Short Note on Contract Law Essay
Short Note on Contract Law
Q. What is a general offer? How is a contract created through general offer? Refer to leading cases. An offer may be made to the world at large. Such an offer is a general offer. However, a contract is not done with the whole world but only with the person who comes forward and accepts the offer. The acceptance might be express or implied. As per Anson, “An offer need not be made to an asertained person, but no contract can arise until it is accepted by an ascertained person”.
Case of Carllil vs Cabolic Smoke Ball Company.
Creation of the contract – If the person performs the conditions of the offer. Thus, a person who finds a lost dog fulfills the condition of the prize money and thus a contract with the owner of the dog is created.
General Offer of Continuing Nature – Some offers such as finding a lost object close when it is accepted by the first person. However, some offers, such as in the Carllil case, it can be accepted by any number of persons until the closing date of offer or until it is retracted. Q. Describe the law relating to communication of proposals, their acceptance and their revocation.
Section 2(a) of Indian Contract Act 1972 says that when a person signifies his willingness to do or to abstain from doing something to another, with a view to obtaining the assent of that another, he is said to make a proposal. Further, section 2(b) says that when the person to whom the proposal is made signifies his assent, the proposal is said to be accepted. The important point to note here is that the party making the proposal or the party accepting the proposal must “signify” their willingness or assent to the other party. Thus, a promise cannot come into existence unless the willingness or assent is communicated to the other party. Further, even the revocation, if any, must be communicated to the other party for it to take effect. Therefore, communication is the most critical aspect in the making of a contract.
Section 3 defines how a communication, acceptance, or revocation can be signified: The communication, acceptance, and revocation are deemed to be made by an act or omission of the party proposing, accepting, or revoking, by which he intends to communicate such proposal, acceptance, or revocation, or which has the effect of communicating it. Thus, a proposal may be made by any way, which has the effect of laying before another person his willingness to do nor not do something.
The acceptance can be signified similarly. Section 9 specifies that a promise (i.e. a proposal and its acceptance) can be formed either by words, written or oral, is which case it is called express or by action, in which case it is called implied. In the case of Haji Mohd Ishaq vs Mohd Iqbal SCC 1978, the defendants accepted the goods supplied by the plaintiff through a go between man and also paid part of the price. It was held that the defendants were liable to pay the remaining balance because the proposal and its acceptance were signified by their actions.
Section 4 specifies when a communication is complete:
•Communication of a proposal is complete when it comes to the knowledge of the party to whom the proposal is made. For example, if A sends a proposal in the mail to B and if the mail is lost, it can be held that the communication of the proposal is not complete. In the case of Lalman vs Gauridatta 1913, it was held that the reward for the missing child cannot be claimed by a person who traced the child without any knowledge of the announcement. There was no contract between the two in the first place because the proposal never came to the knowledge of the person who found the child and thus he could never accept it. •Communication of the acceptance is complete, as against the promisor, when it is put in course of transmission to the promisor so as to be out of the power of the acceptor, as against the acceptor, when it comes to the knowledge of the promisor. For example, as soon as B drops a letter of acceptance in mail back to A, A is bound by the promise.
However, B is not bound by it unless A receives the acceptance letter. In the case of Adams vs Lindsell 1818, it was held that a contract arose as soon as the acceptance was posted by the acceptor. In this case, the plaintiff received the offer to sell wool on 5th and they posted an acceptance, which was received on 9th by the defendants. The defendants, however, had already sold the wool on 8th. The court observed that the contract must arise as soon as the acceptance is posted and is gone out of the reach of acceptor otherwise this will result in an infinite loop.
•Communication of a revocation is complete as against the party who makes it when it is put in course of transmission to the party to whom it is made, so as to be out of the power of the party who makes it; as against the party to whom it is made, when it comes to the knowledge of the party to whom it is made. For example, if A sends a letter revoking his proposal, it will be complete against A as soon as the letter is dropped in the mailbox and is out of his control. However, the revocation will be held complete against B only when B receives the letter. Further, if B revokes his acceptance by telegram, it will he deemed complete against B as soon as he dispatches the telegram. It will be held complete against A, when A receives the telegram.
Section 5 specifies when a proposal and acceptance can be revoked: •A proposal can be revoked anytime before the communication of its acceptance is complete as against the proposer but not afterwards. For example, if A propose to B through a letter, A can revoke the proposal as long as B has not posted a letter of acceptance to A. In the case of Henthorn vs Fraser 1862, an offer to sell a property was made to a person. This person was to reply to it within 14 days. He lived in another town and he posted an acceptance at 3.50PM, which reached the offerer at 8.30 PM. Meanwhile, the offerer posted the revocation letter at 1 PM, which reached the person at 5.30PM. Thus, the revocation did not reach the offeree before the communication of the acceptance was complete as against the offerer.
Thus, the revocation was held ineffective. •An acceptance may be revoked anytime before its communication is complete as against the acceptor. For example, B can revoke his acceptance that was sent by letter, by a telegram that reaches A before the acceptance letter. In the case of Union of India vs Bhimsen Walaiti Ram 1969, the defendant won an auction for a liquor shop and paid 1/6 of the cost upfront. However, the bid was supposed to be finalized by the financial commissioner, which he had not done. Meanwhile, the defendant failed to pay the remaining amount and the commissioner ordered a re-auction. In the re-auction, less money was realized and the plaintiff sued to recover the shortfall. However, SC held that since the commissioner had not given is final approval for the bid, the communication of acceptance was not complete against the defendant, thus the defendant was free to withdraw or revoke his proposal (i.e the bid).
Section 6 specifies how a revocation can be made:
•A proposal is revoked oby the communication of the notice of revocation by the proposer to the other party. oby the lapse of prescribed time in the proposal for acceptance or if no time is prescribed, by the lapse of a reasonable time in communication of the acceptance. oby the failure of the acceptor to perform a condition precedent to acceptance. oby death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance.
Section 7 specifies that an acceptance must be absolute and unqualified. A partial acceptance or a clarification regarding a proposal, or specifying a condition on acceptance is no acceptance. In the case of Hyde vs Wrench 1840, an offer was made to sell a farm for #1000, which was rejected by an plaintiff, who counter offered #950 for it. This was rejected by the defendant, upon which the plaintiff agreed to pay #1000. However, it was held than the defendant was not bound by any such second acceptance.
Section 7 further says that the acceptance must be in some usual and reasonable manner, unless the proposal prescribes the manner in which the acceptance should be made. If the proposal prescribes the manner, and if the acceptance is not done in that manner, the proposer may insist that the acceptance be made in the manner prescribed, and if he fails to do so, he accepts the acceptance. Thus, if the acceptance is sent by any way other than what is prescribed by the proposal, the proposer must reject it in a reasonable time otherwise the proposer accepts it. This is markedly different from English law where a proposal must be accepted in the manner required in the proposal otherwise, the acceptance is invalid. In the case of Elliason vs Henshaw 1819, it was held that an acceptance sent by mail instead of through the wagon that brought the offer, was not valid.
Section 8 specifies that a proposal is accepted when the acceptor performs conditions prescribed for the acceptance or when he accepts the consideration given along with the offer for a reciprocal promise. When acceptance consists of an act as in the case of State of Bihar vs Bengal C & P Works 1954, it was held that, when an order is sent for goods, the posting of goods itself is equivalent to acceptance. No further communication of acceptance is necessary.
In the case of Carlill vs Carbolic smoke ball co 1893, it was held that, purchasing and consuming the medicine performs the condition of the proposal.
Requirements for an acceptance
1.Acceptance must be from a person to whom the proposal was made. In the case of Powel vs Lee 1908, it was held that communication of an acceptance from an unauthorized person is invalid. 2.Acceptance must be signified to the proposer. In the case of Felthouse vs Bindley 1863, it was held that unless an acceptance is given to the offerer, it is no acceptance. 3.It is required that there be an act that signifies the acceptance. As held in the case of Bhagvandas Goverdhandas Kedia vs Girdharilal Pursottamdas & Co SC AIR 1966, for an acceptance to be completed, a mere mental decision is not sufficient. An external manifestation of the decision is a must.
Communication and acceptance of General Offers
A general offer, such as an advertisement for the sale of an article at a fixed price, or to give prize to the one that does something first, is not made to a particular person. Whoever the contract is done with the person who responds or who does the task first. Communication of such as offer is done through public media such as a newspaper. S general offer can be perpetual or end as soon as the condition is fulfilled. No explicit acceptance of such offers is usually required. Performing the conditions specified in the offer acts as the acceptance of the offer. For example, in the case of Carlill vs Carbolic Smoke Ball Company 1893, it was held that it was a general offer and anybody who fulfilled the condition was eligible for the $100 compensation as advertised.
Revocation of General Offers
A general offer can be revoked in the same manner as it was made. For example, by printing a revocation in a newspaper. It will be considered complete, even if a person who is ignorant of the revocation, performs the conditions after the revocation is published.
Q. “An agreement enforceable by law is a contract” as per section 2(h) of Indian Contract Act 1872 but “agreements enforceable by law have been defined in section 10”. Discuss the statement.
Write essential elements of a valid contract.
In our regular day to day life we make several comments and statements. We say several things to people whom we talk to. Most of these are not with any intention to create any legal obligation. For example, if we say to someone that we will go to lunch with him, it is not a legal obligation. But some, which are related to business or civil matters, are understood to be in a serious mood and have a potential to be legally enforceable. For example, when we hire an Auto-rickshaw for going from point A to point B, we are legally bound to pay and the driver is legally bound to take us from A to B. Indian Contract Act 1872 defines these activities in precise terms in Section 2.
Definition of Terms
Sec. 2 (a) When a person signifies to the other, to do something or to abstain from doing something, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a Proposal. Sec. 2 (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. An accepted proposal becomes a promise.
Sec. 2 (c) The person making the promise is called Promisor, while the person accepting the promise is called Promisee. Sec. 2 (d) When, at the desire of the Promisor, the Pomisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence is called a consideration for the promise. Sec. 2 (e) Every Promise and every set of Promises forming a consideration for each other, is an Agreement. Sec. 2 (f) Promises which form the consideration or part of consideration for each other are “Reciprocal Promises”. Sec. 2 (g) An agreement not enforceable by law is void.
Sec. 2 (h) An agreement enforceable by law is a Contract. Sec. 2 (i) An agreement that is enforceable by law at the option of one or more of the parties thereto but not at the other or others is a voidable Contract. Sec. 2 (j) A Contract that ceases to be enforceable by law becomes void when it ceases to be enforceable by law.
From sec 2(e) and 2(h), it is clear that Agreement and Contract are two different things. For an agreement to become a contract, it has to be enforceable by law. Section 10 states that all agreements that are made by free consent of the people who are competent to contract, for a legal object and legal consideration, and are not hereby expressly declared to by void, are contracts and are thus legally enforceable. Thus, there are five factors that determine whether an agreement can be legally enforced or not. These are discussed below:
1. Competency of the people doing the agreement. (What do you understand by competency to contract? Who are competent to contract? What protections are offered to minors?)
All the parties doing the agreement must be competent to contract. Section 11 determines who are competent to contract. As per this section, person who has attained the age of majority according to the law to which is subject, who is of sound mind, and who is not prohibited/disqualified from contracting by law to which he is subject. Majority is 18 years except when a guardian is appointed by the court in which case it is 21 yrs.
In the case of Mohoribibee vs Dharmodas Ghosh in 1903, a minor had taken a loan and then he sued to avoid the contract. Privy Council council held that any contract with a minor is void ab initio and so the loaner cannot get any money that he gave as advance back. This rule is adopted all over India whether or not it benefits the minor. In the case of Mir Sarwarjan vs Fakhruddin Mohd. Chaudhary 1912, a contract to purchase a property was done on behalf of minor. It was held that the minor could not sue for getting the possession of property.
However, since in today’s times minors are coming a lot in public life, it is not always possible to consider an agreement with a minor to be always void. Therefore, in the case of Srikakulam Sbhramanyam vs Kurra Sabha Rao 1949, Privy Council held that a sale of inherited property of a minor to pay off inherited debt effected by the guardian was binding on the minor.
Protections offered to minors:
No estoppel against minor – It has now been settled that a minor who enters into a contract by misrepresenting his age can later on tell his correct age and avoid the contract.
No liability in tort or in contract arising out of a contract – If a minor enters into a contract, he can neither be held liable in contract nor in torts. In the case of Jennings vs Rundall 1799, when an infant hired a horse for riding short distance but rode it for long distance resulting in injury to horse, he was not held liable because it was a contractual obligation. In the case of Hari Mohan vs Dulu Mia 1934, Calcutta HC held minor not liable in tort for money lent on bond. However, in absence of a contract, a minor may be liable in tort. Thus, in the case of Burnard vs Haggis 1863, when a minor “borrowed” a mare only for riding and then lent it to a friend who jumped her and killed her, he was held liable in tort.
Doctrine of restitution – If a minor obtains property or goods by misrepresenting his age, he can be forced to return it but only as long as the goods are traceable in the minor’s possession. This is called doctrine of equitable restitution. If the minor sells or converts the property, the value of the goods cannot be retrieved because that would amount to enforcing a void contract. In the case of Leslie vs Sheill, a minor got 400 pounds from money lenders by misrepresenting his age. The money lenders could not recover it under any of fraud, quasi-contract, or doctrine of restitution. This was followed in the case of Mohoribibee vs Dharmodas Ghosh as well..
Beneficial Contracts – In contract where a minor has already supplied consideration, the minor can enforce the contract. Thus, in the case of Ulfat Rai vs Gauri Shakar 1911, it was held that a minor can sue to take possession of a property for which he has already paid. But where the contract is still executor and consideration has not been given, the principle adopted in Mohoribibee will prevail. Thus, in the case of Raj Rani vs Prem Adib 1949, it was held that the film producer was not bound by a contract with minor’s father to give a role to minor in his movie. This is because minor could not be forced to give consideration and father had not given any consideration. However, a contract of marriage of a minor enter into by the father is not void for want of consideration because it is for the benefit of the minor.
Liabilities for necessities (Section 68) – If a minor is supplied with necessaries that are in accordance with his living standard, the supplier can get paid through the minors property.
Persons of unsound mind
Section 12 says that a person is of sound mind for the purpose of contracting if at the time of contracting, he is capable of understanding the contract and capable of making a rational judgement as to the effects of the contract upon his interests. A person who is usually of sound mind but sometimes of unsound mind may not make a contract when he is of unsound mind, while a person who is usually of unsound mind but sometime of sound mind may make a contract when he is of sound mind.
Thus, a person, who is too drunk, or who is temporarily delirious due to sickness such as high fever, may not make a contract at that time. A patient in a lunatic asylum, who is at intervals of sound mind may make a contract when he is of sound mind. In India, a contract done by a person of unsound mind is absolutely void ab initio. In the case of Indersingh vs Parmeshwardhari Singh Patna HC in 1957 held that a contract to sell property worth 25000 in 7000, was voidable because the mother claimed that her son was of unsound mind and did not understand the implications.
2. Consent and Free Consent
Section 13 defines that two or more people are said to consent when they agree upon the same thing in the same sense. However, many a times, a consent may not reflect the true intentions of a party. For example, one party may give consent because of being financially pressured or criminally threatened. Thus, such a consent should not make the agreement enforceable. Section 14 determines what factors can vitiate a consent and when a consent is considered free of any complication that affects the enforceability of an agreement . It states that a consent that is not obtained through coercion, undue influence, fraud, misrepresentation, or mistake subject to section 20, 21, and 22, is a free consent.
a. Coercion (Sec 15): Coercion is committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain the property, to the prejudice of any other person, with an intention to cause that other person to enter into an agreement. It is immaterial whether IPC is or is not in force where coercion is applied. Thus, an act that is unlawful as per IPC but not as per England law and that has been used to induce the consent, will be considered coercion. A clear example would be force someone to consent on gun point or by hurting or threatening to hurt. In Chikham Amiraju vs Chikham Seshamma Madras HC 1912 held that threatening to commit suicide is coercion. In the case of Astley vs Reynolds 1771, the plaintiff had pledged his plate for #20 and when he went to claim it back, the defendant asked for #10 more as interest. To redeem his plate, the plaintiff paid the money but later sued to recover #10. The court allowed it.
b. Undue Influence (Sec 16): Undue influence occurs when because of the nature of the relationship that exists between the parties, one party is able to dominate the will of the other and uses this dominance to obtain unfair advantage over the other. A person is in a dominant position when he holds a real or apparent position of authority for example manager employee, or stands in a fiduciary relationship with the other for example money lender and loanee. A person could also be in a dominant position if the mental capacity of other party is temporarily or permanently effected due or illness, age, or distress. The burden of proof that undue influence has not occurred is on the person who is in the dominant position, if the agreement is unconscionable otherwise it is on the party that alleges undue influence. Examples:
Father (A) give some money to son (B) when B was a minor. Upon majority, A makes B execute a bond for a much larger amount. A person (A) who is old and sick is induced into paying an unreasonably large amount of sum to his doctor (B). A village moneylender (A) lends money to a villager (B), who is already in debt, at a very high interest. It lies on A to prove that he has not used undue influence to induce the contract. At a time of financial crises, a bank manager gives loan to a person at a substantially higher rate. This is not considered to be undue influence but a simple business transaction. In Mannu singh vs Umadat Pandey Allahbad HC 1890, a guru induced his devotee into giving all the devotee’s property to himself. This was considered undue influence.
c. Fraud (Sec 17): When a person intentionally tries to cheat another person, it is called as fraud in a general sense. Section 17 defines fraud precisely as such – Fraud means and includes any of the following activities done by a party or by his connivance or by his agent, with an intent to deceive another party or his agent, or as to induce the other party to enter into the contract. 1.the suggestion of a fact, of that which is not true, by the one who does not believe it to be true. 2.active concealment of a fact by one who knowledge or belief of the fact. 3.making a promise without an intention to perform.
4.any act fitted to deceive 5.any such act or omission that the law declares to be fraudulent. Mere silence as to facts likely to affect the willingness of a person to enter into the contract is not fraud unless, according to the circumstances of the case, it is the duty of the person keeping silence to speak or unless his silence itself is considered as speech.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 27 November 2016
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