CONTRACTS JH
CONTRACT ACT
INDEX
PAGE NOS
1. VALID CONTRACT
2. COMPETENCE TO CONTRACT
3. MINOR AGREEMENTS
4. DISCHARGE OF CONTRACTS
5. REMEDIES OF BREACH OF CONTRAC
6. QUASI CONTRACTS
7. SPECIFIC PERFORMANCE OF CONTRACT
8. INJUNCTIONS
9. STANDARD FORM OF CONTRACT
10.WAGERING CONTRACT
11.QUANTUM MERUIT
12.CASES
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I.VALID CONTRACT
Meaning of Contract
Definition of Contract
Agreement
Essential conditions of a Valid Contract:
1. Minimum two parties (Offeror Sec 2(a) and Acceptor (Sec 2(b)),
2. Agreement,
3. Offer and Acceptance,
4. Consensus-ad-idem (Identity of Minds),
5. Capacity to contract (Sec. 11),
6. Free consent (Sec. 14),
7. Lawful consideration (Sec. 2(d)),
8. Legal relationship,
9. Lawful object (sec 23),
10. Certainty of terms,
11. Possibility of performance,
12. Lawful agreement,
13. Legal formalities
Kinds of Contracts:
1. Valid contract (Sec 10),
2. Void Contract (Sec. 2(g)),
3. Voidable Contract (Sec. 2(i))
4. Unenforceable Contract,
5. Illegal Contract,
6. Standard Form of Contract,
7. Express Contract,
8. Implied Contract,
9. Executed Contract,
10. Executory Contract,
11. Unilateral Contract,
12. Bilateral Contract,
13. Formal Contract,
14. Simple Contract.
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II.CAPACITY TO CONTRACT
“Capacity to contract” means competency of the parties to enter into a valid contract.
Competency of parties is an essential element of a valid contract. According to Section 10 of
the Contract Act, “All agreements are contracts if they are made by the free consent of
parties competent to contract….” Thus Section 10 requires parties to be competent to
contract. Section 11 of the Contract Act deals with the competency of parties. It lays down
that “Every person is competent to contract who is of the age of majority according to the
law to which he is subject, and who is of a sound mind and is not disqualified from
contracting by any law to which he is subject”.
INCAPACITY TO CONTRACT: Sec 11 of the Contract Act declares that a person is incompetent
to contract under the following circumstances:
1. If he is a minor, according to the law to which he is subject(Mohori Bibee v
Dharmodas Ghose, 1903),
2. If he is of unsound mind:
1. Insane person,
2. Contracts made by idiots,
3. Contracts by a lunatic or non compos mentis,
4. Contracts entered by drunkards,
3. If he is disqualified from contracting by any law to which he is subject:
1. Foreign Sovereigns and Ambassadors,
2. Alien Enemy,
3. Convicts or Felons,
4. Insolvent,
5. Government,
6. Barristers in England,
7. Illegal migrants from neighbouring countries,
8. The partners of an unregistered partnership cannot sue for the contract entered
by them. They are disqualified to sue,
9. If any property of an accused is forfeited under Section 53(v) of the Indian Penal
Code, 1860 by any court, nobody is entitled to enter into contract pertaining to
that forfeited property,
10. Contracts with Pardanashin woman valid subject to certain conditions (Hussain
Bai v. Zohra Bai, 1960)
Artificial status to enter into contract:
1. Capacity of corporations (Salomon v Salomon & co Ltd)
2. Deity,
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III.MINOR AGREEMENTS
Capacity to contract
Incapacity to contract :Section 11 of the Contract Act declares that a person is incompetent
to contract when he is a minor, he is of unsound mind, and disqualified from contracting by
any law.
Who is minor?
Legality of validity of minor’s contract.
Nature of minor’s agreement:
1.
2.
3.
4.
Agreement by a Minor is void ab initio (Mohori Bibee v Dharmodas Ghose, 1903),
No ratification of minor’s contract is possible (Bhola Ram v Bhagat Ram),
No Estoppel against a minor,
No Restitution for minor’s fraud (The Doctrine of Restitution).
Exceptions :
1. Enforceability of sales, mortgages, contracts etc., In favour of minor(A minor binds
others but is never bound by others),
2. Contracts of marriage on behalf of minor,
3. Minor can be admitted to the benefit of partnership,
4. Minor as a member of a company,
5. Minor In a contract of agency,
6. Minor and negotiable instruments,
7. Minor and insolvency,
8. Membership of societies,
9. No specific performance of minor’s agreement,
10. Insurance,
11. Joint documents,
12. Contracts of apprenticeship,
13. Minor’s liability for necessaries.
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IV.DISCHARGE OF CONTRACTS
Methods or modes of discharge of contracts:
1. Discharge by actual or attempted performance
a. By actual performance,
b. Performance is dispensed with or executed(insolvency of a party),
c. By refusing the tender of performance,
d. By refusal.
2. Discharge by agreement:
a. Novation,
b. Alteration,
c. Rescission,
d. Remission,
e. Waiver,
f. Accord and satisfaction.
3. Discharge by lapse of time,
4. Discharge by impossibility of performance,
5. Discharge by breach,
6. Discharge by operation of law:
a. Death,
b. Insolvency,
c. Unauthorised material alteration of contract,
d. Merger.
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V.REMEDIES OF BREACH OF CONTRACT
Meaning of Breach of contract.
Remedies for breach of Contract:
1. Suit for rescission of the contract,
2. Suit for damages (Hadley V. Baxendale):
a. General or ordinary damages,
b. Specific damages or particular damages,
c. Vindictive or exemplary or punitive damages,
d. Nominal damages,
e. Liquidated damages,
f. Un-liquidated damages
3. Suit for quantum meruit,
4. Suit for specific performance,
5. Suit for injunction (Lumley V. Wagner)
VI.QUASI-CONTRACT
Definition of Quasi-contract: ‘Quasi’ means seemingly, apparently but not really’. Quasi is a
Latin word which means “as if”.
Characteristics or essential features of “quasi-contract”
1. Quasi-contract is not created by the operation of contract but is imposed by law,
It is strictly available against a person and is not available against all the world
and hence it is a right in personam,
2. The person, who incurs expenses, is entitled to receive money,
3. The person who enjoys or gets the benefit has to pay for it.
Evolution of the concept of quasi-contract.
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Theoretical basis of quasi-contractual liability:
1. Theory of unjust enrichment,
2. Implied promise theory.
Classification of quasi-contracts according to the Indian Contract Act, 1872:
1. Necessaries supplied to persons incapable of contracting i.e., minors, lunatics (Sec.
68);
2. Payment by an interested person (Sec. 69);
a. The payment made should be bona fide for the protection of one’s interest.
b. The payment should not have been made gratuitously or voluntarily,
c. Another person must be bound by law to pay,
d. The payment must be made to a third party and not to himself.
3. Liability to pay for non-gratuitous acts (Sec. 70);
a. Doing of something or delivering anything to another person lawfully,
b. It must be doing of something positive,
c. No intention to do the act gratuitously,
d. Enjoyment of benefit by the defendant is necessary,
e. The person has not refused to accept the thing and not returned it.
4. Responsibilities of finder of goods (Sec. 71);
5. Liability of persons to whom money is paid or things delivered, by mistake or under
coercion (Sec. 72).
VII.SPECIFIC RELIEF ACT – 1963
Meaning and scope of the Specific Relief Act.
Reliefs under the Act:
1.
2.
3.
4.
5.
6.
7.
Recovery of possession of immovable and movable property,
Specific performance of contracts (Sec. 9-25),
Rectification of instruments (Sec. 26),
Rescission of contract (Sec 27-30),
Cancellation of instruments (Sec 31.33),
Declaratory decrees (Sec. 34-35),
Preventive relief or injunctions (Sec. 36-42).
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VIII.INJUCTION
Preventive relief (Lumley V. Wagner).
Objects of granting injuction:
1.
2.
3.
4.
5.
To restrain judicial proceedings,
To prevent tortuous acts,
To restrain breach of contract,
Breach of obligation to be prevented,
To prevent mishappening and injury to the aggrieved parties.
An injunction will not be granted in the following circumstances:
1.
2.
3.
4.
5.
Where damages are the appropriate remedy,
Where injunction is not the appropriate relief,
Where the plaintiff is not entitled to an injunction,
Where the contract cannot be specifically enforced,
Where the injection would operate inequitably.
Characteristics of an injuction:
1.
2.
3.
4.
It is a judicial process,
The object attained thereby is restraint or prevention,
The thing restrained or prevented, is a wrongful act,
An injunction acts in ‘personam’ and does not run with the land.
Kinds of injunction:
1.
2.
3.
4.
5.
Temporary injunctions (Interlocutory/interim/preliminary),
Permanent or perpetual injunction,
Mandatory injunction,
Prohibitory injunction,
Injunction to perform a negative agreement.
IX.STANDARD FORM OF CONTRACTS
Due to increase in volume of trade and business, a business concern may have to enter
into contract with a large number of peoples. Hence, for the sake of convenience, an
organisation prepares standard form of contracts with fixed terms and uses the same with
the customers. Similarly, many contracts entered into by public utility undertakings like the
railways took the form of a set of terms fixed in advance leaving no room for any discussion
or bargain between the contracting parties, a ‘take it or leave it’ offer. Such contracts were
known as ‘standard contracts’.
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In standard form of contracts, the terms and conditions are not made by the process of
negotiation, between two parties. One of the parties generally prepares draft of the
contract, and on the same terms contracts may be made with numerous persons. Such
contracts have become quite common in our everyday life.
For instance, an insurance company may prepare a draft of insurance policy, which may
form the basis of contract with a large number of insured persons. Similarly, the railway
authorities may print various terms and conditions in the Railway Time Table, which may be
deemed to be the basis of the contract with passengers.
Rules of standard form of contract:
1.
2.
3.
4.
5.
6.
7.
8.
9.
There should be a contractual document,
There should not be no misrepresentation,
There should be a reasonable notice of the contractual terms,
Notice should express liability exemption clause,
The terms of the standard form of contract should be reasonable,
Protection to weaker party,
There should be no fundamental breach of contract,
No negation of liability,
Liability towards third party.
X.WAGERING CONTRACT (SECTION 30)
Meaning of ‘wagering’
A wager is a contingent contract. Wager means bet or gamble. It is an agreement to pay
money or money’s worth on the happening or non-happening of aspecified uncertain event.
Examples of wager.
Essentials of wagering agreement:
1.
2.
3.
4.
5.
6.
There must be a promise to pay money or money’s worth,
The promise must be dependent upon the happening or non-happening of an event,
The event must be uncertain. The uncertain event may be past or future,
There must be two parties. Each party must have chance to lose or win.
The gain of one party must be the loss of the other,
The promise must have been made with the sole intention to gamble, wager is a
game of chance,
7. The parties must have opposite views on uncertain event,
8. Neither party have control over the event,
Effects of wagering contracts or agreement
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1. Under Indian Law, wagering agreements are void but not illegal except in the states of
Maharashtra and Gujarat. So the amounts won on a wager cannot be recovered.
Promissory Note given on a wager also cannot be recovered. Thus all kinds of wagers
are void.
2. Though wagering contract I void, transactions incidental or collateral to a a wagering
transaction are not void. They are valid and binding.
3. Wagering being only void, no taint of illegality is attached to a transaction.
4. Hence a wagering agreement is not unlawful and transactions collateral to the main
transaction are enforceable. For example, a broker in a wagering transaction can
recover his brokerage. Similarly, money lent for the purpose of gambling, or for
paying gambling debt, even if given with knowledge of its purpose for which the
money is required, can be recovered.
Exceptions :
1.
2.
3.
4.
5.
6.
Lotteries,
Chit fund companies,
Games of skills,
Shares even though speculative,
Horse race,
A contract of insurance.
XI.QUANTUM MERUIT
Meaning of Quantum Meruit.
The doctrine of quantum meruit comes into the operation in three distinct cases. They are:
1. Breach of contract,
2. Contract discovered to be void,
3. Non-gratuitous services (Sec. 70).
Limitations: The doctrine of quantum meruit is subject to the following limitations:
1. Indivisible contracts,
2. No evidence of promise,
3. Guilty of breach of contract.
CASES PART – C
1. A , a businessman transferred his entire property on the name of the spiritual guru,
on his advice, believing that A will get moksha in the next world. But after some
time he denied his free consent. Decide. (Aug/Sep., 2013, 5 YDC)
Solution: In Manu singh v. Umadat Pande(1890), a Hindu lady made a gift of her
entire property to her spiritual guru, to secure benefits to her soul in the next world.
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The court held that the gift was caused by undue influence and hence voidable.
(page 178 S.R.Myneni).
2. ‘A’ invites ‘B’ to dinner B accepts the invitation but does not turn up at the dinner
can ‘A’ sue ‘B’ for the loss he has suffered (Mar/Apr 2017).
Solution: An offer must be one capable of creating legal relationship between the
parties. A cannot sue B for breach of contract as there was no intention to create
legal obligation.
In Balfour v. Balfour, 1919, who was serving the government of Ceylon, went to
England with his wife on leave. After the expiry of the period of leave, Balfour has to
go back to Ceylon, but his wife could not accompany him for medical reasons.
Consequently, he promised orally to pay an allowance of 30 pounds a month for her
maintenance until she rejoined him. On his failure to make the payment, the wife
sued him for the recovery of the promised amount. Her suit was dismissed by the
court on the ground that the agreement was only an arrangement between husband
and wife, and the parties never intended to create any legal obligation.
3. A tells his wife that he would commit suicide, if she did not transfer her personal
assets to him. She does so under this threat. Can the wife avoid the contract(Jun2014).
Solution:: When an agreement is made under coercion, the consent is no free.
Hence, it is voidable at the option of the party whose consent was not free.
According to Section 72 of the Contract Act, “A person to whom money has been
paid, or anything delivered, by mistake or under coercion, must repay or return it”.
In Chikkam Ammiraju v. Chikkam Seshamma(1918), a husband held out a threat to
commit suicide and made his wife execute a release deed in his favour. The suit was
brought for setting aside that document. The Privy Council held that threat of
suicide though not punishable is forbidden by the Indian Penal Code and that
therefore consent obtained under threat of suicide would be ‘coercion’ within the
meaning of Section 15 of the Contract Act, and therefore, rendered the release deed
void.
4. A minor fraudulently represented to a money-lender that he was of full age and
executed a mortgage deed for Rs.10000. Has the money lender any right of action
against the minor for the money lent or for damages for fraudulent
misrepresentation (June-2014).
Solution: Law protects the minor against his own inexperience and the improper
designs of those advanced in years. It has been rightly observed that “the judges are
his counsellors, the Jury is his servant, and the law is his guardian”.
Contract Act, 1872 has given a special privileged position to a minor. Contracts
made with minors are either void or valid. Minor binds others but is never bound by
others. No legal action can be taken against a minor even for his misbehaviour or
false promises. He cannot be held personally liable for any of his wrongs.
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In Mohori Bibee v. Dharmodas Ghose(1903), it was held that the agreement by a
minor was void. In this case, Dharmadas Ghouse while he was a minor, mortgaged
his property in favour of the defendant Brahmo Dutt, who was a money-lender to
secure a loan of Rs.20000. Before the execution of the mortgage, a notice was
issued on behalf of Dharmodas Ghose’s mother to the money-lender bout the fact of
Dharmadas Ghouse’s minority. Despite this notice, the money lender got a
declaration signed by the attorney, who acted on behalf of the money-lender, that
Dharmodas Ghouse was a major and advanced to Dharmodas Ghouse only about
Rs.8000, part of the money agreed and the mortgage deed was executed.
On behalf of Dharmodas Ghouse his mother brought a suit as a guardian and next
friend of the minor in September, 1895 for cancellation of the mortgage deed and
for a declaration that the transaction was void. By the time of appeal to the Privy
Council the defendant Brahmo Dutt died and the Appeal was prosecuted by his
executors (Mohori Bibee).
The defendant (money-lender) contended that:
a. Dharmodas Ghouse was of full age,
b. He has fraudulently misrepresented his age,
c. He was estoppel from pleading minority by reasons of the declaration,
d. If he were a minor, the contract was only voidable and not void, and
e. In the event the court cancelled the mortgage-deed, the court should order
repayment of money advanced i.e., Rs.10,500.
The Privy council held that ‘the Act makes it essential that all contracting parties
should be competent to contract and the Act especially provides in Section 11 that a
person, who, by reason of minority or infancy, is incompetent to contract cannot
make a contract, within the meaning of the Act. It was accordingly held that a
mortgage made by a minor was void.
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