Description
This is a presentation explaining the law of contract.
Law of Contract
Introduction
• • • • Oldest branch of Law – business transactions Everyday transactions – we enter into various contracts Seat in bus / taxi / train Buying a newspaper / milk / t.v. / refrigerator
•
•
Opening the door of taxi and announcing the destination
Loan for any article/ thing like t.v. / refrigerator
Indian Contract Act, 1872
• The law of Contracts in India is contained and codified in the form of this Act. • Deals with basic principles of Law of Contract. • Scope A. General Principles of Contracts (Sections 1 to 75) B. Special Kinds of Contracts (Sections 124 to 238)
Meaning of Contract
• • • • • • • • An agreement which is enforceable by law. [Sec.2(h)] Agreement = Reciprocal Promises [Sec.2(e)] Exchange of Promises Obligation to do or not to do an act. Creates and defines obligations between parties. Proposal + Acceptance = Agreement Proposal + Acceptance = Contract (enforceability) Essential – Agreement & Legal Obligation
Legal Relations
O Contracts are entered into and legal relations are created. O They create mutual rights and obligations O Law of contract determines the circumstances under which a promise or an agreement shall be legally binding on the person making it. O It also provides for the Remedies available in the court of law against a person who fails to fulfill his contract. O Object and function of LAW OF CONTRACT is to see that as far as possible, expectations created by promises of the parties are fulfilled and obligations prescribed by the agreement of the parties are enforced.
Formation of a Contract
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?
? ? 1.
2.
For the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally involves the process of negotiation where the parties apply their minds make offer and acceptance and create a contract. When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. In order to convert a proposal into a promise, the acceptance must be Absolute and unqualified – Any departure from the terms of the offer or any qualification vitiates the acceptance unless it is agreed to by the person from whom the offer comes. An acceptance with a variation is no acceptance; it is simply a counter proposal. Expressed in some usual and reasonable manner. – If the proposer prescribes any particular manner of acceptance it has to be in that manner and where no manner is prescribed it should be in a usual and reasonable manner.
Proposal S.2(a)
• • • • • • An offer to do or not to do something Made for the purpose of being agreed to It must be intended to create and capable of creating Legal Relations. Promise to do or abstain from doing something as a legal duty. Parties must intend Legal Consequences. Communication of offer is a must
•
Invitation to offer is not offer itself – tenders / price tag
Acceptance [Sec 2(b), Ss. 7-8]
• • • • • • • Performance of the conditions of a Proposal. Acceptance of consideration for a reciprocal promise Must be absolute Must be unqualified Must be expressed in some usual and reasonable manner Mere mental acceptance – not accompanied by an overt act is not enough in law. Acceptance with conditions and reservations is no acceptance at all.
Consideration [Sec.2(d)]
• • • • Advantage /Incentive Right / interest/ profit / benefit – accruing on a party Forbearance/ detriment/ loss/ responsibility – given, suffered or undertaken by the other. When a person makes a promise to another, he does so with an intention of deriving some advantage which the person to whom the proposal is made is capable of conferring upon him.
Essentials of a Valid Contract [Sec.10]
All agreements are contracts if they are made, (a) (b) (c) By the free consent (Ss.13 – 22) Of parties competent to contract (Ss.11 – 12) For a lawful consideration and a lawful object (Ss. 23, 24, 57 & 58) (a) Are not expressly declared to be void (Ss.25 – 30)
Who can enter into a contract?
? a. b.
c. ? ?
? 1. 2. 3.
A person who is of the age of majority according to the law to which he is subject is of sound mind – A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests. is not disqualified from contracting by any law to which he is subject is competent to contract. Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity). The following persons are therefore incompetent to contract Minors Persons of unsound mind Persons disqualified by law to which they are subject
Free Consent
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All agreements are contracts if they are made BY THE FREE CONSENT OF PARTIES competent to contract – Consent is said to be free if it is not caused by Coercion – Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property. Undue influence – A contract is said to be induced by "undue influence" where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Fraud – Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract. (a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true (b) active concealment of a fact by a person who has knowledge or belief of the fact, (c) promise made without the intention of performing it. Misrepresentation – When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation. Mistake – Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact. Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract.
Lawful Consideration and Object
Consideration or object is unlawful if (1) It is forbidden by law, (2) Is of such a nature if permitted it would defeat the provisions of any law, (3) It is fraudulent, (4) The court regards it immoral, (5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.
Void Agreements
1. 2.
3.
4. 5.
6. 7.
Agreements void if considerations and objects unlawful in parts. Agreement without consideration is void, unless it is in writing and registered, or it is a promise to compensate for something done, or is a promise to pay a debt barred by limitation. Agreement in restraint of marriage. Every agreement in restraint of the marriage of any person, other than a minor is void. It is the policy of law to discourage agreements, which restrain freedom of marriage. Where a party is restrained from marrying at all, or for marrying for a fixed period or from marrying a particular person, or class of persons, the agreement is void. Agreement in restraint of trade. Every agreement, by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Agreement in restraint of legal proceedings. Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to that extent. Agreements for uncertainty. Agreements the meaning of which is not certain, or capable of being made certain, are void. Agreements by way of wager/ Bet. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on wager, or entrusted to any person to bide by the result of any game or other uncertain event on which any wager is made. (Wager means betting or gambling). However certain prizes for horseracing are exempted.
Voidability of Agreements without Free Consent
?
?
? 1.
2.
When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true. Exceptions If such consent was caused by misrepresentation or by fraud and the party had the means of discovering the truth with ordinary diligence, the contract is not voidable A fraud or misrepresentation which does not cause a person to consent to a contract does not render a contract voidable.
Specific Performance
? ?
?
?
? 1. 2. 3.
4. 5.
Specific performance means actual execution of the contract as agreed between the parties. Specific Performance of any contract may, in the discretion of the court be enforced in the following situations – When there exists no standard for ascertaining the actual damage caused by the nonperformance of the act agreed to be done; or When the act agreed to be done is such that compensation in money for its nonperformance would not afford adequate relief. Exceptions: where compensation would be adequate relief are: Agreement by a landlord for repair of the rented premises; Contract for the mortgage of immovable property; Contract for the sale of any goods, for instance machinery or buffaloes. However, a contract to deliver rare coins would be specifically enforceable, as compensation would not constitute adequate relief in such a case; An agreement to pay money by installments; An agreement for lending money.
Performance
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?
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A contract is an agreement enforceable by law. Parties are absolved of their obligations when the contract has been discharged. Performance of contract discharges contractual obligations. Section 37 The parties to a contract must perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or any other law.
A contract is discharged when...
? ? ? ? ? ?
Performance New Agreement Subsequent Impossibility Operations of Law Breach Lapse of time
Breach of Contract
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?
?
The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or any other law. Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Nonperformance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.
Remedies
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? ? ?
? ?
When a party to the contract makes a breach of contract, there are two possible alternatives available to the other party. Firstly to bring an action for the breach of contract, and secondly he may bring an action for specific performance of the contract. COMPENSATION IN CASE OF BREACH 1. Compensation for loss or damage caused by breach of contract. For the breach of contract damages is the most appropriate remedy. When a contact has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. 2. Compensation for breach of contact where penalty stipulated for. When a contract has been broken and a sum has been named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether actual damage or loss is proved to have been caused thereby, to receive from the party who as broken the contract reasonable compensation not exceeding the amount so named or, the penalty stipulated for. 3.Party rightfully rescinding contract entitled to compensation A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract.
Indemnity
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Indemnity is an original and direct engagement between two parties.
?
Person making the proposal is called the Promisor, and the person to whom it is made is called the Promisee.
Loss to Promisee is essential. On happening of loss the liability of the Indemnifier comes into existence. Person who promises to indemnify is known as "indemnifier" and the person in whose favour such a promise is made is known as "indemnified" or "indemnity holder".
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Guarantee
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?
? ?
? ?
It is a contract to perform the promise, or discharge the liability, of a third person in case of his (that is, the third person’s) default. It may be either oral or written. There are 3 parties in a contract of Guarantee – Surety, Principal Debtor and Creditor. Person who gives the guarantee is called the “surety”. Person in respect of whom the guarantee is given is called the “principal debtor”. Person to whom the guarantee is given is called “creditor” Anything done for the benefit of the principle debtor is a sufficient consideration to the surety for giving the guarantee.
Bailment
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It is the delivery of goods by one person to another for some purpose, upon a contract that they (i.e. the goods) shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. Person delivering the goods is called the “bailor”. Person to whom they are delivered is called the “bailee”. There is no contract between the finder of lost articles and its owner; nonetheless, the finder is treated in, law as a bailee of the lost articles.
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?
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Agency
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Agent is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented is called the “principle”. A person merely giving advice to another in matters of his business does not thereby become his agent. The test is-has he any power of representing the principal, i.e., making the principal answerable to a third person? If he has this power, then there is the relation of agent and principal. This relation may be constituted either by express words or by implication.
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doc_391294361.ppt
This is a presentation explaining the law of contract.
Law of Contract
Introduction
• • • • Oldest branch of Law – business transactions Everyday transactions – we enter into various contracts Seat in bus / taxi / train Buying a newspaper / milk / t.v. / refrigerator
•
•
Opening the door of taxi and announcing the destination
Loan for any article/ thing like t.v. / refrigerator
Indian Contract Act, 1872
• The law of Contracts in India is contained and codified in the form of this Act. • Deals with basic principles of Law of Contract. • Scope A. General Principles of Contracts (Sections 1 to 75) B. Special Kinds of Contracts (Sections 124 to 238)
Meaning of Contract
• • • • • • • • An agreement which is enforceable by law. [Sec.2(h)] Agreement = Reciprocal Promises [Sec.2(e)] Exchange of Promises Obligation to do or not to do an act. Creates and defines obligations between parties. Proposal + Acceptance = Agreement Proposal + Acceptance = Contract (enforceability) Essential – Agreement & Legal Obligation
Legal Relations
O Contracts are entered into and legal relations are created. O They create mutual rights and obligations O Law of contract determines the circumstances under which a promise or an agreement shall be legally binding on the person making it. O It also provides for the Remedies available in the court of law against a person who fails to fulfill his contract. O Object and function of LAW OF CONTRACT is to see that as far as possible, expectations created by promises of the parties are fulfilled and obligations prescribed by the agreement of the parties are enforced.
Formation of a Contract
?
?
? ? 1.
2.
For the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally involves the process of negotiation where the parties apply their minds make offer and acceptance and create a contract. When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. In order to convert a proposal into a promise, the acceptance must be Absolute and unqualified – Any departure from the terms of the offer or any qualification vitiates the acceptance unless it is agreed to by the person from whom the offer comes. An acceptance with a variation is no acceptance; it is simply a counter proposal. Expressed in some usual and reasonable manner. – If the proposer prescribes any particular manner of acceptance it has to be in that manner and where no manner is prescribed it should be in a usual and reasonable manner.
Proposal S.2(a)
• • • • • • An offer to do or not to do something Made for the purpose of being agreed to It must be intended to create and capable of creating Legal Relations. Promise to do or abstain from doing something as a legal duty. Parties must intend Legal Consequences. Communication of offer is a must
•
Invitation to offer is not offer itself – tenders / price tag
Acceptance [Sec 2(b), Ss. 7-8]
• • • • • • • Performance of the conditions of a Proposal. Acceptance of consideration for a reciprocal promise Must be absolute Must be unqualified Must be expressed in some usual and reasonable manner Mere mental acceptance – not accompanied by an overt act is not enough in law. Acceptance with conditions and reservations is no acceptance at all.
Consideration [Sec.2(d)]
• • • • Advantage /Incentive Right / interest/ profit / benefit – accruing on a party Forbearance/ detriment/ loss/ responsibility – given, suffered or undertaken by the other. When a person makes a promise to another, he does so with an intention of deriving some advantage which the person to whom the proposal is made is capable of conferring upon him.
Essentials of a Valid Contract [Sec.10]
All agreements are contracts if they are made, (a) (b) (c) By the free consent (Ss.13 – 22) Of parties competent to contract (Ss.11 – 12) For a lawful consideration and a lawful object (Ss. 23, 24, 57 & 58) (a) Are not expressly declared to be void (Ss.25 – 30)
Who can enter into a contract?
? a. b.
c. ? ?
? 1. 2. 3.
A person who is of the age of majority according to the law to which he is subject is of sound mind – A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests. is not disqualified from contracting by any law to which he is subject is competent to contract. Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity). The following persons are therefore incompetent to contract Minors Persons of unsound mind Persons disqualified by law to which they are subject
Free Consent
?
•
?
?
?
?
All agreements are contracts if they are made BY THE FREE CONSENT OF PARTIES competent to contract – Consent is said to be free if it is not caused by Coercion – Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property. Undue influence – A contract is said to be induced by "undue influence" where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Fraud – Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract. (a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true (b) active concealment of a fact by a person who has knowledge or belief of the fact, (c) promise made without the intention of performing it. Misrepresentation – When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation. Mistake – Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact. Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract.
Lawful Consideration and Object
Consideration or object is unlawful if (1) It is forbidden by law, (2) Is of such a nature if permitted it would defeat the provisions of any law, (3) It is fraudulent, (4) The court regards it immoral, (5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.
Void Agreements
1. 2.
3.
4. 5.
6. 7.
Agreements void if considerations and objects unlawful in parts. Agreement without consideration is void, unless it is in writing and registered, or it is a promise to compensate for something done, or is a promise to pay a debt barred by limitation. Agreement in restraint of marriage. Every agreement in restraint of the marriage of any person, other than a minor is void. It is the policy of law to discourage agreements, which restrain freedom of marriage. Where a party is restrained from marrying at all, or for marrying for a fixed period or from marrying a particular person, or class of persons, the agreement is void. Agreement in restraint of trade. Every agreement, by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Agreement in restraint of legal proceedings. Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to that extent. Agreements for uncertainty. Agreements the meaning of which is not certain, or capable of being made certain, are void. Agreements by way of wager/ Bet. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on wager, or entrusted to any person to bide by the result of any game or other uncertain event on which any wager is made. (Wager means betting or gambling). However certain prizes for horseracing are exempted.
Voidability of Agreements without Free Consent
?
?
? 1.
2.
When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true. Exceptions If such consent was caused by misrepresentation or by fraud and the party had the means of discovering the truth with ordinary diligence, the contract is not voidable A fraud or misrepresentation which does not cause a person to consent to a contract does not render a contract voidable.
Specific Performance
? ?
?
?
? 1. 2. 3.
4. 5.
Specific performance means actual execution of the contract as agreed between the parties. Specific Performance of any contract may, in the discretion of the court be enforced in the following situations – When there exists no standard for ascertaining the actual damage caused by the nonperformance of the act agreed to be done; or When the act agreed to be done is such that compensation in money for its nonperformance would not afford adequate relief. Exceptions: where compensation would be adequate relief are: Agreement by a landlord for repair of the rented premises; Contract for the mortgage of immovable property; Contract for the sale of any goods, for instance machinery or buffaloes. However, a contract to deliver rare coins would be specifically enforceable, as compensation would not constitute adequate relief in such a case; An agreement to pay money by installments; An agreement for lending money.
Performance
? ?
?
?
A contract is an agreement enforceable by law. Parties are absolved of their obligations when the contract has been discharged. Performance of contract discharges contractual obligations. Section 37 The parties to a contract must perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or any other law.
A contract is discharged when...
? ? ? ? ? ?
Performance New Agreement Subsequent Impossibility Operations of Law Breach Lapse of time
Breach of Contract
?
?
?
The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Act, or any other law. Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract. In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Nonperformance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.
Remedies
? ? ? ? ?
? ? ?
? ?
When a party to the contract makes a breach of contract, there are two possible alternatives available to the other party. Firstly to bring an action for the breach of contract, and secondly he may bring an action for specific performance of the contract. COMPENSATION IN CASE OF BREACH 1. Compensation for loss or damage caused by breach of contract. For the breach of contract damages is the most appropriate remedy. When a contact has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. 2. Compensation for breach of contact where penalty stipulated for. When a contract has been broken and a sum has been named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether actual damage or loss is proved to have been caused thereby, to receive from the party who as broken the contract reasonable compensation not exceeding the amount so named or, the penalty stipulated for. 3.Party rightfully rescinding contract entitled to compensation A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through non-fulfillment of the contract.
Indemnity
?
Indemnity is an original and direct engagement between two parties.
?
Person making the proposal is called the Promisor, and the person to whom it is made is called the Promisee.
Loss to Promisee is essential. On happening of loss the liability of the Indemnifier comes into existence. Person who promises to indemnify is known as "indemnifier" and the person in whose favour such a promise is made is known as "indemnified" or "indemnity holder".
?
?
Guarantee
?
?
? ?
? ?
It is a contract to perform the promise, or discharge the liability, of a third person in case of his (that is, the third person’s) default. It may be either oral or written. There are 3 parties in a contract of Guarantee – Surety, Principal Debtor and Creditor. Person who gives the guarantee is called the “surety”. Person in respect of whom the guarantee is given is called the “principal debtor”. Person to whom the guarantee is given is called “creditor” Anything done for the benefit of the principle debtor is a sufficient consideration to the surety for giving the guarantee.
Bailment
?
It is the delivery of goods by one person to another for some purpose, upon a contract that they (i.e. the goods) shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. Person delivering the goods is called the “bailor”. Person to whom they are delivered is called the “bailee”. There is no contract between the finder of lost articles and its owner; nonetheless, the finder is treated in, law as a bailee of the lost articles.
?
?
?
Agency
?
Agent is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented is called the “principle”. A person merely giving advice to another in matters of his business does not thereby become his agent. The test is-has he any power of representing the principal, i.e., making the principal answerable to a third person? If he has this power, then there is the relation of agent and principal. This relation may be constituted either by express words or by implication.
?
doc_391294361.ppt