nature and elements of contract

unit 1

Contract

Sec 2(H) - an agreement enforceable by lawIt involves a mutual consent between parties to create legal obligations and can be either written or verbal, depending on the circumstances.

Agreement

sec 2(E)- every promise and every set of promises forming consideration for one another (proposal+acceptance+consideration)

Promise

Sec 2(B)- when the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted and becomes a promise

Essentials of a valid contract

section 10 - all agreements are contracts if they are made with free consent of all parties competent to contract for a lawful consideration and with a lawful object and are not expressly declared to be void

• offer and acceptance

• free consent

• capacity of parties

• consideration

• lawful object and consideration

• not expressly declared void

non sec 10 elements

• two parties

• intention to create legal obligation

• formalities to be complied with in certain cases

• certainty of meaning

• possibility of performance of agreement

Case law- two parties

contract must be made by two natural persons or having legal existence with ascertainable identities.
Case law- state of gujarat vs. ramlal& co- when firms assets were being distrubuted on dissolution, tax officer could not tax them as a sale as there was no sale- partner cannot be both buyer and seller.

Case law- intention of legal obligation

no social or domestic agreements, only legal relationships
case law- balfour vs. balfour- a husband promises to pay his wife an amount as maintenance for every month he was abroad, when he failed to pay the promised amount, his wife sued hum for recovery.
This is a social agreement with no intention to create a legal relationship

capacity of parties

as per sec 11- legal ability of a person to enter into a valid contract

1. age of majority according to law which he is subject (18)

2. to be of sound mind at time of contract

3. is not otherwise disqualified from contracting by any law to which he is subject

valid, void contract

valid- an agreement which is binding and enforceable and contains all the essential elements of a valid conract

void- sec 2 (J)- contract which ceases to be enforceable by law

voidable

voidable- 2(I) an agreement which is enforceable by law at the option of one or more parties thereto, but not at the option of other or others is voidable- (legally entitled to avoid performance of contract
-when consent of the parties is not free is caused due to fraud, coercion, undue influence and misrepresentation
-when the other person prevents other to performing his promise
-when party cannot fulfill promise within time specified

illegal & unenforceable

illegal- sec 2(G) an agreement not enforceable by law due to unlawfull object or consideration- collateral agreements are also void
unenforceable- technical defect in a contract makes it unenforceable

types of contracts on the basis of formation

express- sec 9 - terms are expressed in words or by writing
implied- existence through impliciation by course of dealings
tacit- silent conratcs - eg withdrawing money from atm
quasi - law enforces legal rights and obligations when no real contract exists

types of contracts on the basis of performance

executed- when act is executed or forebearance is brought on record, contratc is executed
executory- consideraition is reciprocal promise or obligation to be performed in the future (unilateral and bilateral)

offer

sec 2(A)- when one persons signifies his willingness to do or abstain from doing anything with.a view to obtaining assent of that other to such act or abstinence is called making a proposal

general offer - case law

sec 8 - anyone performing the conditions of the offer can be considered to have accepted the offer, until the general offer is retracted.
carlill vs. carbolic smoke ball co.- CSB advertised 100 prize for anyone who contracted influenza after using the smoke balls. mrs carlill used the balls in direction of company and suffered influenza, she is entitled to the recovery amount.

specific offer case law

offer made to a speific and ascertained person

boulton vs. jones

essentias of valid offer

1. must be capable of creating legal relations

2. must be certain definate and not vague

3. must be communicated

4. must be made with a view of obtaining assent of party

5. may be conditional

6. should not contain non compliance term of which would amount to acceptance

7. may be specific or general, express or implied

8. offer is different from statement of invitation, invitation to offer, prospectus, advertisement or communication of information

9. statement of price is not offer

invitation to offer +case law

offers made with the intention to negociate on terms or receive offers are invitiations.

case law- harvey vs. facie- plaintiff asked the defendancnt quesitions- will you sell us bumper hall pen, telegraoh lowest cash prize. defendant sent telegram quoting pen at 900, plaintiff replied with we agree to buy at 900, defendant refused to sell. privy council sided with them as they had only replied to question and made no offer to sell

legal rules for valid acceptance

-can only be given by to whom offer is made

-must be absolute and unqualified

-must be communicated

-must be in prescribed mode

-withitn specified time limit (reasonable)

-mere silence is not acceptance

-acceptance by conduct or implied acceptance under sec 8

case law- acceptance by offeree

boulton vs jones- boulton bought a business from brocklehurst. jones was ’ creditor and placed an order with brocklehurst. boulton supplied the goods but jones refused to pay boulton as he inteded to set off debt with goods. since the debt was not made by boulton, there was no contract between bouton and jones

case law- absolute acceptance

sec 7 neale vs. merret M offered to sell land for 280, N replied with cheque of 80 promising to pay 200 in monthly instalments. this acceptance is not unqualified

case law- communication of acceptance

brogden vs metropolitan railway co.- B sent a draft agreement relating to coal supply to metropolitan railway for his acceptance. the manager approved it and put the draft in his drawer intending to send it to the solicitor for a formal draft agreement, but due to an oversight it remained in the drawer and the accrptance was not communicated

case law- silence as acceptance

felthouse vs. bindley - F offered to buy his nephews horse for 30 saying, if i hear no more about it i shall consider it mine, the nephew did not reply to F and told his auctioneer B to keep the horse out of stock, by mistake B sold the horse. F cannot sue his nephew as he had not yet communicated the acceptance to him

communication of offer

sec 4- the communication of offer is complete when it comes to the knowledge of the person to whom it is made.

communication of acceptance

sec 3 by act, ommision or by conduct

sec4- it is complete as against the proposer when it is put in the course of transmission so as to be out of power to withdraw the same and as against the acceptor when it comes to the knowledge of the proposer.

case law- central bank yeotmal vs vyankatesh- because communication of decision of bank to sell land remained incomplete

2 case laws - tacit acceptance

1. Mukul datta vs indian airline- plaintiff travelling from delhi to kolkata by air had a ticket bearing ocniditons in fine print and they are known to be tacitly accepted if they are reasonable

2. lily white vs. manuswami plaintiff had given clothes for dry cleaning under the terms that if thwy were lsot they would be entitled to 15% of the price , P cannot sue for recovery of ful price as it was a tacit acceptance of the terms

communication of performance- 3 principles of court

1. an offer to be capable of acceptance must create a definite promise by the other that he would be bound provided the terms specified are accepted

2. an offer may be made either to a particular person or general

3. if an offer is made in the form of a promise in return for an act, the performance of that act, even without communication must be treated as acceptance of the offer

revocation of offer

communication of revocation is same as sec 4.

sec 5 a proposal can be revoked at any time before the communication of the acceptance is complete against the proposer
an acceptance can be revoked at any time before the communication of acceptance is complete as against the acceptor

modes of revocation

1. by notice of revocation

2. by lapse of time (specified or reasonable)

3. by non fulfilment of condition precedent - sec 6 failure to satisfy any condition results in lapse of offer

4. by death or insanity if it comes to knowledge of acceptor

5. by counter offer

6. by non acceptance of offer according to prescribed or usual mode

7. by subsequent illegality