02_ContractLaw_1
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1 CONTRACT LAW - 1 A contract may be defined as an agreement made between two or more parties that is enforceable at law. It is a legal concept. It comes into existence, in a legal sense, when the parties have established all of the elements that make the contract enforceable. ➔ Pollock – “Every agreement & promise enforceable at law is a contract” ➔ Salmond – “A contract is an agreement creating & defining obligation between two parties” An offer must go through multiple stages before it becomes a valid contract as shown below. ➔ Offer = Statement + Intention to create a legal relationship. ➔ Promise = Offer + Acceptance ➔ Agreement = Promise + Consideration ➔ Contract = Agreement + Enforceable by Law Essential elements of a valid contract are 1. An intention to create a legal relationship. 2. Offer 3. Acceptance 4. Consideration 5. Legality 6. Capacity to contract In addition to these basic six elements, certain contracts must be in writing, in an electronic substitute or take on a special form to make it enforceable. Contracts must also be free from any vitiating elements such as mistake, misrepresentation or undue influence to make it valid & binding. Intention to create a legal relationship An agreement becomes a contract only when the parties have an intention to create a legal relationship. A legal relationship is one, which consists of rights and obligations which can be claimed by parties in the court of law. For example, agreements on social or domestic nature are not valid contracts. (Balfour Vs Balfour)
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Special Contracts
Transcript of 02_ContractLaw_1
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CONTRACT LAW - 1 Acontractmaybedefinedasanagreementmadebetweentwoormorepartiesthatisenforceableatlaw.Itisalegalconcept.Itcomesintoexistence,inalegalsense,whenthepartieshaveestablishedalloftheelementsthatmakethecontractenforceable. PollockEveryagreement&promiseenforceableatlawisacontract SalmondAcontractisanagreementcreating&definingobligationbetweentwoparties
Anoffermustgothroughmultiplestagesbeforeitbecomesavalidcontractasshownbelow.
Offer=Statement+Intentiontocreatealegalrelationship. Promise=Offer+Acceptance Agreement=Promise+Consideration Contract=Agreement+EnforceablebyLaw
Essentialelementsofavalidcontractare
1. Anintentiontocreatealegalrelationship.2. Offer3. Acceptance4. Consideration5. Legality6. Capacitytocontract
Inadditiontothesebasicsixelements,certaincontractsmustbeinwriting,inanelectronicsubstituteortakeonaspecialformtomakeitenforceable.Contractsmustalsobefreefromanyvitiatingelementssuchasmistake,misrepresentationorundueinfluencetomakeitvalid&binding.
Intention to create a legal relationship
Anagreementbecomesacontractonlywhenthepartieshaveanintentiontocreatealegalrelationship.Alegalrelationshipisone,whichconsistsofrightsandobligationswhichcanbeclaimedbypartiesinthecourtoflaw.Forexample,agreementsonsocialordomesticnaturearenotvalidcontracts.(BalfourVsBalfour)
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Offer or Promise Astatementmadebyapartywithanintentiontocreatealegalrelationshipiscalledanoffer.Itisatentativepromisesubjecttoacondition.Avalidcontractrequiresanofferandsubsequentacceptanceresultinginanagreementbetweentwoparties.Thatmeans,offeristhefoundationforanyvalidcontract. Expressspokenorwritten Impliedbyconductorcircumstance. Specificoffermadetoaparticularpersonorgroupofperson. Generaloffermadetopublicingeneral Crossoffermadetoeachotherwithsameterms&conditions. Counter Standingofferallowedtoremainopenforacceptanceoveraperiodoftime.
Anofferiseffectiveif Offererhasanintentiontobeboundbyoffer. Termsofofferarereasonablydefinite. Offeriscommunicatedtotheofferee.
TheOfferermustcommunicatetheoffertotheoffereebeforeanacceptancetakesplace.Anoffercanbecommunicatedeitherpersonallyorbyletter,fax,emailorothermeansofcommunication.However,theofferisnotvaliduntilitisreceivedbytheofferee.AGoodSamaritan,whoreturnsalostgoldcantclaimareward,ifhedidntknowabouttherewardbeforehand.Anoffergetterminatedunderdifferentconditions.OperationsByLaw ActionofParties
Whenthetimeiselapsed(Lapse) Revokedbytheofferorbeforeoffereeaccepts.
Afterareasonabletime,iftimenotmentionedintheoffer.
Offereemakesnewoffer(counteroffer)
Deathofeitherparty. Offereerejectstheoffer.
Insolvencyofeitherparty.
Destructionofsubjectmatter. RevocationMeansterminationofanofferbynoticecommunicatedtotheoffereebeforeacceptance.Anirrevocableoffercantbeterminatedbytheofferor.Irrevocableoffersarisethrough OptionscontractsAseparatepromisetokeepanofferopenforaperiodoftime,eitherin
returnforsomecompensationorbecausethepromiseismadeinaformaldocumentunderseal.(TokenMoney).
DetrimentalrelianceOffereealreadybookedaplaneticketorappliedforaloan&offerorisawareofthesame.
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Acceptance Acceptanceisaresponsebythepersonreceivingtheofferthatindicatesthewillingnesstoenterintotheagreementproposedintheoffer. Acceptancemustbeabsolute&unqualified. Acceptancemustbecommunicated.Meresilenceisnotacceptanceoftheoffer. Acceptancemustbegivenonlybythepersontowhomtheofferismade. Acceptancemustbeintheprescribedmodeormanner. Acceptancemustbewithinareasonabletime.
Acceptancecanbeoral,writtenorimplied(byacts,forexamplesendingthegoodstoofferorforapurchaseorder).Offerorcanspecifythemeans,manner&timeofacceptance.Iftheacceptanceisspecifiedtobeoralmeans,theacceptancewouldbecompletewhenitiscommunicatedbytheoffereeeitherbytelephoneorwhentheoffereemeetswiththeofferorandspeaksthewordsofacceptancedirectlytotheofferor.Iftheacceptanceisspecifiedtobepost,theacceptanceoftheoffertakeplacewhentheletterofacceptance,properlyaddressedandthepostagepaid,isplacedinthepostboxorpostoffice.Anelectronicdocumentisdeemedtobesentwhenitenterstheinformationsystemoutsidethesenderscontrol.Theplacewhereanofferismadeandtheplacewhereacceptanceoccurshasalwaysbeenasignificantdeterminantofthelocationofthecontractandthejurisdictionthatgovernsit.
Consideration Considerationissomethingthathasvalueintheeyesofthelaw(ThomasvsThomas,JusticePatterson)andwhichapromisorreceivesinreturnforapromise.IfAagreestosellhishousetoBfor50,000/,theconsiderationforAis50,000/andforBspromise,theconsiderationisthehouse.
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Considerationcantakemanyformslike Paymentofmoney. Performanceofaparticularservice. Apromisenottodosomething. Relinquishmentofaright. Deliveryofproperty.
Unlessapromisorgetssomethinginreturnforhisorherpromise,thepromiseismerelygratuitousorvoluntarypromise.Apromisewithoutconsiderationcanbeconsideredonlyasagift.Essentialsofconsiderationare
1. Considerationmaybepast,presentorfuture.2. Considerationmustbereal.3. Considerationmustbelawful.4. Considerationneednotbeadequate.ContractActdoesnotprovideforanyquantum,just
stipulatesthatacontractshouldbesupportedbyconsideration.5. Considerationmustbesomethingwhichthepromisorisnotboundtodo.Apromisetoperform
apublicdutybyapublicservantisnotaconsideration.Agivenconsiderationorobjectisunlawful,ifit Forbiddenbylaw. Opposedtoanypublicpolicy. Fraudulent Involvesorimpliesinjurytoapersonorpropertyofanother. Immoral
Exceptions Anagreementinwritingandregisteredunderthelaw,whichismadeonaccountofnaturallove
andaffectionbetweenpartieswhoareinarealrelationtoeachotherisvalidwithoutanyconsideration.
Promisetocompensateapersonwhohasalreadydonesomethingvoluntaryisenforceableevenwithoutconsideration.
Promisebyadebtortopayatimebarreddebtisenforceableprovided,itismadeinwritingandissignedbythedebtororhisagent.Atimebarreddebtmeansadebtwhichremainsunpaidforaperiodofthreeyears.
Noconsiderationisrequiredtocreateanagencyasthedutyofagentisonlytobringthepartiesofcontracttogether,
Capacity to Contract Partiesinvolvedinacontractmusthavelegalabilitytomakeacontract. Oftheageofmajority. Ofsoundmind.
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Notdisqualifiedfromcontractingbyanylawshouldntbeinsolvents,convictsoralienenemy.
Legality Acontractmaybeoralorwriting.Whereaparticulartypeofcontractisrequiredbylawtobeinwriting®istered,itmustcomplywithnecessaryformalitiesofwriting,registration&attestation.Ifthelegalformalitiesarenotcarriedout,thenthecontractisnotenforceablebylaw.
Free Consent Freeconsentisanessentialrequirementofavalidcontract.Consentmeansagreementbetweenthepartiesuponthesamethinginthesamesense.Aconsentissaidtobefreewhenitisnotcausedby Coercion(physicalcoercion) Undueinfluence(mentalormoralcoercion) Fraud Misrepresentation Mistake
Intheabsenceoffreeconsent,thecontractmaybevoidorvoidabledependinguponthenatureofflawintheconsent.Bilateralmistakemakethecontractvoidabinitio, Meresilencedoesntamounttofraudormisrepresentationunlessthereisanintentionto
deceive.MistakesMistakeisanerroneousbeliefconcerningsomethingandisoftwokinds.
MistakeofLawIgnoranceoflawisnoexcuse. BilateralmistakeSincethereisabsenceofconsent,thereisnocontractatall.Thecontractis
voidabinitio. UnilateralmistakeAcontractremainsvalidunlessthemistakeiscausedbymisrepresentation
orfraudandisvoidableattheoptionofaggrievedparty.
Lawful Object Theobjectmustbelawfulinordertomakeacontractvalid.
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Types of Contract Therearenumeroustypesofcontracts.Theyarecategorizedbasedonlegaldistinctionsastotheirformation,performance&enforceability.
ValidContractAcontractthatsatisfiesallthelegalrequirementsisknownasavalidcontract.Avalidcontractisenforceablebeforelaw.Ifoneormoreoftheessentialelementsarenotpresent,thenthecontractmaybevoid,voidableorunenforceable. VoidItisnotacontractandsohasnolegaleffect. VoidableItisacontractthatisbindingononepartybuttheotherpartyhastheoptiontohave
itsetaside.Untilthecontractissetaside,itistreatedasavalidcontract.Forexample,contractsmadebyminorsarevoidableattheoptionofminor.Coercion,undueinfluence,fraud,misrepresentationetccanmakeacontractvoidable.
Aliownsacomputersystem.TimpurchasesAliscomputersystemwithaforgedchequefor6,000(contract1).LaterthatdayTimsellsthecomputertoBrendafor5,000(contract2).TimdisappearswithBrendas5,000.AlitriestorecoverhiscomputersystemfromBrenda. Ownershipdoesnotpassinvoidcontracts. Ownershipmaypassinvoidablecontract.
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UnenforceableContractWhereacontractisgoodinsubstance,butbecauseofsometechnicaldefect,oneorbothpartiescantsueupon.Anagreementwhichisrequiredtobestampedwillbeunenforceableifthesameisnotstampedatallorisunderstamped.IllegalContractAcontractwhereconsiderationorobjectisunlawful.Allillegalcontractsarevoid,butallvoidcontractsarenotnecessaryillegal.IfAagreestogetanappointmentforBinthegovtserviceifhepaysasumof1lakh,itisanillegalagreement.ExpressInanexpresscontract,thetermsoftheagreementarefullyandexplicitlystateinwords,oralorwritten.Asignedleaseforanapartmentorhouseisanexpresswrittencontract.ImpliedAcontractthatisimpliedfromtheconductofthepartiesorcircumstancesiscalledanimpliedcontract.Ifapersonentersintoapublictransportandoccupiesaseat,thenitisimpliedthatthepersonhasenteredintocontractandisboundtopaythefareofthejourney.QuasiContractswhicharecreatedbythelaw.Thistypeofcontractisneitherwrittennorspokenorbytheconductoftheparties.IfMr.AleaveshisgoodsatMr.Bsshopbymistake,thenitisforMr.Btoreturnthegoodsortocompensatetheprice.ExecutedAcontractthathasbeencompletelyperformedbybothparties.AcontractstobuyacarfromBbypayingcash,Binstantlydelivershiscar.(Cashsale)ExecutoryAcontractthathasnotasyetbeenfullycompleted.DagreestobuyVscyclebypromisingtopaycashon15thJuly.Vagreestodeliverthecycleon20thJuly.BilateralBothpartytakesonsomesortofobligationusuallypromisingtodosomethinginreturnforapromisetodosomethingfromtheotherparty.AshwinapromisestosellhercartoBejalfor2,000&BejalpromisestogiveAshwina2,000inabilateralcontract.
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UnilateralOnepartypromisestodosomethingusuallyinreturnforcompletionofaspecifiedactbutoccasionallyforrefrainingtoact.Theotherpartydoesnothavetopromisetocarryouttheact.Carlofferstopayarewardof500ifhislostpetpythonisreturnedtohimisaunilateraloffer.Ifanyonereturnsthepython,thenCarlisobligedtopaythereward(aunilateralcontractisformed).However,nooneneedundertaketolookforthepythonandreturnit.Formalcontractsarecontractsthatrequireaspecialformormethodforcreationtobeenforceable.ExamplesareNegotiableInstruments,Lettersofcreditetc.Informalcontractsarecontractsthatdoesntrequireaspecifiedformorformalitytobevalid.EContractContractenteredviatheinternet.
Discharge of Contracts Dischargeofacontractmeansterminationofcontractualrelationbetweentheparties.Thatmeans,acontractisdischargedwhentherightsandobligationscreatedbyitarecometoanend.
1. Byperformanceactualorattempted.2. ByoperationsoflawDeath,Merger,Insolvency,Unauthorizedalteration.3. Bybreachofcontractactual,anticipatory4. BymutualagreementNovation,Alteration,Rescission,Remission5. Bylapseoftime.6. Byimpossibilityofperformance
DischargeofContractbyPerformance ActualPerformanceBoththepartiesperformed. AttemptedPerformanceWhenthepromisorisready&willingtoperformhispromise,butthe
promiseerefusestoaccepttheperformance,itisknownasattemptedperformance.Thisislegallytreatedasequivalenttoactualperformanceexceptincaseofpaymentofmoney.
DischargeofContractbyOperationofLaw DeathApromisestoperformadanceinBstheatre.Adies.Thecontractcomestoanend. InsolvencyAcontractstosell100bagsofsugartoB.Duetoheavylossbyamajorfirewhich
leavesnothingtosell,Aappliesforinsolvencyandisadjudgedinsolvent.Contractisdischarged.
UnauthorizedalterationAagreesuponaPromissoryNotetopayRs.5,000toB.BtheamountasRs.50,000.AisliabletopayonlyRs.5,000.
MergerAtookalandonleasefromB.Subsequently,Apurchasesthatland.Abecomesownerofthelandandownershiprightsbeingsuperiortorightsofalessee,theearliercontractofleasestandsterminated.
DischargebyBreachofContractBreachofcontractmeansrefusalofperformanceonthepartoftheparties.Thatmeans,failureofapartytoperformhisorherobligationunderacontract. ActualbreachActualbreachofcontractoccurswhenthepartydoesnotperformhispromise
ontheduedate..
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AnticipatorybreachWhenthepartydeclareshisintentionofnotperformingthecontractbeforetheperformanceisdue.
DischargeofContractbyMutualAgreement NovationSubstitutionofanewcontractintheplaceoftheoriginalcontract. AlterationChangeinoneormoreofthetermsofacontractwithmutualconsentofparties. RescissionCancelallorsomeofthetermsofthecontract. RemissionAcceptingalesserconsiderationthanagreedinthecontract.(partperformance)
DischargeofContractbyLapseofTimeAsperIndianLimitationAct,theperiodoflimitationsforcontractsis3years.Afterthestipulatedexpiryofthisperiod,thecourtwillnotallowenforcementofthecontractanditwillbedischarged.DischargebySupervisingImpossibility Destructionofsubjectmatter. Nonexistenceornonoccurrencesofaparticularstateofthings. Changeoflaworsteppinginofapersonwithastatutoryauthority. Deathorpersonalincapacityoftheparty. Declarationofwarcontractwithalienenemy.
Breach of Contract & RemediesRemedymeanscourseofactionavailabletoanaggrievedpartywhenotherpartybreachesthecontract.SuitfordamageMeansmonetarycompensation. OrdinarydamagesDirectloss. SpecialdamageIndirectloss.Underspecialcircumstances,providedotherpartyisawareof
suchcircumstances.Parceldeliveredaftertheexhibition. Damageforinconveniencephysicalinconvenienceormentalagony.Marriagephotographs.
SuitforspecificperformanceWhenmonetarycompensationisnotadequateoractualdamageisnotmeasurable.AagreetosellB,anartistpaintingforRs.30,000.Lateron,herefusedtosellit.HereBcanfilesuitagainstAforspecificperformanceofthecontract.SuitforInjunctionItmeansstayordergrantedbycourt.Thisorderprohibitsapersontodoparticularact.Wherethereisbreachofcontractbyonepartyandorder,ofspecificperformanceisnotgrantedbycourt,injunctionmaybegranted.Example:FilmactressagreedtoactexclusivelyforWforayearandfornooneelse.DuringtheyearshecontractedtoactforZ.RescissionofcontractRescissionistheunwindingofatransaction.Thisisdonetobringtheparties,asfaraspossible,backtothepositioninwhichtheywerebeforetheyenteredintoacontract.Acourtcanrescindacontractifthecontractisvoidableorunlawful.
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QuantumMeruitAllowtherecoveryofvalueoflabor&material.Forinstance,mostprofessionalroofershiredtorepairaroofinsistonhavingaformalagreementwiththeownerofthehousebeforebeginningtherepairs.Intheabsenceofanagreementorformalcontract,theroofermaybeunabletorecoverlossesincourtifthetransactiongoesawry.Quantummeruitisajudicialdoctrinethatallowsapartytorecoverlossesintheabsenceofanagreementorbindingcontract.
Indian Contract Act, 1872
PriortothisEnglishLawofContractwasfollowed. Total11chapters. 2partsGeneralPrincipals(sections1to75)&Specialkindsofcontract(sections124to238). GeneralPrincipalsappliestoalltypesofcontracts. SpecialcontractsareIndemnity,Guarantee,Bailment,Pledge&Agency
