Professional Documents
Culture Documents
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Agreement Amity School of Business
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Contracts
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Contract
CONTRACT = AGREEMENT +
ENFORCIBILITY BEFORE LAW
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5. Lawful Consideration
6. Lawful Object
7. Agreement not declared illegal or void: agreement in restraint of
marriage, trade, legal proceedings
8. Certainty of meaning
9. Possibility of performance
10. Necessary legal formalities: Writing , registration & attestation, if so
required by law..
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Classification of contracts
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Offer Amity School of Business
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Essential Characteristics of Offer
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Types of Offer
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1. Express offer.
2. Implied offer.
3. Specific offer.
4. General offer.
5. Cross offer.
6. Counter offer.
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• The case of Carlil Vs. Carbolic Smoke Ball Co. ( 1893) is an
illustration of a contract arising out of a general offer. The facts of the
case are : The defendants advertised their product “Carbolic Smoke
Ball”, a preventive remedy against influenza. In the advertisement
they offered to pay a sum of 100 pounds as reward to any one who
contracted influenza, colds or any disease caused by taking cold, after
having used the Smoke Ball three times a day for two weeks, in
accordance with the printed directions. They also announced that a sum
of 1000 pounds had been deposited with the Alliance Bank to show
sincerity in the matter. The plaintiff ( Mrs. Carlil ) relying on the
advertisement purchased a Smoke Ball from a chemist, used the same in
accordance with the directions of the defendants, but still caught
influenza. She sued the defendants to claim the reward of 100 pounds
advertised by them. It was held that this being a general offer addressed
to all the world had ripened into a contract with the plaintiff by her act of
performance of the required conditions and thus accepting the offer. She
was therefore, entitled to claim the reward.
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Revocation of offer:
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Termination of offer:
Revocation of offer
According to Section 6, an offer stands lapsed in any of the
following circumstances:
• Communication of notice of revocation
• Lapse of time
• Failure to fulfil a condition precedent to acceptance
• Death or insanity of either party
• Refusal or counter offer
• Acceptance differs from the prescribed one
• Subsequent illegality or destruction of subject-matter
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Acceptance: Amity School of Business
Section 2(b) defines as, “when the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted.”
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Consideration: Amity School of Business
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Consideration: Amity School of Business
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Stranger to a Contract:
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Privity Only parties to contracts should be able to sue to enforce their rights or
claim damages as such. However the doctrine has proven problematic due to
its implications upon contracts made for the benefit of third parties who are
unable to enforce the obligations of the contracting parties.
Exceptions:
• In case of trust ( Khwaja Mohd. Khan Vs hussani Begum)
• In case of family settlement
• Acknowledgement
• Assignment of a contract: Where the benefit has been assigned, the assignee
can enforce the contract subject to all equities between the original parties to
the contract. An assignee of Insurance policy.
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Capacity of Contract:
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1. Minor:
Acc. to Sec. 3 of the Indian Majority Act, 1875, a minor is a person, domiciled in
India, who has not attained the age of 18 years.
Minor’s contracts:
• An agreement with a minor is void “ab-initio”:
(Mohori Bibi vs Dharmodas Ghose- minor executed a mortgage)
• He can be a promisee or a beneficiary
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Minor: Amity School of Business
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Unsound Mind: Amity School of Business
Unsound Mind:
According to Sec. 12, “A person is said to be of sound mind for the
purpose of making a contract, if at the time when he makes it, is
capable—
• To understand the terms of contract
• To form a rational judgement as to its effect upon his interests.”
• Example: idiots, lunatics and drunken person.
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Consent: Amity School of Business
The term ‘consent’ indicates meeting of minds, i.e., contracting parties
understanding the same thing in the same sense.
According to sec.13, ‘two or more persons are said to have consented
when they agree upon the same thing in the same sense.’
Free consent:
According to Sec.14, ‘Consent is said to be free when it is not caused by
coercion, undue influence, fraud, misrepresentation, mistake.’
Coercion:
It simply means forcing or compelling (physically or mentally) a person to
enter into a contract.
According to Sec.15 “coercion is (i) the committing or threatening to
commit, any act forbidden by the Indian Penal Code (ii) the unlawful
detaining, or threatening to detain, any property to the prejudice of any
person whatever, with the intention of causing any person any person
to enter into an agreement.
Example: A hindu widow is forced to adopt X under threat that her
husband’s corpse (dead body) would not be allowed to be removed
unless she adopts X. The adoption is voidable as having been induced
by coercion. [Ranganaya Kamma vs Alwar Sette] 21
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Undue influence:
‘Undue’ means excessive or beyond what is expected or required while the term
‘influence’ refers a person’s indirect power over other people, events or
things.
Section 16 (i) defines undue influence as follows: “a contract is said to be
induced by undue influence 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.”
Example: A having advanced money to his son B during his minority. Upon B’s
coming of age, he obtained, by misuse of parental influence, a bond from B of a
greater amount than the sum due in respect of the advance. A thus employed
undue influence.
Fraud Amity School of Business
Fraud:
Fraud indicates wilful misrepresentation. Section 17 defines as, ‘fraud means and
includes 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.
• The suggestion, as a fact, of that which is not true, by one who does not believe it to be
true
• The active concealment of a fact by one having knowledge or belief of the fact
• A promise made without any intention of performing it.
• Any other act fitted to deceive.
Silence is fraudulent: where the circumstances are such that, “silence is in itself
equivalent to speech”.
Example: B says to A “if you do not deny it, I shall assume that the horse is sound”. A says
nothing. Here A’s silence is equivalent to speech.
Mere silence is not Fraud: A party to the contract is under no obligation to disclose the
whole truth to the other party. ‘Caveat Emptor’ i.e. let the purchaser beware.
Example: H sold to W some pigs which were to his knowledge suffering from fever. The pigs
were sold ‘with all faults’ and H did not disclose the fact of fever to W.
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Misrepresentation: Amity School of Business
Misrepresentation:
According to Sec. 18, “Misrepresentation” means:
The positive assertion, 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.
When there is any breach of duty of a person which brings an
advantage to the person committing it by misleading another to his
prejudice.
When a party causes, however, innocently, the other party to the
arrangement to make a mistake as to the substance of the thing
which is the subject of the agreement.
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Mistake: Amity School of Business
According to Sec. 20, “A mistake is said to have occurred where the parties
intending to do one thing by error do something else. Mistake is an erroneous
belief concerning something.”
Mistake can be of two types:
1.Mistake of Law
Mistake of law may be –
• Mistake of law of the country: Ignorance of law is no excuse, is a well settled
rule of law.
• Mistake of law of foreign country: Such a mistake is treated as mistake of
fact, i.e. the contract is void if both the parties are under a mistake as to a
foreign law because one cannot be expected to know the law of other country.
2.Mistake of fact
Can be either—
• Bilateral mistake: It means where both the parties to the agreement are under
a mistake as to a matter of fact essential to the agreement, there is a bilateral
mistake.
• Unilateral 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.”
Example: X sold Oats to Y by sample and Y thinking that they were old 25
Oats, purchased them. In fact, the Oats were new. It was held that Y
Lawful Object Amity School of Business
Legality of object:
The object and the consideration of an agreement must be lawful,
otherwise the agreement is void. According to sec. 23 of the
Indian Contract Act, 1872, the consideration is unlawful in the
following cases:
• If it is Forbidden by law
• If it defeats the Provisions of any Law
• If it is Fraudulent
• If it involves or implies injury to a person or property of
another
• If the court regards it as immoral or opposed to public
policy:
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Void agreements Amity School of Business
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Discharge of a Contract: Amity School of Business
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Remedies for breach of Amity School of Business
Contract:
Remedies for Breach of Contract:
Whenever there is breach of contract, the injured party becomes entitled to any one or more of
the following remedies against the guilty party:
• Rescission of the contract
• Suit for damages
• Suit upon quantum meruit
• Suit for specific performance of the contract
• Suit for injunction
A. Rescission of the contract
When there is a breach of contract by one party, the other party may rescind the contract and
need not perform his part of obligations under the contract and may sit quietly at home if
he decides not to take any legal action against the guilty party.
• Example: A promises to B to supply 10 bags of cement on a certain day. B agrees to pay the
price after the receipt of the goods. A does not supply the goods. B is discharged from liability
to pay the price.
B. Suit for Damages:
Damages are a monetary compensation allowed to the injured party by the court for the loss or
injury suffered by him by the breach of a contract.
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Remedies for breach of Contract:
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• Sue for damages:
1. Liability for special damages.
2. Liability to pay ordinary damages.
3. Liability to pay vindictive damages.
4. Liability to pay nominal damages.
5. Damages for inconvenience and discomfort
C. Quantum Meruit: The phrase means “as much as earned”. A right to sue on a quantum
meruit arises where a contract, partly performed by one party, has become discharged by
the breach of the contract or the contract is discovered void.
Example: P agreed to write a volume on an ancient armour to be published in a magazine owned
by C. For this, he was to receive $100 on completion. When he had completed part, but not
whole, of his volume, C abandoned the magazine. P was entitled to get damages for breach of
contract and payment quantum meruit for the part already completed.
D. Suit for specific performance:An aggrieved party may file a suit for specific performance
i.e., for a decree by the court directing the defendant to actually perform the promise that
he has made.
E. Suit for Injunction: Injunction is an order of a court restraining a person from doing a
particular act.
Example: A agreed to sing at B’s theatre for three months from 1st April and to sing for no one else
during that period. Subsequently she contracted to sing at C’s theatre and refused to sing at
B’s theatre. Held, A would be restrained by injunction from singing for C.
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Performance of Contracts:
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• Contract of Indemnity:
• The person who promises to make good the loss is called the
‘indemnifier’ (promisor), and the person whose loss is to be
made good is called the ‘indemnity-holder’ (promisee).
• Example: S requests C to lend Rs. 500 to P and guarantee that if P fails to pay
the amount, he will pay. This is a contract of guarantee. S, in this case, is the
surety, c, the creditor.
1. Discharge by revocation:
• Revocation by notice
• Revocation by death of surety
• Revocation by novation
2. Discharge by conduct of the creditor:
• Variance in terms of contract
• Discharge of principal debtor
• Loss of security
3. Discharge by invalidation of contract:
• Guarantee obtained by misrepresentation.
• Guarantee obtained by concealment
• Failure of consideration
• Guarantee on contract that creditor shall not act on it until a co-surety
joins
Meaning of bailment (Sec. 148):
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and Bailee
Duties of bailor.
To disclose known faults.
To bear extraordinary expenses of
bailment.
To indemnify bailee for loss in case of pre
mature termination of gratuitous
bailment.
To receive back the goods.
To indemnify the bailee.
Duties of Bailee: Amity School of Business
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Rights of bailor Amity School of Business
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Duties of a pawnee Amity School of Business
(b) A person acting through an agent is acting himself, i.e. act of agent is act of
Principal. - - Since agency is a contract, all usual requirements of a valid
contract are applicable to agency contract also, except to the extent excluded
in the Act. One important distinction is that, no consideration is necessary
to create an agency.
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• AGENT AND PRINCIPAL DEFINED - An “agent” is a person employed
to do any act for another or to represent another in dealings with third
persons. The person for whom such act is done, or who is so represented, is
called the “principal” [section 182]
• WHO MAY EMPLOY AGENT - Any person who is of the age of majority
according to the law to which he is subject, and who is of sound mind, may
employ an agent. [section 183]. - - Thus, any person competent to contract
can appoint an agent.
• WHO MAY BE AN AGENT - As between the principal and third persons
any person may become an agent, but no person who is not of the age of
majority and of sound mind can become an agent, so as to be responsible to
his principal according to the provisions in that behalf herein contained.
[section 184]. - -
The significance is that a Principal can appoint a minor or person of unsound mind
as agent. In such case, the Principal will be responsible to the third party..
However, the agent, who is a minor or of unsound mind, cannot be responsible to
Principal. Thus, Principal will be liable to third parties for acts done by Agent, but
agent will not be responsible to Principal for his (i.e. Agent’s) acts.
• CONSIDERATION NOT NECESSARY - No consideration is necessary to
create an agency. [section 185]. Thus, payment of agency commission is not
essential to hold appointment of agent as valid.
Classification of agents: Amity School of Business
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Classification of agents Amity School of Business
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Rights of an agent:
• Right to retain money due to himself.
• Right to receive remuneration.
• Right of lien.
• Right of indemnification.
• Right of compensation.
• Right of stoppage in transit.
RIGHTS OF PRINCIPAL –
• Recover damages from agent if he disregards directions of Principal
• Obtain accounts from Agent
• Recover moneys collected by Agent on behalf of Principal
• Obtain details of secret profit made by agent and recover it from
him
• Forfeit remuneration of Agent if he misconducts the business.
DUTIES OF PRINCIPAL –
• Pay remuneration to agent as agreed
• Indemnify agent for lawful acts done by him as agent
• Indemnify Agent for all acts done by him in good faith
• Indemnify agent if he suffers loss due to neglect or lack of skill of
Principal.
Creation of Agency: Amity School of Business
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• It includes the following:
• Agency by Estoppel: It arises when a person by his words or conducts induces third
persons to believe that a certain person is his agent.
• Example: X tells Y in the presence and within the hearing of Z that he (X) is z’s agent.
Z does not contradict this statement. Later on Y enters into a contract with X believing
that x is Z’s agent. In such a case Z is bound by this contract and a suit between Z
and Y, Z cannot be permitted to say that X was not his agent, even though X was not
actually his agent.
• Agent by Holding out: Such agency arises when a person by his past affirmative or
positive conduct leads third person to believe that person doing some act on his
behalf is doing with authority.
• Example: X allows Y, his servant to purchase goods for him on credit from Z and later
on pay for them. One day X pays cash to Y to purchase goods. Y misappropriates the
money and purchases goods on credit from Z. Z can recover the price of his goods
from X because X had held out Z as his agent on earlier occasions.
• Agency by necessity: It arises under following conditions:
• (i). There is an actual and definite necessity for acting on behalf of the principal
• (ii). It is impossible to communicate with the principal and obtain his consent.
• Example: X consigned some vegetables from Delhi to Mumbai by a truck. The truck
met with an accident. The vegetable being perishable were sold by the transporter.
This sale is binding on X.
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Types of agent: Amity School of Business
Example: A, a carrier, agreed to carry 70 bags of cotton waste from Morvi to Bhavnagar by a truck. A
asked A1, another carrier, to carry goods. The goods were damaged in transit. Held, A was liable
even though it was proved that A1 was the carrier.
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TERMINATION OF AGENCY Amity School of Business
Termination of Agency:
An agency may be terminated in any of the following ways:
By act of the parties
By operation of law
Termination by act of parties:
Agreement: An agency, like any other contract, can be terminated at any time
by the mutual agreement between the principal and the agent.
• Revocation by the principal: (Sec. 203 & 207) The principal may revoke
the authority of the agent at any time before the agent has exercised his
authority so as to bind the principal unless the agency is irrevocable.
Revocation can be express or implied in the conduct of the principal.
• Renunciation by the agent: (Sec. 206) An agency may also be terminated
by an express renunciation by the agent. He must give a reasonable notice
to the principal; otherwise he will be liable to compensate the principal for
any damage resulting thereby.
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B.Termination by operation of Law:
Completion of the business of agency: An agency automatically comes to
an end when the business of agency is completed (Sec.201).
• Expiry of time: If the agent is appointed for a fixed term, the expiration of
the term puts an end to the agency, even though the business of the agency
may not have been completed.
• Death of the principal or the agent: After the death of the principal agency
terminates but the agent must take all reasonable steps for the protection of
the interests of the late principal entrusted to him
• Insanity of the principal or the agent: An agency also stands terminated
when the principal becomes of an unsound mind (Sec.201). it is the duty of
an agent to protect the interests of the former principal by taking all
reasonable steps.
• Insolvency of the principal: An agency terminates by the insolvency of the
principal.
• Destruction of the subject-matter: Where the agency is created for the
sale of a house and the house is destroyed by fire, the agency ends.
• Dissolution of a company
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• Principal or agent becomes alien enemy