isn't necessary.
UNLAWFL CONSIDERATION (AS PER SECTION 23)
According to Section 23, within the following cases consideration or object of an agreement is unlawful:
1. If it's forbidden by law:
Where the object of a contract is forbidden by law, the agreement shall be void. An act is claimed to be forbidden if it's punishable by criminal law or any special statute, or if it's prohibited by any law or order made in exercise of powers or authority conferred by the legislature.
Example:
(1) A and B agreed to deal in smuggled goods. It is forbidden by law and thus void.
(2) A committed B's murder within the presence of C. A promise to pay Rs. 500 to C, if C doesn't inform the police about the murder
The agreement in example No. 2 given above is against the law as its object is unlawful. Besides, A and C are going to be responsible for the act of murder and its concealment under the Indian penal code.
2. If it's of such a nature that if permitted, it might defeat the provisions of the other law:
The object of an agreement might not be directly forbidden but indirectly, it's going to defeat the thing of any other law, and the agreement would be void in such a case.
Example:
(1) A failed to pay his land revenue. Therefore, his estate was sold for arrears of revenue by the govt. By the law, the defaulter is prohibited from purchasing the land again. A asks B to get the estate and afterward, transfer an equivalent to him at an equivalent price. The agreement is void because it will defeat the thing of the law which prohibits a defaulter to get back the land, for indirectly A will again become the owner of the estate.
The second agreement is additionally void because it would defeat the provision or object of the law of limitation.
3. If it's fraudulent:
If the object of an agreement is fraudulent, i.e., to cheat people, it's void. Example:
A, B & C enter into an agreement to sell bogus plots of land in Delhi the agreement is void because it is fraudulent and thereby unlawful.
4. If it involves or implies injury to the person or property of another: Law protects property and person of its citizens. It cannot permit any contract which ends up in an injury to the person or property of any one.
Examples:
(1) A promise to pay Rs. 500 to B if B beats C. It involves injury to C; hence it's unlawful and void.
5. If the Court regards it as immoral or against public policy: If the thing of an agreement is immoral or against public policy, it'll be void. Morality here means something which the law regards as immoral.
Examples:
(1) A agrees to offer his house on rent to a prostitute for her immoral purpose. A cannot recover the rent of his house if he prostitute refuse to pay. However, he could also be allowed to urge his house vacated from the prostitute because it will put an end to the immoral purpose.
(2) A agrees to offer his daughter on hire to B for concubinage. The agreement is void because it's immoral, though the letting might not be punishable under the Indian penal code.
Effect of Illegality:
1. An illegal agreement is void:
It is not enforceable at law.
2. Collateral transactions to illegal transactions also are void:
Not only the illegal agreement is void but also the collateral transactions are void.
Example:
A borrows Rs. 2,000 from B to shop for a revolver to shoot C. Since the thing of the transaction is against the law, B cannot recover his Rs. 2,000 if he has given the loan, knowing that A is taking the loan to get a revolver to shoot C.
Thus, people are going to be discouraged to finance or assist illegal transaction once they know that they're going to not be able to recover their loans.
3. Law doesn't help any party:
Where the agreement is against the law, the law won't help any of the parties. The rationale is that both the parties are equally guilty and therefore the law doesn't help a guilty person. The law wants to discourage both the parties.
Example:
A promise to pay a bribe of Rs. 200 to B, if B does his work The agreement is against the law cannot recover the amount of Rs. 200 after doing A's work. Similarly, if A has paid the bribe in advance, he cannot get it back if B doesn't do his work.
4. Indirectly defendant is helped:
Defendant may be a person against whom the suit is filed. When the law doesn't help any of the parties, it means the party who has paid the amount won't be ready to get it back as we've seen within the above example. The party who has received the quantity is thus helped to stay the money with it and isn't asked by the Court to return it. The Court is neutral and therefore the defendant gets the advantage of the Court's neutrality. Within the example given above, B can keep Rs. 200, even if B doesn't do the work of A. The Court won't ask B to return the quantity. Thus, B is indirectly benefited or helped by the refusal of the Court to intervene.
5. In cases of fraud, coercion, etc., money or property transferred is often recovered:
Where the illegality is that the results of coercion and fraud of the other party, the Court can compel the guilty to return the cash paid or property transferred.
6. Agreement partly legal and partly illegal (Sec. 24):
An agreement may contain promises which are legal and illegal. If the legal promise is often separated from the illegal one, the legal promise is often enforced. In Such a case the illegal part are going to be void.
Where the legal promise can't be separated from the illegal one, the entire of it might be void.
Where there's one consideration for one or more unlawful objects, the agreement is void.
Example:
(1) A promise to manage B's factory, where genuine and bogus motor parts are manufactured. B agrees to pay A (Manager) a salary of Rs. 1,000 per month.
The agreement is void as partly it's legal and illegal and therefore the legal part can't be separated because the salary is for both the parts.
7. Reciprocal promises, legal and illegal (Sec. 57):
Where persons reciprocally promise, firstly to do certain things which are legal, and secondly under specified circumstances to do certain other things which are illegal, the first set of promise may be a contract, but the second may be a void agreement.
Example:
A and B agree that A shall sell a house to B for Rs. 10,000 but that if B uses it as a gambling house, he shall pay A Rs. 50,000 for it.
The first set of promise, i.e., to sell the house and to pay Rs. 10,000 may be a contract.
The second set of promise, i.e., B may use the house as a gambling house and pay Rs. 50,000 may be a void agreement.
8. Alternative promise, legal and illegal (Sec. 58):
In the case of an alternate promise, one branch of which is legal and therefore the other illegal, the legal branch alone are often enforced.
Contractual Capacity
DEFINATION
The parties who enter into a contract must have the capacity to do the contract.
“Capacity “here means competence of the parties to enter into a legitimate contract. According Sec 10, an agreement becomes a contract if it's entered into between the parties who are competent to contract.
According Sec .11, every person is competent to contract who
- Is of the age of majority according to the law to which he's subject
- Is of sound mind
- Is not qualified from contracting by any law to which he's subject.
Thus Sec. 11 declares following persons to be incompetent to contract:
1. Minors
2. Persons of unsound mind
3. Persons disqualified by any law to which they're subject.
1. MINORS
According to Sec 3 of the Indian Majority Act, 1875, a minor is a person who has not completed eighteen years of age.
In following cases he attains majority after 21 years aged
- Where a guardian of minor person or property has been appointed under guardians and wards act,1890
- Where the superintendence of minor’s property is assumed by a court of wards.
The position of minor as regards his agreements could also be summed up as under:
- An agreement with or by a minor is void
- He is often a promisee or beneficiary.
- His agreement can't be ratified by him on attain the age of majority.
- If he has received any benefit under a void agreement, he can't be asked to compensate or buy it.
2. PERSONS OF UNSOUND MIND
One of the essential conditions of competency of parties to a contract is that they ought to be of sound mind.
Sec 12 lays down the soundness of mind “A person is said to be of sound mind for the purpose of making the contract if, at the time when he makes it, he's capable of understanding it and of forming a rational judgment as to its effect upon his interests.
A person, who is usually of unsound mind but occasionally of sound mind, may make a contract when he's of sound mind. A person, who is typically of sound mind but occasionally of unsound mind, might not make a contract when he's of unsound mind
E.g.: an individual may be a lunatic, who is at intervals of sound mind, may contract during those intervals.
Soundness of minds depends on two facts:
- His capacity to know the contents of the business concerned,
- His ability to make a rational judgment on its effect on his interests.
- If an individual is incapable of both, he suffers from unsoundness of mind.
CONTRACTS OF PERSONS OF UNSOUND MIND
- Lunatics: A lunatic may be a one that is mentally deranged due to some strain or personal experience. He suffers from intermittent intervals of sanity and insanity. He can enter contracts during the amount when he's of sound mind.
- Idiots: An Idiot may be a one that has completely lost his mental powers. He doesn't exhibit understanding of even ordinary matters. Idiocy is permanent lunacy denotes periodical insanity with lucid intervals. An agreement of an idiot like that of minor is void.
- Drunken or intoxicated persons: A drunken or intoxicated person suffers from temporary incapacity to contract i.e. at the time when he's so drunk or intoxicated that he's incapable of forming a rational judgment. The position of a drunken or intoxicated person is analogous thereto of a lunatic.
3. PERSONS DISQUALIFIED BY ANY LAW TO WHICH THEY'RE SUBJECT
- Alien Enemies: An Alien (the subject of foreign state) is an individual who isn't subject of the Republic of India. He could also be Alien friend of Alien enemy.
- Foreign sovereigns, their diplomatic staff and accredited representatives of foreign states: they need some special privileges and usually can't be sued unless of their own undergo the jurisdiction of our law courts. But an Indian citizen has got to obtain a previous sanction of central govt. So as to sue them in our law courts.
- Corporations: an organization is a man-made person created by law, having a legal existence aside from its members. It may be available to existence by a legislative act of legislature or by registration under the companies’ Act, 1956.
- Insolvents: When a debtor is adjudged insolvent, his property vests within the official receiver or official assignee. As such insolvent is bereft of his power to deal therein property.
- Convicts: A convict when undergoing imprisonment is incapable of getting into contract.
Void contract [Section 2(g)]: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It’s going to subsequently become void. -- There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law.
MODES OF DISCHARGE OF CONTRACT
- Discharge by performance.
- Discharge of Contract by Substituted Agreement.
- Discharge by lapse of your time.
- Discharge by operation of law.
- Discharge by Impossibility of Performance.
- Discharge by Accord and Satisfaction.
- Discharge by breach.
We shall examine each of them as follows.
Discharge by performance
Where both the parties have either carried out or tendered (attempted) to carry out their obligations under the contract, is mentioned as discharge of the contract by performance. Because performance by one party constitutes the occurrence of a constructive condition, the other party’s duty to perform is additionally triggered, and thus the one that has performed has the proper to receive the other party’s performance. The overwhelming majority of contracts are discharged during this manner.
Discharge of Contract by Substituted Agreement
A contract emanates from an agreement between the parties. It thus follows that; the contract must even be discharged by agreement. Therefore, what's required, inevitably, is mutuality. Discharge by substituted agreement arises when a contract is abandoned, or the terms within it are altered, and both the parties are in conformity over it.
For example, A and B enter into some agreement, and A wants to change his mind and to not perform his terms of the contract. If he does this unilaterally then he are getting to be in breach of contract to B. However, if he approaches B and states that he would adore to be released from his liabilities under the contract then the latter might agree. Therein case the contract is claimed to be discharged by (bilateral) agreement. In effect B has promised to not sue A if he doesn't perform a neighborhood of the contract and thus the consideration for his promise could also be a‘s promise to not sue B. Discharge by agreement may arise within the subsequent ways.
- Novation: The term novation implies the substitution of a fresh contract for the first one. This arrangement could even be either with the same parties or with different parties. For a novation to be valid and effective, the consent of all the parties, including the new one(s), if any, is vital. Moreover, subsequent or second agreement must be one capable of enforcement in law, the consideration that is that the exchange of promises to not enforce the first contract.
- Rescission: This refers to cancellation of all or few the fabric terms of the contract. If the contracting parties mutually decide to do so, the respective contractual obligations of the parties stand terminated.
- Alteration: This refers to a change in one or more of the terms of a contract with the consent of all the contracting parties. Alteration results in a replacement contract but parties thereto remain the same. Here the assumption is that both the parties are to understand a fresh but different enjoy the new agreement. Remission this means the acceptance (by the promisee) of a lesser sum than what was contracted for, or a lesser fulfillment of the promise made. As per Section 63, ‘every promisee may (a) remit or dispense with it, wholly or partially, or (b) extend the time of performance, or (c) accept the opposite satisfaction instead of performance’.
- Waiver: The term waiver implies abandonment or relinquishment of a right. Where a party deliberately abandons its rights under the contract, the other party is released of its obligations, otherwise binding upon it.
Discharge by lapse of your time
A contract stands discharged if not enforced within a specified period called the ‘period of limitation‘. The Limitation Act, 1963 prescribes the duration of limitation for various contracts. As an example , period of limitation for exercising right to recover an immovable property is twelve years, and right to recover a debt is three years. Contractual rights become time barred after the expiry of this limitation period. Accordingly, if a debt isn't recovered within three years of its payment becoming due, the debt ceases to be payable and is discharged by lapse of your time.
Discharge by Impossibility of Performance
Sometimes after a contract has been established, something might occur, though not at the fault of either party, which can render the contract impossible to perform, or illegal, or radically different from that originally undertaken.
However, if whatever happens to prevent the contract from being performee has not been caused by either party couldn't are foreseen, and its effect is to destroy the thought of the contract then the courts will, generality, state that the contract has become impossible to perform. If that happens then the contract is discharged and neither party will have any liability there under. Section 56 of the Indian Contract Act clearly provides that an agreement to undertake to an act impossible in itself is void
The performance of a contractual obligation may become subsequently impossible on sort of grounds.
They include the next
• Objective impossibility of performance
• Commercial impracticability
• Frustration of purpose
• Temporary impossibility
Discharge of operation of law
A contract stands discharged by operation of law within the subsequent circumstances.
Unauthorized material alteration of a document
A party can treat a contract discharged (i.e., from his side) if the other party alters a term (such as quantity or price) of the contract without seeking the consent of the previous.
- Statutes of Limitations
A contract stands discharged if not enforced within a specified period called the ‘period of limitation’. The Limitation Act, 1963 prescribes the duration of limitation for various contracts. As an example , limitation period for exercising right to recover an immovable property is twelve years and right to recover a debt is three years. Contractual rights become time barred after the expiry of this limitation period. Accordingly, if a debt isn't recovered within three years of its payment becoming due, the debt ceases to be payable and is discharged by lapse of your time.
- Insolvency
A discharge in bankruptcy will ordinarily bar enforcement of most of a debtor’s contracts.
- Merger
A contract also stands discharged through a merger that happens when an inferior right accruing to party during a contract amalgamates into the superior right ensuing to an equivalent party. As an example,a hires a factory premises from B for a couple of manufacturing activity for a year, but 3 months before the expiry of lease purchases that very premises. Now since A has become the owner of the building, his rights associated with the lease (inferior rights) subsequently merge into the rights of ownership (superior rights). The previous rental contract ceases to exist.
Discharge by Accord and Satisfaction
To discharge a contract by accord and satisfaction; the parties must suits accept performance that's different from the performance originally promised. It’s getting to be studied under the next sub-heads.
Accord
An accord is an executor contract to perform an act which can satisfy an existing duty. An accord suspends, but doesn't discharge, the primary contract.
Satisfaction
Satisfaction is that the performance of the accord, which discharges the primary contractual obligation.
If the obligor refuses to perform the oblige can sue on the primary obligation or seek a decree for performance on the accord.
BREACH OF CONTRACT
A contract is breached or broken when any of the parties fails or refuses to perform its promise under the contract. Breach of contract is a legal cause of action in which a binding agreement is not honoured by one or more parties by non-performance of its promise by him renders impossible.
Section 37 of the Indian Contract Act,1872 provides that the parties to the contract are under obligation to perform or offer to perform, their respective promises under the contract, unless such performance is dispensed with or excused under the provisions of the Indian Contract Act or of any other law.
According to Section 39, where the party has refused to perform or disabled himself from performing, his promise in its entirely, the other party may put an end to the contract,, unless that other party has expressly or impliedly signified its consent for the continuance of contract. If the other party chooses to put an end to the contract, the contract is said to be broken and amounts to breach of contract by the party not performing or refusing to perform its promise under the contract. This is called repudiation. Thus, repudiation can occur when either party refuses to perform his part or makes it impossible for him to perform his part of contract in each of the cases in such a manner as to show an intention not to fulfil his part of the contract.
REMEDIES FOR BREACH OF CONTRACT (AS PER SECTION 73-75)
A legal remedy may be a writ that seeks to uphold a person’s rights or to redress a breach of the law.
When one party breaches a contract, the opposite party may ask a court to supply a remedy for the breach. The court may order the breaching party to pay money to the non-breaching party.
TYPES OF REMEDIES
- Suit for rescission
- Suit for damages
- Suit for quantum meruit
- Suit for performance
- Suit for an i injunction
- Suit for Rescission
SUIT FOR RESCISSION
The term Rescission refers to the cancellation of contract.
In such cases, if one party has broken his contractual relations, the opposite party may treat the breach as discharge and refuse to perform his part of performance.
Thus, just in case of rescission of contract, the aggrieved or casualty is discharged from all his obligations of the contract.
UNDER FOLLOWING CASES THE COURT MAY REFUSE TO GRANT RESCISSION:
• The parties can't be restored to their original positions thanks to changed circumstances.
• The party(s) has acquired rights in straightness and value during subsistence of contract.
• Only a neighborhood of the contract is rescinded and this part can’t be separated from remainder of the contract.
• But if an individual rightfully rescinded, he's entitled to compensation for any damage which he has sustained through non fulfillment of the contract by the opposite party.
EXAMPLE:
'A' contract to provide 10kg of tea leaves for Rs.8, 000 to 'B' on 15 June. If 'A' doesn't supply the tea leaves on the appointed day, 'B' needn't pay the worth. 'B' may treat the contract as rescinded and should sit quietly reception. 'B' can also file a ‘suit for rescission’ and claim damages. 12 A B Breach of contract when ‘A’ don’t supply to ‘B
SUIT FOR DAMAGES
Damages are a monetary compensation allowed to the casualty for the loss or injury suffered by him as results of the breach of contract. The elemental principle underlying damages isn't punishment but to compensate the aggrieved party for the loss suffered by him within the original position as he would fare.
Rules regarding damages
• The damages must naturally arise within the usual course of things from such breach i.e. the damages must be the proximate or direct consequence of the breach of contract.
• The aggrieved party must have suffered damages by breach of contract.
• Damages are awarded to compensate the loss caused by a celebration but to not punish the party at default for the breach of contract.
• Amount of damages is often decided at the time of agreement by the mutual consent of both the parties.
Types of damages
• Ordinary
• Special
• Exemplary
• Nominal damages
• Damages for inconvenience and discomfort
• Liquidated damages and penalty
• Stipulation for interest
• Forfeiture of margin there are 8 sorts of damages
EXAMPLE: Mr. A to pay 3 lacs to Mr. On 1st April. Mr. Doesn't pay the cash thereon day. Mr. B is unable to pay her debts and suffer a loss. Mr. A is susceptible to pay B principal amount and also interest thereon. 16 A B Breach of contract when ‘A’ don’t give money to ‘B’. Payable money
SUIT FOR QUANTUM MERUIT
It means “AS much as EARNED” or “in proportion to the work done.”
Right to ‘Quantum Meruit’ literally means a right to say the compensation for the work already done.
EXAMPLES Mr. Engages Mr. a contractor, to create a 3 storied house. After a neighborhood is made ‘A’ prevents ‘B’ from working any longer. ‘B’ the contractor, is entitled to urge reasonable compensation for work done under the doctrine of quantum merit additionally to the damages for breach of contract. 18 Breach of contract when ‘A’ told ‘B’ to prevent building construction. A B
SUIT FOR PERFORMANCE
Suit for performance means demanding the court’s direction to the defaulting party to hold out the promise consistent with the terms of contract Cases where suit for performance isn't maintainable
i. Where compensatory damages arising from breach aren't measurable
Ii. Where monetary compensation isn't an adequate remedy.
Example agreed to sell an old painting to Y for Rs50, 000. Subsequently, X refused to sell the painting. Here, Y may file a suit against X for the precise performance of the contract.
SUIT FOR INJECTION
It means demanding court’s stay order.
An order of the court which prohibits an individual to try to a specific act
A party to a contract does something which he presumed to not do, the court may issue an order prohibiting him from doing so.
EXAMPLES: A, a singer contracts with B the Manager of a theatre to sing at his theatre for one year and to abstain from Singing at other theatres during the theatre. She absents herself, B cannot compel A to sing at his theatre, but he may sue her for an injunction restraining her from Singing at other theatres.
G agreed to require the entire of his supply of electricity from a particular company. The agreement was held to import a negative promise that he would take none from elsewhere. He was, therefore, restrained by an injunction from buying electricity from the other company.
The word contingent means when an event or situation is contingent, i.e. it depends on some other event or fact. Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’ as follows:
‘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’.
In simple words, contingent contracts are the ones where the promisor performs his obligation only when certain conditions are met. The contracts of insurance, indemnity, and guarantee are some examples of contingent contracts.
Illustration:- A contracts to pay to B Rs. 70,000 if B’s house is burnt. This is a contingent contract.
Essentials of Contingent Contract are as follows:
- There must be a valid contract to do or abstain from doing something
- Performance of the contract must be conditional
- The said event must be collateral to such contract
- The event shouldn’t be at the discretion of the promisor.
(Sec 68-72)
Quasi Contract: Quasi contracts are based on principle of Equity hence a person should not receive or accept any benefit unjustly. If so, he has an obligation to give it back to the right owner. Such obligation is called “Quasi Contractual Obligations”.
In such situation a person is obliged to compensate another although the basis of this obligation is neither a contract between the parties, nor any tort on the part of the person who is bound to compensate.
Every Contract has two parts:
Formative: It gives procedures as to how contract is formed step by step e.g. Offer, acceptance, agreement etc.
Consequential: It gives rise to rights and liabilities of the parties.
For valid contracts both the parts should be present
i.e., Formative part + Consequential part = Absolute Contract
But when Formative part of the contract is absent but Consequential part is present, such situation gives rise to Quasi Contracts.
The basis of the obligation under quasi contracts is that no one should have unjust benefit at the cost of the other.
e.g. a) A leaves his hand bag at B’s house by mistake. B has quasi contractual obligation to return it to A.
b) A and B jointly owe Rs. 100 to C, A alone pays the amount to C and B not knowing this also pays Rs. 100 to C. C is bound to repay the amount to B or A.
c) A receive some money in his account by mistake of bank.
Kinds of Quasi Contracts
Claim for supply of necessaries to incompetent person (Section 68)
Payment by an interested person (Section 69)
Non-Gratuitous act (Section 70)
Responsibility of finder of lost goods (Section 71)
Payment of Mistake or under Coercion (Section 72)
Explanation
Claim for supply of necessaries to incompetent person (Section 68): “Necessaries” means goods or services which are most eventual for the survival of human life. It includes food, clothing, shelter, education, medical, legal aid etc. to a person who are minor or of unsound mind by another person.
The claim cannot be enforced against such incompetent person but reimbursement can be claimed only from the property of such a person.
What is luxury to one person may be necessity to another and vice versa.
e.g. A supplied suits to the defendant who is a school going boy. When the boy becomes major, plaintiff demanded the price of 10 suits, the defendant refused. The court held that minor is not liable to pay for 10 suits because it was excessive of necessaries suited to life.
The necessaries supplied, could be to such person or his dependents.
e.g. A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.
Payment by an interested person (Section 69): A person who is interested in the payment of money which another is bound by law to pay, and therefore pays, is entitled to be reimbursed by the other.
B hold a land belongs to A. A has to give revenue to govt. Which is due. The govt. Advertises for the sale of land to recover its revenue. As per law, if this is done B’s lease will be nullified. B, to prevent the sale and the consequent annulment of his own lease, pays to the govt. The sum due from A. B is entitled to claim reimbursement from A.
The following two conditions must be satisfied for the application of this section:
One person is interested in the payment of money, and therefore he pays it
Another person is bound by law to pay the same, but he fails to pay.
E.g. A is the owner of the house and B is the tenant. There is water connection provided by the corporation and it was agreed that water expenses should be paid by ‘A’. The corporation asked for the payment from A but A failed to pay. B made the payment to avoid further consequences. Here B is entitled to recover the money so paid from A
Non-Gratuitous act (Section 70): Non-Gratuitous act means –an act or service done with the expectation of something in return.
When a person does something for another person or delivers anything to him non -gratuitously, he is entitled to claim compensation for the same from such other person.
e.g. A tenant of a property makes improvements and additions in the property and the landlord accepts the same, the presumption is that the tenant did not intend to do so gratuitously and he can recover compensation for the same from the landlord.
P.C. Wadhwa v. State of Punjab
In this case the appellant got selected in the service of the Forest Department of the Punjab State. He was given practical training and education for about 10 months. He was supposed to sign a bond to serve the department for 5 years after such training and education or otherwise to refund the cost of the same incurred by the State of Punjab.
He was selected in I.P.S and he left the training in between. The Punjab govt. Brought an action to recover a sum of Rs. 3250, being the cost of training and education.
He refused to pay and contended that he did not take any benefit from the training. This plea was rejected and it was held the act of the Punjab govt. Was not a gratuitous act but it was non-gratuitous act and he voluntary enjoyed the benefits of training.
Responsibility of finder of lost goods (Section 71): A finder is a person who finds goods belonging to another and takes the goods into his custody.
The position of the finder of goods is similar to that of a bailee. Like bailee the finder is bound to take as much care of the goods as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods found by him. The finder is entitled to claim the reward, if any offered.
The finder of goods however has been authorized to sell the goods found by him, when:
The owner of the goods cannot be found after reasonable search or if he refuses to pay the lawful charges of the finder and
If the goods found is of perishable nature or goods are not perishable but the lawful charges of the finder, amounts to 2/3rd of its value.
Payment of Mistake or under Coercion (Section 72): When a person receives any money or goods by mistake or under coercion, he must repay or return it.
e.g. a) A received Rs. 100000 in his account by mistake from the employee of the bank, A is obliged to return it.
b) A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover.
Even if some govt. Authority has charged some amount by mistake or illegally, the said authority is obliged to refund it.
No refund if the plaintiff did not pay from his own pocket
A paid excise duty by mistake, but A had already recovered the whole of the paid duty from their customers. A is not entitled to refund. Refund in such a case would amount to unjust enrichment of the petitioners.
Money not recoverable if there is no unjust enrichment of the defendant
If the receiver of the money is no longer the same and has further paid it under a similar mistake, he cannot be asked to repay the same.
E.g. A told to B that he had given B address to receive a courier. B received the courier and gave it to A. It was later found out by the courier company that the delivery was to a wrong person. They sued B. Court held B is not required to pay as B has enjoyed no unjust enrichment.
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References
- Business Law for Management by Balchandani
- Business Law by Henry R. Cheeseman
- Business Law by B. B. Dam
