Category Archives: Contract Act

PERFORMANCE OF CONTRACT

PERFORMANCE OF CONTRACT: INTRODUCTION

Performance of the contract is one of the various modes of discharge of the contract. A contract is said to have been performed when the parties to a contract either perform or offer to perform their respective promises. Section 37 of the Indian Contract Act lays down the obligation of the parties regarding performance.

Section 37: 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 Contract Act, or of any other law.[1]

TYPES OF PERFORMANCE

  1. Actual performance:
    • When a promisor has made an offer of performance to the promisee and the offer has been accepted by the promisee, it is called an actual promisee. The contractual obligations are actually performed whereby the liability of a party under the contract comes to an end.[2]
  2. Attempted performance or tender of performance:
    • Where the promisor has made an offer of performance to the promisee, and the offer has not been accepted by the promisee, it is called an attempted performance [Sec.38]. Such refusal to accept offer of performance by promisee discharges the party from its liability and from its performance.[3]

TENDER OR OFFER OF PERFORMANCE OF CONTRACT TO BE VALID MUST SATISFY THE FOLLOWING CONDITIONS

  • It must be unconditional
  • It must be made at a proper time and place i.e. must be made in stipulated time that too during the business hours and also at the stipulated place i.e. promisee’s business place or at promisee’s residence if there is no business place.
  • Reasonable opportunity to the promisee to examine and ascertain that the goods offeredare the same as the promisor is bound to deliver.
  • It must be for the whole obligation and not for a part of it.
  • It must be made to the promisee or his duly authorized agent.
  • In case of payment of money, tender must be of the exact amount due, and it must be a legal tender.

EFFECT OF REFUSAL OF PARTY TO PERFORM PROMISE WHOLLY:

When a party to a contract has refused to perform or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.[4]

  1. Promisee– Stranger can’t demand performance of the contract.
  2. Legal Representative– In case of death of the promisee, the legal representative can demand performance unless a contrary intention appears from the contract, or the contract is of personal nature.
  3. Third party– A third party can also demand performance of the contract in some exceptional cases like beneficiary in case of trust, the person for whose benefir the provision is made in a family arrangement. This is an exception to the doctrine that a stranger to a contract cannot enforce a contract.
  4. Joint Promisees- In case of several promisees, unless a contrary intention appears from the contract, the following persons must perform the promise-
  5. In case all the promisees are alive- All the promisees jointly can demand performance.
  6. In case of death of any of the joint promisees- Representatives of deceased promisee jointly with the surviving promisee(s) can demand performance of promise.
  7. In case of death of all joint promisees- Representatives of all of them jointly can demand performance of the promise.

BY WHOM PROMISE IS TO BE PERFORMED / WHO WILL PERFORM THE CONTRACT (SEC 40)

  1. Promisor himself– If it appears from nature of the case that it was the intention of the parties to a contract that any promise contained in it should be performed by the promisor himself, such as the ones which includes personal skill, volition or art, such promise must be performed by the promisor himself. Example– A promises to paint a picture for B as this promise involves personal skill of A. It must be performed by A.
  2. Promisor or agent– If it was not the intention of the parties to a contract that the promise should be performed by the promisor himself, as does not involve personal skill of the promisor, such contracts can be performed by the promisor himself or any competent person employed by him.
  3. Legal Representative– In case of death of the promisor, his legal representatives can perform the contract unless a contrary intention appears, or the contract does not involve personal skill.
  4. Third person [Sec.41]-[5] A contract can be performed by a third party if the promisee accepts arrangement i.e. performance by a third party. According to Sec.41, when a promisee accepts the performance by a third party, he cannot afterwards enforce the performance against the promisor although the promisor might not have authorized or ratified the act of the third party. In other meaning once the promisee accepts the performance from a third person, he cannot compel the promisor to perform the contract again.
  5. Joint Promisors– In case of several promisors, unless a contrary intention appears from the contract, the following persons must perform the promise-
    1. In case all the promisors are aliveAll the promisors jointly must perform
    2. In case of death of any of the joint promisorsRepresentatives of deceased promisor jointly with the surviving promisor(s) must perform the promises.
    3. In case of death of all joint promisorsRepresentatives of all of them jointly must perform the promises.

Also Read: What are the Essentials of the Valid Contract in India

DEVOLUTION OF JOINT LIABILITIES AND JOINT RIGHTS

“Devolution” means passing over from one person to another.

Sec.42[1] provides for the devolution of joint liabilities: The liabilities of joint promisors pass to their legal representatives (in case of death).

RULES REGARDING THE PERFORMANCE OF JOINT PROMISE [SEC. 43 & 44]:

  1. Joint and several liability of joint promisors: When two or more persons make a joint promise, the promisee may, in the express contract to the contrary, compel anyone or more of such joint promisors to perform the whole of the promise.
  2. Right to claim contribution: Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.
  3. Sharing of loss by default in contribution: If anyone of two or more joint promisors makes a default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.
  4. Effect of release of one joint promisor: Where two or more persons made a joint promise, a release of one of such joint promisors by the promisee, does not discharge the other joint promisor or joint promisors; neither does it free the joint promisor so released from responsibility to the other joint promisor or joint promisors. (Sec 44)

NOTE: In English law if one joint promisor is discharge then all the joint promisors get discharged.

MEANING OF DEVOLUTION OF JOINT RIGHTS [SECTION 45]

When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them during their joint lives, and, after the death of any of them, with the representative of such deceased person jointly, with the survivor or survivors and after the death of the last survivor, with the representative of all jointly.[2]

RULES REGARDING THE TIME AND PLACE OF PERFORMANCE OF CONTRACT (SECTION 46 TO 50)[3]

  • Where no time is specified for performance [Sec. 46]
  • Time of performance is not specified + promisor agreed to perform without a demand by the promisee, the contract must be performed within a reasonable time.
  • What is reasonable time is a question of fact and will depend on facts of the case.
  • Where time is specified but hour not mentioned [Sec.47].
  • Time of performance specified + promisor agreed to perform without application by the promisee then contract must be performed on the day fixed in the contract during the usual business hours and at the place at which the promise ought to be performed.
  • Where time is fixed and promisor has not undertaken to perform without an application by the promisee [Sec. 48]
  • The promisee must apply for performance at a proper place and within the usual hour   of business.
  • Where no place for performance is specified and no application is to be made by the promisee [Sec. 49]
  •  It is the duty of the promisor to apply to the promisee to appoint a reasonable place forthe performance and perform it at such appointed place.
  • Where the promisee prescribes the manner or time for performance [Sec. 50]
  • The promise must be performed in the manner and at the time prescribed by the promisee.

TIME AS THE ESSENCE OF THE CONTRACT (SEC.55)

“Time is essence of a contract” means that it is essential for the parties to a contract to perform their respective promises within the specified time. Where time is essence, the concerned parties must perform and are under actual obligation to fulfil their respective promises within the specified time.[4]

Time is pleaded as a fact that is to say that if time is specified for the performance of the contract, this is not by itself sufficient to prove that time is essence of the contract. Intention of the parties has to be observed in order to ascertain whether the parties had the intention to treat time as an essential fact in that particular contract.[5]

Cases where time is considered to be essence of contract:

  • Where the parties have expressly agreed to treat as the essence of the contract.
  • Where the non-performance at the specified time or delay operates as an injury to the party.
  • Where the nature and necessity of the contract requires it to be performed within the specified time.

In commercial or mercantile contracts, the time fixed for the delivery of goods is considered to be the essence of a contract but the time fixed for the payment of the price is not considered to be the essence of a contract.

In non-commercial and non-mercantile contracts, usually the presumption is that time is not the essence of such contracts.

CONSEQUENCES OF NON- PERFORMANCE OF CONTRACT WITHIN SPECIFIED TIME (SEC. 55)

The consequence of non-performance of a contract within the specified time depends upon whether the time is essence of the contract or not:

  • When time is essence of a contract-
  • The contract becomes voidable at the option of the promisee.
  • If performance beyond the specific time is accepted, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the agreed time unless at the time of such acceptance, he gives notice to the promisor of his intention to do so.
  • When time is not the essence of the contract-
  • The contract does not become voidable at the option of the promisee.
  • The promisee is entitled to claim compensation for any loss occasioned by the non- performance of the promise at the agreed time.

PERFORMANCE OF RECIPROCAL PROMISE

Meaning of Reciprocal Promise: As per Sec. 2 (f), “Promises which form the consideration or part of consideration for each other as called reciprocal promises.”

TYPES OF RECIPROCAL PROMISES:

  1. Mutual and Independent- Such promises all to be performed by each party independently without waiting for the other party to perform his promise and therefore he can’t excuse himself on the ground of non-performance by the default party.
  2. Mutual and Dependent- Where the performance of promise by one party depend on the prior performance of the promise by other party. The party at fault becomes liable to pay compensation to the other party may sustain by the non performance of the contract [Sec. 54]
  3. Mutual and concurrent- When the promises are to be performed simultaneously a promisor need not perform his part unless the promisee is ready and willing to perform his reciprocal promise. [Sec. 51]

Order of performance of reciprocal promises [Sec. 52]:

Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they must be performed in that order. And if the order is not expressly fixed by the contract, then it must be performed in the order in which the nature of the transaction requires.[6]

Effects of preventing the performance [Sec. 53]:

When the contracts contain reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is not entitles to compensation from the other party for any loss which ma sustain in consequence of the non-performance of the contract.

Submitted By : Sanjay Rawat


[1] Supra1

[2] Devolution of Joint Rights, available at: https://advocatespedia.com/Devolution_of_Joint_Rights (visited on November 20, 2021)

[3] THE INDIAN CONTRACT ACT, 1872

[4] Time is the essance of the Contract, available at: http://www.legalservicesindia.com/article/1396/Time-is-the-essance-of-the-Contract.html (visited on November 20, 2021)

[5] Ibid

[6] Reciprocal Promise, available at: https://www.complybook.com/blog/reciprocal-promise (visited on November 20, 2021).


[1] THE INDIAN CONTRACT ACT, 1872

[2] Performance of Contract | Meaning | Types of Performance, available at: https://accountlearning.com/performance-of-contract-meaning-types-of-performance/ (visited on November 20, 2021)

[3] Ibid

[4] Performance of a Contract – Indian Contract Act, 1872, available at: https://www.legalbites.in/performance-of-contract-3/ (visited on November 20, 2021).

[5] THE INDIAN CONTRACT ACT, 1872

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Free Consent Under Indian Contract Act

Understanding the concept of free consent under the Indian Contract Act: Submitted By, Sanjay Rawat

INTRODUCTION: WHAT IS CONSENT

Consent simply means an act of assenting to an offer. According to Sec. 13,Two or more persons are said to consent when they agree upon the same thing in the same senseIn English law, this is called ‘consensus ad idem.’ Consent involves identity of minds in respect of the subject-matter of the contract. When there is no consent at all, the agreement is void ab initio, i.e. it is not enforceable at the option of either party.

MEANING OF FREE CONSENT

Free consent is one of the essential elements of a valid contract. Section 14 describes the cases when the consent is not free. This is a negative definition of free consent in the sense that it mentions some negative elements, the presence of which in a contract would vitiate a contract.

Consent is said to be free when it is not caused by

  1. Coercion [Section 15]
  2. Undue influence [Section 16]
  3. Fraud [Section 17]
  4. Misrepresentation [ Section 18]
  5. Mistake [Section 20, 21,22]

If consent was caused by coercion, undue influence, fraud, misrepresentation the contract is voidable at the option of party whose consent was so taken [Sec. 19, 19A]

1. COERCION : EFFECT ON FREE CONSENT

Coercion simply means compelling or forcing a person to enter in to a contract under a pressure or a threat.

Sec. 15 defines coercion as, Committing or threatening to commit, any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever with the intention of causing any person to enter into an agreement.

The essential elements of coercion are-

  • Committing or threatening to commit any act forbidden by Indian Penal Code.
  • Unlawful detaining or threatening to detain any property.
  • The act of coercion may be directed at any person and not necessarily at the other party to the agreement.
  • The act of coercion must be done with the object of inducing or compelling any person to enter into an agreement.

Effect of threat to commit suicide on free consent-

As such, a suicide and a threat to commit suicide are not punishable under Indian Penal Code but an attempt to commit suicide is punishable under the IPC. This does not mean that suicide and threat to commit suicide are permitted by IPC. The question whether a threat to commit suicide amounts to coercion or not was considered by Madras High Court in the case of Chikham Ammiraju v. Seshamma. Threat to commit suicide was held to be amounting to coercion in this case.

Effect or coercion on free consent[Sec. 19, 64, 72]

When coercion is employed to obtain the consent of a party the contract is voidable at the option of the party whose consent was obtained by coercion [Sec. 19]. When such aggrieved party exercises his option to treat the voidable contract as void, it is called “rescinding a contract”.

Further, as per Sec. 64, the party rescinding the contract shall restore the benefit received by him under the contract, to the person from whom the benefit was received. Also, the party to whom money has been paid or anything delivered under co-ercion, must repay or return it [Sec. 72]

BURDEN/ONUS OF PROOF OF COERCION

The burden of proving that consent was obtained by coercion, and the aggrieved party would not have entered into contract had coercion been employed, lies on the party intending to avoid the contract.

2. UNDUE INFLUENCE:

It is kind of moral or mental coercion. The term “undue influence” means dominating the will of the other person to obtain an unfair advantage over the other.

Sec. 16(1) defines undue influence as, “A contract is said to be induced by undue influence-

  1. Where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of other and
  2. The dominant party uses that position to obtain an unfair advantage over the other.”

According to Sec. 16 (2), a person is deemed to be in a position to dominate the will of another in the following circumstances-

  1. Where he holds a real or apparent authority over the other e.g., in the relationship between master and servant, parent and child, Tax officer and assessee etc.
  2. Where he stands in fiduciary relation to the other. It implies a relationship of mutual trust and confidence. Examples: A trustee and beneficiary, spiritual or religious adviser (guru) and his disciple, solicitors and clients, guardian and ward etc.
  3. Where a contract is made with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. Example: Medical attendant and patient.

According to judicial decisions held in various cases, there is no presumption of undue influence in the following relationships-

  1. Husband and wife (other than pardanashin)
  2. Landlord and tenant
  3. Creditor and debtor

CONTRACTS WITH PARDANASHIN WOMAN: EFFECT ON FREE CONSENT

A woman who observes complete seclusion  (i.e. who does not come in contact with people other than her family members) is called pardanashin woman. There is a legal presumption that a contract with a pardanashin woman is induced by undue influence. In such cases, the burden of proof completely lies on the person who enters into a contract with a pardanashin woman and he will have to prove-

  • ð That he made full disclosure of all the facts to her
  • That she understood the contract and the implication of the contract on her interests.
  • That she was in receipt of competent independent advice before entertaining into the contract.

Effect of undue Influence on free consent: [Section 19A]

When consent to an agreement is caused by undue influence, the contract is voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as the court may seem just.

Burden of Proof:

When a contract is avoided on the ground of undue influence, the liabilities of the dominant party and the weaker party to prove are as under-

The weaker party has to prove-

  1. That the other party was in a position to dominate the will
  2. The other party actually used his influence to obtain an unfair advantage
  3. That the transaction is unconscionable (unreasonable)

In case of an unconscionable transaction, the dominant party has to prove that such contract was not induced by undue influence.

DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE

BASIS OF DISTINCTIONCOERCIONUNDUE INFLUENCE
1. DEFINITIONCoercion is the committing or threatening to commit, any act forbidden by the I.P.C. or unlawful detaining or threatening to detain any property with the intention of causing any person to enter into an agreement.Undue influence is an influence which arises where the relations 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.
2. RELATIONSIn case of coercion, relation between the parities  is immaterial.In case of undue influence, in the relation between the parties the parties must be such that one of them is in a position to dominate the will of other.
3. INTENTIONCoercion is applied with the intention of causing any person to enter into an agreement.It is exerted with the intention to obtain an unfair advantage over the other party.
4. NATURE OF FORCEIt involves physical force.It involves moral force.
5. KIND OF ACTIt involves criminal act.It does not involve criminal act.
6. DIRECTIONThe coercion may be directed against any person including a stranger.Under influence is used against weaker party only.
7. WHO CAN EXERCISE?It can be exercised by any person.     Even a stranger to contract can exercise it.It is employed by the person who is in a position to dominate the will of the other.
8. REMEDIESA contract caused by coercion, may be avoided by the aggrieved party’s contract. [Sec. 19]In case of undue influence, the aggrieved party may avoided the contract or the Court, may set aside the contract absolutely or conditionally. [Sec. 19 A]

The presumption of undue influence on free consent can be rebutted by showing-

  • That the dominant party has made full disclosure of all the facts to the weaker party before making the contract;
  • That the price was adequate; and
  • That the weaker party was in receipt of competent independent advice before entering into the contract.

3. FRAUD

The term ‘fraud’ means a fake or false representation of facts made willfully with a view to deceive the other party. Sec. 17 defines fraud as, any of the following acts committed by a party to a contract (or with his connivance, or by his agent) with intent to deceive another party thereto (or his agent) or to induce him to enter into the contract-

  1. The suggestion that a fact is true when it is not true by a person who does not believe it be true. Example: A sells to B locally manufactured goods as imported goods charging a higher price, it amounts to fraud.
  2. The active concealment of the fact by a person having knowledge or belief of the fact. Mere concealment does not amount to fraud. But where steps are taken by a seller concealing some material facts so that the buyer even after a reasonable examination cannot trace the defects, it will amount to fraud. Example: A, a furniture dealer, conceals the cracks in furniture sold by him by using some packing material and polishing it in such a way that the buyer even after reasonable examination cannot trace the defect, it would tantamount to fraud through active concealment.
  3. A promise made without any intention to perform it.
  4. Any such act or omission as the law specifically declares to be fraudulent. Example: Under Companies Act and Insolvency Acts, certain kinds of transfers have been declared  any other clause.
  5. Any other act fitted to deceive. It covers those acts which deceive but are not covered under any other clause.

ESSENTIAL ELEMENTS OF FRAUD

  1. The fraud must be committed by a party to a contract or by anyone with his connivance or by his agent. Thus, the fraud by a stranger to a contract does not affect the validity of the contract.
  2. There must be a false representation and it must be made with the knowledge of its falsehood. Where the representation was true at the time when it was made but becomes untrue before the contract is entered into and this fact is known to the party who made the representation, it must be corrected. If it is not so corrected, it will amount to fraud.
  3. The representation must relate to a fact. In other words, a mere opinion, a statement of expression or intention does not amount to fraud.
  4. The fraud must have actually deceived the other party who has acted on the basis of such representation. In other words, an attempt to deceive the other party by which the other party is not actually deceived is not a fraud.
  5. The party acting on the representation must have suffered some loss.

When the silence amount to fraud??

GENERAL RULE: Mere (only) silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud.

EXCEPTION: Where the circumstances of the case are such that regard being had to them, it was duty of the person keeping silence to speak. Such duty arises in the following two cases-

  1. Duty to speak exists where the parties stand in a fiduciary relationship, e.g. father and son, guardian and ward, trustee and beneficiary etc. or where contract is a contract of ubberima fidei (i.e. requiring utmost good faith), e.g. contracts of insurance.
  2. When silence itself is equivalent to speech.

4. MISREPRESENTATION

The term ‘misrepresentation’ means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party.

As per Sec. 18, misrepresentation means and includes a wrong statement of fact made innocently, i.e., without any intention of deceiving the other party. It may be caused-

  1. By positive assertion or a statement, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
  2. By breach of duty, which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him;
  3. Causing, however innocently, a party to an agreement, to make a mistake regarding the subject matter of the agreement.

Essential of misrepresentation-

  1. There must be a representation or omission of a material fact and such false representation must be made without the knowledge of its falsehood i.e. the person making it must honestly believe it to be true.
  2. The or omission of duty must be made with a view to inducing the other party to enter into contract but without the intention of deceiving the other party.
  3. The representation or omission of duty must have actually induced the party to enter into contract.

EFFECTS OF MISREPRESENTATION ON FREE CONSENT:

  1. Right to rescind the contract: The party whose consent was caused by misrepresentation can rescind (cancel) the contract but he cannot do so in the following cases-
    • Where the party whose consent was caused by misrepresentation had the means of discovering the truth with ordinary diligence.
    • Where the party gave the consent in ignorance of the misrepresentation.
    • Where the party after becoming aware of the misrepresentation, takes a benefit under the contract.
    • Where an innocent third party, before the contract can be rescinded, acquires for consideration some interest in the property passing under the contract.
    • Where the parties cannot be restored to their original position.
  2. Right to insist upon performance: The party whose consent was caused by 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 representation made had been true.

DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION

BASIS OF DISTINCTIONFRAUDMISREPRESENTATION
MEANINGA fraud is an intentional misrepresentation or concealment of material fact to induce the other party to enter into a contract.An innocent or unintentional misrepresentation of material facts by one party fact to induce another to enter into a contract, without an intention to deceive. 
 INTENTIONFraud is committed with an intention to deceiveThere is no such intention to deceive. 
 BELIEF IN FACTThe person committing fraudulent act does not believe it to be true.The person making misrepresentation believes in the facts to be true and existing. 
 SUIT FOR DAMAGEThe aggrieved party has right to sue the other party for damages.The aggrieved party cannot sue for damages. 
 DEFENSEA party cannot set up a defense that the aggrieved party had means of discovering the truth except in case of fraud by concealment or by silenceIn case of misrepresentation the other party always set up a defense that the
aggrieved party that the aggrieved party had means of discovering the truth
 

5 MISTAKE : EFFECT ON FREE CONSENT

Sec. 20, 21, 22): A mistake discovering the truth except in case of fraud by concealment or by silence is said to have occurred where the parties intending to do one thing by error do something else.

According to Sec. 20 mistake means erroneous belief concerning some fact. The parties are said to consent when they agree upon the same thing in the same sense. If they do not agree upon the same thing in the same sense, there will be no contract.

When the consent of one or both the parties to a contract is caused by misconception or erroneous belief, the contract is said to be induced by mistake.

Source: Slideshare :

TWO TYPES OF MISTAKE

  • MISTAKE OF LAW: As regarding mistake of law, there is a judicial principle based on a maxim i.e. ‘ignorantia juris non excusat’ which means that ignorance of law is not excusable. Every person is bound to know the laws prevailing in the nation and therefore one cannot take a defense that he was not aware of the law and cannot evade from the performance of the contract provided it is a contract to perform some lawful act only and not something that is per se (i.e. in itself) unlawful. Although, mistake of foreign law has the same effect as that of a mistake of fact as foreign law is a matter of fact.
  • MISTAKE OF FACT (Sec. 20 & 22): There is again a judicial principle regarding mistake of fact which is based on a maxim i.e. ‘ignorantia facti excusat’ which means that ignorance of fact is excusable.

BILATERAL MISTAKE ‘

(Sec.20): An agreement is void where there is a bilateral mistake as to the subject matter. According to Section 20, “Where both the parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void.” Thus, the following three conditions must be satisfied before declaring a contract void under this section-

  • Both the parties must be under a mistake
  • Mistake must be of fact but not of law.
  • Mistake must relate to an essential fact.

According to the explanation of Sec.20, “An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.”

  1. Bilateral mistake as to subject matter includes
    • Mistake as to existence of subject matter
    • As to identity of subject matter
    • Mistake as to title of subject matter
    • as to price of subject matter
    • Mistake as to quality of subject matter
    • as to quantity of subject matter
  2. Mistake as to the possibility of performanceThe agreement is void where there is bilateral mistake as to the possibility of performance. In other words, where the parties to an agreement believe that the agreement is capable of performance, while in fact it is not so, the agreement is treated as void. The impossibility may either be physical or legal.

UNILATERAL MISTAKE (Sec.22):

The term ‘unilateral mistake’ means where only one party to an agreement is under a mistake. According to Sec. 22, “A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

EXCEPTIONS: The agreement is void where a unilateral mistake relates to the identity of the person contracted with or the nature of the contract.

  1. Mistake as to identity of the person contracted withThe agreement is void.
  2. As to the nature of contract– The agreement is void
  3. Mistake as to other matter– Agreement is not void.

Also Read: WHO ARE COMPETENT TO CONTRACT

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WHO ARE COMPETENT TO CONTRACT

According to Section 11 of the Indian Contract Act, Every person is legally competent to contract if he fulfills the following three conditions-

  1. He has attained the age of majority or not a minor, according to the law to which he is subject;
  2. He is of sound mind; and.
  3. He is not disqualified from contracting by any other law to which he is subject.

WHO IS A MINOR: WHY MINORS ARE NOT COMPETENT TO CONTRACT

Any person, who has not attained the age of majority prescribed by law is known as minor. Section 3 of the Indian Majority Act, 1875 prescribes the age limit for majority and says a minor is a person who has not completed eighteen years of age. But the same Act also mentions that in the following two cases a person attains majority only after he completes his age of twenty one years-

  1. Where a Court has appointed guardian of a minor’s person or property or both (under the Guardians and Wards Act, 1890); or
  2. Where the minor’s property has been placed under the superintendence of a Court of Wards.

WHO IS A PERSONS OF UNSOUND MIND

According to Sec. 12 of Contract Act, 1872, a person is said to be of sound mind for the purpose of making a contract-

  1. if he is capable of understanding the terms of contract at the time of making it, and
  2. if he is capable of making a rational judgment as to the effect upon his interests.

Types of Persons of Unsound Mind:

  • Lunatic
  • Idiot
  • Delirious persons
  • Drunken or intoxicated persons
  • Hypnotized persons
  • Mental decay

According to Sec. 12, “A person who is usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind. And a person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is of unsound mind.”

PERSONS DISQUALIFIED BY OTHER LAWS:

There are certain persons who are disqualified from contracting by the other laws of our country. It refers to statutory disqualification imposed on certain person in respect of their capacity to contract. They are as under:

  • Alien enemy: An alien is a person who is a citizen of a foreign country. An alien may either be an alien friend or an alien enemy. Aliens are generally competent to contract with citizens of the India. He can maintain as action on a contract enter into by him during peace time. But if a war is declared, an alien enemy cannot enter into a contract with the Indian citizen. Contract entered into before the declaration of war are either stayed or terminated but contract made during the wartime are absolutely unenforceable.
  • Foreign sovereigns, diplomatic staff etc.: These persons are immune from the jurisdiction of local courts, unless they voluntarily submit to its jurisdiction. These persons have a right to enter into contract and enforce those contracts in our courts but they cannot be sued in our courts without the sanction of the Central Government unless they choose to submit themselves to the jurisdiction of our Courts. Rules regarding suits by or against foreign sovereigns are laid down in Section 84 to 87 of Civil Procedure Code.
  • Corporations and companies: A corporation is an artificial person as recognised by law. It exists only in the eyes of law. It is competent to enter into a contract only through its agent. The contractual capacity of a company is determined by the ‘object clause’ of its memorandum of Association. The contractual capacity of statutory corporations is determined by the statute creating it.
  • Insolvents: When a person’s debts exceed his assets, he is adjudged insolvent and his property stands vested in the Official Receiver or Official Assignee appointed by the Court. An insolvent cannot enter into a contract as his property is vested in the official receiver or official assignee. This disqualification of an insolvent is removed after he is discharged.
  • Convicts: A convict while undergoing imprisonment in incapable of entering into a contract. But this disability comes to an end on the expiry of the sentence.
  • Married women: A woman is competent to enter into a contract. Marriage does not affect the contractual capacity of a woman. She can even bind her husband in cases of pressing necessity. A married woman may sue or be sued in her own name in respect of her separate property.
  • Professional persons: Doctors and advocates are included in the class. In England barristers are prohibited by the etiquettes of their profession from suing for their fees.

Also Read: CONSIDERATION UNDER INDIAN CONTRACT ACT

STATUS OR NATURE OF MINOR’S AGREEMENTS: WHO ARE COMPETENT TO CONTRACT

A minor’s agreement being void is wholly devoid of all effects. When there is no contract there should be no contractual obligation on either side.

  • An agreement with or by minor is void: Section 10 of the Indian Contract Act requires that the parties to a contract must be competent and Section 11 says that a minor is not a competent. But neither section makes it clear whether the contract entered into by a minor is void or voidable. Till 1903, court in India were not unanimous on this point the privy council made it perfectly clear that a minor is not competent to a contract and that a contract by minor is void ab initio. Minor’s agreement is absolutely void from very beginning, i.e. void ab initio. It is nullity in the eye of law. An agreement with minor, therefore, can never be enforced by law. The leading case on minor’s contract is Mohri Bibi V. Dharmo Das Ghosh (1903)
  • No ratification: An agreement with the minor is completely void. A minor cannot ratify the agreement even on attaining majority, because a void agreement cannot be ratified. A person who is not competent to authorize an act cannot give it validity by ratifying.
  • Minor can be a promisee or beneficiary: If a contract is beneficial to a minor, it can be enforced by him. There is no restriction on a minor from being a beneficiary, for example, being a payee or a promisee in a contract. Thus a minor is capable of purchasing immovable property and he may sue to recover the possession of the property upon tender of the purchase money. Similarly a minor in whose favor a promissory note has been executed can enforce it.
  • No estoppel against a minor: Where a minor by misrepresenting his age has induced the other party enter into a contract with him, he cannot be made liable on the contract. There can be no estoppel against a minor. It means he is not estopped from pleading his infancy in order to avoid a contract.
  • No specific performance except in certain cases: A minor’s contract being absolutely void, there cannot be a question of specific performance of such contract. A guardian of a minor cannot bind the minor by an agreement for the purchase of immovable property; so the minor cannot ask for the specific performance of the contract which the guardian had no power to enter into. But a contract entered into by guardian or manager on minor’s behalf can be specifically enforced if-
    1. The contract is within the authority of the guardian or manager.
    2. It is for the benefit of the minor.
  • Liability for torts: A tort is a civil wrong. A minor is liable in tort unless the tort in reality is a breach of contract. But a minor cannot be made liable for a breach of contract by framing the action on tort.
  • No insolvency: A minor cannot be declared insolvent as he is incapable of contracting; debts and dues are payable from the personal properties of minor and he is not personally liable.
  • Partnership: A minor being incompetent to contract cannot be a partner in a partnership firm, but under Section 30 of the Indian Contract Act , he can be admitted to the benefits of partnership.
  • Minor can be an agent: A minor can act as an agent. But he will not to be liable to his principal for his acts. A minor can draw, deliver and endorse negotiable instruments without himself being liable.
  • Minor cannot bind parent or guardian: In the absence of authority, express or implied, an infant is not capable of binding his parent or guardian, even for necessaries. The parents will be held liable only when the child is acting as an agent for parents.
  • Joint contract by minor and adult: In such a case, the adult will be liable on the contract and not the minor.
  • Surety for a minor: In a contract of guarantee when an adult stands for a minor then he (adult) is liable to third party as there is direct contract between the surety and the third party.
  • Minor as shareholder: A minor, being incompetent to contract cannot be a shareholder of the company. If by mistake he becomes a member, the company can rescind the transaction and remove his name from register. But, a minor may, acting through his lawful guardian become a shareholder by transfer or transmission of fully paid shares to him.
  • Liability for necessaries: The case of necessaries supplied to a minor or to any other person whom such minor is legally bound to support is governed by Section 68 of the Indian Contract Act. A claim for necessaries supplied to a minor is enforceable by law. But a minor not liable for any price that he may promise and never for more than the value of the necessaries. There is no personal liability of the minor, but only his property is liable.

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CONSIDERATION UNDER INDIAN CONTRACT ACT

This article describes the consideration under Indian Contract Act and its other aspects.

INTRODUCTION

Consideration is the foundation of every contract and also one of the essential elements thereof. The law insists on the existence of consideration if a promise is to be enforced as creating legal obligations. In the absence of consideration a promise or undertaking is purely gratuitous and therefore creates no legal binding effect. Consideration must be of two-directional nature. That means both parties should get benefitted mutually. The term “consideration” means something in return i.e. quid pro quo.

What is ‘something’ has been explained by Justice Lush in a leading English case Currie v. Misa as follows-

“A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party or some forbearance detriment, loss or responsibility given, suffered or undertaken by the other.

Justice Lush

Pollock has suggested that,

Consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable.

Pollock

Consideration may be in the form of cash, goods, act or abstinence. A promise without consideration is null and void. It is called a naked promise or “Nudum Pactum.” Nudo pacto non orituractio, i.e. an agreement without consideration is void. Section 25 of the Indian Contract Act supports this contention and provides that agreement without consideration is void.

CONSIDERATION UNDER INDIAN CONTRACT ACT

Sec. 2(d) of the 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.”

Sec. 2(d) of the Indian Contract act, 1872

ESSENTIAL ELEMENTS OF A VALID CONSIDERATION

  1. Consideration must move at desire of the promisor: An act or abstinence constituting consideration must have been done at the desire of the promisor only. Any act performed at the desire of the third party or without the desire of the promisor cannot be a valid consideration.
  2. It may move from the promisee or any other person: An act constituting consideration may be done by the promisee himself or any other person. Thus, it is immaterial who furnishes the consideration & therefore may move from the promisee or any other person. This means that even a stranger to the consideration can sue on a contract, provided he is a party to the contract (Chinayya v. Ramayya)
  3. Consideration may be of past, present or future:
    1. Past Consideration: A consideration for the act done in past or which has already moved before the formation of the agreement is a past consideration. Past consideration is valid in Indian Contract Act, but past consideration is no consideration in English Law.
    2. Present Consideration: When both the parties are ready to give consideration at the same time or the consideration which moves simultaneously with the promise is a present consideration.
    3. Future Consideration: When a party promises to do or to abstain from doing something in future, it is a future consideration. The consideration which is to be moved after the formation of agreement is called future consideration.
  4. Consideration need not to be adequate: As per the definition of consideration it simply indicates that “something in return” is consideration which must actually be of some value in the eyes of law, that ‘something’ can be adequate or grossly inadequate. Law only requires the presence of some consideration in a valid contract; its adequacy is not required in law. According to Explanation 2 of Sec. 25, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.
  5. Consideration must be real: It should not be uncertain, illusory or impossible.
  6. Consideration must be lawful: For a valid contract it is necessary that the consideration should be lawful as according to Sec.23 of the Indian Contract Act, otherwise it will become void and unenforceable i.e. it must not be illegal, immoral or opposed to public policy.
  7. Must be something other than the promisor’s existing obligation: Consideration must be something which the promisor is not already bound to do because a promise to do what a promisor is already bound to do adds nothing to the existing obligation.

RELEVANT CASE LAWS ON CONSIDERATION UNDER INDIAN CONTRACT ACT

  1. Durga Prasad v. Baldeo (1880)
  2. Kedar Nath v. Gouri Mohammed (1886)
  3. Abdul Aziz v. Masum Ali (1914)
  4. Chinnaya v. Ramayya (1882)
  5. Tweddle v. Atkinson (1861)

A CONTRACT WITHOUT CONSIDERATION IS VOID UNDER INDIAN CONTRACT ACT

The general rule as laid down under Section 25 is An agreement made without consideration is void”. Every agreement to be enforceable at law must be supported by valid consideration. An agreement made without consideration is void and is unenforceable except in certain cases.

Sec. 25 & Sec. 185 specifies exceptional cases where an agreement though made without consideration will be valid. These are as follow:

  1. Agreement made on account of natural love and affection [Sec. 25(1)]: An agreement though made without consideration will be valid if it is in writing and registered and is made on account of natural love and affection between parties standing in a near relation to each other. An agreement without consideration will be valid provided-
    1. It is expressed in writing;
    2. It is registered under the law for the time being in force;
    3. It is made on account of natural love and affection;
    4. It is between parties standing in a near relation to each other.
  2. Agreement made to compensate past services voluntarily rendered [Sec. 25(2)]: An agreement made without consideration will be valid if it is a promise to compensate wholly or in a part a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do. To apply this rule, the following essentials must exist:
    1. The act must have been done voluntarily;
    2. For the promisor or it must be something which was the legal obligation of the promisor;
    3. The promisor must be in existence at the time when the act was done;
    4. The promisor must agree now to compensate the promisee.
  3. Promise to pay a time-barred debt [Sec. 25(3)]: A promise to pay a time-barred debt is also enforceable. But the promise must be in writing and be signed by the promisor or his agent authorized in that behalf. The promise may be to pay the whole or part of the debt. An oral promise to pay a time-barred debt is unenforceable.
  4. Completed gifts [Exp. 1 to Sec. 25]: Explanation 1 to Section 25 provides that the rule ‘No consideration, No contract‘ shall not affect validity of any gifts actually made between the donor and the donee. Thus if a person gives certain properties to another according to the provision of the Transfer of Property Act, he cannot subsequently demand the property back on the ground that there was no consideration.
  5. Agency (Sec. 185, Indian Contract Act): There is one more exception to the rule. It is given in section 185 which says that no consideration is needed to create an agency.
  6. Guarantee (Sec 127, Indian Contract Act): A contract of guarantee is made without consideration.
  7. Remission (Sec 63): No consideration is required for an agreement to receive less then what is due. This is called remission in the law

DOCTRINE OF PRIVITY OF CONSIDERATION AND PRIVITY OF CONTRACT

The Indian law is different from the English law and the definition of consideration under the Indian Contract Act clearly provides that consideration may move from the promisee or any other person. So consideration may flow from a stranger to the contract as well. Under the English law the consideration must move from the promisee only and not from a stranger, and a stranger to a consideration cannot enforce it. This is known as “the principle of privity of contract.

It means that as per privity of contract, a stranger to a contract cannot enforce that contract or cannot sue on such contract. Only parties to a contract can sue each other or be sued upon. A stranger to a contract can’t sue in England as well as in India though it may be for his benefit. Privity of contract means the relationship subsisting between the parties to a contract.

Exception to this principle-

  • Trust: In case of trust a beneficiary can sue upon the contract. This exception to the rule of Privity of contract has been recognised in a well known case of Khwaja Mohd. Khan v. Hussaini Begum (1910)
  • Family settlement/Marriage contract: In case of family settlement members who were not originally party to the contract can also sue upon it. A female member can enforce a provision for marriage expenses made on partition of HUF.

In a case, two brothers, on partition of family joint properties, agreed to invest in equal shares for their mother’s maintenance. It was held that the mother was entitled to require her sons to make the investment

  • Acknowledgement of liability: Where a person admits his liability thereafter if he refused, he will be stopped from denying his liability.
  • Assignment of contract: Assignee (the person to whom benefits of contract are assigned) can enforce upon the contract.
  • Contract entered into through an agent: A principal may sue under the contract entered into by his agent on his behalf.

Read Also: Offer and Acceptance Under Indian Contract Act

References

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Offer and Acceptance Under Indian Contract Act

INTRODUCTION

To form an agreement, there must be at least two elements–one offer and the other acceptance. Offer or proposal is the starting point in the formation of an agreement. The word proposal is synonymous with the English word ‘offer’. Thus, an offer is the foundation of any agreement.

OFFER/PROPOSAL UNDER INDIAN CONTRACT ACT

As per Sec 2(a) of Indian Contract Act

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.”

Observing the above definition, a proposal involves the following essential elements

  • It must be made by one person to another person. In other words, there cannot be a proposal by a person to himself.
  • It must be an expression of readiness or willingness to do (i.e. a positive act) or to abstain from doing something (i.e. a negative act)
  • It must be made with a view  to obtain the consent of that other  person to proposed act   or abstinence.

The person who makes an offer is called “Offeror” or “Promisor” and the person to whom the offer is made is called the “Offeree” or “Promisee

HOW AN OFFER IS MADE: An offer may be either express or implied. An express offer is one which is made by words either spoken or written such as letter, telegram, telex, fax messages, e-mail or through internet. An implied offer is one that may be gathered from the conduct of the party or the circumstances of the case.

LEGAL RULES AS TO VALID OFFER

  • Offer must be communicated to the offeree: The offer is completed only when it has been communicated to the offeree. Until the offer is communicated, it cannot be accepted. Thus, an offer accepted without its knowledge, does not confer any legal rights on the acceptor. Offer must be made with a view to obtaining the assent of the other party. An offer must be distinguished from mere expression of intention. [Harris v. Nickerson (1873)]

In Lalman Shukla v. Gauri Dutt (1913), A’s nephew has absconded from his home. He sent his servants to trace his missing nephew. When the servant had left, A afterwards announced that anybody who discovered the missing boy would be given the reward of Rs.500. The servant discovered the missing boy without knowing about the reward. When the servant came to know about the reward, he brought an action against A to recover the same. But his action failed. It was held that the servant was not entitled to the reward because he did not know about the offer when the discovered the missing boy.

  • Special terms of the offer must also be communicated: If the special terms of the offer are not communicated, the offeree will not be bound by those terms. This question of special terms generally arises in case of standard form of contracts.
  • The offer must be certain, definite and unambiguous: No contract can come into existence if the terms of the offer are vague or loose and indefinite. Both the parties should be clear about the  contract,  its terms  and  the  legal consequences  that  may  follow  in  a particular  contract.

Sec.29 of Contract Act provides “a contract the terms of which is not certain and is not capable of being made certain is void for uncertainty”

Example: A offered to sell to B. ‘a hundred tons of oil’. The offer is uncertain as there is nothing to show what kind of oil is intended to be sold.

  • The offer must be capable of creating legal relation: The offeror must intend the creation of legal relations. He must intend that if his offer is accepted a legally binding agreement shall result. A social, moral or domestic agreement without any intention to create legal relation is not a contract because the presumption is that parties do not intend legal consequences to follow from breach of contract. For example, A invited B to a dinner and B accepted the invitation. It is a mere social invitation. And A will not be liable if he fails to provide dinner to B.
  • Offer may be express and implied: The offer may be express or implied. An offer which is expressed by words, written or spoken/oral, is called an express offer. The offer which is expressed otherwise than in words i.e. by conduct, is called an implied offer [Section 9].
  • An offer may be conditional: An offer can be made subject to a condition. In that case, the offer can be accepted only subject to that condition. A conditional offer lapses when the condition is not accepted.
  • Communication of offer must be complete and acceptance of such original offer only can make a contract i.e. a counter offer if made in place of acceptance will result in the lapse of the original offer:

Example: A offered to sell his pen to B for Rs.100. B replied, “I am ready to pay Rs.90. On A’s refusal to sell at this price, B agreed to pay Rs.100. Held, there was not contract as the acceptance to buy it for Rs.90 was a counter offer, i.e. rejection of the offer of A. Subsequent acceptance to pay Rs.100 is a fresh offer from B to which A was not bound go give his acceptance. This is called a counter offer and a counter offer amounts to rejection or lapse of the original offer after which original offer cannot be accepted.

  • Cross offer do not conclude a contract: Where two parties make identical offers to each other, in ignorance of each others offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract.
  • An offer must not thrust or put the burden of acceptance on the offeree: Offer should not contain a term the non-compliance of which would amount to acceptance. One cannot say while making the offer that if the offer is not accepted before a certain date, it will be presumed to have been accepted. Moreover, acceptance cannot be presumed from silence. Acceptance is valid only if it is communicated to the offeror.

Example: A writes to B, “I offer to sell my house for Rs. 40000. If I do not receive a reply by next Monday, I shall assume that you have accepted the offer.” There will be no contract if B does not reply.

  • An invitation to offer is not an offer: An offer must be distinguished from an invitation to offer. In the case of an “invitation to offer” the aim is merely to circulate information of readiness to negotiate business with anybody who on such information comes to the person sending it. Such invitations are not offer in the eyes of law and do not become promises on acceptance.

Example: Menu card of restaurants, price-tags attached with the goods displayed in any showroom or supermarket is an invitation to proposal/offer and not an offer in itself. If the salesman or the cashier does not accept the price, the interested buyer cannot compel him to sell, if he wants to buy it, he must make a proposal.

Similarly, job or tender advertisement inviting applications for a job or inviting tenders is an invitation to an offer. An advertisement for auction sale is merely an invitation to make an offer and not an offer for sale. Therefore, an advertisement of an auction can be withdrawn without any notice. The persons going to the auction cannot claim for loss of time and expenses if the advertisement for auction is withdrawn.

KINDS OF OFFER/PROPOSAL

  • Express offerWhen the offeror is expressly communicated by the offeror by words, spoken or written, the offer is said to be an express offer.
  • Implied offerWhen the offer is not communicated expressly rather an offer may be implied from the conduct of the parties or the circumstances of the case, it is said to be an implied offer.
  • Specific offerIt means an offer made to a particular person or to a group of persons. A specific offer can be accepted only by that person to whom it is made and communication of acceptance is necessary in case of specific offer.
  • General offerIt means on offer which is made to the public in general. General offer can be accepted by anyone. If offeree fulfills the term and condition which is given in offer then offer is said to be accepted. Communication of acceptance is not necessary is case of general offer. Mere compliance with the terms of the offer gives rise to a contract. In Carlill v Carbolic Smoke Ball Company Limited (1893), the Company advertised that a reward of $100 would be given to any person who would suffer from influenza after using the medicine (Smoke balls) made by the company according to the printed directions. One lady, Mrs. Carlill, purchased and used the medicine according to the printed directions of the company but suffered from influenza. She filed a suit to recover the reward of Rs.100. The court held that there was a contract as she had accepted a general offer by using the medicine in the prescribed manner and as such she is entitled to recover the reward from the company.
  • Cross offerWhen two parties exchange identical offers in ignorance at the time of each other’s offer, the offer’s are called cross offer. A contract comes into existence when any of the parties, accept the cross offer made by the other party.
  • Counter offerWhen the offeree gives a qualified or conditional acceptance of the offer i.e. an acceptance subject to modifications and variations in the terms of original offer, he is said to make a counter offer. In other words, an offer made by the offeree in return of the original offer is called as a counter offer. A counter offer amounts to rejection of the original offer.
  • Standing, open and continuous offerAn offer which is allowed to remain open for acceptance over a period of time is known as standing, open or continuous offer. Tender for supply of goods is a kind of standing offer. For example, when we ask the newspaper vendor to supply the newspaper daily, in such case, we do not repeat our offer daily and the newspaper vendor supplies the newspaper to us daily. The offers of such types are called standing offers.
  • Standard form of contractIn commercial transactions, usually parties do not intent to negotiate the terms of contract at every occasion. And therefore, the institutions such as banks, insurance policy departments etc. design a standard document to be signed with every person who intends  to avail services from such institutions. Such documents are called Standard form of contracts.

MODES OF REVOCATION OF OFFER (SECTION 6)

An offer may come to an end in any of the following ways stated in Section 6 of the Indian Contract Act:

  • By communication of notice of revocation: An offer may come to an end by communication of notice of revocation by the offeror. It may be noted that an offer can be revoked only before its acceptance is complete for the offeror. In other words, an offeror can revoke his offer at any time before he becomes before bound by it. Thus, the communication of revocation of offer should reach the offeree before the acceptance is communicated.
  • By lapse of time: An offer lapse-
    • If either offeror or offeree dies before acceptance.
    • If it is not accepted within-
      • The specific time, or
      • A reasonable time, if not time is specified

Where time is fixed for the acceptance of the offer, and it is not acceptance within the fixed time, the offer comes to an end automatically on the expiry of fixed time. Where no time for acceptance is prescribed, the offer has to be accepted within reasonable time. The offer lapses if it is not accepted within that time. The term ‘reasonable time’ will depend upon the facts and circumstances of each case.

  • By failure to accept condition precedent: Where, the offer requires that some condition must be fulfilled before the acceptance of the offer, the offer lapses, if it is accepted without fulfilling the condition.
  • By the death or insanity of the offeror: Where, the offeror dies or becomes, insane, the offer comes to an end if the fact of his death or insanity comes to the knowledge of the acceptor before he makes his acceptance. But if the offer is accepted in ignorance of the fact of death or insanity of the offeror, the acceptance is valid. This will result in a valid contract, and legal representatives of the deceased offeror shall be bound by the contract. On the death of offeree before acceptance, the offer also comes to an end by operation of law.
  • By counter offer by the offeree: Where a counter offer is made by the offeree, the original offer automatically comes to an end, as the counter offer amounts to rejection of the original offer.
  • By not accepting the offer, according to the prescribed or usual mode: Where some manner of acceptance is prescribed in the offer, the offeror can revoke the offer if it is not accepted according to the prescribed manner.
  • By rejection of offer by the offeree: Where the offeree rejects the offer, the offer comes to an end. Once the offeree rejects the offer, he cannot revive the offer by subsequently attempting to accept it. The rejection of offer may be express or implied.
  • By change in law: Sometimes, there is a change in law which makes the offer illegal or incapable of performance. In such cases also, the offer ends.

ACCEPTANCE UNDER INDIAN CONTRACT ACT

Acceptance is defined under Sec. 2(b) of Indian Contract act:

“When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.”

Alike a proposal, an acceptance may also be express or implied. When acceptance is made by words, spoken or written, it is an express acceptance. If it is accepted by conduct, it is an implied acceptance. Thus where a person boards a train or bus, he impliedly accepts to pay the usual fare.

Who may accept?

An offer can be accepted only by the person to whom the offer is made. It cannot be accepted by another person without the consent of the person making it. Specific answer to this question may be given regarding type of offer-

  • In case of specific offer– Can be accepted only by the person to whom that offer was made.
  • In case of General offer– An offer made to the world at large or public in general (called general offer) can be accepted by any person having knowledge of the offer by fulfilling the terms of the offer.

How to make acceptance?

Like an offer, an acceptance may also be either ‘express acceptance’ i.e. by words, oral or written or ‘implied acceptance’ i.e. otherwise than by words which means by conduct.

REQUIREMENTS OF A VALID ACCEPTANCE

  • Acceptance must be absolute and unconditional: As per Sec. 7(1), an acceptance must be unconditional and unqualified. Accepting an offer with conditions, variations and reservations amounts to a counter offer and rejection of the original offer. The acceptor must comply with the terms of the offer. A variations or alteration, however, small of the offer, will make the acceptance invalid.
  • Acceptance must be communicated to the offeror: If the offeror remains silent and does nothing to show that he has accepted the offer, no contract is formed. The acceptor should do something to signify his intention to accept. Thus, where a person accepts an offer but fails to post the letter of acceptance, it is no acceptance.
  • Acceptance must be within a reasonable time: Acceptance to be valid must be made within the time allowed by the offeror and if no time is specified, it must be made within a reasonable time.
  • It must be according to the mode prescribed or usual or reasonable mode: As per Sec. 7(2), if the proposal does not prescribe the manner in which it is to be accepted, then the offer must be accepted in some usual and reasonable manner. And if the proposal prescribes the manner in which it is to be accepted then the offer must be accepted in the prescribed manner only, within a reasonable time. Acceptance should be exactly made as is demanded by the offeror. This is also called mirror image rule.”
  • Offer should not contain a term the non-compliance of which would amount to acceptance. One cannot say while making the offer if offeree remains silent then acceptance shall be presumed from such silence. Silence is not permitted as a mode of acceptance in law. Acceptance is valid only if it is communicated to the offeror.

GENERAL RULES AS TO COMMUNICATION OF REVOCATION, OFFER AND ACCEPTANCE

When parties are at a distance and the offer and acceptance are exchanged through post, rules are contained in Sections 3 and 4.

  1. Communication of proposal is completeWhen it comes to the knowledge of the person to whom it is made i.e. the offeree. In case an offer is made by post, its communication will be complete when the letter containing the offer reaches the offeree.
  2. Communication of acceptance is completeThe communication of acceptance is complete at different times for the proposer and acceptor. The rules regarding the communication of acceptance are as follows-
  • As against the proposer: As soon as a duly addressed letter of acceptance is put into the course of transmission i.e. when the letter of acceptance is posted so as to be out of reach of the acceptor, whether the same reaches the proposer or not. Thus, mere posting of letter of acceptance is sufficient to conclude a contract. However, the letter must be properly addressed and stamped. Where the letter of acceptance is posted by the acceptor but it never reaches the offeror, or it is delayed in transit, it will not affect the validity of acceptance. The offeror is bound by the acceptance.
    • As against the acceptor: As soon as the proposer receives the letter of acceptance.
  • ACCEPTANCE BY TELEPHONES TELEX OR FAX: Such contracts are treated on the same principle as an oral agreement made between two parties when they are face to face with

each other. In such cases, the communication of acceptance is complete when the acceptance is received or is heard by the offeror and not when it is transmitted by the offeree. The contract is concluded as soon as the offeror receives or hears the acceptance. Therefore, the acceptor must ensure that his acceptance is properly received by the proposer.

  • THE PLACE OF CONTRACT: In case of acceptance by the post, the place where the letter of acceptance is posted is the place of contract. Where the acceptance is given by instantaneous means of communication (telephone, fax, telex etc.), the contract is made at the place where the acceptance is received or is heard.

COMMUNICATION OF REVOCATION OF OFFER AND ACCEPTANCE

The term revocationmeans ‘taking back’ or ‘withdrawal’. Rules regarding revocation have been incorporated under Sec. 5 of the Contract Act. The communication of a revocation is complete as against the person who makes it when it is put into the course of transmission. As against the person to whom it is made, when it comes to his knowledge.

Time limit for revocation of offer: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterward. We know that communication of acceptance is complete when a properly addressed and stamped letter of acceptance is duly posted by the acceptor. Hence, an offer can be revoked at any time before the letter of acceptance is duly posted by the acceptor. Thus, the proposer may revoke his offer by a speedier mode of communication which will reach before the letter of acceptance is posted by the acceptor.

RULES REGARDING REVOCATION:

  • Revocation must always be express.
  • Revocation must move from the offerer/proposer himself or through a duly authorised agent
  • Notice of revocation of a general offer must be given through the same channel by which the original offer was made.
  • Offer can be revoked even if the letter of acceptance is lost or delayed in transit.

Time limit for revocation of acceptance: According to Sec. 5, “An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards”

We know that communication of acceptance is complete as against the acceptor when the letter of acceptance is actually received by the proposer. Hence, an acceptance can be revoked at any time before the letter of acceptance is actually received by the proposer. Thus, the acceptor may revoke his acceptance by a speedier mode of communication which will reach before the letter of acceptance is received by the proposer.

RELEVANT CASES ON OFFER AND ACCEPTANCE

  • Lalman v. Gauridatta (1913)
  • Adams v. Lindsell (1818)
    • Bhagvandas Goverdhandas Kedia v. Girdharilal Pursottamdas (1966)
    • Powell v. Lee (1908)
    • Felthouse v. Bindley 1863
    • Harvey v. Facey (1893)
    • Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. (1952)
    • MC Pherson v. Appanna (1951)

You can also Read: Essentials of Contract

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Types of Agreement

Three main types of agreement under the contract Act

  • 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 without consideration, an agreement, in restraint of marriage, and an agreement in restraint of trade.

  • Voidable Contracts

An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other, is a voidable contract.

Thus, a voidable contract is one which could be avoided by one of the parties to the contract at his option.

For eg, when the consent of the party to a contract has been obtained by coercion, undue influence, fraud and misrepresentation, the contract is voidable at the option of the party whose consent has been so obtained.

  • Unlawful agreements

There are certain types of agreements that are “unlawful” in the sense that the law forbid the very act, the doing of which is contemplated by the agreement. For eg, an agreement to commit a crime or a tort.

To distinguish an unlawful agreement from other void agreement, it is stated that while in case of void agreement a collateral transaction may not also be avoid, but in case of 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.

Difference between Void Agreement and Voidable Contract

  1. A voidable contract is voidable at the option of one of the parties thereto. But a void agreement cannot be enforced by any one of the parties thereto.
  2. The defect in the case of voidable contract is curable and may be condoned, whereas a void agreement is void ab initio, and its defects are not curable.
  3. A voidable contract does not become void unless the party at whose option it is voidable repudiates it. But a void agreement is void ab initio.
  4. A voidable contract implies a contract, in which the consent of one of the parties to contract is not free, whereas a void agreement denotes an agreement, which does not fulfill the essentials of a valid contract.
  5. In case of a voidable contract, a person is entitled to compensation for loss or damages suffered by him on account of the non-performance of contract. But in a void agreement, as it is unenforceable at law there does not arise any question of compensation due to the non performance of the agreement.

Also Read: Essentials of Contract

Reference

Indian Contract Act

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Essentials of Contract

What are the essentials of contract under Indian Contract Act?

DEFINITION 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 expressly declared to be void. The agreement which is not enforceable by law is not called a 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.”

ESSENTIALS OF CONTRACT

All agreements are contracts if they are made

  • Between Two persons
  • 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 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

Also Read: What are the Essentials of the Valid Contract in India

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Essentials of the Valid Contract in India

This Article talks about the essentials of the valid contract : Sakshi Sharma, 10 October, 2020

INTRODUCTION: Essentials of the Valid Contract

Every country got the laws which govern the contracts executed in their jurisdiction. Therefore, in India, we have Indian Contract Act, 1872 to govern the contracts executed in India so that in the event of dispute, their legality or validity can be established and judiciary will have uniform approach to see or judge the cases even the Indian Contract Act, 1872 aims at regulating the contracts registered under this act. It has all the provisions which regulate all the contracts, reliefs in case the contract is rescinded and define the legality of the contract as well.

This Act came into effect at the time when India was ruled by British means pre independence era. The objective of the Contract Act is to ensure that the rights and obligations arising out of a contract are honored and that legal remedies are made available to an aggrieved party against the party failing to honor his part of agreement. The Indian Contract Act makes it obligatory that this is done and compels the defaulters to honor their commitments. It extends to the whole of India. It came into force on the first day of September, 1872. The sale of Goods was repealed from this Indian Contract Act in 1930. Contracts relating to partnership were repealed in 1932.

Valid and invalid contracts

According to the Merriam Webster’s dictionary, “a Contract is a binding agreement between two or more persons or parties; especially: one legally enforceable.” 

Section 2(h) of the Indian Contract Act, 1872 gives a broader definition. It defines, “an agreement enforceable by law is a contract.”An agreement comprises of complementary promises between the two gatherings 

To be enforceable by law, an agreement must have the fundamental components of a legitimate contract as contained in Section 10 of Indian Contract Act. 

Section 10 of the Act, 1872 says “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

The fundamentals required for a valid contract are; 

  1. ‘An agreement’ between the two parties. As we know, Section 2(e) of the Act, 1872 defines agreement. 
  2. Agreement ought to be between the ‘parties who are competent to contract’. Section 11 says the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject. 
  3. ‘There should be a lawful consideration and lawful object’. As the Section 23 of the Act says, the consideration or object is lawful when it is not illegal, or fraudulent, or involves injury to the person or property, or immoral, or opposed to public policy. 
  4. There ought to be ‘free consent’. As Section 14 says, Consent is said to be free when it is not caused by coercion, or undue influence, or fraud, or misrepresentation, or mistake. 

An invalid Contract may be of two sub-types, one being void and the other voidable. The understanding must not be one, which has been explicitly pronounced to be void. Sections 24-30 give certain types of agreements which have been expressly declared to be void.

Essentials of Valid contract in India are:

Proposal/Offer

  • According to S. 2 (a), when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. The expression ‘offer’ is synonymous with ‘proposal’.
  • Expressed and Implied Offer
  1. By words (written or oral): A written offer can be made by letters, telegrams, telex messages, advertisements, etc; whereas, an oral offer can be made either in person or over the telephone, etc.
  2. By conduct: An offer may be made by positive acts or signs so that the person acting or making such signs means to say or convey, or such acts or signs have the effect of communicating/ conveying his offer.

Acceptance

Section 2(b), when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. So, acceptance is the act of giving consent to the proposal. An offer (proposal), when accepted, becomes a promise. Acceptance must, as a general rule, be communicated. Acceptance should be made (communicated) by doing some overt act, either by words or conduct.

This is a matter of common sense, yet communication is not absolutely indispensable. It is not necessary in the case of unilateral promises. No contract is concluded if the offeree remains silent and does nothing to demonstrate that he has accepted the offer. Mental acceptance or without communication assent does not give rise to any contract. The Indian law requires the offeree to know of the offer in order to validly accept it. Acceptance should be ‘absolute and unqualified’ in all the terms of the offer. If there is any discrepancy between the terms of the offer and the terms of the acceptance, there will be no contract.

Competent/Capacity to Contract

S.10 of the Indian Contract Act – For a contract to be a valid contract, the parties to the contract must be competent to contract.

S. 11 provides that ‘every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject’. Accordingly, it is clear that incapacity to contract may arise from: (i) minority, (ii) mental incompetence, and (iii) status.

The following 3 categories of persons are not competent to contract: 

1. A person who has not attained majority – a minor 

2. A person who is of unsound mind 

3. A person who has been disqualified from contracting by some law.

ALSO READ: Daughters Right to property: An Analysis

Consideration and object

According to Section 2(d), Consideration is defined 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 consideration for the promise“. Consideration in contract refers to ‘something in return’. A promise made without consideration is merely gratuitous and, however sacred and binding in honour it may be, it cannot create a legal obligation.

An analysis of any contract shows that it consists of two parts: (i) promise and (ii) consideration for the promise. According to S. 24 of the ICA, if any part of a single consideration for one or more objects, or anyone or any part of any one of several considerations for a single object, is unlawful, the agreement is void. One of the requirements for the formation of a valid contract is that parties must contract for a lawful object. Section 23 renders certain considerations and objects as unlawful.

Although there are some exceptions

  • Natural love and affection
  • Past voluntary services
  • Promise to pay a Time-Barred Debt
  • Creation of an Agency
  • Gifts 
  • Bailment
  • Charity 

Consent and Free Consent and their effect on Validity 

Free consent is an essential element of valid contract. S.13 of Indian Contract Act, 1872 defines Consent as “Two or more persons are said to consent when they agree upon the same thing in the same sense.” If there is no consent of the parties in the sense it has been defined in S.13, no agreement will be created and hence no contract.

S.14 of the Indian Contract Act, 1872 defines Free Consent as: 

Consent is said to be free when it is not caused by 

(1) Coercion, as defined in section 15, or 

(2) Undue influence, as defined in section 16, or 

(3) Fraud, as defined in section 17, or 

(4) Misrepresentation, as defined in section 18, or 

(5) Mistake, subject to the provisions of sections 20, 21, and 22.

Conclusion :

Contract law is founded on the principle that individuals are the bearers of rights, and they bargain with each other to get into contract to exchange goods and services. If abiding these agreements becomes a matter of individual discretion, the entire social and economic order founded on contracts would fall down. In order to avoid such circumstances contract law came into existence .

A contract is a civil obligation. However, all obligations are not contracts. Contract law does not cover a whole range of civil obligations; it confines itself to the enforcement of voluntarily created civil obligations. There are many obligations of civil nature, like those created by the acceptance of a trust or imposed by law, whose violation may be actionable under the law of trusts: or the law of torts, or under a statute; but, they are outside the purview of contract. Similarly, the contract law does not deal with a whole range of agreements. Many agreements remain beyond the scope of contract law, as they do not fulfill the requirements of a contract.

Moreover, there are some agreements which, in the literal sense, appear to satisfy the requirements of a contract (such as, offer, acceptance, etc), but still (they) are not enforced as contracts because they do not catch the spirit of a contract. They are excluded under the legal contrivance that the parties must not have intended legal consequences to follow. Contracts are the most essential part of society. A contract can be oral or written, formal or informal, every trade, relations, etc are built upon contracts. There are social contracts and private contracts that bind people in a society, and the law helps them to carry out the agreements made by them.