Contract - I-1 karnataka state law university Study material PDF

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MODEL QUESTION PAPER CONTRACT 1 Unit 1 Q.1 a. Define Contract. Describe the various requisites of a valid contract. Law means a ‘set of rules’ which governs our behaviour and relating in a civilized society. One should know the law to which he is subject because “Ignorance of la law w is no excuse”. Contracts as defined by Eminent Juris Jurists ts 1. “Every agreement and promise enforceable at law is a contract.”Pollock 2. “A Contract is an agreement between two or more persons, which is intended to be enforceable at law and is contracted by the acceptance by one party of an offer made to him by the other party, to do or abstain from doing some act” – Halsbury 3. “A contract is an agreement creating and defining obligation between the parties” – Salmond Contract 2 (h) : - An agreement enforceable by Law is a contract. Sec.10: - “All agreements are contracts, if they are made - by free consent of the parties, competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void;” ESSENTIALS OF A VALID CONTR CONTRACT ACT Offer + acceptanc acceptance e = Promise + consideration = Agreement + Enforceability by Law = contract. 1.

Proper offer and proper acceptanc acceptance e with intention to create legal

relationship Cases – A and B agree to go to a movie on coming Sunday. A does not turn in resulting in loss of B’s time. B cannot claim any damages from A, since the agreement to watch a movie is a domestic agreement, which does not result in a contract. In case of social agreement, there is no intention to create legal relationship and there is no contract (Balfour v. Balfour) In case of commercial agreements, the law presume that the parties had the intention to create legal relations. (an agreement of a purely domestic or social nature is not a contract)

2.

Lawful consideration: - Consideration must not be unlawful, immoral

or opposed to contract. contract. 3.

Capacity: - The parties to a contract must have capacity (Legal ability) to make valid contact,

Section 11: - of the Indian Contract Act specify that every person is competent to contract, provided, (i)

Is of the age of majority, according to the Law, which he is subject;

and (ii)

Who is of sound mind; and

(iii)

Is not disqualified from contracting by any law to which he is

subject to. Person of unsound mind can enter into a contract during his lucid interval An alien enemy, foreign sovereigns and accredited representatives of a foreign state. Insolvents and convicts are not competent to contract. 4.

Free consent: - Consent of the parties must be genuine consent, means agreed upon samething in the same sense i.e. there should

be consensus-ad-idem. The consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. 5.

Lawful Object

The Object of agreement should be lawful and legal. Two persons cannot enter into an agreement to do a criminal act. Consideration or object of an agreement is unlawful, if it…. a. Is forbidden by law; or b. Is of such nature that, if permitted, would defeat the provisions of any law; or c. Is fraudulent; or d. Involves or implies, injury to person or property of another; or e. Court regards it a immoral, or opposed to public policy. 6.

Possibility of performance:

The terms of the agreement should be capable of performance. An agreement to an act, impossible in itself, cannot be enforced. Example: A agrees to B to discover treasure by magic. The agreement is void, because the act in itself is impossible to be performed from the very beginning. 7.

The terms of the agreement are certain or are capable of being made certain - Sec-29: Example Example: A agreed to pay Rs.5 Lakhs to B, for ultra-modern decoration of his drawing room. The agreement is void, because the meaning of the term “ultra-modern” is not certain.

8. Not declared void The agreement should be such that it should be capable or being enforced by law. Certain agreements have been expressly declared illegal or void by law. 9.

Necessary legal formalities

A contract may be oral or in writing. Where a particular type of contract is required by law to be in writing and registered, it must comply with necessary formalities as to writing, registration and attestation. If legal formalities are not carried out, then the contract is not enforceable by law. Example - A promise to pay a time barred debt, must be in writing. Agreement is a wider term than contract, whereas, all contract are agreements, all agreements are not contracts. Thus we see that, an agreement may be or may not be, enforceable by law. So all agreements are not contracts. Only those agreements are contracts, which are enforceable by law. Hence we ca can n conclude, “All contract are agreements, but all agreements are not contract.” Contract = Agreement + enforceability by law.

b. Define types or classification of contracts. Explain the ess essentials entials and rules of valid Proposal (Offer) with illustr illustrations. ations. Types or Classification of Contracts * Valid - An agreement which has all the essential elements of a contract, is called a valid contract. * Void - (Section 2 (j) - It is a contract, which ceases to be enforceable by law. A contract when ordinarily entered into, may be valid or binding on the parties; but it may subsequently become void. * Voidable - (Section 2 (i) - An agreement, which is enforceable by law, at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. * Illegal Contract - A contract is illegal, if it is 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 a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio. “All illegal agreements are void agreements but all void agreements are

not illegal”. * Unenforceable Contract – Where a contract is good in substance, but because of some technical defect, cannot be enforceable by law, is called Unenforceable Contract. These contracts are neither void nor voidable. On the basis of fo formation rmation a. Express Contract b. Implied Contract c. Quasi Contract On the basis of perf performance ormance a. Executed Contract b. Executory Contract c. Unilateral Contract d. Bilateral Contract PROPOSAL – Sec 2(a) - of the Indian Contracts Act, defines proposal as: one person signifies to another his willingness to do or to abstain from doing anything, with a view of obtaining the assent of that other to such act or abstinence, said to make a proposal. The term ‘proposal’ is equivalent to the term ‘offer’. Section 2 (b) defines “promise” Section 2 (c) defines “promisor” or “promisee” Section 2 (f) defines reciprocal promises. The “proposal” accepted becomes a “promise”. A proposal 1) The person making it signifies his willingness or desire to another. 2) This willingness is the expression of desire to do or to abstain from doing something. 3) Object of the expression of this willingness is to abstain the assent of that

other to such act or abstinence. REQUISITES OF A VALID CONTRACT 1) Purpose of off offer: er: The offer as defined in Section 2 (a) has 2 purposes: a) An expression of offeror’s willingness to do or to abstain from doing something; b) It is made with a view to obtaining the assent of the offeree to the proposal act or abstinence. 2) Intention: The offer arises from the intention. It is not defined in Indian Contract Act, 1872. Section 2 (a) uses the word “willingness” which is equal to intention.  The offer must be made with willingness to do business on the proposed terms and conditions.  The use of the word “willingness” shows that intentions to be bound by the proposal, when accepted, are an integral part of the concept of agreement.  The party who offers must know the legal consequences of the offer.  An offer or his acceptance should be made with the intentions of creating legal relations.  The test of intention is objective not subjective.  The intention of the parties is naturally to be known from the terms of the agreement and the surrounding circumstances. 3) Legal Consequences: An offer must be intended to create legal relations and must be capable of creating legal relations. Offer is the first step of agreement. When an agreement is enforceable by the law, then only it becomes a contract. 4) Assent of the other party: The proposal must be made with a view to obtaining the assent of the other party. Since the contract requires “consensus ad idem”. (consent at the same time) unless the offeree is aware of the offer, there can be no acceptance and consequently no contract. 5) Terms: The terms of an offer must be definite. Uncertain, indefinite and ambiguous offer do not constitute valid contracts.

6) Offer mus mustt be addressed: An offer must be addressed to the world at large or to a specific person. An offer addressed to the world is called “general offer” and an offer addressed to a specific person is called “specific offer”. An offer cannot take effect so as to create a binding contract, unless and until it has been brought to the knowledge of the person to whom it is made. 7) Words or conduct: An offer may be made by words of mouth or by writing or it may even be made by conduct. Among these 3 ways, the offer made by writing is considered always, the best. An offer which is made by conduct is called an “implied offer”. An offer which is expressed by words, written or spoken is called “express offer”. (Section 9 of the ICA, 1872) 8) Communication: An offer must be communicated to the offeree. Communication may be done in following ways: i) In person: a) by words of mouth; b) by writing; c) by conduct. ii) By post iii) By telephone iv) By telegraph v) By telex vi) By internet vii) By e-mail website viii) By radio or television ix) By fax x) By SMS etc.. 9) Invitation to offer: Invitation for offer is different form of legal offer. It is just an enquiry. The mere statement of prices in a catalogue is an example of invitation to offer. Catalogue is not an offer. It is an invitation to offer. Balfour v/s Belfour (1919) 2 KB 57  An offer must be distinguished from invitation to offer.  A prospectus issued by a company for subscription of its shares by the public, is an invitation to offer.  The offer must not contain a term, the non-compliance of which,

may be assumed to amount the acceptance. Cross offers: Where 2 parties make identical offers to each other, in ignorance of each other’s offer: the offers are known as cross offers and neither of the 2 can be called an acceptance of the other and therefore there is no contract.

Q.2 a. A out of natural love and affection promises to give his son, B Rs.1000 under a registered document. Is it valid contract?  Yes  It is a valid contract/document  It is enforceable under the law  Reasons - Sec 2(d) defines: consideration- something which is of some value in the eye of law. It may consist either of some rights, interest, profit, benefit getting accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other at his request. An agreement made without consideration is enforceable in these occasions. Sec 25 - 1) Promise due to natural love and affection (S (Sec ec 25 (1)) “A” is made in favour of near relation on account of natural love and affection, the same is valid, even though there was no consideration for such a promise. It is lawful and binding. i)

The parties to the agreement must be standing in a near relationship to each other. Father – son

ii)

It is made by “A” (Father) party out of natural love and affection for the son “B”

iii)

The promise should be in writing and registered. Here it is registered document.

Eg: - Gift deeds……Will The Registration Act, 1908 and the Indian Stamp Act, 1899 are applicable.

b. In a self-s self-service ervice departmental store Z, a customer picks up the book and goes to the cash counter to pay for it. X, cashier refuses to sell. Z wants to sue for breach of contract. Can he ha have ve right to do so? -No-He has no right against the cashier -because it is an invitation to offer and not an offer -intending intending to offer. No final willi willingness ngness from the side of cashier. -there is no consensus ad idem between them (No contractual obligation arises between them) -invitation to offer is different from a legal offer. OFFER

INVITATION TO OFFER

1. In the offer, the offerer has willingness or intention to have the contract.

1. In this, the party has no such intention or willingness to have contract.

2. The person making the proposal is called the offeror/promisor/ proposer.

2. The party who has arranged the articles or advertised in any media can’t be termed as offeror /promisor/proposer.

3. An offer, when accepted becomes a promise. 4. In this, the offeror must signify this intention or willingness. 5. An offer maybe classified

3. An invitation to offer maybe changed as offer, but can’t become as a promise it is only an enquiry. 4. The party need not his intention or willingness.

into a General Offer and Specific Offer. 6. An offer contains legal requirements.

5. There are no such divisions among the invitation to offer. 6. An invitation to offer does not contain legal requirements.

Unit 2 Q.1 a. What is free consent consent?? Explain in brief when the consent is said to be free according to Ind Indian ian Contract Act, 1872? Sec13: Two persons have said to have consented when they agree upon same thing in the same sense. In English Law this is called “Consensus ad idem” Effect of absence of cons consent: ent: When there is no consent at all, the agreement is void-an-initio. It is not enforceable at the option of either party. Example 1: X have two cars, one Maruti car and another is Honda car. Y does not know that X has two cars Y offers to buy a car at Rs.50,000/¬Here there is no identity of mind in respect of the subject matter. Hence there is no consent at all and the agreement is void-ab-initio. Example 2: An illiterate woman signed a gift deed thinking that it was a Power of Attorney – no consent at all and the agreement was void-abnitio (Bala Bala Devi v/ v/s s Manumdats) Free Consent

Consent is said to be free, when it is not caused by (Section 14) a. b. c.

Coercion (Section Section 15) Undue influence (Section 16) Fraud (Section 17)

d. e.

Misrepresentation (Section Section 18) Mistake (Section Section 20, 21, 22)

Effect of absence of Free consent : - If consent is caused by coercion, undue influence, fraud, misrepresentation, the contract is voidable at the option of the party, whose consent was not free (19, 19, 19A) Coercion (Section 15) Force, compulsion, treats of violence, (Voidab (Voidable) le) Duress is more severe than coercion Essential elements of coercion: a. Committing any act, which is forbidden by the IPC b. Threatening to commit any act, which is forbidden by the IPC c. Unlawful detaining of any property or d. Threatening to detain any property e. Coercion need not necessary proceed from party to contract f. Coercion need not necessary be directed against the other contracting party. g. It is immaterial whether the IPC is or is not in force at the time or at the place, where the coercion is employed (Bay Bay of Bengal Caption) h. The consent is obtained by threat of an offence and the person is forced to give his consent. i. It is mainly of a physical character j. The freedom of will is impaired k. It is of a violent character l. The burden of proof lies upon plaintiff m. It must be uttered with the intention of causing plaintiff to enter into an agreement  Threat to strike is no coercion  Compulsion of law is not coercion Effect of threat to file a suit : -A threat to file a suit (Whether Whether civil or criminal) does not amount to coercion, unless the suit is on false charges. Threat to file a suit on false charges is an act forbidden by the IPC and thus will amount to an act of coercion Eg: - A husband induced his wife to enter into a contract in threat of committing suicide (Chikham Ammirjaju v Seshama)

English Law – Duress does not include detaining of property or threat to detain property. -Duress can be employed only by a party to the contract or his agent -It must be aimed against the life or liberty of the person or members of his family. -It must be such as to cause immediate violence -It must be such as to affect a man with ordinary firmness of mind Effect- When coercion is employed to obtain the consent of a party, the contract is voidable at the option of the party, where consent was obtained by coercion. Undue influence (Sec (Section tion -16) Sec 19(A) (Voidable) Meaning of undue influence – dominating the will of the other person to obtain an unfair advantage over the others a. Where the relation subsisting between the parties must be such that, one party is in a position to dominate the will of the other. b. The dominant party use his position c. Obtain an unfair adva advantage ntage over the other Nothing in this Sub-Section shall affect the provisions of Sec 111 of the Indian Evidence Act. Undue influence (Sec (Section tion 16) No Presumption of Dom Domination ination of Will: Presumption of Domination of Will Circumstances.

Examples

*Where he holds a real or apparent Master and servant, parents and authority over the other. child, Income Tax Officer and Assesses, Principal and *Where he stands in a Trust Temporary Teacher, Trustee and fiduciary (benefit) relation to other. Beneficiary, Spiritual Guru and his *Mental Capacity of a person is Disciples, Solicitors and Clients, temporarily or permanent effected Guardian and Wards, Relationship by reason of age, illness or mental between Medical Attendant and Ward. or bodily distress.  Involves use of moral force(mental pressure)  Obtain an unfair advantage (intention)  Not criminally liable

Between the parties to the contract One party dominate the other party Voidable or Court set aside Benefit- Order of the Court-Back Land lord and Tenant Creditor and Debtor Husband and Wife (other other than Pardana Pardanashin shin shin) Principal and Agent It is moral or psychological nature The person in dominate character exploits the weaker person. The contract is either voidable or the court may enforce it in a modified form.  It is between the parties to the agreement  Unconscionable bargains.  Urgent need of money, no distress  Statutory compulsion, no distress.  Sec 30 of The Specific Relief Act, 1963 – Such relief is granted to restore, which may have received from the other party and to make any compensation to him, which justice may require. Example: - A applies to a banker for a loan at a time, when there is stringency in the money market. The banker declines to make the loan except to an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business and the contract is not induced by undue influence. Example: - A spiritual guru induced his chela to donate all his property to the ashram and said that, in return of it, he will certainly get salvation. The chela did the same. Held that, this a case of undue influence, so it becomes       

void. Fraud (Section 17) See Section 19 (Voidable) The term fraud mean, a fake representation of facts made willfully with a view to deceive the other party, dishonest trict, criminal deception. ---Section 17- Fraud means any act committed by a party to the contract or with his connivance or by his agent with intent to deceive another party thereto or ...