INDIAN CONTRACTS ACT, 1872 –
GENERAL PRINCIPLES
Contract
is a transaction between two parties, creating legal right and obligations. The
basis for such a concept is that no person is self-sufficient and therefore,
requires other individuals to meet daily needs. Contract is a creation of law,
parties are free to enter into agreement, but not all agreements are contract,
only those agreement enforceable by law (i.e. not hit by provisions of Law of
Contract) are contract, therefore, Contract is creation of a statute/ law.
Sources
of any law are – Legislation (Acts), Case Law/ Presidents (Art. 141), Customs
& Usages and Books (Mulla, Avtar Singh, etc.). ICA, 1872 is a
pre-constitutional law, but is still applicable because of the effect of Art.
372/ 395, which provides laws not repealed are applicable.
Every
contract creates promises and legal rights and obligations/ duties. A party
promises and the other party accepts, it is negotiation, and if successful
gives rise to agreement. Therefore, ‘law of contract’ is ‘law of promises’
because it provides promise – who, why, when to be performed and consequences
for non-performance.
Agreement
arises when negotiation i.e. proposal and acceptance are completes. Therefore,
here three possibilities may arise – (a) contract; (b)void agreement & (c)
voidable contract.
An
agreement is stands the provisions of sec. 10 will be contract and enforceable
by law and promise is actionable[S.2(h)]. The provisions of sec. 10 provides 5
essentials – (a)free consent of the parties; (b)parties competent to contract;
(c)for a lawful consideration; (d)for a lawful purpose; & (e)not expressly
declared to void under provisions hereinafter contained i.e. ICA.
[Therefore, contract is a
creation of law and not of parties]
Indian
Contract Act is a peculiar branch of Substantive
law, where right and obligation are created by the parties themselves. ICA
is a purely civil matter, no criminal action can be taken if contract not
fulfilled [Sheran Michael v. State of
Tamil Nadu (2009 SC)]. But, law of contract is not exhaustive on civil
obligations, it does not deal with other civil legal obligation arising from
other substantive laws, e.g. family law, trust law, property laws, etc.
AGREEMENT
AND CONTRACT
Every
agreement fulfilling the conditions of Sec.10
is a contract enforceable by law and the promise is actionable- Sec.2(h). Therefore, not every
agreement is contract. [Short Answer Sec.10+2(h) & Long Answer
Agreement/Promise/Proposal/ Acceptance/Sec.2(h)/Sec.10]
ESSENTIALS
PROPOSAL
– SECTION 2(a)
When
one person signifies his assent to other to do or to abstain from doing
anything with a view to obtaining his assent to such act or abstinence is said
to make a Proposal.
(1)Two
persons are required – person can be legal or natural.
(2)signifies
– means communicating. An act or conduct with the intention which has the
capacity of communicating to the other about a proposal i.e. making it know to
the other, bringing into other’s notice.
(3)willingness
– means desire or the intention, which is made out of free will, or the
person’s own choice and will.
(4)to
act or abstain from anything – proposal can be to do an act for other or not to
act on something which forms the subject matter of the contract.
(5)with a view to obtain assent from
other – the proposal shall be with the sole purpose of obtaining an affirmative
answer from the other towards such act or omission.
ACCEPTANCE
– SECTION 2(b)
When
a person to whom a proposal is made signifies his assent thereto, is said to
have accepted the proposal.
(1)person
– Acceptance by the person to whom the proposal was made and not any other
person [Privity of contract].
(2)signifies
– communicates i.e. intention to bring into the other notice.
(3)his
assent – an affirmation of the will/ intention to accept the proposal.
(4)thereto
– to the proposal in toto, without any modification.
PROMISE
– A proposal when accepted is promise. Parties never say or write a promise, it
is automatic operation of fact. Proposal made and accepted is promise.
SECTION
2(c) – Proposer is one who makes proposal, becomes Promisor. AND the Acceptor becomes the Promisee.
PROPOSER – PROMISOR – ACCEPTEE.
PROPOSEE – PROMISEE
– ACCEPTOR.
CONSIDERATION
– SECTION 2(d)
Consideration is the price for the promise.
When at the desire of the promisor, promisee or any other person on his behalf has
done or abstained from doing an act, or does or abstains from any act, or
promises to do or abstain from doing ac act. Such act, abstinence or promise is
called consideration for the promise. Therefore, price for the promise is
called consideration. And such price can be past, present or future.
There can be no contract without a price
(i.e. Consideration). Future consideration is executory contract.
AGREEMENT
– SECTION 2(e)
(1)Every
promise is a consideration; OR (2)Every set of promises which form
consideration of each other is a consideration.
(1)A
proposal is accepted and therefore only 1 promise of there in the contract,
such promise is agreement i.e. act or omission of one which is accepted by
other is agreement i.e. subject matter.
(2)A
proposal is made, and in return for price the other party promises. Here two
promises are there and each forms consideration from each other. P1 is
consideration to P2 and vice-a-versa, therefore, each promise forming
consideration for each other is agreement. This is also known as Reciprocal Promises [Sec.2(f)] [Reciprocal-
literally means INVERSELY]
Requirement
for Agreement are 4 – (a)two parties; (b)proposal by one; (c)acceptance by the
other; & (d)consent of both the parties. Consideration is another
requirement but not the ultimate test. Sec.
25 provides that an Agreement without Consideration is void, therefore, in
some way, there can be an Agreement without consideration, but it is void
except for due exception provided in provisions of law.
INTENTION TO CONTRACT
Not
all agreement with above requirements becomes Contract. English law provides
the theory of Intention to Contract, Indian Law is silent but it has been
upheld by Court of Law. Intention to Contract is 5th requirement in
an agreement apart from above 4 – (a)two parties; (b)proposal by one;
(c)acceptance by another; & (d)free will of both the parties.
In
Darlymple v. Darlymple, Lord Stowell said that “contract
is not a sport of idle time”. For a contract both parties must have an
intention to contract i.e. to say that by an agreement they must have an
intention to enter into a binding promise which will be actionable if not performed.
English
Law defined Agreement into 3 categories – (a)domestic; (b)social &
(c)commercial. Mercantile law is concerned with the 3rd category,
and rest of the two are not actionable as they lack the necessary mercantile
capacity/ feature. Balfour v. Balfour is a perfect example of domestic
agreement, where a husband promises his wife to pay a certain sum in their
domestic relationship, however if between same parties, this agreement is
entered into for the purpose of business between them, it will fall under 3rd
category i.e. commercial and is actionable. Social Agreement are agreement
between friends, social group-mate which lack the binding legal relation.
Indian
Law in this regard is devolved from case law, and in CIT v. Abdul Hussain, the Hon’ble Supreme Court said that test of
intention is objectivity and not subjectivity test; thereby the Indian Law accepted
the intention to contract principle.
REQUIREMENTS AND STAGE OF
FORMING OF CONTRACT
TWO
PARTIES
Two
Parties are essential to constitute a contract. One cannot contract with
oneself.
* State of Gujarat v. Ram Sahal [Guj. H.C.]
– Sale of rum in unregistered club.
PROPOSAL
– Sec.2(a)
No
proposal non Contract – Proposal gets accepted
becomes promise, consideration i.e. price is paid for this promise, this
consideration is basis of agreement, and such agreement becomes contract, therefore,
no proposal no contract.
* Lalman Shukla v. Gauri Dutt [All. H.C.] [reward
on search of missing boy] – Proposal
shall be made and must be in knowledge to the other party. Also, there must be
proposal, price tag at a shop is not proposal (offer-in E.L.) but only supply
of information. Illustration, when a customer chooses a product and
gives it to shopkeeper is proposal and acceptance to sell is to be made by the
shopkeeper.
* Harvey v. Facey [Bumper Hall Pen Case],
mere supply of information regarding price of pen, and no communication as to
sell the pen, is not a proposal. Same upheld in Macpherson v. Apanna [SC] in India.
INVITATION
TO OFFER – PROPOSAL – CROSS PROPOSAL – COUNTER PROPOSAL
Invitation is Offer is inviting the other
to propose, i.e. inciting other to propose, eg. price list, catalogue,
quotations, railway and bus timetable, tender/notice, auction notice. Pharmaceuticals Society of Great Britain v.
Boof Cash Chemicals, medicine in shop shelves are invitation, and not
proposal.
Proposal is not binding on the other party.
The other party may either refuse to answer or even reject the proposal, both
have the same legal consequence that there is no promise.
Upon proposal, thus, the other party may –
(a)reject; (b)accept; or (c)modify.
A proposal modified, is called counter
proposal, and the legal consequences are that a new proposal is made, the
old is deemed rejected. This modification can be of (a)terms; (b)price; or
(c)condition. Cross proposal is where on the same subject matter both
the parties make same proposal.
Sec. 7
clearly provides that the acceptance must be absolute and unqualified.
Acceptance must be there by words spoken or written or even conduct sufficient
enough to convey that proposal is accepted.
Sec. 4
– Communication is complete when it comes into the knowledge of the other. It can
be actual or constructive e.g. letter of proposal received and read is actual,
but if letter received but not read – is constructive, law supposes here that
letter was read, called Legal Fiction. But where proposal letter lost, it is not
proposal at all, because never came in the notice of the other about such
letter.
Sec. 3
– provides that the communication shall be by any act/omission with such
intention to communicate. Sec. 7(2)
provides that such communication be made in a reasonable manner, reasonable
depends upon the common course of communication depending upon the current
means available, e.g. call, letter, emails, fax, conference, etc. TEST IS
OBJECTIVE–always.
PROPOSAL
– GENERAL & SPECIFIC
General
is made to the public at large (unidentified), and Specific is meant for a specific
person(s) (identified). Lalman Shukla v.
Gauri Datt & Harbhajan v.
Harbhajan, Court held that General Offer is good offer. Further held, that
offer can be general but acceptance must be specific, and shall act on first
come first serve basis.
Acceptance
can be express- oral or written; or by fulfilment of conditions stipulated in
the proposal. As was in the case of Harbhajan
v. Harbhajan (General Proposal-find the boy; boy found and taken to P.S.,
therefore, fulfilment of condition, and hence agreement, promise actionable).
ACCEPTANCE
– SEC. 2(b)
No
acceptance, no contract. The person to whom proposal is made, he himself or his
agent signifies his assent thereto the proposal is said to accept.
Sec.
7(2) acceptance must be absolute and unqualified, i.e. Mirror Rule as
said by Mulla.
COMMUNICATION OF ACCEPTANCE
& COMMUNICATION OF REVOCATION
When Complete – Sec. 4(2)
(1) Communication of Proposal as against
Proposer complete when put into course of transmission so as to out of the
power of Proposer.
(2) Communication of Proposal as against
Acceptor complete when it comes into his knowledge, means received by the
person to whom intended.
There are two cases – Parties inter-presentees
and Parties inter-absentees. The test is not sight and distance but direct or
indirect talking.
Noteworthy
to note here that in case of parties inter-presentee, the time of communication
of proposal complete is same as for both the parties. Therefore, rule u/S.4(2)
applies only in case of parties inter-absentees [Bhagwan Das v. Girdhari Lal
(SC)].
Communication of Acceptance complete as
against Acceptor when it comes to the knowledge of Proposer.
Communication of Acceptance complete as
against Proposer when it is put into course of transmission so as to put it out
of power of Acceptor.
[Above
rule to apply only in case of parties inter-absentees, because in case of
parties inter-presentee, communication of acceptance is complete at the same
time.]
* Kallu Ram Kesharvani v. State of Madhya
Pradesh [MP HC]
Acceptance
is complete against Proposer when it is put into course of transmission by Acceptor,
therefore, agreement arise as soon as the letter is dispatched. And hence, if
the letter of acceptance is lost, it will make no difference and the promise is
actionable.
REVOCATION
– SEC.5
Revocation of Proposal
can be made on or before the acceptance is complete as against Proposer i.e. letter
of acceptance is put into course of transmission so as to put it out of
power of acceptor. Similarly, Revocation of Acceptance can be made at or
before it is complete as against Acceptor i.e. letter of acceptance comes
into knowledge of the Proposer.
[Above
rule applies only in cases of parties inter-absentees, because in case of
parties inter-presentees, revocation is made at the same time for both the
parties.]
When
the letter of proposal/ acceptance and revocation reaches the same time, then
it is revocation [Illustration to Sec. 5].
Also, the test shall always be objective and not subjective. Objective in the
sense as to what the society thinks it is and not what the subject (i.e. the
person making) meant/ says.
DISCHARGE
OF CONTRACT
On
discharge, parties are relieved from their obligations and the contract is no
more, none has to perform. Neither promisor nor promisee has any obligation
towards each other. There can be 5 methods of discharge – (1) performance of
contract [most honourable discharge of contract]; (2) by impossibility arising
subsequently [Sec. 56 Para 2]; (3) by mutual agreement [Sec. 62 & 63]; (4)
breach of contract [worst/ unfortunate method of discharge] OR (5) lapse of
reasonable time [a time depending on each case, where both party failed to act/
initiate].
DISCHARGE OF CONTRACT BY MUTUAL
AGREEMENT – SEC. 62 & 63.
Sec. 62
– Both parties agree to (a) substitute a new contract for it called Novation;
(b) to resign called Rescission; or (c) to alter it called Alteration. In each
of the 3 cases there are two contracts – original/ old contract and fresh/ new or
no contract (in case of recession) contract.
Rescission
is of two types – bilateral and unilateral. Bilateral is where both parties
agree it is recognized u/S 62 of the Act, whereas unilateral is where one party
can get the contract rescind as provided u/S 19/19A. A suit for rescission is filed u/S 27 of the Specific Reliefs Act, 1963.
Sec. 63
– Excuse by the Promisee, i.e. the Promisee may dispense with or remit the
performance, wholly or in part. Here the Promisor is at the mercy of the
Promisee. Whole or part may be dispensed with or time may be extended by the
Promisee, its entirely his discretion.
IMPOSSIBILTY ARISING AFTER
ENTERING INTO CONTRACT
When
a contract is made, and any of the party dies thereafter, the Contract
continues or may become impossible. Sec. 37(2) provides that an agreement once
made binds the parties and if unable to perform, it binds the legal
representative of that party. But if contract involves pure personal obligation
e.g. personal skill and knowledge, then the contract is called to be
subsequently impossible, which is Void Contract, [more correctly it is Contract
becoming subsequently void].
CONSIDERATION
– SEC. 2(e) & 25
Every
act or abstinence or promise is consideration for the promise, i.e. the price
for the promise. Latin maxim – “Nudum
Pactum Obiter Non-Actio” which means “out of naked pact no cause of action
arises”. Therefore, consideration is must in a contract. Sec. 25 also provides
that an agreement without consideration is void, except where provided by the
provisions of law.
EXCEPTIONS
to agreement without consideration which are contract are –
(1) S.25(1)-an agreement in writing,
duly registered which is made out of natural love and affection
between parties in near relations i.e. blood, marital, etc (but strict
interpretation).
(2) S.25(2)-promise to compensate
wholly or partly for any act done voluntarily.
(3) S.25(3)-promise made in writing and
signed by the promisor or his authorized agent to pay any time
barred debt.
(4) S.150-Gratutious Bailment.
(5) S.185-Law of Agency/ Agency Agreement.
(6)
S.122 Transfer of Property Act – Agreement of Gift/ Gift Deed. And Explanation I to Sec. 25
Consideration
is something for the price. This something must be valuable in the eyes
of law. Above 6 prepositions are not something, because they are exception,
they are not something in the eyes of law, that is why they are in the
exception, had they mean something then no need was there to carve separate
exception for them.
This
Something can be a detriment or
liability or an act or omission which are real and valuable in the eyes of law.
At the desire of promisor, consideration can be a detriment. E.g. of Subscription Rule, where on the
representation or promise of the promisor, promisee does something and incur
liability, now, the promisor has to perform his promise. It is based on the
principle of Promissory Estoppel
[a.k.a Detriment Rule; Injurious Reliance Theory].
EXPLANATION II to S.25
– provides that adequacy of consideration does not render an agreement void
provided the consent was free, however, it may draw a suspension as to free
consent.
LAWFUL
CONSIDERATION AND OBJECT – S. 23/24/57/58.
Consideration
is the price for the promise and Object is the purpose of the agreement i.e.
what parties want to achieve. Consideration and Object are said to be unlawful
if they fall under any of the following categories – (1) forbidden by law; (2) defeats
provision of any law; (3) is fraudulent; (4) if injures person or property of
any person; (5) is immoral; or (6) opposed to public policy.
Forbidden
is anything which is punishable under the law. Defeats provision is contrary to
law. Fraudulent is an agreement with the intention to defraud others. Immoral
under Contracts law is limited only to sexual morality. And public policy is very
limited as most of them are covered under above 5 categories, the Court have
also said that it must be used sparingly in condition only on agreement – (a)trading
with enemy countries; (b)to conceal a crime; (c)to interfere with judiciary;
(d) to suppress a case; or (e)to weaken a case.
* Gheralal Parakh v. Mahadeo Das [SC]
The Apex Court quoted that “public policy
is unruly horse, if uncontrolled it will lead to fall of its rider”. And
therefore, it must be used sparingly. The Court further re-iterated that wagering
contract is unlawful. The Court through Suuba Rao, J. held, Wagering Agreement is
neither forbidden by law, nor immoral or against public policy. It is only void
agreement.
S.24/57/58
– Where consideration is partly lawful and partly unlawful.
S.24-Where
any part of single consideration for one or more object is unlawful. OR where
anyone or any part of several consideration for one or more object is unlawful,
the agreement is void. S.57-one set
of promise legal is contract and the other set which is unlawful is void. S.58-an alternative promise, one legal
and other unlawful, then the former is contract but the latter is void. [Severability shall be the ultimate
test, if the part promises are not severable then the whole Agreement is void]
AGREEMENT
IS UNCERTAIN ARE VOID – S.29
An
agreement the meaning of which is uncertain or cannot be ascertained is void
due to uncertainty. Sec. 93 to 98 of the
Indian Evidence Act, 1872 shall be called here. S.93 provides that on Patent
defect, neither party can lead evidence. Patent defects are defects
apparent on the face of the contract. S.94
provides non-defective contract. S.95-98
provides for Latent Defect, which
were non-intentional and not on the face of the contract, the ambiguity arising
therefrom can be removed by leading evidence.
SECTION
10 – PARTIES MUST BE COMPETENT TO CONTRACT
S.11
– Age of Majority, of sound mind & not expressly declared as incompetent in
any Court of Law.
Incompetent
if the eyes of law – insolvent; O21r73 CPC-person conducting sale; S.136
TPAct-person connected with Court of Justice incompetent to transact in any actionable
claim; Forest Act-Forest Officer not to contract to purchase forest produce.
Person
of unsound mind – Sec. 12 legal soundness and not medical soundness. Period of
Lucid Intervals/ Interval of Lucidity/ Period of Lucidity, during which the
party can enter into contract. Unsoundness can be disease, down with fever,
drunk, etc. Such Agreement are not Contract, but they are called Voidable
Contract. No provision but decided by case law
*
Ameena Bibi v. Syed Yusuf [All. HC].
Party
should be major – Sec. 3 Indian Majority Act, 1875, for the purpose of entering
into contract a person must not be below the age of 18 years.
Minor’s
Agreement is void * Mohiri Bibi v. Dharmodhar
Ghosh [1903 I.A.], if the fact was known to the other party, no restitution
is available to the other party under Indian Contract Act. But under Specific
Relief Act, cancellation or restitution is available only if proved that the
minor misrepresented, and still the Court has discretion to grant the remedy.
Basis – is the one who seeks equity must come with clean hands. But still minor
liable to pay for necessities supplied as provided under S.68 – Quasi Contracts (S.68-72).
QUASI
CONTRACT – FOR CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT – CHAPTER
V–S.68-72
Indian
Law nowhere provides the term Quasi-Contract, it was used in English Law and in
India it was so interpreted by the Judiciary. These are contract which are not
contract and against their legal obligations no adequate remedy was provided
under contracts law or tort law. Therefore, a third category was carved out and
was named Quasi-contract, i.e. relations which resemble those created by
contract. The remedy under quasi
contract is always reimbursement.
Basis/
rationale of quasi contract are – (a)unjust enrichment [by Lord Mansfield]; and
(b)implied contract [by Lord Haldane]. They are of 5 types as provided by the
statutory provisions.
Sec.68
– Necessities Supplied
(a)supplied
to the person incompetent to contract; (b)supply amounts to necessity; &
(c)necessity of such quality as suited to his condition. If supplies under
above conditions, then promisee liable for reimbursement. E.g. food, clothing,
lodging, etc. * Bechu Singh v. Baldev
[Awadh HC] held expenses for meeting funeral expenses of father of minor
are a necessity. Necessity can be material or monetary.
Sec.69 –
(a)Plaintiff interested to pay a sum; (b)Defendant was liable to pay; and (c)
Plaintiff pays. Under above conditions the Plaintiff liable to get reimbursed.
E.g. house tax, electricity cost, etc paid by the tenant which landlord was to
pay.
Sec.70
– Theory of Quantum Meruit
(a)done/delivered
something; (b)lawfully or honestly/ bonafide; (c)not gratuitously; & (d)Enjoyment-other
person enjoys the benefit, there must be an opportunity of rejection present or
not exercised. Under above conditions the other person is bound to may good of
the act done or thing delivered.
* State of W.B. v. M/s D K Mondal & Sons.
Road constructed but State refused to pay as per terms stating that the
contract signed by person not authorised. Held, it State has to pay on Merits,
as the act was done for the Defendant which it never refused tor objected.
Sec.
71 – Statutory Bailment
The
finder of the goods shall act as bailee of the goods and has to take reasonable
care of the thing found, as a reasonable man of ordinary prudence would have
taken care of his own thing in similar circumstances. Reasonable Care same as
in Sec. 151-Bailment, and if not done so, Bailee liable for the loss caused
Sec. 152.
Sec.72
– (a)money paid or thing delivered; and (b)under a mistake or coercion. In
above circumstances, the other must repay or return the goods.
Coercion
may be by – (a)any pressure; (b)compulsion; or (c)duress. AND mistake under
S.72 is both mistake of fact as well as mistake of law * Banaran v. Kanhiaya Lal Mukundlal Saraf [SC].
S.10 – FREE CONSENT
Assent
is unilateral and consent is bilateral. Assent by Proposer and assent by
Acceptor together form bilateral consent and when consent is free it is called
free consent. Consent shall be ‘Consensus
Ad idem’ i.e. meeting of mind of both the parties. Sec. 13 provides that when two or more person agree
upon the same thing in the same sense, then they are said to consent.
No consent no agreement [S.13]; No agreement no contract [S.10]; agreement not
enforceable by law is Void Agreement [S.2(g)].
Sec.14
– Consent is said to be free if not caused by any of the following –
(a)coercion – S.15
(b)undue influence – S.16
(c)fraud – S.17
(d)misrepresentation – S.18
(e)mistake – S.20-22;
If
caused by any of the above, then consent is no free as provided u/S.14, and if
no free consent then no agreement as provided u/S.13 and eventually no
agreement means no contract u/S.10. And agreement not enforceable by law are
void u/S.2(g).
COERCION
– S.15
Committing/threatening to commit – any
offence forbidden by law/detaining any property without any right of lien. * special note – Amiraju v. Seshamma [Mad. 1912]-threatening to commit suicide is
coercion although suicide is itself no offence only attempt is punishable.
Reason is object of legislature as committing suicide is out of law to punish.
Limited
meaning to coercion, only in above 4 conditions.
FRAUD
– S.17
An act (a) when committed by (i) party; (ii)
his agent; or (iii) with connivance of party;
(b) with the intention to deceive another
party or his agent/ to induce him to enter into contract;
Is fraud when the act is done by following
means –
(1) suggestion
falsi – suggestion of a fact which the maker knows not to be true i.e.
suggestion of a false fact;
(2) suggestion
veri – active concealment of a fact when the maker have knowledge or belief
i.e. suppression of a fact;
(3) promise without intention to perform
it;
(4) any other act fitted to be deceive;
&
(5) any other act or omission expressly
declared by any law to be fraud, illustration S. 55 T.P. Act.
CONCEALMENT –
active and passive, the latter is fraud but the former isn’t. Patent and Latent
defect, and defect concealed, seller liable for concealment of latent defect
but not for patent defects. The “Theory Of Caveat Emptor” applies.
MISREPRESENTATION
– S.18
Means and includes –
(a) positive assertion of a fact, not
warranted by the maker, though he believes it to be true;
(b) any breach of duty without intention to
deceive although it causes unfair advantage at the prejudice of the other; or
(c)
causing no matter however innocently a party to agreement to make a mistake as
to substance of the thing which is the subject of the agreement.
DIFFERENCE BETWEEN FRAUD AND
MISREPRESENTATION.
(1) Intention – to deceive present in fraud
but not in misrepresentation.
(2) Tort – fraud is a tort but misrepresentation
is not.
(3)
Offence – fraud is an offence but misrepresentation is not.
ENGLISH LAW
– misrepresentation is by two ways – (1)innocent & (2)fraudulent. And the
same in India is distinguished as misrepresentation and fraud, respectively.
EFFECT
OF FRAUD/ MISREPRESENTATION/ COERCION – S.19
(1) Consent
caused by fraud/ misrepresentation/ coercion renders an agreement as a Contract
Voidable at the option of the party whose consent was so caused. (2) further, where the consent is
caused by fraud/ misrepresentation, then the person who so gave the consent can
still insist on performance of the contract and that he shall be put in such a
position as in which he would be if the consent caused had been free.
Explanation-if
consent caused is by fraud or misrepresentation or by silence, but the party
had the means of discovering the truth in ordinary diligence, then the contract
is not voidable.
Explanation-consent
must have been caused only and only by such fraud/misrepresentation, but if not
then then it is not contract voidable.
MISTAKE
– OF FACT–20-22 / OF LAW–21
S.20
– Mistake by both the parties of a fact essential to the agreement is an
agreement void. S.22 – Mistake as to a fact by one of the party does not render
a contract voidable, therefore, reading together S.20 & S.22 provides that
mistake of fact by one party is neither agreement void nor contract voidable,
therefore, it is a valid contract.
S.21
– Mistake as to law is further divided into 2 – of Indian law & of Foreign
Law. Mistake as to Indian Law does not render a contract voidable nor is it
void agreement, therefore, it is a valid contract. AND as regards mistake as to
Foreign Law, it has the same effect as mistake of fact. Therefore, foreign law
is deemed as a fact and on mistake by both it is void contract, and mistake is
by one party it is a valid contract.
UNDUE-INFLUENCE
– S.16 *
EFFECT – S.19A
Law prohibits undue influence, mere
influence is good in the eyes of law. Undue influence is when – (a)one person
is in a dominating position over the will of another person; (b)he uses such
position; and (c)to obtain undue influence. Further three cases are provided
under the section, but it is not exhaustive –
(i)real and apparent authority over the
other, OR where one stands in a fiduciary relationship with other;
(ii)where one makes a contract with a
person whose mental capacity is reduced/ effected temporarily or permanently
because of age, illness, mental or bodily distress etc.; or
(iii)when
the person in a position to dominate the will of another and the transaction on
face of it or on evidence adduced, here now the burden of proof is on the
person who is so presumed to be in a dominating position to prove otherwise.
EFFECT
– S.19A – Option to make the contract void or may apply to set aside, provided
on such terms as the Court may fit proper where the party has received any
benefit thereunder.
VOIDABLE
CONTRACT
S. 39
– the party to the contract – (a)refuses to perform, or (b)disables itself from
performance. Now remedy available to the other party is – repudiate OR waive/
consent–implies or express. In such a case, if the promisee opts to repudiate/
rescinds, then contract becomes void, and promisee is now entitled to
compensation u/S.75. However, he may wait till actual date of performance and
then take the legal course which follows on breach of contract. Damages in the
former case is the difference between the market rate and the contract rate.
But in the latter case, the promisee takes a risk, as provided in Sec. 56 Part
II i.e. if the contract later becomes impossible, then contract is ipso facto void, and then promisee is
not entitled to any damages.
S. 53
– Reciprocal promises, and one party prevents the other from performing the contract.
Now the contract becomes voidable at the option of the party who was so
prevented.
S.55
– Time is of essence – If it is communicated that time is of essence of
contract, and one party promises to deliver a specified good(s) before or
within a specified time, but fails to so deliver, then the contract becomes
voidable at the option of the promisee. AND where time is no essence, but it is
delivered after a stipulated time period, such failure occasions the promisee
to claim compensation for such loss caused by such failure.
If
goods are accepted even after the stipulated time period, then promisee is not
entitled to any compensation, unless notice was so given at the time of
delivery [Here the effect will be that as provided u/S. 62 & 63].
PROCEDURE
Initially a valid contract, later becomes
voidable at the option of one party. One party has the right to rescind, he may
choose to continue or if he fails to rescind it, the contract is enforceable.
But he may opt to rescind the contract. On rescission the contract becomes void
and is non-enforceable and he can claim compensation. BUT, on rescission, the
parties are liable to return any benefit accruing thereunder to any party as
provided u/S. 64(by one who rescinds) & 65(other who received some benefit
thereunder) ICA. Also, u/S. 30 of the SRA, it is on the discretion to order
rescission, and also compensation can be awarded to the party who rescinded the
contract. Apart from return, Compensation is available u/S. 73 for loss caused
to the promisee. And if the promisee rightfully rescinds the contract, he is
liable for compensation.
Illustration
– A singer contracts to sing in a hotel for 5 days starting 1st till
5th. He sings on 1st, absents himself on 2nd
and 3rd. And now promisee (Hotel Manager) rescinds contracts on 4th.
Here, Manager can sue u/S. 73 for loss caused on 2nd and 3rd,
and u/S. 75 for losses on 4th and 5th.
VOID
AGREEMENT – S.2(g) / 25 / 23 / 20 / 21r/w20 / 24 / 57 / 58 / 26-30 / 36 /
56PartI
Agreement not enforceable by law are void,
there are –
Case laws–parties incompetent to contract;
S.20–mistake of fact by both the parties;
S.21r/w20–mistake of foreign law by both
the parties;
S.23–unlawful object/consideration;
S.24–consideration partly lawful &
partly unlawful;
S.25–without consideration;
S.57–two sets of agreement and one for
unlawful object;
S.58–two sets of consideration and one for
unlawful consideration;
S.26-30–expressly declared void under law–restraint
of marriage/trade/legal proceedings/uncertainty/wagering;
S.36–contingency impossible; and
S.56PartI–to do act impossible.
S.26-30
– The restraint is partial as well as absolute, except in case of S.28 where
the restraint is partial. Here the term of agreement which is a restraint is
void, the rest may be lawful and enforceable. Exception to restrain of trade
are 2 –
(1)statutory–goodwill – dissolution of
partnership / outgoing partner / retirement.
(2)judicial–Pool / Price fixation / Solus /
Not to serve other / agency, agreement. [basis is loyalty, better serving and
it is actually regulating of manner of conducting trade rather than restraint].
Legal
Proceeding – absolute term – restraining –
(1)enforcing a right; (2)with time limit; or (3)extinguishes a right. Past
(Ex.1) or future (Ex.2) dispute expressly agreed to be referred to Arbitration
is valid. Also, exclusive jurisdiction clause is valid, as it does not oust
enforcement, rather only puts partial restraint which is valid.
S.29–Terms
of agreement – not certain OR cannot be made certain, is an agreement “Void of Uncertainty”.
Further, evidence cannot be given to remove such uncertainty under Indian
Evidence Act. S.93-Patent ambiguity cannot be proved otherwise; S.95-98–Latent
ambiguity, which can be proved otherwise. AND S.29–also includes ’Agreement to
Agree in Future’, such agreement are void, as it void of uncertainty.
S.30-Wagering
Agreement –
Wagering in India is void agreement, but
not illegal. A wagering agreement must – (1)one to win other to lose;
(2)subject matter is uncertain event; (3)parties have no control over the
event; (4)they have no interest in the event, their mere interest lies in the
stake i.e. the chance they take based upon luck.
S.30 declares that no suit shall lie to
recover anything won by wager, OR no suit for recover of anything from anybody
who has been entrusted of such a thing to abide by the result of wager.
Illustrations–A
and B wager agreement.
(1)A won, no cannot sue B.
(2)B does not pay but sign a negotiable
instrument, this cannot be enforced through Court.
(3)both deposited their stakes to C, but C
not bound from such result of wager, nor any party A or B sue C.
(4)No
restitution u/S.62 or 63 or even S.72.
S.56–PARAI–an
agreement to do an act impossible is itself void.
PARAII–a contract to do a thing, which
later becomes impossible, leaves contract as void and non-enforceable.
It is a case where no party is at fault,
but the circumstances renders the contract as non-enforceable i.e. parties are
unable to perform their promise because of impossible circumstances. Still
Parties are liable for restitution, if any, u/S.64 and S.65. Such cases can be – (a)impossibility on
human part; (b)death of promisor; (c)personal incapacity of promisor; (d)war;
(e)terrorist activities.
* Satybratta Ghosh v. Magnee Ram Bangur
& Co., Mukherjee J., said that impossibility
u/S. 56(ParaII) includes – (a)physical; (b)practical & (c)legal.
Legal Impossibility is called ‘Doctrine
of Frustration’ or ‘Doctrine of Impossibility’.
EXCEPTION
to the Rule of Frustration/Impossibility are – (a)self-created;
(b)temporary acquisition of land [Satyrabratta Ghosh Case]; (c)Strike becoz it
is temporary; & (d)commercial hardship [businessmen always do speculate
certain hardship].
PARAIII–had
other party knew about the impossibility, and then he is liable to pay damages
for the loss sustained due to non-performance.
CONSEQUENCES
OF BREACH OF CONTRACT – SEC.73-75
Breach of contract is the worst way of
discharge or unfortunate method of discharge of a contract.
REMEDIES
UNDER ICA, 1872
Damages under Contracts Act, are based upon
the two principles laid down in the English Case of Hadley v. Baxendale – (1)basis is compensation and not punishment,
therefore, only to cover the losses suffered by the promisee called nominal damages; & (2)post
position–object is to put the promisee in the position that he would have been
had the promise was performed/ fulfilled called expectation losses.
Damages
are – (a)nominal; (b)liquidated; (c)general; (d)special; (e)exemplary damages.
Former four are provided in Contracts Act S.73, but for (e) SRA provides, in
the cases where above 4 are inadequate.
S.73–Damages
by way of Compensation to meet the losses suffered due to non-performance. Para
II, provides for remoteness of losses i.e. any losses suffered to the promisee
due to non-performance directly and other losses indirectly provided they were made
known to the promisor by the promisee at the time of contract shall also be
compensated for. Therefore two loses – (a)from consequence of breach of
contract; & (b)from the consequences
of the consequence of breach of contract; provided in the latter case, they
were made known to the promisor at the time of contract. Para III, provides for
compensation in the cases falling under the category of quasi-contract i.e. 5
cases of Chapter 5.
S.74–Cases
where the penalty in cases of breach has been stipulated in the contract itself.
English law here provides that – Liquidated damages and penalty shall be
distinguished and be awarded if reasonable. But, under Indian law, the Court
shall ascertain the amount of reasonable losses suffered on the breach and
shall award adequate compensation not exceeding the amount of penalty
stipulated in the contract.
S.75–Party
rightfully rescinding the contract, is entitled to compensation. This section
is only an enabling provision that one who is lawfully entitled to rescind the
contract and on exercising such right, that party can still claim compensation
u/S.73.
REMEDIES UNDER SRA, 1963
SRA
provides for remedies in civil cases only, which includes Contract, torts, etc.
They are – (1)Specific Performance of Contract[S.10&14]; (2)Part
performance[S.12]; (3)Injunction[S.36-42]; (4)Damages.
CONTINGENT
CONTRACT – S.31-36
S.31–A
contract to do or not to do something, if some event collateral to such
contract does or does not happen. The event is collateral to the contract, and
this is the main difference between contingent contract and wagering agreement.
S.32-35 are Contingent Contract, but Sec. 36 is agreement
contingent upon an event impossible which is, therefore void.
S.32–Enforcement
of contracts contingent on an event happening.
Contract
to do or not to anything on an event happening, is enforceable only when it
happens and not before. If such event becomes impossible to happen, then contract
becomes void.
S.33–Enforcement
of contracts contingent on an event not happening.
Contract
to do or not to do a thing on an event not happening, can be enforced when the
event becomes impossible.
S.34–Presumed
Impossibility.
Contingent
contract on event by some living person, then event shall be considered to be
impossible when the person does some act which makes him reasonably impossible
to do such event or until further contingency. Illustration, A promises C to pay him `2000/- if he marries
B. But B marries D, therefore, the contingency is now deemed impossible as B
and D are married (Divorce and death not reasonably stipulated).
S.35–ParaI- contingent contract to do or not
to anything on certain event happening within specified time, is void if –
(a)time expires; or (b)before time expires the event becomes impossible.
ParaII-
contingent contract to do or not to do anything on certain event not happening
within specified time, is enforceable if – (a)event does not happen within that
period; or (b)it becomes certain that the event will not happen.
S.36–Agreement
contingent on act impossible is itself void whether or not the impossibility is
known to the parties or not.
CASES
CIT v. Abdul Hussain
[Carlile v. Carbolic Smoke
Ball Co.(EL)]
|
Test of intention is
objectivity and not subjectivity.
(c)Intention to Contract is
necessary and the 3rd requirement after - (a)agreement and (b)enforceability
|
|
State of Gujarat v. Ram Sahal
|
Guj.
|
Two parties are essential to constitute
contract
|
Lalman Shukla v. Gauri Dutt
|
All.
|
Proposal must be communicated
|
Machpherson v. Apanna
[Harvey v. Facey; Bumper Hall
Pen Case (EL)]
|
SC
|
Mere supply of information is
not proposal
|
Bhagwan Das v. Girdhari Lal
|
SC
|
Sec. 4(2) applies in cases of
parties inter-absentees only and not in case of parties inter-presentees
|
Kallu Ram Kesharvani v. State
of M.P.
[Household Carriage &
Fire Insurance Co. v. Grant (EL)]
|
MP
|
Letter of acceptance lost,
makes no change and the promise is actionable.
|
Gheralal Parakh v. Mahadeo
Das
[Richardson v. Mellish {Borrough
J.} (EL)]
|
SC
|
“Public Policy is unruly
horse” and Wagering Agreement is only void and not forbidden by law.
|
Ameena Bibi v. Yusuf
|
All
|
Agreement by person of
unsound mind is Voidable Contract.
|
Mohiri Bibi v. Dharmodas
Ghosh [1903 Pricy Council - Indian Appeals]
|
1903 I.A.
|
Minor’s Agreement is void
|
State of W.B. v. M/S D K
Mondal & Sons
|
Sec.70 provides Theory of
Quantum Merits i.e. to reimburse as per merits
|
|
Banaran v. Kanhaiya Lal
Mukundlal Saaf
|
SC
|
Mistake u/s. 72 includes both
mistake of fact and mistake of law.
|
Satyabratta Ghosh v. Magnee
Ram Bangur & Co.
|
SC, Mukherjee J.
|
Impossibility in India law
u/S.56ParaII. includes all three – (a)physical; (b)practical; & (c)legal
|
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