Summary Notes of Law of Contract 1 and specific relief Act

Summary Notes of Law of Contract 1 and specific relief Act

Contract can be said to be a breach of common law; it concerns certain private obligations that arise out of symmetrical relationships among artificial and natural persons. The fact that contract certain chosen obligations, shows the affinity existing between obligation in law and the promissory obligation in morals. Contracts constitutes several fundamental features that help distinguish it from other forms of private obligations established by the legal system. A contractual obligation doesn’t come into being on its own, rather it is self-chosen. Contract is different than fiduciary law and law of torts.[1]

Section 2(h) of the Indian Contract Act 1872 has defined ‘contract’ to be an agreement that is enforceable by law. We need to define some important terms in order to understand this better. Section 2(e) defines agreement to be ‘every promise and every set of promises forming the consideration for each other. The agreement needs to be enforceable according to law, which means that legal obligations should arise from the contract.

Types of contracts

  1. Valid contract – when competent parties, contract with each other with free consent, there is consideration for the said contract and the object of the contract is lawful, the contract is valid.

Eg- A contracts with B to sell him 5 apples for 100 rupees

  1. Voidable contract – An agreement that is enforceable by law at the option of some of the parties/party, but not at the option of the other is a voidable contract. Voidable contract is defined under Section 2(i)

Eg- A contract whose consent has been caused, is voidable at the option of the party whose consent has been caused.

  1. Void contract– A contract that cannot be enforced by law is said to be void. Section 2(g) describes it. Section 24 -30 of the Act talks about the types of void agreements.

Eg- A contract which restrains any trade practise of an individual is void.

  1. Contingent contract – parties enter into a contract to do or not do something in case an event that is collateral to the contract happens or does not happen.
  2. Quasi contracts – A quasi contract is a pseudo contract. This is no real contract between the parties, but a contract imposed between the parties by law[2]

Formation of Contract

Let us now look into the process of contract formation.

When one person(offeror) signifies to another(offeree) his willingness to do or not to do something with a view to obtain the other persons assent, a proposal is said to be made. When A offers to sell 5 oranges to B, this is an offer. The communication of offer is said to be complete when the offer comes to the knowledge of the person to whom such offer is put forward. Section 5 of the act says that the offer may be revoked any time before the communication of said offer reaches the offeree. This is usually done using a faster mode of communication. Offer once revoked, cannot be accepted.

Essential Conditions of a valid offer

There are certain conditions for a valid offer

  1. The offer must intend to create legal obligations. non- performance of the agreement should attract legal consequences. As held in the case of Balfour V Balfour[3], there was no intention to enter into a contract when Mr. Balfour told his wife that he would send her 30 Pounds every month.
  2. The terms of the offer made should be definite and clear. If A agrees to sell ‘fruits’ for 100 rupees, this is not a valid offer as this is very vague.
  3. The Offer made should be communicated to the offeree. The case of lalman v Gauri Dutt[4] makes it clear that the offeree should be aware of an offer before he can make an acceptance.

When the offeree agrees to the offer in the same sense as it was made by the offeror, his acceptance is said to be given to the offer. B agreeing to take the 5 oranges is acceptance to the offer. the communication of the acceptance is complete against the offeror, when the acceptance is is put in the mode of transport to reach the offeror; complete against the offeree when the acceptance comes to the knowledge of the offeror. The revocation of the acceptance can be made before the communication of the acceptance reaches the offeror.

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Essential Conditions of a valid acceptance

There are some conditions for a valid acceptance

  1. The acceptance of the offer must be absolute and unconditional. Accepting the offer in part does not amount to valid acceptance.
  2. The acceptance should be in the format as specified by the offeror or in any format that is reasonable, in case of non-specification. In the case of Yates V Pulleyn[5], the acceptance was sent by regular (offeror asked to use registered post). Court held that as long as there was no disadvantage done to the offeror, the acceptance would be valid.
  3. The acceptance can be implied as well. As seen in the case of Brogdan V metropolitan Railways[6], from conduct we can infer acceptance.
  4. The acceptance should be made by the party to which the offer was put forward to (in creation of agency, an agent). The acceptance in the case of Powell v Lee was said to be invalid because it was made by an unauthorized person.

When the offer is accepted by the offeree, a promise is said to be made.

Consideration to a contract

Consideration is the price for the promise. When B agrees to pay 100 rupees for the 5 oranges, this is consideration for the contract.

When a consideration is added to this promise, it becomes an agreement. Section (d) defines consideration to be – “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

  1. Consideration should move at the desire of the offeror. In the case of durgaprasad V baldeo[7], the consideration did not move at the desire of the shopkeepers, which is why, consideration was not said to be valid.
  2. Consideration should move from the promise or any other person
  3. Consideration need not be adequate. A car can be sold for 5000 rupees .
  4. It needs to be real, not illusory
  5. and capable to be ascertained by a court of law

Doctrine of Privity of contract

The doctrine of privity implies that only parties to a contract are allowed to sue and be sued upon and enforce their rights and liabilities that arise from the contract. No party who is a stranger to the contract can enforce these rights. As seen in the case of Dunlop pneumatic tyres v Selfridge[8], the contract existed between selfridge and Dew, which meant that Dunlop was a stranger to the contract.

Even if the party is party to the consideration, if he is a stranger to the contract, he cannot sue. In the case of Tweedle  V Atkinson[9], though Tweedle was a beneficiary to the contract, he was still a stranger and he couldn’t sue.[10]

Capacity of a party to contract

Section 11 talks about the capacity of a party to contract. There are 3 main aspects in this

  1. should have attained age of majority

18 years is the age of majority under the Indian majority Act. Any contract made with a minor is void ab initio (as held in the case of Mohori Bibi V Dharmodas Ghose[11]). Even if he later attains the age of majority, he cannot ratify the agreement. The Indian partnership Act under section 30, specifies that though a minor cannot be a partner, he can get the benefits of the firm. A minor can always plead minority to avoid the contract and cannot be be declared as an insolvent; he is not personally liable, only his property is liable. In case a major enters a contract on behalf of the minor, he can be held liable

  1. disqualification in case of insanity

section 12 says that only a person who is capable to understand the contents of the contract and capable of making a rational judgment based on his self interests can enter into contract. A lunatic can contract, if at that time when he entered into the contract, he was of sound mind. A drunkard’s contract is similar to that of a lunatics.  An idiot cannot contract

  1. there are certain disqualifications such as alien enemies, foreign sovereigns, corporations, corporations, insolvents, governments etc.
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Consent of the Parties

Section 14 says that consent to the contract should free. It should not be caused by Coercion, undue influence, fraud, misrepresentation or mistake.

  1. Coercion– section 15 says that if consent to a contract has been got by doing or threatening to do an act forbidden by IPC or detains or threatens to detain property in prejudice of a person in order to coerce him into entering into a contract with him.
    • In the case, of Ranganayakamma V alwar setty[12], the consent of the mother to adopt the child was got by threatening to not move the dead husband’s body. Consent was said to be induced by coercion.
  2. Undue influence – when parties are in such a relation between each where they are in a position to dominates over the will of the other and uses such a position to obtain an undue advantage in the contract is said to have caused the consent by undue influence. Three forms where one party can be in such a position – real or apparent authority over another, fiduciary relationship or contracting with a person with diminished mental capacity due to age, sickness.

In case of Mannu Singh V Umadat pande[13] it was the duty of the spiritual guru to prove that he was not in a fiduciary relationship with his disciple.

Void and Voidable contracts

Uberrima Fides is Latin for ‘Utmost good faith’. Doctrine of uberrima Fides usually governs insurance contracts. Certain contracts, like insurance contracts are contracts of good faith and it requires the parties to fully disclose certain information held by them. Since insurance companies agrees to make for the risks that the insurer might undergo, it is required that there is full disclosure. Not adhering to this doctrine can make such agreements void. This principle was first expressed in the case of Carter V Boehm.

Section 26 of the Act speaks about agreements made which restricts the party’s liberty to marry or trade is void to that extent.

Section 26 says that all agreements that would be in restraint of marriage except in the case of marriage of minors will be void. The idea is to not take away another’s right in choosing who to marry. Lowe V peers has set the precedent in this. The agreement in this case was to pay a certain sum of money as default every month in case Mr. Lowe marries any one else other than Ms. Peers. This agreement was purely restrictive and contained no promise on either side to marry.

Section 27 agreements that restrains a person from starting, continuing his profession or trade is void. It is also a fundamental right under article 19 of the constitution which allows free trade. However certain exceptions exist-

  1. In the case of sale of good will, parties can be restricted from carrying on with a certain trade practice
  2. Certain restrictions can be put on the employers working in the company
  3. Indian partnership Act also provides some restrictions on trade for partners in a firm etc.

Discharge of Contract

Discharge of Contract means that the contract has come to an end. the rights and obligations that have arisen from the contract come to an end and the parties no longer need to perform the contract. Let us take a look at how the contract can be discharged by mutual agreement –

  1. Novation – when a new contract has been put in place of the existing one, between either the same parties or new parties. In the case of Scarf V Jardine this concept was well explained – there already being a contract in existence, a new contract is substituted for it either between different parties or same parties, the consideration being the discharge for the old contract.
  2. Rescission – section 62 allows the parties to rescind the contract. If the party rescinding the contract has received any benefit under the contract, the same shall be restored. The communication of rescission shall be be either explicitly or by conduct (car and universal finance V Caldwell)
  3. Alteration – by mutual consent, the contract may be altered. The parties remain the same and the alteration takes place in the same contract. Alteration without prior notice to the parties is illegal.
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Quasi contract

A quasi contract is a pseudo contract. This is no real contract between the parties, but a contract imposed between the parties by law. Section 68 -72 talks about the 5 situations where such a contract comes into existence.

  1. Supplying necessaries to people who are incapable of contracting – A reasonable sum of money can be recovered for supplying necessaries. Money advanced for necessaries can be reimbursed.
  2. Payment done for another person – if person A pays the money supposed to be paid by person B legally, Person A can recover the amount
  3. Non – gratuitous act – any person who enjoys the benefits of a non-gratuitous act shall pay for the same
  4. Finder of goods – the duty of such a person is similar to a bailee, and he can recover the amount spent on keeping the good with him, or spent on finding the true owner of the goods
  5. Money advanced under mistake – such money is liable to be returned.

Remedies for breach of contract

When an agreement or promise has been broken by the parties, there is said to be a breach of contract. There are some remedies available for the parties that are on the receiving end of such contracts

  1. Recession – when one party breaches the contract, the other party can rescind it and no longer perform their obligations of the contract
  2. Damages – the party that has suffered can sue for compensation for the damages incurred due to breach in the form of liquidated or unliquidated damages.
  3. Specific performance of the contract- the court can order the party to perform his end of the contract. This is granted instead of damages
  4. Injunction – it is a decree for specific performance, but for a contract that is negative in nature. It is more like a prohibitive writ issued by the court. This is of two kinds
  5. Temporary injunction – injunctions given for a specific period of time, until the court gives further orders. This is done in case there is a prima facie case, irreparable injury or for balance of convenience
  6. Permanent injunction – can be given to the plaintiff in a suit in order to prevent a breach existing in his favor in case the party threatens or invades the plaintiff’s rights
  7. Quantum meruit- in case one party has prevented the other from finishing her performance of the contract, she can claim as much as she as earned. This should be a reasonable sum for the services already provided. [14]

SPECIFIC RELIEF ACT

Chapter 3 of the act deals with the recovery of possession of property. This is dealt with in section 5-8 of this chapter.  here property could be movable or immovable. Section 5 and 6 deals with immovable property and movable property is dealt with in section 7,8.  The specific performance of contract is dealt with in section 4. In case a party to a contract fails to discharge it, the other party can actual or literal performance of the contract. Section 14 talks about certain contracts that cant be specifically enforced. Section 15 deals with the parties who can obtain specific performance, 16 puts personal bars for relief under this act, 20 deals with the discretion to decreeing specific performance. Section 21 confers the power to award compensation.  Chapter 5 deals with the rectification of instruments. When through fraud or mutual mistake, a contract of other instruments in writing doesn’t express the real intention, ten the instrument may be rectified.[15]

[1] Stanford encyclopedia of philosophy – theories of the common law of contracts

[2] Legal Bytes

[3] [1919] 2 KB 571

[4] 1913 40 ALJ 489

[5] 1975

[6]  (1877) 2 AppCas 666, HL(E)

[7]  ILR (1881) 3 ALLAHABAD 221

[8]  [1914] UKHL 1, [1915] AC 79

[9]  [1861] EWHC QB J57]

[10] Blog.ipleaders

[11] -(1903) ILR 30 Cal 539

[12] 1889

[13] 1890

[14] Toppr.com

[15] Obiterdicta.in

Author: Palguna M,
School of Law Christ University 2 year

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