Law: Law, as it is, is the command of the sovereign. It means
(1) law has its source in sovereign authority, (2) law is accompanied by
sanction and (3) the command to be a law should compel a course of conduct.
Sovereignty is, however, only a part of the state. So, in ultimate sense, law
emanates from the state.
According to Holland-
Law is “a rule of external human action enforced by the sovereign political
authority “here the concept is- * law is a rule relating to the actions of
human beings, *law attempts to regulate the external actions of human beings *
law is enforced by state.
According to Salmond
“law is the body of principles recognized and applied by the state in the
administration of justice.”
Commercial law: the term Commercial law or mercantile law
includes rules only relating to industry, trade, and commerce.
Contract: an agreement enforced by law is a contract.
Essentials of contract:
1.
Offer and acceptance: there must be
a lawful offer by one party and a lawful acceptance of the offer by other party
or parties.
2.
Intention to create legal relationship:
there must be an intention (among the parties) that the agreement shall result
in or create legal relations. An agreement to dine at a friend’s house is not
an agreement intended to create legal relations and is not a contract.
3.
Lawful consideration: subject to
certain exceptions, an agreement is legally enforceable only when each of the
parties to it gives something and gets something. An agreement to do something
for nothing is usually not enforceable by law. The something given or obtain is
called consideration.
4.
Capacity of parties: the parties to
an agreement must be legally capable of entering to an agreement; otherwise it
cannot be enforced by a court of law. Want of capacity arises from minority,
lunacy, darkness, idiocy and similar other factors. If any of the parties to
the agreement suffers from any such disability, the agreement is not
enforceable by law.
5.
Free consent: in order to
enforceable an agreement must be based on the free consent of all the parties.
There is absence of genuine consent if the agreement is induced by coercion,
misrepresentation and fraud.
6.
Legality of object: the object for
which the agreement has been entered into must not be illegal or immoral or
opposed to public policy.
7.
Certainty: the agreement must not be
vague.
8.
Possibility of performance: the
agreement must capable of being performed.
9.
Void agreement: an agreement so made
must not have been expressly declared. There are five categories of agreement
which are expressly declared to be void. They are:
·
Agreement in restrain marriage
·
Agreement in restrain trade
·
Agreement in restrain proceedings
·
Agreement having uncertain meaning
·
Wagering agreement.
10.
Writing registration and legal formalities:
an oral agreement is a perfectly good contract. Except in those cases where writing and /or
registration is required by some statute.
Offer and acceptance
Formation of a contract: all contracts are made by the process
of a lawful offer by one party and the lawful acceptance of the offer by
another party.
Proposal: an offer involves the making of proposals. “When one person signifies to another his
willingness to do or to abstain from doing anything with a view to obtaining
the assent of that other to such act or abstinence he said to make a proposal”.
A proposal is also called offer.
Offer: a promise or proposal of doing something or not. Acceptance:
that person who are offered and accepted.
Essentials of offer:
·
Offer can be implied or expressed
·
Offer are given to a certain person
·
Legal relationship is to make
·
Clear, constant and understandable
·
Intention is not offer.
·
Offer must be communicated to the offeree. (a
person cannot accept an offer unless he knows the existence the offer)
·
Offer may be conditional.
·
Printed contract. (printed contracts often contain
a large number of terms and conditions which exclude liability under the
contract)
(An offer can be accepted only by
the person or persons for whom the offer is intended.)
Rules regarding acceptance:
·
There
must be absolute and unqualified acceptance of all the terms of the offer.
If there is any variation, even on an unimportant point between the terms of
the offer and the terms of the acceptance, there is no contract.
·
Conditional
acceptance, an acceptance with a variation is no acceptance; it is simply a
counter-proposal, which must be accepted by the promisor before the contract is
made. X offered to sell his house for tk
12000. Y said “accepted for tk 10000. This is not an acceptance but counter
offer or counter proposal.
·
Clarification;
if any type of clarification, is not acceptance. The seeking clarification of
offer neither amounts to the acceptance of the offer nor to the making of
counter offer.
·
Acceptance
must be expressed.
·
Mental e
acceptance or excommunicated assent is not does not result in a contract.
·
The mode
of acceptance; where the promisor prescribes a particular mode of
acceptance, the offeree must follow the particular mode of acceptance. (
offeree prescribe to response by a telegraph)
·
Time of
acceptance.
·
When the
acceptance is completed. (‘A’ proposer, by letter, to sell a house to ‘ B’
at a certain price. The communication of the proposal is completed when ‘B’
receive the latter)
·
Before
offer
·
Acceptance must be made while the offer is in
force. (before the offer has been revoked)
Revocation of an offer:
an offer comes to an end and is no longer open to acceptance under the
following circumstance.
·
By notice
·
By lapse
of time. (when the proposer prescribes a time)
·
By expiry
of reasonable time. (if no time has been prescribed, the proposal lapses
after the expiry of a reasonable time.
Ex: on 8th June M offered to take shares in R Company. He
received a letter of allotment on 23rd November M refused to take
the shares. Held M was entitled to refuse as the offer had lapses by the delay
in acceptance.)
·
By
failure of a condition precedent
·
By death
or insanity of proposer
·
Counter
offer
·
Refuse
Consideration: an agreement is not enforceable when each party
to the agreement gets something. When someone done something in order to
obtaining something is called consideration.
Three types of consideration:
1. Past consideration: the consideration
of one party was given before the date of the promise. (x does some work for Y
in month of January (without expecting any payment) in February Y promises to
pay him some money. The consideration of X is past consideration.
2. Present consideration: consideration
which moves simultaneously with the promise is called present consideration or
Executed consideration. (B buys an article from a shop and pay immediately)
3. Future consideration: when the
consideration is to move at a future date, is called future consideration or
Executory consideration.
Essentials of consideration/Rules regarding consideration:
1.
Desire of
the promisor is essential: an act done without any request is a voluntary
act and does not come within the definition of consideration. (P sees Q’s house
on fire and helps in extinguishing it. Q did not ask for help. P cannot demand
payment for his service.
2.
The
consideration must be real: the consideration must have some value in the
eyes of law. It must not be sham or illusory. (G promises for no consideration,
to give H tk 1000. This is void agreement. No consideration.
3.
Public
duty: where the promise is already under an existing public duty, an
express promise to perform or performance of, that duty will not amount of
consideration.
4.
Promise
to a stranger: A promise made to a stranger to perform an existing contract,
is enforceable because the promisor undertakes a new obligation upon himself
which can be enforced by the stranger.
5.
Consideration
may not be adequate: an agreement to which the consent of the party is
freely given is not void merely because the consideration is adequate; but the
inadequacy of the consideration may be taken into account by the court in
determining the question whether the consent of the promisor was freely given.
6. Consideration must not be illegal, immoral
7. Consideration may be past, present, future.
8. Consideration may move from promisee or any
other person.
Exceptions of the rule:
(consideration is essential for the validity of a contract. A
promise without consideration is a gift; one made for a consideration is a
bargain- Salmond and Windfield, law of contract)
1.
Out of
natural love and affection: an agreement without consideration is valid
under section25(1) only for the following requirement is complied with:
a.
The agreement is made by a written document.
b.
The document is registered according to the law
relating to registration in force at the time.
c.
The
agreement is made on account of natural love and affection.
d.
The parties of the agreement stand in near
relation to each other.
2.
Voluntary
compensation: a promise made without consideration is valid if, it is a
promise to compensate wholly or in part, a person who has already voluntary
done something for the promisor, or something which the promisor was legally
compellable to do. (D finds B’s purse and gives it to him; B promise to give D
tk50. This is a contract.
3.
Time
barred debt: a promise to pay wholly or in part, a debt which is barred by the
law of limitation can be enforced if the promise is in writing and is signed by
the debtor or his authorized agent. (D woes B tk1000 but the debt is barred by
the limitation Act. D signs a written promise to pay B tk500 on account of the
dent. This is a contract.
4.
Agency: no
consideration is required to create an agency.
5.
Completed
gift: the rules “no consideration, no contract” does not apply to
completed gift. (if a person gives certain properties to another according to
another according to provisions of the Transfer of property[i. e. by written
and registered document] he cannot subsequently demand the property back on the
ground that there was no consideration.
Void and voidable agreement
Void agreement: An agreement is not enforceable by law said to
be void “- sec. 2 (g). A void
agreement has no legal effect. It confers no rights on any person and creates
no obligation. An agreement made by a minor is an example of void agreement.
An agreement which becomes void: an agreement which was legal
and enforceable when it was entered into, may subsequently becomes void due to
impossibility of performance, change of law or other reasons.
Voidable agreement: A voidable agreement is one which can be
avoided.
Examples: contract
brought about by coercion, undue influence, and misrepresentation etc.
Illegal agreement: an illegal agreement is one which is against
a law in force in India. An agreement to commit murder, robbery or cheating.
Difference between a void agreement and an illegal agreement: an
illegal agreement is also void. But a void agreement is not necessarily
illegal. An agreement may not be contrary to law but may still be void.
Valid contract: an agreement which satisfies all the
essential elements of a contract and which is enforceable through the courts is
called valid contract.
Capacity of the parties
One of the essential elements
for the validity of an agreement is that all the parties to it must have the
capacity to enter into contracts.
Section 11 of the contract act state 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 sound mind, and is not disqualified from
contracting by any law to which he is subject.
Minority/Minor: According to the Indian majority act, 1875, a
minor is one who has not completed his or her 18th year of age.
Rules regarding Minor’s
agreement:
1. Minor Agreement is Void: An agreement by a minor is (subject to the exceptions noted
under 2 and 3 below) absolutely void and inoperative.
2.
A minor can be a Promisee: an agreement under which a minor has
received a benefit can be enforced as against the other party. (D, infant
professional boxer, held a license from the British Boxing Board under which
the money was to be stopped if he was disqualified. D sued to recover if Held,
the contract was for his benefit and was binding of him. Doyle v. White City
Stadium)
3. Minor’s liability for necessaries: minor’s property is liable for the payment of a reasonable
price for necessaries supplied to the minor or to anyone whom the minor is
bound or support.
4. Law regarding compensation or restitution: A minor cannot be compelled to
compensate for or refund any benefit which he has received under a void
agreement.
5. No Estoppel: A
minor who falsely represents himself to be a major and thereby induced another
person to enter into an agreement with him can nevertheless plead minority as a
defense in an action on the agreement.
6. No Ratification: a minor on attaining majority cannot ratify an agreement entered into
while he was a minor.
7. No specific performance: an agreement by a minor being void, the court will never
direct specific performance of such an agreement by him.
8. No insolvency:
a minor cannot be declared insolvent even though there are dues payables from
the properties of the minor.
9. Partnership by minor: a minor cannot enter into a partnership but. But he can be admitted into
the benefits of a partnership with the consent of all the partners.
10. A minor can be an agent: a minor can draw, make, indorse and deliver negotiable
instruments so as to bind all parties except himself.
11. Position of minor’s Guardian: an agreement entered into by the minor on behalf stands on a
different footing from an agreement entered into by the minor himself.
12. A Company Shares of Minor: a minor cannot apply for and be a member of a company.
Persons of Unsound Mind
For a valid
agreement it is necessary that each party to it should have a sound min. “A
person is said to be of sound mind for the purpose of making a contract if, at
the time when he makes it, he is capable of understanding it and of forming a
rational judgment as to its effect upon his interests”.
·
Idiocy: a person whose mental powers are
completely absent. Idiocy is a congenital defect caused by lack of development
of the brain.
·
Lunacy/ Insanity: this is a disease of the brain. A
lunatic is one whose mental powers are deranged so that he cannot form a
rational judgment on any subject. Lunacy can sometimes be cured. Idiocy is
incurable.
·
Darkness: darkness produces temporary
incapacity.
Disqualified person:
·
Aliens: a citizen of foreign state. Contracts
with aliens are valid. Again, a contract with an alien becomes unenforceable if
war breaks out with the country of which the alien concerned is a citizen.
·
Foreign sovereign: foreign sovereign and governments
can enter into contract through agents residing.
·
Company
and corporation: contractual power of company and corporation. Ch.2 books xi,
(company law)
·
Professional person: British professionals cannot
contract.
·
Women: in India there is no different
between men and women as regards contractual capacity. A married woman can bind
her husband’s properties for necessaries supplied to her. She is an agent of
her husband for this purpose.
Free consent: an agreement is valid only when it is
the result of the free consent of all the parties. “Two or more persons are
said to consent when they agree upon the same thing in the same sense.
That consent
is not free if it is caused by: 1. Coercion, 2.fraud, 3.misrepresentation,
4.mistake
Coercion: 1. *
committing or threatening to commit an act forbidden by Indian Penal Code, or *
unlawful detaining or threatening to detain any property.
2.
The act coercion must be directed at any person and not necessarily at the
other party to the agreement.
3.
The act coercion, must have been done or threatened with the intention of
causing any person to enter into an agreement.
4.
It doesn’t matter whether the Indian Penal Code is or is not in force in the
place where the coercion is employed.
Examples: P threatens to shoot Q id
he does not let out hi House to P, and Q agrees to do so. The agreement has
been brought about by coercion.
** A contract brought about by coercion is voidable at the
option of the party whose consent was so caused.- the aggrieved party can have
the contract set aside or he can refuse to perform it and take the defense of
coercion if the other party sought to enforce it. The aggrieved party may, if
he so desire, abide by the contract and insist on its performance by the other
party. **
Special cases:
1. Prosecution: a
threat to prosecute a man or to file a suit against him does not constitute
coercion.
2. High price and high interest rate: it is not coercion because such acts are not forbidden by
Indian Penal Code.
3. A threat to commit suicide
4. Duress: the
term duress in English law to denote threats over the person or another with a
view to obtaining the consent of a party to an agreement. The scope of the term
coercion is wider because it includes threat over property.
Undue influence: a contract is said to be induced by
undue influence where- *one of the parties is in a position of other and *he
uses the position to obtain an unfair advantage over the other.
Different between undue
influence and coercion:
In
both undue influence and coercion, one party is under the influence of another.
(1) in coercion the influence arises from committing or threatening to commit
an offence punishable under the Indian Penal Code or detaining or threatening
to detain property unlawfully. In undue influence, the influence arises from
the domination of the will of one person over another. (2) Cases of coercion
are mostly cases of the use of physical force while in undue influence there is
mental pressure.
Misrepresentation: misrepresentation arises when representation
made is inaccurate. But the inaccuracy is not due to any desire to defraud the
other party. There is no intention to deceive.
Section 18 of the
contract act classifies causes of misrepresentation into three groups as
follows:
1.
Unwarranted
Assertion: 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 is to be true.( A says to B who intends to purchase A’s land: “my
land produces 12 maunds of rice per bigha. A believe the statement to be true
although he did not sufficient frounds for the belief. Later on it transpires
that the land does not produce 12 mands of rice. This is
misrepresentation.
2. Breach of duty: Any breach of duty
which, without intent to deceive, gains an advantage to the persons committing
it, or anyone claiming under him, by misleading another to his prejudice of to
the prejudice of anyone claiming under him.
3. Innocent mistake: causing, however
innocently, a party to an agreement to make a mistake as to the substance of
the thing which is the subject of the agreement.
Consequences of
misrepresentation: in the case of misrepresentation the aggrieved party can
:
·
Avoid the agreement, or
·
Insist the contract be performed and that he
shall be put in the position in which he would have been if the representation
made had been true.
Fraud: the term fraud includes all acts committed by a person
with a view to deceiving another person. “ to deceive” means to “induce a man
to believe that a thing is true which is false”
“Fraud” means and includes any of the following acts:
·
False statement
·
Active concealment : a fact by one having
knowledge or beliefs of the fact”
·
Intentional Non- Performance: a promise made
without any intention of performing it” (purchase of goods without any
intention of paying for them.
·
Deception: any other act fitted to deceive
·
Fraudulent Act or Omission: any such act or
omission as the law specially declares to be fraudulent.
Consequences of
fraud: a party who has been induced to an agreement by fraud has the
following remedies open to him-
1.
He can avoid the performance of the contract.
2.
He can insist that the contract shall be
performed and that he shall be put in the position in which he would have been
if the representation made had been true.
Difference between Fraud and Misrepresentation:
1.
Different
intention: In misrepresentation there is no intention to deceive. Fraud
implies to an intention to deceive.
2.
Different
Belief: the difference between misrepresentation and fraud depends on the
belief of the person making the statement. If the statement is honest, even
though it was wrong, there is only misrepresentation. If the statement is
dishonest it is a case of fraud.
3.
Different
rights: in case of fraud the party aggrieved can rescind the contract (i.e.
the contract is voidable as his option). He can also sue for demand. In case of
misrepresentation, the only remedy is recession. There can be no suit for
damaged.
4.
Different
defense: in case of representation
if the circumstances were such that the aggrieved party might have discovered
the truth with ordinary diligence, the contract cannot be avoided. The same is
the case where there is fraudulent silence. But in other cases of fraud this is
no defense. Even if there were independent sources of discovering the truth
which were not availed of, the aggrieved party can rescind the contract and/of
file a suit for damages.