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KLE LAW ACADEMY BELAGAVI
(Constituent Colleges: KLE Society’s Law College, Bengaluru, Gurusiddappa Kotambri Law College, Hubballi, S.A. Manvi Law College, Gadag, KLE Society’s B.V. Bellad Law College, Belagavi, KLE Law College, Chikodi, and KLE College of Law, Kalamboli, Navi Mumbai)
STUDY MATERIAL
for
CONTRACT I
Prepared as per the syllabus prescribed by Karnataka State Law University (KSLU), Hubballi
Compiled by
Dr. J.M. Mallikarjunaiah
Ankita Pandey, Asst. Prof.
Kavyashree Bhandary, Asst. Prof.
Reviewed by
Dr. J.M. Mallikarjunaiah
K.L.E. Society's Law College, Bengaluru
This study material is intended to be used as supplementary material to the online classes and recorded video lectures. It is prepared for the sole purpose of guiding the students in preparation for their examinations. Utmost care has been taken to ensure the accuracy of the content. However, it is stressed that this material is not meant to be used as a replacement for textbooks or commentaries on the subject. This is a compilation and the authors take no credit for the originality of the content. Acknowledgement, wherever due, has been provided.
SYNOPSIS
UNIT-III
2. DISCHARGE OF CONTRACT BY IMPOSSIBILITY OF PERFORMANCE/
- Introduction UNIT-I
- Definition and Essentials of CONTRACT
- Definition of AGREEMENT
- Proposal or Offer
- DEFINITION OF ‘ACCEPTANCE’.....................................................................................
- Acceptance should be communicated....................................................................................
- Mode of Communication
- S.4 Communication when complete. –
- Revocation of Offer and Acceptance.....................................................................................
- CONSIDERATION
- A. Introduction
- B. Definition of Consideration
- Privity of Contract
- A. English Law
- C. Exceptions to Privity of Contract B. Indian law – Privity of Contract.............................................................................................
- Consideration may be past, executed or executory
- Consideration need not be adequate
- No consideration no contract - Exceptions
- Unlawful Consideration and its effect
- E Contract 6. Conclusion
- Introduction
- MISTAKE
- LEGALITY OF OBJECT
- A. If it is forbidden by law
- B. If it defeats the provisions of any law
- C. If it is fraudulent.................................................................................................................
- D. If it involves or implies injury to the person or property of another..................................
- E. Immoral
- F. Opposed to Public Policy
- G. Heads of Public Policy
- VOID AGREEMENTS
- CONTINGENT CONTRACTS
- A. Essential features of a contingent contract.........................................................................
- B. Rules Regarding Enforcement of Contingent Contracts
- C. Difference between a Contingent Contract and a Wagering Agreement
- DISCHARGE OF CONTRACTS
- DISCHARGE OF CONTRACT BY PERFORMANCE.......................................................
- DISCHARGE BY ASSIGNMENT 3. APPROPRIATION OF PAYMENTS
- DISCHARGE BY AGREEMENT
- DISCHARGE BY BREACH.................................................................................................
- UNIT-IV
- REMEDIES FOR BREACH OF CONTRACT
- INTRODUCTION
- MEANING OF REMEDY
- Meaning of “Breach of Contract”
- REMEDIES AVAILABLE FOR THE BREACH OF CONTRACT
- REMEDIES AND DAMAGES UNDER THE INDIAN CONTRACT ACT,
- SUIT FOR QUANTUM MERUIT
- SUIT FOR SPECIFIC PERFORMANCE
- SUIT FOR INJUNCTION
- CONCLUSION
- QUASI CONTRACT
- A. Introduction
- B. What is Quasi Contract?
- Enjoyment of benefits by the defendant is necessary
- Conclusion
- SPECIFIC RELIEF ACT, UNIT-V
- Introduction
- Recovery of Possession of Property
- Specific Performance of Contracts
- RESCISSION (Section 27-30)
- RECTIFICATION OF INSTRUMENT (Section 26)
- CANCELLATION OF INSTRUMENTS (Section 31-33)
- Declaratory Decrees
- PREVENTIVE RELIEF
- References
UNIT I
Introduction The Law of Contract constitutes the most important branch of mercantile or commercial law. It affects everybody, more so, trade, commerce and industry. It may be said that the contract is the foundation of the civilized world. The law relating to contract is governed by the Indian Contract Act, 1872 .The preamble to the Act says that it is an Act "to define and amend certain parts of the law relating to contract". It extends to the whole of India except the State of Jammu and Kashmir. Definition and Essentials of CONTRACT A Contract is an agreement enforceable by law. An agreement is enforceable by law, if it is made by the free consent of the parties who are competent to contract and the agreement is made with a lawful object and is for a lawful consideration, and is not hereby expressly declared to be void. The agreement which is not enforceable by law is not called contract. Eg. An agreement to sell a radio set may be a contract, but an agreement to go to see a movie may be a mere agreement not enforceable by law. Agreement + Enforceability at law = Contract “All agreements are not contracts but all contracts are agreements” Definition of AGREEMENT According to S. 2 (e) “Every promise and every set of promises, forming the consideration for each other, is an agreement”. In an agreement there is a promise from both sides. Eg. A promises to deliver his watch to B and in return B Promises to pay a sum of Rs. 2,000 to A. There is said to be an agreement between A and B. A promise is the result of an offer by one person and its acceptance by the other. Section 2(b) of the Act, defines “promise” as “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”
S.10 What agreements are contracts?
All agreements are contracts if they are made
- Free consent of parties Two or more persons are said to consent when they agree upon the same thing in the same sense. Consent is free when it is not caused by mistake, misrepresentation, undue influence, fraud or coercion. When consent is caused by any of above said elements, the contract is voidable at the option of the party whose consent was so caused.
- Competent to contract Competent to contract means the legal ability of a person to enter into a valid contract. Every person is competent to contract who (a) is of the age of majority according to the law to which he is subject and (b) is of sound mind and (c) is not otherwise disqualified from contracting by any law to which he is subject.
- Lawful consideration and lawful object An agreement where the object or the consideration is unlawful is void. Object or consideration is unlawful if it is forbidden by law, it defeats the provisions of law; or is fraudulent, or involves injury to the person or property of another; or is immoral; or is opposed to public policy. Besides the above said agreements, certain agreements have been expressly declared to be void by the Contract Act such as – wagering agreements, agreement with uncertain meaning, agreements where consideration is unlawful in part etc.
- Are not hereby expressly declared to be void. The agreement entered into must not be which the law declares to be either illegal or void. An illegal agreement is an agreement expressly or impliedly prohibited by law. A void agreement is one without any legal effects.
Different types of agreements
Void Agreements An agreement not enforceable by law is said to be void. For eg. an agreement by a minor has been held to be void. Section 24 to 30 of the Indian Contract Act, 1872, makes specific mention of agreements which are void. Those agreements include an agreement
an unlawful agreement, the collateral transaction is held to be void. For eg, A gives money to B to enable him to pay his wagering debt. The wager is the main transaction which is void, but loan given by A is subsidiary to it, which is not void and A can recover his money from B. On the other hand, where A gives loan to B to smuggle goods. Smuggling is the main transaction and loan is subsidiary to it. But, loan transaction is also said to be tainted with the same illegality and A will not be able to recover his money. Proposal or Offer The term “proposal” has been defined in Section 2(a) of the act, as “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 a proposal”. For eg. A’s willingness to sell his radio set to B for Rs. 500 with intention to consent of B. But if a statement is made without any intention to obtain the assent of the other party thereto, that cannot be termed as proposal. Elements of proposal •Expression of willingness to do or abstain from doing something •Made with the object of obtaining assent of the other Thus the person making the proposal is called the ‘proposer’, or ‘offeror’ or ‘promisor’ and the person to whom the proposal is made is called as the ‘proposee’, or ‘offeree’, or ‘promisee’.
Offers must be communicated
Section 2(a) of the Act explains that a person is said to make a proposal “when he signifies to another person his willingness to do or to abstain from doing something”. The emphasis, here, is upon the requirement that the willingness to make a proposal should be “signified”. The terms signify means to or communicate to make known. It thus requires that the offer must be communicated to the other person. Express or Implied offer
Offer is either express or implied. When the offer is made by express communication then the offer is said to be an express offer. The express offer can be either in words or in written format. Whereas when the offer is not communicated expressly but communicated by conduct or by the circumstances of the case, the offer is called an implied offer. For eg. A says to B that he will sell his bike to B for Rs.30, 000, it is an express offer. For eg, a bid at an auction is an implied offer. Completion of Communication S. 4 The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. An offer cannot be accepted unless and until it has been brought to the knowledge of the person to whom it is made. For eg. A cannot be said to make an offer to B unless A brings the offer to the knowledge of B. Thus, acting in ignorance of an offer does not amount to acceptance of the offer. In Lalman Shukla v. Gauri Dutt, The plaintiff was in defendants service as a servant. The defendant’s nephew absconded and the plaintiff went to find the missing boy. In the plaintiff’s absence, the defendant issued handbills, offering a reward of Rs 501 to anyone who might find the boy. The plaintiff traced him and claimed the reward. The plaintiff did not know of the handbills when he found the boy. The court held that the plaintiff was not entitled to a reward. If the person has the knowledge of the offer, his acting in accordance with the terms thereof amounts to the acceptance of the same. In such a case, it is immaterial that at the time of accepting the offer, the acceptor does not intend to claim the reward mentioned in the offer. Intention to Contract In order that an offer, after acceptance, can result in valid contract, it is necessary that the offer should be made with an intention to create legal relationship. Promise in case of social engagements is generally without an intention to create legal relationships. Such an agreement, therefore, cannot be considered to be a contract. For eg. An agreement to go for movies, for a walk, to play some game, cannot be enforced in a court of law. The test to know the intention of the parties is objective and subjective, merely because the promisor contends that there was no intention to crate legal obligation would not exempt him from the liability. In Balfour v Balfour, Mr. Balflour who was employed on a government job in Ceylon, went to England with his wife
and acceptance of the general offer may not be communicated. By fulfilling the conditions of such offer the offeree is said to accept the offer.
Offer and Invitation to offer (treat)
A proposal or an offer has to be distinguished from an invitation to offer or treat. A person may not offer to sell his goods, but makes some statement or give some information with a view to inviting others to make offers on that basis. For eg. Displaying goods or dress or books in window of the shop. This is an invitation to offer. It is on the discretion of the shopkeeper if he wants to sell his article or not. An invitation to offer is not the final willingness but the interest of the party to invite the public to offer him. In Harris v. Nickerson, The defendant advertised a sale by auction. The plaintiff travelled to the advertised place of auction to find that the defendant had cancelled the auction sale. He brought an action against the defendant to recover the expenses of his travel. It was held that he was not entitled to the same as there was as yet no contract between the two parties, which could make the defendant liable. DEFINITION OF ‘ACCEPTANCE’ S. 2(b) When the person to whom the proposal is made signifies his assent thereto, the offer is said to be accepted. Thus the proposal when accepted becomes a promise.” An offer can be revoked before it is accepted. As specified in the definition, if the offer is accepted unconditionally by the offeree to whom the request is made, it will amount to acceptance.
Acceptance may be express or implied
where acceptance is made with words spoken or written, it is an express acceptance, and if acceptance is made otherwise than in words, it is implied. What is necessary is that there should be some external manifestation of acceptance.
Who Can Accept?
Offers can either be made out to people in General or to a Specific counter-party If it is a General Offer it can be accepted by anybody. Who performs according to general offers is said to be accepted the offer and contract is created. If it is a Specific Offer it can ONLY be accepted by that Specific Counter-party to whom the offer is made.
Effect of Acceptance
A contract is created only after an offer is accepted. Before the acceptance is made neither party is bound thereby. At that stage offerror is free to revoke or withdraw his offer, and the offeree is free not to accept the offer or to reject the same. After the offer has been accepted it become a promise which, if other conditions of a valid contract are satisfied, bind both the parties to promise. After acceptance, each party becomes legally bound by the promise made by him through the medium of offer and acceptance of it.
Essential of valid acceptance
- Acceptance should be communicated by the offeree to the offeror.
- Acceptance should be absolute and unqualified.
- Acceptance should be made in some usual and reasonable manner, unless the proposal prescribes the manner of acceptance.
- Acceptance should be made while the offer is still subsisting. Acceptance should be communicated The offeree must communicate the acceptance. The communication may be express or implied. Sometimes the conduct of a person might indicate his assent. For eg. when a passenger boards a bus and travels thereby, he impliedly assents to pay the necessary fare. In order to create a contract, acceptance of the offer and intimation of acceptance by some external manifestation, which the law regards as sufficient is necessary. For a valid contract the acceptance must be communicated and moreover, such communication should be made to the offeror. In Felthouse v. Bindley, Felthouse wrote a letter to his nephew offering to buy his horse for Rs. 10,000. In the letter containing the offer it was also mentioned “If I hear no more about the horse, I consider the horse mine at Rs. 10,000.” The nephew did not reply this letter. He, however, told his auctioneer, Bindely, that he wanted to reserve this horse for his uncle and, therefore, desired that the horse be not sold by the auctioneer. The auctioneer disposed of the horse by mistake. Felthouse sued Bindely for the tort of conversion on the plea that Felthouse had become the owner of the horse which Bindely had disposed of. HELD: It was clear that the nephew intended to sell the horse to his uncle but it was not communicated to his uncle, hence it was not a valid acceptance. Principles:
- As against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;
- As against the acceptor, when it comes to the, knowledge, of the proposer. Eg. When B accepts A’s proposal sent by post, acceptance is complete-
- As against A, when the letter is posted
- As against B, when the letter is received by A ( there is presumption that letter reaches)
Absolute and Unqualified Acceptance
Acceptance must be unconditional and absolute. There cannot be conditional acceptance that would amount to a counteroffer which nullifies the original offer. For eg. A offers to sell his cycle to B for 2000/-. B says he accepts if A will sell it for 1500/-. This does not amount to the offer being accepted, it will count as a counteroffer. Also, it must be expressed in a prescribed manner. If no such prescribed manner is described then it must be expressed in the normal and reasonable manner, i.e. as it would be in the normal course of business. Implied acceptance can also be given through some conduct, act, etc. However, the law does not allow silence to be a form of acceptance. So the offeror cannot say if no answer is received the offer will be deemed as accepted. In Hyde v. Wrench, There was an offer made by A and B for the sale of a Farm for 1000 pounds. B rejected this offer and said that he will pay only 950 pounds to which A did not agree. Thereupon B said that he was willing to pay 1,000 pounds to which also A did not agree. B sued A and contended that there was a contract by which by which A was bound. It was held that B had once rejected A’s offer by his counter offer to pay 950 pounds and this made the original offer to lapse, and therefore, no contract had resulted in this case.
Acceptance should be expressed in usual/ prescribed manner
According to S.7 (2), the acceptance must be “expressed in some usual or reasonable manner, unless the proposal prescribed the manner in which it is to be accepted.” It means that if the manner of acceptance has been prescribed by the proposal, the acceptance has to be made in that prescribed manner; otherwise the same may be made in some usual or reasonable manner. Usual or Reasonable manner
Usual or Reasonable manner of acceptance means the manner which is usually adopted in a particular kind of transaction according to the usage or custom of trade. Acceptance by post, telegram, telephone, or through personal messenger may be considered to be usual manner of acceptance. Prescribed manner If the proposal prescribes any particular manner of acceptance, the acceptance must be made in that manner. The manner of acceptance may include the requirement of fulfillment of certain conditions, such as the payment of an advance. If such conditions are not fulfilled, there does not arise a valid contract. Acceptance should be made while the offer is still subsisting Already it has been noted that the offeror is free to withdraw the offer, or the offer is revoked under various circumstances mentioned in S.6. After the offer has been withdrawn or has lapsed, there is nothing which can be accepted. It is, therefore, necessary that the acceptance should be made while the offer is still alive and subsisting. Acceptance after the lapse of the offer cannot give rise to a contract. Similarly, the offer is deemed to have ended by rejection of the original offer or a counter offer. Revocation of Offer and Acceptance
Revocation of Offer
It is only after the acceptance of an offer that there arises a contract and then both the parties become bound by their respective promises. Before the offer has been accepted, it can be revoked. After the offer has been accepted it ripens into a contract and then it cannot be revoked. Modes of revocation of offer S.6 mentions various modes of revocation of offer
- Notice of Revocation
- Lapse of time,
held that no contract had arisen merely because A’s tender was accepted. Therefore, if A failed to take the goods and pay for them, he could not be made liable for the breach of contract. By death or insanity of the offeror An offer is revoked by the death or insanity of the offeror, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. In India, the death or insanity of the offeror does not automatically make the offer to lapse. The offer stands revoked if the fact of death or insanity comes to the knowledge of the acceptor before acceptance. It means if the fact of death or insanity has not come to the knowledge of the offeree while he accepts the offer, it is valid acceptance giving rise to a contractual obligation. Under English Law, death of the offeror revokes an offer even if acceptance is made in ignorance of the death.
Revocation of Acceptance
S.5 “An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards”. It has already been noted above that when the contract is created through post, according to S.4, by the posting of the letter of acceptance:
- the proposer becomes bound when the letter of acceptance is posted to him,
- but the acceptor becomes bound when the letter of acceptance reaches the proposer. Since the acceptor does not become bound immediately on posting his letter of acceptance, he is free to revoke the acceptance by adopting speedier mode of communication, whereby his communication of revocation of acceptance may reach earlier than his letter of acceptance. Consideration
Introduction
Section 25 an agreement made without consideration is void subject to certain exceptions. Consideration means something in return for the promise. It may be either some benefit conferred on one party or some detriment suffered by the other. It is the price of the promise for each party
Definition of Consideration
Section 2(d) of Indian Contract Act, 1872 defines consideration as “when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise”. The definition requires the following essentials to be satisfied in order there is valid consideration-
- Consideration to be given ‘at the desire of the promisor’.
- Consideration to be given ‘by the promisee or any other person’.
- Consideration may be past, present, future, in so far as the definition says that the promise: (i) Has done or abstained from doing, or (ii) Does or abstains from doing, or (iii) Promises to do or to abstain from doing, something.
- There should be some act, abstinence or promise by the promise, which constitutes consideration for the promise. ➢ Blackstone – “consideration is the recompense given by the party contracting to the other” ➢ Cheshire and Fifoot – “a price for the promise” ➢ Sir Frederick Pollock - “consideration is the price for which the promise of the other is bought and the promise is thus given for value is enforceable”. ➢ Patterson – “consideration means something which is of some value in the eye of law. It may be some benefit to the plaintiff and some detriment to the defendant.” Consideration at the desire of the promisor Consideration must have been given at the desire of the promisor, rather than voluntarily or at the instance of some third party. Example: A saves B’s goods from a fire without being asked to do so. A cannot demand payment for his service. In Durga Prasad vs. Baldeo, Plaintiff constructed few shops in a market at the instance of the collector of that place. Defendant occupied one of the shops in the market. Money for the construction of the market was spent by the plaintiff, the defendants, in consideration thereof, made a promise to pay to the plaintiff
