Introduction to Contract

Introduction to Contract

JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.
FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN

Classical contract theory: 3 threads
Contract is a bargain Will of parties [consensus ad idem-agreement] Freedom of Contract is paramount

Development of Contract Law: Principles
Law of obligations [vinculum juris] Moral obligations contractual obligations Law of unjust enrichment Law of restitution [Injurious reliance]

Writ of debt Writ of covenant writ of deceit
Courts in England Writ of performance Writ of debt Writ of covenant writ of deceit Quid pro quo Pacta sunt servanda

Freedom of contract ? ‘Contract as an instrument of free bargaining between parties on the basis of equality’

Freedom: Need ? To determine the primary obligations of parties
To understand the inequality of bargaining power To understand public utilities

Means of contract Formal and Informal contracts
Bilateral and Unilateral contracts

Contractual terms: Formation Performance
Contract may be oral or written. Representation Express Implied Intermediate terms Terms/ Expressed in writing Conditions/warranties Implied by Statute terms by customary usage Standard form of contract

Object of Law of contract
To avoid litigation To establish set of rules for compliance To penalize defaulters

Point of Legality Valid Contract Void Agreements : sec. 2(g)
Voidable contracts: Illegal contracts

Law of torts and Contract
Misfeasance Malfeasance Nonfeasance

Would an action stand in Tort when the Contract is silent
Blackpool and Fylde Aero Club v Black pool Borough Council 1990 WLR 1195 Reid v Rush Tompkin Group 1990: Car accident case. Winterbottom v Wright Eng Rep 402

Digital contracts

Issues Conceptual framework Rules governing e-contracts I T 2000
Digital signature E-auction

Issues in E-contract California Software Inc v Reliability Research Inc, 1356 [C D Cal, 1986] Beta Computers Ltd v Adobe Systems Ltd 1996 FSR 367 TCS v State of A. P European Commission and ‘Product liability’ Shrink wrap Click-Wrap ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir., 1996

Outsourcing Contract Issues
Sections 13, 15 and 44A of the Indian Civil Procedure Code and Section 41 of the Indian Evidence Act, govern the conclusiveness and enforcement of foreign judgments in India Liability of a software developer

Problems with E-contract
Taxing E-commerce Copyright or Patent of software ? UK Electronic Commerce Act 2002 Limitation of Digital Contracts

Indian Partnership

Essentials of Firm 1. Association of two or more persons
2. In pursuance of an agreement or contract Re Fisher and Sons KB 491: difference between Co-owners and partners 3. To combine property, labor or skill 4. In a business New Mofussil Co v Rustomji 1936 Coope v Eyre 1788 5. Carried on by all or any one of them on behalf of all Firm name/Property Miles v Clarke ALL ER 779 6. With a View to share Profits Daulat Ram v Dharm Chand AIR 1934 Lah 110

Minor Partner Sec. 30(1): ‘A person who is a minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all partners for the time being, may be admitted to the benefits of partnership’ A A Khan v Amer Karium AIR 1952 Mys 131 Lachmi Narain v Beni Ram, AIR 1931 ALL 327 Rights of minor: Questions Tulsi das v Gangaram AIR 1925 Sund 272 Satya Narain v Juggal Kishore AIR 1958 All 312] Minor’s liabilities sec. 30(3)(5)(7)(9) Sanyasi Charan Mandal v Asutosh Ghose Cal 225 CIT v Vijay Kumar Rajesh Liability of a minor after attaining majority

Types of partnership Partnership at will :
M O H Uduman v Ashurn AIR 1991 SC 1020: Karumuthu Thiagarajan Chettiar v Muthappa Chettiar AIR 1961 SC 1225 Partnership for a fixed term Particular partnership : Limited Partnership : Partnership by Holding out Sleeping partner Nominal partner Working partners

Rights of a partner 1. Joint ownership of partnership property
2. Right to take part in the management [sec. 12] Suresh Kumar v Amrit Kumar AIR 1982 Del 131 Right to Express opinion [sec. 12 c] Lord Fldon in Const v Harris 1824 said “for a majority of partners to say, we do not care what one partner may say, we being the majority will do what we please is what a court of equity will not allow’. Dismissal of a servant New business Blisset v Daniel 1853 3. Access accounts and act during emergency Re Martindale ex Truman 1832

4. Right to profit 5. No claim for interest of capital
Mansa Ram v Tej Bhan AIR 1958 Punj 5 Delhi Veopar Mandal v IT Commissioner AIR 1967 Dawood Sahib v Sheik Mohiuddin Sahib AIR 1938 5. No claim for interest of capital 6. Right to indemnity sec. 13(e) Thomas v Atherton 1877

Rights of partners 6. Right not to be expelled
7. No new partner to be introduced: right to prevent 8. No liability before joining unless with consent and expressly stated in the deed 9. Right to retire: 3 ways

Nature of Liability of partners
Joint and several: sec. 25: every partner is liable jointly with all the other partners and also severally for all acts of the firm done while he is a partner’ Test Benefit of the partnership Within the scope of authority Malyn v John Houston KB 81 Moreton v Harden 1825 Citizens Life Assurance v Brown 1905 R W Pathirana v Pathirana AC 233

Nature of Implied Authority
1. Authority to purchase and sell Bond v Gibson [1808] 2. power to recover money due to firm/ borrow money on credit: Higgins v Beauchamp KR 1992: 3. Authority to engage lawyers 4. Authority to insure firm goods

Conditions for application of Implied authority
1. Act must be done in the capacity of a partner: Gouthwaite v Duckworth [ ER 174]: 2. Act must be done on behalf of the firm and not on personal behalf 3. Act must relate to activities within the scope of business 4. Act must be done in the firms name

Does implied authority vary acc/ to type of partnership
LLP, Will the concept of mutual agency continue ?

Dissolution Of partnership of Firm
End of the term completion of business by death/insolvency by retirement

Dissolution of Firm Without Court By Court By Agreement
Compulsory dissolution Dissolution on contingency By notice By Court Persistent misconduct or disregard to partnership agreement Unsoundness of partners Business at loss Jurisdiction of the Courts to try dissolution MD Hassen Hashmi v Kaberi Roy AIR 1993 Cal 70

Winding Up Right to continue business Good will Restraint of trade

What is a proposal/offer
‘I think I like your car and will try to buy it’ I saw an advertisement for the sale of your car, will you sell your car to me? ‘I am willing to buy your car for a reasonable price’. Are these Offer ?

Invitation to Treat Advertisements: General Offer
Display of goods for sale Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Harvey v Facey [1893] AC 552 ‘Will you sell us Bumper Hall pen, telegraph at what price’ ‘lowest price for the pen is 100’ Powell v Lee [1908] 99 L Y 284 MC Pherson v Appanna [AIR 1951 SC 184] ‘wont accept less than 10,000’.

Modes of Offer Time table Tenders and Auctions [Harris v Nickerson]
Restaurant menu card ATM or vending machines

Offer: Communication Counter Offer
Gibbons v Proctor LTN S 594 [Reward for a criminal] Lalman Sukla v Gouri Dutt 1913ALJ 4891 [Missing boys case] Tim v Hoffman 1873, 29 L T 271: cross offer is no offer Counter Offer Proposal must be made to another person

‘An offer can be withdrawn at any time before it is accepted’.
Termination of Offer ‘An offer can be withdrawn at any time before it is accepted’. Distinction between lapse of offer and revocation Notice, Death, incapacity, lapse of time Errington v Errington [1952] Father promises to son and daughter in law that if they pay mortgage amount of the property, the property would be theirs

Acceptance Acceptance must be in toto: Mirror Image Rule
Manner/mode of acceptance [sec. 7] By an act promise Is Silence an acceptance ? Felthouse v Bindley CB 869.: Uncle tells his nephew ‘If I hear no more from you, the horse in mine’. The nephew during an auction stated to the auctioneer to reserve the horse for his uncle Silence and thereafter a ‘conduct’ of acceptance ? LIC of India v Vasireddy AIR 1984 SC 1014 27th Dec filing of proposal for LIC Proposer died on 12th Jan 1961 Can Acceptance be revoked ?

Acceptance: contd Is Communication of Acceptance essential?
Acceptance through post: Mailbox rule Adams v Lindsell [ B& Ald. 681. 2/9/1817, defendants offered to sell a quantity of wool at a certain price and expected the answer by post, the letter reached the plaintiff on 5th, the same day, he posted the acceptance, which reached the defendants on 9th. The defendants waited till 7th and on 8th sold the same wool to another person Is there an acceptance ? Who can communicate the acceptance ? When is a unilateral contract accepted ?

When does the mailbox rule apply?
Q. Is revocation of acceptance possible ? Henthorn v Fraser 1892 Secretary signed a note giving option to purchase for 14 days at P-750, next day withdraws through post at pm, claimant posts the acceptance on the same day between 3-4 pm. Which ever communication reaches first is valid

Offer and Acceptance: Where the contract is made?
It determines the time of forming the contract It stipulates the jurisdiction of the court; and It affixes the rights and obligations of parties Is the contract complete at the instance and place of the acceptor or offeror?

Invitation to Treat Advertisements: General Offer
Display of goods for sale Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Harvey v Facey [1893] AC 552 ‘Will you sell us Bumper Hall pen, telegraph at what price’ ‘lowest price for the pen is 100’ Powell v Lee [1908] 99 L Y 284 MC Pherson v Appanna [AIR 1951 SC 184] ‘wont accept less than 10,000’.

Modes of Offer Time table Tenders and Auctions [Harris v Nickerson]
Restaurant menu card ATM or vending machines

‘An offer can be withdrawn at any time before it is accepted’.
Termination of Offer ‘An offer can be withdrawn at any time before it is accepted’. Distinction between lapse of offer and revocation Notice, Death, incapacity, lapse of time Errington v Errington [1952] Father promises to son and daughter in law that if they pay mortgage amount of the property, the property would be theirs

Acceptance Acceptance must be in toto: Mirror Image Rule
Manner/mode of acceptance [sec. 7] By an act promise Is Silence an acceptance ? Felthouse v Bindley CB 869.: Uncle tells his nephew ‘If I hear no more from you, the horse in mine’. The nephew during an auction stated to the auctioneer to reserve the horse for his uncle Silence and thereafter a ‘conduct’ of acceptance ? LIC of India v Vasireddy AIR 1984 SC 1014 27th Dec filing of proposal for LIC Proposer died on 12th Jan 1961 Can Acceptance be revoked ?

Acceptance: contd Is Communication of Acceptance essential?
Acceptance through post: Mailbox rule Adams v Lindsell [ B& Ald. 681. 2/9/1817, defendants offered to sell a quantity of wool at a certain price and expected the answer by post, the letter reached the plaintiff on 5th, the same day, he posted the acceptance, which reached the defendants on 9th. The defendants waited till 7th and on 8th sold the same wool to another person Is there an acceptance ? Who can communicate the acceptance ? When is a unilateral contract accepted ?

When does the mailbox rule apply?
Q. Is revocation of acceptance possible ? Henthorn v Fraser 1892 Secretary signed a note giving option to purchase for 14 days at P-750, next day withdraws through post at pm, claimant posts the acceptance on the same day between 3-4 pm. Which ever communication reaches first is valid

Offer and Acceptance: Where the contract is made?
It determines the time of forming the contract It stipulates the jurisdiction of the court; and It affixes the rights and obligations of parties Is the contract complete at the instance and place of the acceptor or offeror?

Chapter-3: Capacity to Contract
Two kind of ‘persons’ Natural Legal or juristic person Natural Person Latent incapacity patent incapacity [infancy, unsoundness, lunacy] [B’cos of Status: insolvency, alien enemy, Married]

Legal person Ultra vires winding up any other
Acts of sovereign, Corporate and companies

Liability of Minors in Contract
Sec. 68: ‘if a person, incapable of entering into a contract is supplied with necessaries in life, the person who supplies is entitled to be reimbursed’ Doyle v White City Stadium KB 110,

Insanity/lunacy Inder Singh v Parmeshardhni Singh AIR 1957 Pat. 49
Mathews v Baxter [1873, L R 8 Ex. 132]

Other Incapacities Political Status Corporation Alien enemy
Foreign sovereigns and ambassadors Mighell v Sultan of Johore [1894, 1 QB 149] [Also see sec. 86 of CPC which provides that in case of suit against a foreign sovereign, the consent of the Central Govt is required] Corporation Ashbury Railways Carriage Co. V Riche 1875, 7 HL 653. [an agreement for purchase of railways which was not mentioned in the MOA was held ultra vires] Q. Does Ultra vires means void contract ? Are third parties protected from such ultra vires acts ?

Other Incapacities Married Status
Professional status: can an advocate sue in contract, his client for fee ?

Chapter 4: Consideration
Sec. 10 requires Lawful consideration as an essential factor for giving enforceability to an agreement. Sec. 25 an agreement without consideration is void [nudum pactum] Sec. 23 and 24 deal with circumstances in which the consideration will be treated unlawful

What is consideration Money [need not be adequate]
An act, abstinence or promise Must be real [White v Bluett] Performance of a legal duty is no consideration

Why Consideration ? Consideration only at the desire of the promisor
Durga Prasad v Baldeo [Building a market place at the order of the Collector, Defendants, a tenant made a promise to pay, later refused, was held not liable to pay] Consideration by the promisee or any other person Chinnaya v Ramaya [old lady granted an estate to the daughter with a direction that the daughter should pay an annuity of Rs 653 to the lady’s brother. On the same day the daughter executed a promise to pay to the mother’s brother Rs 653. She failed and claimed that the brother had not given any consideration. Held: consideration by the mother is enough consideration] Consideration may be Past, Present or Future Privity of contract A person may not give any consideration, but is a party to the contract may enforce the contract A stranger to a contract cannot sue : Suppose A and B enter into a contract for the benefit of C. The agreement between and A and B cannot be enforced by C. Tweddle v Atksinson : two father entered into an agreement to pay a new couple money on their marriage. The couple cannot sue for enforcement of the contract between the fathers.

Exceptions Law of Trust/ Insurance
Klause Mittelbachert v East India Hotels [pilot, head injuries during a dive at the swimming pool, contract between Lufthansa and hotel Oberoi, can the pilot claim damages, though the consideration was not moving from him ?] Conduct, Acknowledgment or Admission Narayani Devi v Tagore Commercial Corporation [If the defendants start the payment and then withdraws] Provision for marriage expenses or maintenance under family arrangement/ Veeramma v Appayya [daughter agreed to take care of the father for which the father promised to convey property to her. Later when the father refused, the daughter sued successfully. Sundaraja Aiyangar v Lakshmiammal [partition deed between brothers to provide for marriage expenses of the sister, is enforceable by the sister] Subscription for a charitable purpose Kedar Nath v Gorie Mahomed

Doctrine of Promissory Estoppel
Central London Property trust Ltd V High Trees House Ltd 1947 KB 130. Rule in Pinnel Case [promise to pay less than the due amount] D&C Builders v Rees QB 617 M P Sugar Mills v State of U PAIR 1979 SC 621 Forbearance to sue is good consideration

When Agreement without consideration is valid
Natural love and affection Compensation for past voluntary services Promise to pay a time barred debt Creation of Agency does not require consideration

Free Consent Coercion: committing or threatening to commit an act forbidden by IPC Ranganayakamma v Alwar Setti [Adoption of son by a widow] Chikkan Ammiraju v Chikkam Seshama [Threat to commit suicide] Economic duress B& S Contracts & Designs v Victor Green Publications Ltd 1984 ICR 419 [erecting a stand, contractor claimed labour strike and increased amount]

Undue Influence: a Specie of fraud
Taking of unfair advantage [sec. 16] Misuse of influence Abuse of trust and confidence Connotation of impropriety Classes of undue influence Actual presumed undue influence Based on proof

What constitute undue influence
Relationship of parties is such that one party is in a position to dominate the will of the other. Real and apparent authority fiduciary relationship mental capacity, age, illness The party in the dominating position uses that position to obtain an unfair advantage

Presumption of undue influence: position of domination
Parent and child Guardian and ward Trustee and beneficiary Solicitor and client Doctor and patient Spiritual adviser and disciple The list does not include husband and wife nor does it include principal and agent, banker and customer or teacher and student

Illustration Tate v Williamson 1866 LR 2 Ch. App 55
Allcard v Skinner Ch.d 145

Rebutting the presumption of undue influence
Whether the victim had independent and qualified advise ? Solicitors must give fair and disinterested advise He must ensure that the decision of his client is proper and to his benefit The victim understood the nature and consequences of the transaction ? Disclosure of material facts Whether he was able to arrive at independent and informed decision/judgment. Objective and conduct of parties

Fraud False statement of facts Mere silence is no fraud
Duty to speak by law P Sarojam v LIC [aliments were not disclosed in the form] Rajinder Singh v Pomilla [premartial status of a party was a material fact] Active concealment Shri Krishna v Kurukshetra University

Misrepresentation Fraudulent Negligent Innocent
Rescind claim damages[tort] no claim

Misrepresentation Conditions [sec 12 (2) of the Sale of goods Act] Warranties A representation is a statement made at the time of the contract by way of affirmation, denial or description or presentation of a material fact to contract. It is more than the intention of parties and different from opinion Smith v Land & House Property Corp (1884) 28 Ch D 7 The plaintiff put up his hotel for sale stating that it was let to a 'most desirable tenant'. The defendants agreed to buy the hotel. The tenant was bankrupt. As a result, the defendants refused to complete the contract and were sued by the plaintiff for specific performance. The Court of Appeal held that the plaintiff's statement was not mere opinion, but was one of fact.

Representation Must relate to fact and not law
Must relate to Fact and promise There must be a representation or assertion It must be made with the knowledge that it is false or without belief in its truth It must be acted upon Damages must be suffered: No fraud no damages [sec. 17 read with sec. 19 of ICA] Ex: Prospectus of a company Sec. 55 of the TP Act requires the seller of immovable propery to disclose to the buyer material defects in the property

Implied representation
Spice Girls v Aprilia World Service BV 2002 Ch D A entered an contract for endorsing product [scooter] with Spice Girls [a group of 5]. Within two weeks, ‘Ginger spice’ left the group, making the product vulnerable in the market. The Pop group did not disclose this to the Agency. Was the group split before endorsement ? Was there an intention to split ? Was there a misrepresentation that the group was together ? Held misrepresentation. [Carbolic smoke ball company]

Void agreements

Mistake Of Law Of Fact Of ordinary law of foreign law of pvt rights
As to nature of contract as to persons contracted with as to subject matter

Mistake 1. Mistake when there is no consensus ad idem [Raffles v Wichelhuas 1864 ] 2. Mistake as to a matter of fact essential to the agreement [sec. 20] Ayekam Angahal Singh v UOI Air 1970 3. Mistake of Law Lakshman Prasad and Sons v Achuthan Nair AIR 1955 Mad 652 4. Mistake on subject matter: Leaf v International Galleries [1950] 1 All ER 693 5. Mistake as to possibility of performance of the contract Sheikh Bros v Ochsner 1957 AC Griffith v Brymer (1903) 19 TLR 434 6. Mistake as to identity of parties Boulton v Jones Said v Butt 1920

Mistake: New developments
Contract made inter praesentes Phillips v Brooks 1919 Ingram v Little [1960] 3 All ER 332 Bell v Lever Bros Ltd. [1932 AC 161] Plea of ‘Non est factum’ Dularia Devi v Janardan Singh AIR 1990 SC 1173

Legality of object and Consideration
1. It is forbidden by law Universal Plast Ltd v Santosh Kumar AIR 1985 2. Defeat the provision of any law Ram Sewak v Ram AIR 1962 All 177 -Abdul Piojkhan Nabab v Hussenbi 1904 3. Injurious to person or property Gurmukh Singh v Amar Singh SCC 79 4. Agreement Injurious to public policy Sukha v Ninni AIR Punnakotiah v Kallapalli Kolikamba AIR 1967 AP Mewa Ram v Ram Gopal ILR 1926 5. Immoral Pearce v Brooks Bai Viji v Nansa Nagar Narayani v Pyare Mohan AIR 1927 6. Agreement opposed to public policy Sec. 23 Trading with an enemy Trafficking in public offices Interference with the administration of justice Marriage brokerage contracts: Herman v Charlesworth KB 123

Void Agreements 1. Agreement in restraint of marriage: sec. 26
Rao Rani v Gulab Rani AIR 1942 2. Agreement in restraint of trade [sec. 27] Herbert Morris Ltd Saxelby 1916 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co 1894 Gujarat Bottling Co v Coca Cola Company Air 1995 SC 2372 Exception to an agreement in restraint of trade 1. Sale of Good will 2. Exception under Indian Partnership Act 3. Restraint by a contract of service [employment] Niranjan Shankar v Century Spinning and Manufacturing Co AIR 1967 4. Trade combinations Sheikh Kalu v Ram Sharan Bhagat CNN 388 5. Agreement in restraint of legal proceedings: sec. 28 Ghose v Reliance Insurance Co 1934 6. Wagering Contracts

Quasi Contracts 1. Claim for necessaries supplied to a person incompetent to contract [sec. 68] 2. Reimbursement of money paid due by another Exall v Patridge 1799 Bansidhar Joshi v Chandrakumar AIR 1964 All 348 3. Obligation of person enjoying benefit of non-gratuitous act: [sec. 70] Indu Mehta v State of UP AIR 1987 ALL 309 4. Enjoyment of benefit by the defendant is necessary: P C Wadhwa v State of Punjab AIR 1987 PH 117 5. Finder of Lost goods: sec. 71

Discharges/ Remedies under Law of Contract
1. Performance of contract 2. Quantum meruit

Performance of Contract
Every such offer must fulfill the following conditions:- 1) it must be unconditional Navin Chandra v Yogendra Nath 2) it must be made at a proper time and place Start-up v Macdonald 1843 3) under such circumstances that the person to whom it is made may have a reasonable opportunity for inspection Performance on death of a party Performance by the promisor or his agent or representatives. 4) An offer to one of several joint promisees has the same legal consequences as an offer to all of them.

Remedies for Breach of Contract

The Law Indian Contract Act 1872 Specific Relief Act Law of obligation
Law of Unjust enrichment Law of Restitution

Plea Non est factum Specific Performance/substantial performance
Gallie v Lee Specific Performance/substantial performance Dakin v Lee When ‘time’ is the essence of the contract: Right to rescind the contract R K Saxena v Delhi Development Authority AIR 2002 SC 2340 Impossibility of Performance Taylor v Caldwell (1863) 3 B&S 826 Doctrine of Frustation Arti Sukhdev Kashyap v Daya Kishore Arora AIR 1994

Discharge of Contract Bilateral discharge Accord and satisfaction
RESCISSION AND SUBSTITUTION and Novation VARIATION WAIVER

Breach of contract Anticipatory breach
Hochster v De La Tour Liability of loss only due to CAUSATION [carpenter left the door unlocked] Remoteness of damages Mitigation of loss

Breach Rectification and cancellation of Instrument Damages Injunction
Nominal Penalty Injunction Temporary Permanent

JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.
FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN

Introduction to Contract

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