An agreement which can be enforceable by law must have some essential elements. According to Section 10 “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void” As per the above section, a contract must have the following elements. 1. Intention to create legal relationship. 2. Lawful object Agreement not expressly declared void 3. 4. Proper offer and its acceptance 5. Free Consent Capacity of parties to contract 6. 7. Certainty of meaning.
Possibility of performance. 8. Lawful consideration 9. 10. Legal formalities Intention to create legal relationship: The parties entering into a contract must have an intention to create a legal relationship. If there is no intention to create a legal relationship that agreement cannot be treated as a valid contract. Generally there is no intention to create a legal relationship in social and domestic agreements. Invitation for lunch does not create a legal relationship. Certain agreements and obligation between father and daughter, mother and son and husband and wife does not create a legal relationship.
An agreement wherein it is clearly mentioned that “This agreement is not intended to create formal or legal agreement and shall not be subject to legal jurisdiction in the law of courts. ” cannot be treated as a contract and not valid. For example: A husband promised to pay his wife an allowance of RSI. 5000 every month. Later, the parties separated and the husband refused to pay. The wife sued. Held, that the wife was not entitled as agreement did not create legal obligations. Lawful Object: The objective of the agreement must be lawful. Any act prohibited by law will not be valid and such agreements cannot be treated as a valid contract.
A rent out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore the consideration as well as the object of the agreement should be lawful. For example: C promises to pay RSI. 5000 to b, if b beats d. The agreement is illegal as its object is unlawful. Agreement not expressly declared void: Section 24 to 30 specify certain types of agreement which have been expressly declared void. For example Restraint of marriage which has been expressly declared void under Section 26.
If John promises to pay $50 to Mary if she does to marry throughout her life and Mary promise not to marry at all. But this agreement cannot be treated as a valid contract owing to the fact that, under section 26 restraint of marriage expressly declared void. Some of the agreements which have been expressly declared void are agreement in restraint of legal proceedings, agreement in restraint of trade, agreement in restraint of marriage and agreement by way of wager. For Example: C promises to close his business if b pays him rest 2 hundred thousand. It is a void agreement because it is in restraint of trade.
Proper offer and its acceptance: To create a valid contract, there must be two or more parties. One who makes the offer and the other who accepts the offer? One person cannot make an offer and accept it. There must be at least two persons. Also the offer must be clear and properly communicated to the other party. Similarly acceptance must be communicated to the other party and the proper and unconditional acceptance must be communicated to the offered. Proper offer and proper acceptance should be there to treat the agreement as a contract which is enforceable by law. For example: c offers to sell his cycle to b for RSI. 000. This is an offer. If b accepts his offer, there is an acceptance. Free Consent: According to section 14, consent is said to be free when it is not caused by (l) coercion, (ii) undue influence (iii) fraud, (IV) misrepresentation, or (v) mistake. If the contract made by any of the above four reason, at the option of the aggrieved party it could be treated as a void contract. If the agreement induced by mutual mistake the agreement would stand void or canceled. An agreement can be treated as a valid contract when the consent of the parties are free and not under any undue influence, fear or pressure etc.
The consent of the parties must be genuine and free consent. For example: C compels b to enter into a contract at gunpoint. It is not a valid contract as the consent of b is not free. Capacity of parties to contract: Parties entering into an agreement must be competent and capable of entering into a contract. If “A” agrees to sell a Government property to B and B agrees to buy that property, it could not treated as a valid agreement as A is not authorized or owner of the property. If any of the party is not competent or capable of entering into the agreement, that agreement cannot be treated as a valid contract.
According to Section 11 of the Act which says that every person is impotent 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. So it is clear that the party must be of sound mind and of age to enter into a valid agreement which can be treated as a valid contract. For example: m, a person of unsound mind, agrees to sell his house to s for RSI. 2 Hundred thousand. It is not a valid contract because it is not competent to contract.
Certainty of meaning: Wording of the agreement must be clear and not uncertain or vague. Suppose John agrees to sell 500 tons of oil to Mathew. But, what kind of oil is not mentioned clearly. So on the ground of uncertainty, this agreement stands void. If the meaning of the agreement can be made certain by the circumstances, it could be treated as a valid contract. For example, if John and Mathew are sole trader of coconut oil, the meaning of the agreement can be made certain by the circumstance and in that case, the agreement can be treated as a valid contract.
According to Section 29 of the Contract Act says that Agreements, the meaning of which is not certain or capable of being made certain, are void. For example: c promises to sell 20 books to b without specifying their titles. The agreement is void because the terms are not clear. Possibility of performance: As per section 56, if the act is impossible of performance, physically or legally, the agreement cannot be enforced by law. There must be possibility of performance of the agreement. Impossible agreements like one claim to run at a speed of smoke/hour or Jump to a height of effete etc. Old not create a valid agreement. All such acts which are impossible of performance would not create a valid contract and cannot treat as a valid contract. In essence, there must be possibility of performance must be there to create a valid contract. For example: c agrees with b to discover a treasure by magic. The agreement is not enforceable by law. Lawful consideration: An agreement must be supported by a consideration of something in return. That is, the agreement must be supported by some type of service or goods in return of money or goods.
However, it is not necessary the price should be always in terms of money. It could be a service or other goods. Suppose X agrees to buy books from Y for $50. Here the consideration of X is books and the consideration of Y is $50. It can be a promise to act (doing something) or forbearance (not doing something). The consideration may be present, future or can be past. But the consideration must be real. For example If John agrees to sell his car of $ 50000 to Peter for $20000. This is a valid contract if John agrees to sell his car not under any influence or force.
It can be valid only if the consideration of John is free. An agreement is valid only when the acts are legal. Illegal works like killing another for money, or immoral works or illegal acts are cannot be treated as a valid agreement. So, illegal works will not come under the contract act. For example: c agrees to sell his house to b for RSI. 10 hundred thousand. RSI. 0 hundred thousand is the consideration for c, and house is the consideration for b. Legal formalities: The contract act does not insist that the agreement must be in writing, it could be oral.
But, in some cases the law strictly insists that the agreement must be in writing like agreement to sell immovable property must be in writing and should be registered under the Transfer of Property Act, 1882. These agreement are valid only when they fulfill the formalities like writing, registration, signing by the both the parties are completed. If these legal formalities are not completed, it cannot be treated as a valid contract. For example: x verbally promises to sell his book to y for RSI. 200. It is a valid contract because the law does not require it to be in writing.
Most important essentials of a valid contract are mentioned above. These elements should be present in a contract to make it a valid contract. If any one of them is missing we cannot treat that agreement as a valid contract. Q 3: case: 1 . You are required to discuss the status of contract between both the parties and also its legal implications. It is not a valid contract because it does not fulfill the all the essentials of the contract. According to section [14] consent is free hen it is not obtained by coercion, undue influence, fraud, misrepresentation or mistake.
But spice girls had made a falsification as apprehended by the court, so this is not a valid contract. 2. As a student of business law, discuss the point of alterations between fraud and misrepresentation. Give at least five points. Fraud In fraud the false statement is person who knows that it is false or he does not care to know whether it is true or false. The very purpose of the fraud is to deceive the other party to the contract. In the case of fraud, the party making a false statement cannot say that the other party had the means to discover the Ruth with ordinary diligence.
In the case of fraud the contract is avoidable It also gives rise to an independent action in tort for damages. Misrepresentation Misrepresentation is not an offence and hence not punishable. There is no intention to deceive the other party when there is misrepresentation of fact. In misrepresentation the person making the false statement believes it to be true. The party complaining of misrepresentation can’t avoid the contract if he had the means to discover the truth with ordinary diligence. Q: Define offer and acceptance. When is offer and acceptance deemed to be completed if made through post?
Offer: Section 2(a) defines a proposal as, “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 is said to make a proposal” An offer consists of the following 2 parts: a) Expression of one’s willingness to do or to abstain from doing something. B) Such expression should be made with a view to obtain the assent of the other person to purposed act or abstinence. The person making the offer is called the offer or promissory. The person to whom the offer is made is called the offered.
The person accepting the offer is called the promise or acceptor. The word “offer” in English law is similar to the word “proposal” in Pakistan law but the word offer is usually used in our practical life. Acceptance: Acceptance means giving consent to the offer. It is an expression by the offered of his willingness to be bound by the terms of the offer. Section 2(b) defines acceptance as “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise”.
Postal Rule: The postal rule is a historical ruling, which came about in a time where the main ND quickest form of business communication was by post. Through the decades other forms of communication have been invented which are now much speedier – telex, phone , fax and now instant messaging and email. Central requisites to the forming of a contract are those of offer and acceptance. The general rule in law states that acceptance is communicated, and has been received by the offer. The ruling applies where the means of communication are deemed instantaneous Enters Ltd v Miles Far East Corp. (1955).
The exception to this rule is the Postal Rule: Where post is the requested form of communication between parties or where t is an appropriate and accepted means of communication between parties, acceptance is complete as soon as the letter is posted. Even if the letter was mislaid or lost and does not reach the offer. It is a requirement that the letter of acceptance has been properly posted London and Northern Bank (1900). It is found telegrams also fall under the postal rule. An issue that rises from the Postal rule is that there is a period of time, where person(s) are in the dark as to whether a contract is in existence or not.
Courts have decided that the offer assumes all the risk, as the offer is still open during the time the letter f acceptance is in the post Adams v Lindsey(1818). The decision was based on the fact that an acceptance of an offer could go on ad infinitum, back and forth between the parties. If one had to acknowledge the receipt and then the acknowledgment had to be acknowledged so on and so forth. Unless the offer has clearly stated in the terms of the offer that acceptance must be communicated by other means the offer must be accepted through the terms of the postal rule.
Such a situation arose in the case Howell securities Ltd v Hughes (1974), where the in the terms of the offer it was clearly indicated acceptance ad to be by “notice in writing”. The letter of acceptance was lost in the post; therefore Hughes did not receive a valid acceptance as he had not received a “notice in writing’. There are further cases highlighting the method of communication in relation to acceptance. Where a method of communication is stipulated by the offer. Clear wording is required if the method of communication is to be mandatory.
In Yates Building Co v RUG Pulley (1975) the acceptance was to be sent by “registered or recorded delivery post”. The plaintiff sent his acceptance by through the standard post service. The defendant effused to accept the bid as it was not sent to them by the methods as they had outlined in the offer. The courts found that there was a binding contract in place with the receipt of the acceptance by letter. This ruling was appealed and the court further outlined the findings by stating the offer or did not state that the only method of acceptance as outlined would be binding.
Another area the postal rule was rigorously tested was where the original offer was withdrawn or revoked. When does the revocation come into effect under the postal rule? Under the postal rule, the letter of acceptance is relevant on posting. Letters immunization revocation come into effect only when the letter revoking the offer is delivered. Key case dealing with revocation under the postal rule is Byrne v Van Attention (1880). The judges ruled in this case in favor of the plaintiff. The judges ruled it was proven by the plaintiff they had accepted the original offer by posting a response to the defendant.
The letter of revocation was received after their letter of acceptance had been posted by the plaintiff. Q 5: Define the term offer. Explain the legal rules regarding valid offer? PROPOSAL or OFFER: Proposal and offer both are used in the same sense and there is no difference in heir meanings. It is defined in the following words “When one person signifies to another his willingness to do or to abstain from doing anything with a view to abstaining the ascent of that other such or such act or abstinence he is said to make a proposal. ” a) The person who makes the proposal is called proposes offered or promissory. ) The person to whom offer is made is called offer or promises. KINDS OF PROPOSAL 1. General Proposal: When proposal is made with the entire world it is called general proposal. But contract is made only with the person who performs the conditions of the proposal. 2. Specified Proposal: It is made to specific person or specific class. It is also accepted by specific person. 3. Express Proposal: When the proposal is expressed in words or in writing it is called express proposal. 4. Implied Proposal: When the proposal is conveyed by the contract of the offered, it is called implied proposal. ESSENTIAL OF VALID PROPOSAL: 1.
Legal Relationship: It is essential for a valid proposal that it must be made with the intention of creating legal relationship otherwise it will be only invitation. A social invitation may not create legal relationship. Example: Mr.. John invites Mr.. Robin t dinner and he accepts. It does not create any legal relations. 2. Clear Terms and Conditions: Proposal should be certain clear, understandable and simple. It may not create any confusion in the mind of proposes should be pr©cited and definite. Example: Mr.. Gaga offers to sell his house to Miss. Penne for RSI. 10 Iac she agrees. It is a contract and creates legal relationship. . General and Specific Offer: When proposal is opened to the general public it is called general proposal on the other hand when it is made to the specific person, it is called specific offer. In case of general proposal contract is made with person who accepts the offer. 4. Must be communicated: It is also an important rule for the validity of proposal. Without communication acceptance of proposal by the proposes is not possible. How an offer can be accepted unless it has been bought to the knowledge of a person to whom it is made. 5. Assent must be an Object: Proposal without object will not be valid.
The object of the proposal must be to get the assent of the other party to whom the offer has been made. 6. Distinction between Proposal and Invitation: Proposal is different than the invitation of tenders. Price list of goods and quotation. These are only invitation of an offer and not the proposal. . Communication Method: There are three methods of communication proposal can be made orally, in writing or by conduct. Generally proposals are made orally or writing. 8. Acceptable Proposal: If the acceptance of the proposal is not possible then it will be not a valid proposal. It is essential that acceptance must be possible.
Q 6: Define consideration. What are the rules regarding a valid consideration? CONSIDERATION: It is defined in the following words “When at the desire of the promises the promises has done or abstained from doing or does or abstains from doing such act is called a consideration for the promise. In other words ‘Consideration is a reward accepted or given in return for the promise. It is a fact that without consideration agreement is not valid. ” Essentials OF CONSIDERATION: 1. By Promises: Consideration by the promises or any other person. 2. Desire of the Promissory: It should be given at the desire of the promissory.
Example 1: Mr.. Shah agrees to sell his “house for RSI. Twenty lace to Mr.. Amid. Now Mr.. Amid promises to pay the such amount is the consideration for Mr.. Shah’s promise. Example 2: Mr.. Donald a promissory agrees with Mr.. Kim that if he will abstain himself from filling a suit then he ( Mr.. Donald ) will pay him RSI. Ten thousand. In this situation Mr.. Kim abstained from filling suit is a consideration for Mr.. Donald. 3. Consideration May Be Past, Present or Future: Consideration is an act which has already been done or in progress or to be done in future at the desire of the promissory. Past Example: Mr..
Nash lost his car and Mr.. Frank a finder delivers it to him. Mr.. Frank cannot demand payment of his services due to the past consideration. Present Example: Mr.. All sells a house to Miss Asana. She pays its price immediately. It is called present consideration. Future Example: Mr.. Shah promises to deliver a shop to Mr.. Khan after a one month for RSI. lace upon the promise of Mr.. Khan to pay the agreed price at the time of delivery. It is called future consideration. 4. Must be real: Consideration must be realistic and competent. If consideration is physically impossible, illegal and uncertain it will be not valid. 5.
Needs Not To Be Adequate: The law only insists on the presence of consideration and not on its adequacy. Inadequacy may create the doubt about the free consent of two parties but it is valid if free consent is proved. Example: Mr.. Skull agrees to sell his house for RSI. 25 lace. If the consent of Mr.. Skull is free then agreement is valid contract, without inconsideration. 6. Lawful Consideration: Consideration should be unlawful because it cannot form a valid contract. It should not be against the public policy. EXCEPTIONS: No doubt without consideration agreement is void but it has also exceptions which are following: 1.
Case of Love: Consideration is not compulsory if an agreement made between the parties for natural love and affection. 2. Case of an Agent: The contract of agency requires consideration, where the contract is a promise to appoint an agent. 3. Case of Voluntary Services: In case of compensation for voluntary services there is a relaxation of consideration. . Case of Donation: Agreement made for donation is not enforceable for want of consideration. A promised amount cannot be legally recovered where the promises has done nothing on the basis of promise. Example: If Mr.. Shah promised to donate one lace for the repair of college.
College principal did nothing for repair. Mr.. Shah refused to pay. On a suit by principal it was held the Mr.. Shah is not liable because it did not result any loss to promises. 5. Case of Gift: In case of gift there is no need of any consideration. According the law any gift which is actually delivered will be valid. It cannot be demanded back on the round that there was no consideration for him. 6. Extension in Time Limit: There is no need of any consideration if agreement is made to extend time for the enforcement of the contract. Example: Mr.. Chunk agrees to construct the shop for Mr..
Raja within one year against RSI. 20 lace. Later on the request to Mr.. Raja to extend the time period for the completion of the shop. Mr.. Raja accepts the request. It is a valid agreement without consideration. 7. Case of Time Barred Debt: If a debtor promises to pay a time barred debt, then there is no need of consideration. The promise must be in written and signed by the debtor or his gent. 8. Contract under Seal: A contract without consideration is valid if it is made under seal. Example: Mr.. Nehru and Mr.. Audit enter into agreement by writing the partnership deed to form a partnership. This contract is valid.
Q 7: What do you understand by an illegal agreement? What is the effect of illegal agreement on collateral transaction? Illegal Agreement: An agreement is illegal when its performance is forbidden by any law. Such an agreement can never become a contract. An agreement is illegal and void if it is forbidden by law or is of such a nature that if permitted, it would defeat the revisions of any law or is fraudulent or involves injury to the person or property of another or the court regards it as immoral or opposed to public policy. (sec. 23) Example: c gives money to b, a smuggler, to buy smuggled goods.
The agreement is illegal and the money cannot be recovered. Effect of Illegal Agreements on Collateral Transactions: We have already seen that an ‘illegal agreement’ like the ‘void agreement’ is unenforceable as between the immediate parties. But an ‘illegal agreement’ has this further effect that other transactions whether incidental or collateral to it re also tainted with illegality and, therefore, are not enforceable, provided the parties to the collateral transaction had the knowledge of the illegal or immoral design of the main or primary agreement ( a void agreement does not invalidate collateral transaction).
Illustrations: (a) A enters into a smuggling of goods agreement with B and borrows RSI 1,000 from C for giving an advance to B. C cannot recover the money lent – if he knew the illegal purpose, because his loan agreement was a collateral transaction to an illegal agreement. Focuses if C. Did not know the purpose of the loan, he can cover even though A had used the money for an illegal object. (c) A bets on a horse race with B and borrows RSI 500 from C for this purpose.
C can always recover the money lent, whether he knew the purpose of loan or’ not, because his loan agreement was collateral of a void (wagering) agreement only. No restitution is allowed. Parties to an illegal agreement cannot get all help from a court of law, for, “no polluted hand shall touch the pure fountain of justice. ” So, nothing can be recovered under an illegal agreement and if something has been paid it cannot be recovered back, whether the illegal object has been carried UT or has not been carried out, is immaterial.
The rule of law is that “no action is allowed on a illegal agreement” and “in case of equal guilt, the position of the defendant is better than that of the plaintiff. Illustration X promises Y to pay RSI 10,000 if he murders Z. If Y commits the murder, he cannot recover the amount from X. If X has already paid the amount and Y fails in murdering Z, X cannot recover the amount back. Q 8: When is consent said to be free? What is the effect of such consent on the formation of contract? Free consent: Free consent is one of the essential elements of a valid contract.
According to section 14, consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake. In other words, when the consent is obtained by coercion, undue influence, misrepresentation of fraud, the contract is avoidable at the option of the aggrieved party. Consent is not free when it is obtained by the following means. Effect of free consent on the formation of contract: Free consent plays very important role in the formation of contract. Without free consent it is not possible to form a contract.
It is one of the essential elements of a valid contract. If there Is free consent in the contract then there will be no coercion, undue influence, fraud, misrepresentation or fraud and the contract will be valid contract. Q 9: Discuss the circumstances under which the contract needs not to be performed. Section 62 states the Effect of innovation, rescission and alteration of contract. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
Promises may dispense with or remit performance of promise (Section 63) every promises may dispense with or remit, wholly or in part, the reference of the promise made to him, or may extend the time for such performance, 3 or may accept instead of it any satisfaction which he thinks fit. Consequences of rescission of avoidable contract (Section 64) when a person at whose option a contract is avoidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promissory.
The party rescinding avoidable contract shall, if he has received any benefit there under from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received. Obligation of person who has received advantage under void agreement or contract that becomes void (Section 65) When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.
Mode of communicating or revoking rescission of a avoidable contract (Section 66) The rescission of a avoidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal. Effect of neglect of promises o afford promissory reasonable facilities for performance (Section 66) If any promises neglects or refuses to afford the promissory reasonable facilities for the performance of his promise, the promissory is excused by such neglect or refusal as to any non-performance caused thereby.
This was all-important about the performance of a contract. Let us now learn about the modes of a discharge of a contract. Q. 10: Write down the following cases. Search internet or books. Case: Day Morris Associates v Voice EACH Civic 189. (February 2003): Hyde vs. wrench Wrench (D) offered to sell his estate to Hyde for 1200 pounds and Hyde (P) declined. Wrench then made a final offer to sell the farm for 1000 pounds. Hyde in turn offered to purchase the property for 950 pounds and Wrench replied that he would consider the offer and give an answer within approximately two weeks.
Wrench ultimately rejected the offer and the plaintiff immediately replied that he accepted Wrench’s earlier offer to sell the real estate for 1 000 pounds. Wrench refused and Hyde sued for breach of contract and sought specific performance, contending that Wench’s offer had not been withdrawn prior to acceptance. Issue it is a counter offer and it negates the original offer Butler machine tool vs.. Ex-cell-o (1979): Ex-Cell-O wished to purchase a machine from Butler. Butler sent out a quotation of EYE,535 along with a copy of their standard terms of sale.
The terms included a price variation clause and a term that the seller’s terms would prevail over any terms submitted by a purchaser. The machine would be delivered in 10 months. Ex-Cell-O put in an order for the machine at the stated price and sent a set of their terms which did not include the price variation clause. The order contained an acknowledgement slip which required a signature by Butler and was to be returned to Ex-Cell-O.
