Law of Contract Sessional 1
Law of Contract Sessional 1
Law of Contract Sessional 1
We come across ‘contract killers’ in movies who charge money to kill people.
Have you ever thought, ‘Is a contract of killing someone for money, a valid
contract?’ or ‘Can the man giving the contract sue the contract killer in the
court of law saying that the other party has committed a breach of contract
by not doing the job even after the payment of money?’.
For example, if Devdas asks Paro not to get married for her entire life then
he will give her a new dress and shoes in return; it cannot be considered as a
valid contract because the agreement is made in restraint of marriage.
Similarly, if the agreement is made to not to work for the entire life in
exchange for a new flat, it will not be considered as a valid contract as it is
in restraint of trade.
Also, if a father enters into an agreement with his son that the father will get
him a new bicycle if the son scores 105% in his board exams. It will be
considered a void agreement because it is an agreement to do an
impossible act.
Or
So Mathematically,
1. Gabbar asked Samba to kill Jay and Veeru and Samba agreed. This
is an agreement but the object of the agreement makes it an illegal
one. Therefore, it cannot be enforced and so it is not a contract.
2. Rajesh promises his wife Chitra that he will bring for her the stars
and the moon and Sonam agrees. Here, the object of the agreement
is impossible to perform and so it is not enforceable and cannot be
termed as a contract.
3. A mother promises her crying child that she will buy a Barbie doll for
her but she does not buy it. Here, the promise was not made with
the intention to fulfil it and so it is not enforceable and cannot be
termed as a contract.
4. I offer my pen to Neelam and she accepts it, here an agreement is
made but such agreement is made out of friendship and has no
consideration. An agreement without consideration is not a contract
(an exception to this is Section 25 of the ICA which states that near
relation and natural love and affection can be said to be
consideration).
Types of contract
There are various types of contracts that are formed voluntarily via civil
obligations. They are as follows:
(I) Adhesion Contracts – These types of contracts are those which are
formed by the stronger party. It is a sort of, “Opt for it or do not” contract.
The stronger party or the one that has the bargaining power leaves the other
party with a choice whether to accept or reject the contract.
(IV) Express Contracts – These contracts are those wherein the terms of the
contracts are expressed clearly whether in written documents or orally.
(V) Implied Contracts – There are no oral or written terms in this type of
contract. The contracts are assumed owing to the facts of the parties. If an
individual visits a medical professional, he expects to be diagnosed for a
disease or illness and be advised a cure. This is an implied contract and a
patient is capable of suing a medical practitioner for malpractice.
(VI) Void and Voidable Contracts – Void contracts are illegal from the very
beginning and hold no validity under law. They are thereby un-enforceable.
Voidable contracts are unlike void contracts in the sense that one party is
bound by the contract and the unbound party is capable of terminating the
contract as they are unbound to it.
Example
‘A’ proposes to sell a car to ‘B’ at a certain price. Once ‘B’ receives the letter,
the proposal communication is complete.
Example
‘A’ invited ‘B’ to 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.
Classification of offer
An offer can be of many types, ranging across the spectrum. There are
basically 7 kinds of offers:
Express offer
Implied offer
General offer
Specific Offer
Cross Offer
Counter Offer
Standing Offer
Therefore, any offer that is made with words, it may be regarded as express.
Any promise that is made otherwise than in words is implied. A bid at an
auction is an example of an Implied offer. A case in this regard is Upton-on-
Severn RDC v. Powell, wherein the defendant called a fire brigade
assuming that those services would be free to him, however it was found
that his Farm did not come under that of Upton. The court held that the truth
of the matter is that the Defendant wanted the services of Upton, he asked
for the services of Upton and in response to that they offered their services
and they were rendered on an implied promise to pay for them.
In Ramji Dayawala & Sons (p) Ltd v. Invest Import, a case between an
Indian and Yugoslavian party the notice for revocation of an arbitration
clause in the contract between the parties was made by the Indian party, to
which the other party gave no reply. It was held that this would amount to
an implied acceptance i.e.- the arbitration clause was deleted from the
contract, and a suit would lie in the court of law. Similarly entering into an
omnibus also amounts to implied acceptance, same as consuming edibles at
a self-service restaurant. Therefore in simpler terms a contract that is
entered into because of actions on the offerors part, may be referred to as an
implied offer, any contract entered into otherwise is an express offer.
General offer
A General Offer is an offer that is made to the world at large. The genesis of
a General Offer came about from the Landmark case of Carlill v. Carbolic
Smoke Ball Co. A company by the name Carbolic Smoke Ball offered
through an Advertisement to pay 100 Pounds to anyone who would contract
increasing epidemic Influenza, colds or any disease caused by cold after
taking its Medicine according to the prescribed instructions. It was also added
that 1000 Pounds have been deposited in Alliance bank showing our sincerity
in the matter. One customer Mrs Carlill used the medicine and still contracted
Influenza and hence sued the company for the reward. The Defendants gave
the argument that the offer was not made with an intention to enter into a
legally binding agreement, rather was only to Puff the sales of the company.
Moreover, they also contended that an offer needs to be made to a specific
person, and here the offer was not to any specific person and hence they are
not obliged to the Plaintiff.
Setting aside the arguments of the Defendant, the bench stated that in cases
of such offers i.e- general offers, there is no need for communication of
acceptance, anyone who performs the conditions of the contract is said to
have communicated his/her acceptance, and moreover, the money deposited
by the Defendant in Alliance Bank clearly shows that they intended to create
a legally binding relationship. Hence the Plaintiff was awarded with the
amount. An Indian authority in this regard is Lalman Shukla v. Gauri
Dutt, wherein a servant was sent by his master to trace his missing nephew.
In the meanwhile, he also announced a reward for anyone finding his
nephew, this in itself is an example of an offer that is made to the world at
large and hence a General Offer.
This section was applied by YEARS CJ of Allahabad high court in the case
of Har Bhajan Lal v. Har Charan Lal, wherein the father of a young boy
who ran from home issued a pamphlet for a reward for anyone who would
find him. The Plaintiff found him at the railway station and sent a Telegram
to his father. The Court held that the handbill was an offer that was made to
the world at large and anyone who fulfilled the conditions is deemed to have
accepted it. In the State of Bihar v. Bengal Chemical and
Pharmaceutical Works LTD, the Patna HC held that where the acceptance
consists of an act, e.g- dispatching some goods, the rule that there shall be
no communication of acceptance will come into play.
Specific offer
A Specific offer is an offer that is made to a specific or ascertained person,
this type of offer can only be accepted by the person to whom it is made.
This concept was seen briefly in the case of Boulton v. Jones, wherein the
Plaintiff had taken the business of one Brocklehurst, the defendant used to
have business with Brocklehurst and not knowing about the change in
ownership of business, sent him an order for certain goods. The Defendant
came to know about the change only after receiving an invoice, at which
point he had already consumed the goods. The Defendant refused to pay the
price, as he had a set off against the original owner, for which the plaintiff
sued him.
The Judges gave a unanimous judgement holding the defendant not liable.
Pollock CB held that the rule of law is clear, if you intend to contract with A,
B cannot substitute himself as A without your consent and to your
disadvantage. It was also held that whenever a person makes a contract with
a specific personality, a specific party, so to say, for writing a book, for
painting a picture or for any personal service or if there is any set off due
from any party, no one has the authority to come in and maintain that he is
the party contracted with.
Cross offer
When two parties make an identical offer to each other, in ignorance to each
other’s offer, they are said to make cross offers. Cross offers are not valid
offers. For example- if A makes an offer to sell his car for 7 lakhs to B and B
in ignorance of that makes an offer to buy the same car for 7 Lakhs, they are
said to make a cross offer, and there is no acceptance in this case, hence it
cannot be a mutual acceptance.
1. Same offer to one another- When the offeror makes an offer to the
offeree and the offeree without prior knowledge makes the same
offer to the offeror, then both the object and the party remain the
same.
2. Offer must be made in ignorance of each other- The two parties
must make their offer in ignorance of each other.
An important case in this aspect is the English case of Tinn v. Hoffman, the
defendant wrote to the complainant an offer to sell him 800 tons of iron at
69s per ton, at the same time the complainant also wrote to the defendant
an offer to buy the iron at similar terms. The issue in this case was that, was
there any contract between the parties, and would simultaneous offers be a
valid acceptance. The court held that these were cross offers that were made
simultaneously without knowledge of one another and would not bind the
parties.
Counter offer
When the offeree offers a qualified acceptance of the offer subject to
modifications and variations in terms of the original offer, he is said to have
made a counter offer. A counter offer is a rejection of the original offer. An
example of this would be if A offers B a car for 10 Lakhs, B agrees to buy for
8 Lakhs, this amounts to a counter offer and it would mean a rejection of the
original offer. Later on, if B agrees to buy for 10 Lakhs, A may refuse. Sir
Jenkins CJ in Haji Mohd Haji Jiva v. Spinner, held that any departure from
original offer vitiates acceptance. In other words, an acceptance with a
variation is not acceptance, it is simply a counter proposal which must be
accepted by the original offeror, for it to formulate into a contract.
The Bombay High court gave this decision based upon the landmark
judgement of Hyde v. Wrench, in which an offer to sell a farm for 1000
Pounds was rejected by the Plaintiff, who offered 950 for it. Subsequently the
Plaintiff gave an acceptance to the original offer. Holding that the Defendant
was not bound by a contract, the court said that the Plaintiff accepted the
original offer of buying the farm at the price of 1000 pounds, it would have
been a completely valid contract , however he gave a counter proposal to it,
thus rejecting the original offer.
Partial acceptance
Counter offer also includes within its contours Partial acceptance, meaning
that a party to the contract cannot agree to those conditions of the
agreement that favour him and reject the rest, the acceptance should be of
the complete agreement i.e.- all its parts. In Ramanbhai M. Nilkanth v.
Ghashiram Ladli Prasad, the plaintiff made an application for certain
shares in a company with the underlying condition that he would be made
the cashier in its new branch. The Company did not comply with this and
hence the suit. The court held that the Petitioners application for shares was
condition on him being made the cashier and that he would have never
applied for the shares had there been no such condition.
Standing offer
An Offer which remains open for acceptance over a period of time is called a
standing offer. Tenders that are invited for supply of goods is a kind of
Standing Offer. In Percival Ltd. V. London County Council Asylums and
Mental deficiency Committee, the Plaintiff advertised for tenders for
supply of goods. The defendant took the tender in which he had to supply to
the company various special articles for a period of 12 months. In-between
this the Defendant didn’t supply for a particular consignment. The Court held
that the Tender was a standing offer that was to be converted into a series of
contracts by the subsequent acts of the company and that an order
prevented the possibility of revocation, hence the company succeeded in an
action for breach of contract.
General Offer is made to the whole A specific Offer is made to some specific
world at large. person.
Example
‘A’ agreed to sell the property to ‘B’ by a written document which stated “this
offer to be left over until Friday 9 AM”. on Thursday ‘A’ made a contract to
sell the property to ‘C’. ‘B’ heard of this from ‘X’ and on Friday 7 AM he
delivered to ‘A’ acceptance of his offer. Held ‘B’ could not accept A’s offer
after he knew it had been revoked by the sale of the property to C.
Example
‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an offer.
Now, it has become a promise.
For example, if A offers to sell his bike to B for Rupees 10,000. But B
persuades A to sell him the bike for 7,000 rupees to which A denies and if B
at any later point of time agrees to buy the bike for 10,000 rupees. Then A is
under no obligations to sell him the bike as the counteroffer made by B puts
an end to the original offer.
In Bismi Abdullah and sons v. FCI, the court held that where tenders were
invited subject to the deposit of money. It was open to the tenderers to
waive the requirement and acceptance given to a tender without making the
deposit is binding upon the tenderer.
In D.S. Constructions Ltd v. Rites Ltd, the court held the where the tenderer
made variations to the terms of his tender within the permissible period, but
the variations were only partly accepted by the other side without the
tenderer’s consent lead to repudiation of the contract and so there was no
contract at all. Therefore, the earnest money deposited by the party can not
be forfeited.
Provisional acceptance
Provisional acceptance is the type of acceptance by the offeree which is
made subject to the final approval. A provisional acceptance does not
ordinarily bind either party to the contract until the final approval is given to
the provisional acceptance made by the offeree. Until the approval is given,
the offeror is at liberty to cancel the offer made to the offeree.
In Union of India v. S. Narain Singh, the High Court of Punjab held that
where the condition attached to the auction sale of the liquor was that the
acceptance of the bid shall be subject to confirmation by the Chief
Commissioner. The contract will not be complete till the highest bid is
confirmed by the Chief Commissioner and till the confirmation is made the
person whose bid is provisionally accepted is at liberty to withdraw the bid.
Similarly, in Mackenzie Lyall And Co. vs. Chamroo Singh And Co., the bid at
an auction was of provisional acceptance in nature ad the terms of the
contract stated that the bid shall be referred to the owner of the goods for
his approval and sanction.the court in this case also, allowed the person to
revoke his bid whose bid was provisionally accepted.
In Somasundaram Pillai vs. The Provincial Government Of Madras, the court
held that the bidder would be at liberty to withdraw his will prior to the final
approval of the provisional acceptance where the terms of the contract
expressly mention that a bid which has been provisionally accepted can not
be canceled subsequently.
In Bengal Coal Co. v. Homee Wadia & Co., the defendant signed an
agreement. One of the terms of the contract was that the undersigned from
the day of signing the contract has to abide by the condition stipulated by
the contract which provides that they shall be required to provide a certain
quality of coal to the other party for a period of 12 months. The defendant
abided by the terms of the contract for some time but before the expiry of
the term of the contract, the defendants refused to comply with the
conditions which were stipulated under the contract. The plaintiff
subsequently sued the defendant for breach of contract. The court held that
there was no contract between the parties and the terms stipulated thereof
were just the part of a standing offer and the successive orders given by the
plaintiff was an acceptance of the offers of the quantity offered by the
defendant and therefore the order given by the plaintiff and the offer of the
defendant together constituted a series of contract. The defendants, in this
case, are not free to revoke the offers which were actually given by them.
But barring those offers aside, the defendants had the complete power of
revocation.
In Rajasthan State Electricity Board vs. Dayal Wood Work, the purchase
orders were issued in terms of an arrangement of supply. But the purchase
offer itself contained the provision that the tenderer can refuse to supply the
goods. The court, in this case, held that there was no concluded contract that
came into force and therefore, the contractor was at liberty to refund his
security deposit.
In a case where the tenderer has on some consideration promised not to
withdraw the tender or where there is a statutory provision restraining the
withdrawal of the tender, the tender becomes irrevocable. Just as the
tenderer has the right to revoke his tender in the same way the acceptor of
the tender also has the right to refuse to place any order.
In Madho Ram vs. The Secretary Of State For India, the military authorities
accepted a tender for the supply of certain goods but during the period of
tender, no requisition was ever issued. In an action against the military
authorities, the court held that the military authority was not bound
whatsoever by the acceptance of their offer to purchase any or all the goods
specified under the contract without any covenant to that issue. And so the
party giving his assent to the offer may at any time declare to the tenderer
that they no longer want to place an order for the purchase of goods.
In Kesulal Mehta vs. Rajasthan Tribal Areas, one of the conditions in the
tender was that the tenderer should have at least one year of work
experience in the work in question. The court, in this case, held that such
conditions could be relaxed and any otherwise competent contractor could be
given the tender and he could at a later point of time be required to produce
the certificate of work.
Certainty of terms
An agreement regarding the sale of immovable property should identify the
property with certainty. The agreement should be based on mutuality and
should fix the price. In New Golden Bus Service vs. State Of Punjab And Ors.,
the tender was made inviting the tender for hiring services for the vehicle but
it did not stipulate any time period. The lowest tenderer was awarded the
tenderer for a period of three years. The court, in this case, held that there
was nothing wrong in it as an open-ended tender can not be regarded as
void because of the reason for its vagueness. The tender, in this case,
specified that the tender can not be issued for a vehicle that is more than six
months old and the tenderer who was awarded the tender complies with the
specified conditions specified under the tender. The acceptance of substitute
vehicles which were of equal efficiency and cost by the authority inviting the
tender was not arbitrary.
In Merittrac Services Private v. Post Graduate Institute, it was held that the
provision of blacklisting a contractor arises only when the contract is
awarded and the tenderer fails to perform any conditions stipulated in the
contract. For the purpose of seeking permission for making his proposal,
some material facts may be required from the bidder about his experience.
The party allocating the contracts has the indispensable power of blacklisting
the contractor. But when in cases where the party is the state, the decision
to blacklist is open to judicial review to ensure proportionality and principle of
natural justice.
Can move from the promisee or another person- Unlike English law
in which the consideration must move at the desire of the promisor,
in Indian law as long as there is consideration it is immaterial as to
who has furnished it. Moreover, in the case of Chinnaya vs.
Rammyya the consideration can also move at the desire of the third
party but only in the condition where he is the beneficiary of the
contract.
Stranger to a contract
It is a general principle that the contract can be enforced only at the behest
of the parties to the contract. No third party could enforce it. It arises from
the contractual relationship between the two parties. However, Lord
Dennings has criticised this rule a number of times as this rule has never
benefited the third party whose roots go deeper in the contract. This rule has
two consequences-
Exception
There are three exceptions to this rule:
For example- A rescues B. B promises to give him Rs. 1000 for the same.
Here it is a past consideration as the act of rescuing happened before any
agreement.
In India however, there is no compulsion to follow the English law and past
consideration is regarded to be valid.
Executory consideration
Consideration may be something which is done or in the process of being
done. It also consists of an act which is promised to be done in the future.
There may be promises which form the consideration for each other. Before
the completion of a promise which forms a part of the consideration of the
other promise, then such consideration is called executory consideration.
For example- if A promises to pay B when he will sell the goods to him. Until
time A does not get the goods, the consideration is executory, when he got
the goods and paid for the same, the consideration is executed. If B does not
sell the goods then A could also breach for the suit.
The value need not be adequate for the promise made. The court will not
enquire whether the value of the consideration is equivalent to the promise
that is made. If the parties agree to the value of the consideration then it is
sufficient. This rule is applicable as per Indian and English law.
Forbearance to sue
The most usual form of forbearance is the forbearance to sue within a
reasonable time. This promise to forebear can be expressed or implied from
the circumstances. Sometimes it is very difficult to construe from the fact
whether it was an agreement to forbearance (which is not a good
consideration until not backed by the request of the promisor) or actual
forbearance. Hence to clarify in the case Bittan Bibi vs. Kuntu Lal, it was held
that the promise of forbearance should move at the desire of the promisor.
This holding was criticised in a way wherein several cases the jurist held that
if the party is content to receive any amount be it less than the sum and he
is satisfied by the same, then it should be considered to be a valid
consideration. However, in spite of all this criticism, the Pinnel’s Case was
applied unanimously in various circumstances.
Exceptions to the rule in Pinnel case
Composition
Payment of a lesser amount would be a good consideration for the larger
sum where this is done for some already entered compromise.
Promissory estoppel
The doctrine of promissory estoppel is considered to be a departure from the
doctrine of consideration. A promise that was made in the future is estoppel.
If the promise is made with the intention that it would be acted upon and it
was in actuality acted on, then the promisor cannot be allowed to back out
and it could be enforced in a court of law as well.
Law Commission of India in one of its reports mentioned that the contract
must be enforceable by a third party if it expressly for his benefit but the
defences of the party to the contract must also be considered. It is also
proposed that the parties cannot alter the terms of the contract once the
third party takes over the contract.
The jurists in the above case held that there was adequate consideration for
the contract as it could be construed from the fact that it was made because
of the engagement of his nephew. Moreover, marriage is of great interest to
the near relatives. Also, the contract is binding on the uncle as it is possible
that the plaintiff has undertaken many liabilities on account of the promise
given by the uncle and if the payment is withheld then the plaintiff could face
a lot of embarrassment.
Under these provisions, the person should be safeguarded from any further
payment which is not enforceable as per the contract. Like in the case
of Syros Shipping vs. Elaghil Trading co. a vessel which was prepaid had to
deliver tractors to Yemen. The charters defaulted their payment to the
shipowner because of the congestion in the ports. During this period the
shipowner asked for extra payment, the consignees agreed to pay but later
refused. The court held that since there was no consideration for the
promise, moreover no estoppel was created hence the contract is not
enforceable.
Consideration and motive
Consideration is not the same thing as motive or a mere desire. The
requirement of consideration is vital and the contract could not be satisfied
with just a moral obligation. Consideration for a promise is always a motive
for the promise, unless it is nominal or invented, while a motive for a
promise may not always be a consideration for it. Motive induces a promise
to be given. Similar holding was given in the case of Dwarampudi
Nagarathnamma vs. Kuruku Ramayya, where the Karta of a Hindu Undivided
Family gifted his concubine a portion of the property beyond the cohabitation
was a motive and not a consideration, and it should be considered as invalid
because it was motivated by the desire to compensate for his past services.
Absence of consideration
If the promissory note is neither genuine nor fraud then it is recoverable
under the provision of this code, with interest. The court said that mere
denial of the passing of consideration does not make any defence. Something
which is probable has to be brought on record.
Fiduciary relation
In case of a contract entered into between the relatives or on account of
natural love and affection is enforceable without consideration. The meaning
of love and affection is not judicially construed but parties who are nearly
related would have instinctive love and affection. However, this could be
overruled with regards to some external circumstances, like between the wife
and husband who are compelled to live separately because of quarrelling. But
a settlement to be given to a man by the wife by way of maintenance could
be enforced without any consideration because it will result in peace and
family harmony.
The term “family” (in this context) should be understood as a group of
people living together and possessing a right of succession, inheritance etc.,
but the family could be construed as a people who are bonded by natural
love and affection.
In case of a Minor
In Karam Chand vs Basant Kaur, the court held that even where the
promisor after attaining majority, promises to pay for the goods attained in
minority will also fall under this provision. The court said that although the
promise made by a minority is void but if the promise is made by a person of
full age to the promisee who has done something for him voluntarily when
the promisor was a minor, then it will also attract this exception.
The promise to pay the debt must be expressed, it is not sufficient if the
intention to pay could not be gathered from the circumstances.
Acknowledgement of the debt is different from the promise to pay the debt.
The acknowledgement of the person should be done before the period of
limitation. Promise to pay a time-barred debt is a new contract. It is not just
merely an acknowledgement of the existing liability.
Gift actually made
The provisions of “Consideration” do not affect the gift actually made. Under
this Section, gift is defined as:
Where the gift of the property was made by a registered deed and is attested
by two witnesses, it was not allowed to be questioned on the ground that she
was the victim of fraud, moreover, she was not able to establish it.
Inadequacy of consideration
Adequacy of the consideration means that the consideration which is paid is
equal in value to the value for which it is paid. Consideration can be terms of
money, property etc. inadequate consideration is not void but it renders the
contract unenforceable because of the improper bargaining or by itself.
Section 10 in The Indian Contract Act, 1872 tells about what agreements can
constitute a contract. “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.
Nothing herein contained shall affect any law in force in India, and not
hereby expressly repealed, by which any contract is required to be made in
writing or in the presence of witnesses, or any law relating to the registration
of documents.”
For a contract to be valid both the parties should have given their consent
and that consent must be free. Both parties should behave in such a way
that they can make an impression on the other party that the other party is
ready to make a contract and a legal relation, not a social relation. Thus a
person who is casually saying that he/she is accepting an offer usually
cannot be considered as a contract. On the other hand, a person who has no
intention of making and completing a contract but acts that it makes people
believe that he/she really wants to enter into a contract can be termed as a
contract. Legally, it is the external appearance which is important in
determining whether one is considered to a contract or not. Agreements
which are of religious, social nature and moral e.g. a friend’s promise to
others to go on a walk or picnic with him does not amount to a contract as
both the parties didn’t intend on forming a legal relation and were neither
intended to face legal consequences.
A contract comes into existence only when all the terms and conditions are
satisfied and fulfilled by the parties to the contract. If any of the conditions is
not fulfilled by any of the parties that agreement will be void. We can also
say that contracts are self-regulated and no one else other than yourself is
forcing you to enter into a contract. It’s upon your discretion that you want
to enter into a contract or not and no one in any condition can force you to
enter into any contract and if does so that agreement will be void. Later, the
duties after entering into an agreement are defined by the state and if not
followed be punished but entering into a contract is not forced by anyone
else other than yourself. According to the Section 10 of the Indian Contract
Act, 1872 there are mainly four conditions which have to be satisfied to form
a valid contract, i.e. free consent of parties to the contracts, competent to
contract, for a lawful consideration and with a lawful object.