Law of Contact

The Contract Act 1872

Deals with relationship between
persons
 Contract

• An Agreement enforceable by law is a

contract.
• Elements of a valid contract
- Agreement, and
- Enforceability
 Agreement
• Every and
forming the for each other
is called an agreement
• promise: When a proposal made by one
person is accepted by the other person it
becomes a promise.
• Therefore, in an agreement there must
be
- An offer; and
- Acceptance of that offer
 Offer/ proposal

• Person making the statement intends

- to comply with the statement
- that some one will agree with his
proposal and accept it; and
- when accepted he /she will be bound by
that acceptance
( Clear intention to comply with the terms
and conditions of the proposal upon
acceptance)
 A conversation between two
persons
A: Have you bough another car? I heard it
from C that you purchased a lexus car
yesterday.
B: Yes. Its true.
A: But I think the second car will be really
useless for you, one is sufficient.
B: I am thinking to sell my old one.
A: For how much?
B: 9 lacs
A: That’s nice.
 Carlill v Carbolic Smoke Ball
Company (1892)
• The Carbolic Smoke Ball Company issued
an advertisement in which they offered to
pay $100 to any person who succumbed to
influenza after having used one of their
smoke balls in a specified manner and for a
specified time. They added that they had
deposited a sum of $1000 with their
bankers to show their sincerity. Carlill on
the faith of the advertisement bought and
used the ball as prescribed, but succeeded
in catching influenza. She sued for $100.
 Offer and Invitation to
Offer/Treat
• Issue:
- Whether the statement is the final
expression of one’s willingness and
sufficiently definite to be capable of
acceptance
- If the statement or conduct becomes so
satisfactory then it is an offer
- If it is in short of it at any degree then it
will be an invitation to offer or treat
 Example:
• Auction sale (the offer is made by the
bidder, i.e, the bid itself is an offer which
is accepted by the fall of the hammer of
the auctioneer on his table)
• Display of goods in self service system
• Advertisement (however if the
advertisement contain definite intention
then it becomes offer)
• Tender
 Acceptance

• The person to whom the offer has been

made agrees to that offer
• Signifies his assent
• The acceptance is absolute and
unconditional
(Conditional acceptance becomes counter
offer and does not create any binding
acceptance.)
 Counter offer
A: I will sell my car to you for taka 3 lacs.
B: I agree. But you must paint the car before
giving it to me.
(It is not acceptance but counter offer due to
the added condition)
Legal Consequences:
- It rejects the original offer (the original offer
becomes dead)
- It becomes a new offer
 Sample cases

• A telegraphed to B, ‘Will you sell us the

property “X”? Telegraph lowest c ash
price.’ B telegraphed in reply, ‘ Lowest
price for “X”, taka 20 lacs’. A then
telegraphed, ‘We agree to buy “ X” for
taka 20 lacs asked by you. Please send
us your title-deeds.’ The rest w ere
silence
• Is there any offer and acceptance of any
offer?
 Communication

• Communication of proposal : complete

when it comes to the knowledge of the
person to whom it is made
• Communication of acceptance as
against the proposer: complete when it
is put in the course of the transmission
to him;
• As against the acceptor: when it comes
to the knowledge of the proposer.
 Illustration
• A proposes, by letter, to sell a house to B at a
certain price.
- The communication of the proposal is complete
when B receive the letter.
B accepts A’s proposal by a letter sent through
post.
• The communication of the acceptance is
complete
- as against A, when the letter is posted; (A can
revoke the proposal before B posts the letter)
- as against B when A receives the letter (B can
revoke the acceptance before A receives the
letter)
 Communication of offer and
acceptance
• Knowledge of offer: Prior condition of
acceptance.
• Acceptance in ignorance of offer is no
acceptance to give rise to a legally
binding contract
• Mere knowledge is not enough but the
fact of offer must be in the mind of the
acceptor at the moment of acceptance,
otherwise no acceptance.
 Illustration

• A by a letter posted to B communicates

one proposal;
• B receives the letter on 1 January which
he opens and read out on 3 January. The
communication of proposal is completed
on 3 January as he comes to know of the
proposal on 3 January only. So B could
accept the offer then only.
 Modes of revocation

• By notice
• By lapse of time
• By non-fulfillment of conditional
precedent
• By death or insanity of the proposer, if
the fact of his death or insanity comes to
the knowledge of the acceptor before
acceptance.
 Death and Ethical issue
• Acceptance without knowledge of death
or insanity of the proposer creates a
contractual relation.
• Ques : How the contract will be
performed if the performance depend on
the personal skill of the proposer.
• [Section 56 which renders a valid
contract void due to subsequent
impossibility can be invoked]
 Enforceability of the
Agreement
• Consideration
• Capacity of the parties
• Contract must be for legal object
• Free consent of the parties
(absence of fraud, misrepresentation,
mistake, undue influence, coercion in
getting or giving the consent of the
parties are essential)
 Consideration

• Offer and acceptance of the offer must

be for some consideration
• A promises to maintain B’s child and B
promises to pay A taka 3000 per month
for the purpose. Here the promise of
each party is the consideration for the
promise of the other party
 Consideration – General
principles
• No consideration no contract
• Any person can furnish the
consideration, but that must be at the
desire of the promisor
• Past consideration is good consideration
• Consideration need not be adequate.
 Competency of the parties

• Parties must be capable of entering into

contract. Means
- she/he understands the nature and
consequences of his/her acts
- Must not be a person of unsound mind
- Must be a major (attained the age of
majority 18 years)
- She/he must not be disqualified by law
 Minor’s Agreement

• Void ab initio
• If a minor takes any property or goods
by misrepresenting his age, then he will
- be compelled to restore the things so
obtained so long as the goods will be
found in his possession, and if the goods
are already sold or converted he cannot
be compelled to repay the value of the
goods
 Minor’s agreement
• No scope for ratification of minor’s contract
when the minor attains the age of majority
• Minor’s liability for necessari es supplied to
him
- If a person, incapable of entering into a
contract, or any one whom he is legally
bound to support, is supplied by another
person with necessaries suited to his
condition in life, the person who has
furnished such supplies is entitled to be
reimbursed from the property of such
incapable person.
 Minor’s liability
• The nature of such liability is quasi
contractual, and in no case it is contractual;
• Minor is not personally liable rather his
liability is limited against his property
• Liability is limited for necessaries only
(Necessaries is not confined to articles
necessary to the support of life, but
includes articles and services fit to maintain
the particular person in the station of life in
which he moves.
 Consent of the parties

• Parties agree upon the same thing in

the same sense.
• Consent free when not caused by
- coercion; - Undue Influence
- Fraud - Misrepresentation
- Mistake
 Coercion

• Substantial element- committing any

act or threatening to commit any act
forbidden by the Penal Code
- Unlawful detaining any property
- Threatening to detain any property
Psychological element- above acts are
done with the intention of causing any
person to enter into an agreement
 Undue influence

• Nature of relationship- the relationship

subsists between the parties is of such
that one of the parties is in a position to
dominate the will of the other.
• Use of relation- the above relation is
used to obtain an unfair advantage
Persons in a position to dominate
other
• Where he holds real (relation between
police officer and the accused) or apparent
authority ( master-servant relation) over
the other;
• Where he stands in a fiduciary relation to
the other (means the relationship of utmost
good faith- parents-child, teacher-student,
lawyer-client)
• Where he makes a contract with a person
of weak mind, that is, whose mental
capacity is affected by reason of age,
illness, or mental or bodily distress.
 Fraud
Psychological element- acts must be done
with an intention to deceive the other
(fraudulent intention);
Substantial element- suggestion as to a fact,
which is not true, by a person who does not
believe it to be true;
- Active concealment of a fact who has the
knowledge or belief of the fact;
- A promise made without ant intention to
perform it
 Fraud

- Any act fitted to deceive

- Any act or omission declared by law as
fraud
Ques- Does mere silence amount to
fraud?
- General rule – mere silence doe s not
amount to fraud
- But becomes fraud – (1) where t he
silence amounts to a breach of duty; (2)
where the silence is equal to speak
 Misrepresentation

• Unwarranted false statement

• Breach of duty
• Causing mistake as to the subject
matter
[coercion, undue influence, fraud,
misrepresentation makes a contract
voidable at the option of the party whose
consent was so caused]
 Mistake

• Both parties are under a mistake as to

the matter of fact essential to the
agreement.
• Mistake of foreign law is considered as
mistake of fact
• Mistake of law is no ground to set aside
a contract
 Void agreement
• An agreement but not enforceable by law
• Agreements without consideration
• Agreement in restraint of marriage
• Agreement in restraint of trade
• Agreement in restraint of legal proceedings
• Agreements the meaning of which is
uncertain
• Agreements by way of wager
• Agreements contingent on impossible
events
• Agreements to do impossible acts
 Discharge/performance of
contract
• Obligation:
• The parties to a contract must either
perform or
• Offer to perform their respective
promises
Unless such performance in excused
under
- This Act (law of contract) or
- Any other law.
 Offer of performance

• When an offer of performance is made

but no acceptance by the other, the
offeror is not responsible but entitles to
his rights under the contract.
• However the offer of performance must
be
- Unconditional
- Made at a proper time and place
- The promisee must have a reasonable
opportunity to see the thing to be
 Performance of reciprocal
promises
• Promisor not bound to perform unless
reciprocal promisee ready and willing to
perform
• Reciprocal promises to do things legal,
and also other things illegal – the legal
part of the agreement is valid contract,
and the illegal part is void agreement
 Principles of substantial
performance
• General rule: party cannot recover
payment for the partial performance of
an ‘entire obligation’.
• No pay until the performance was
complete: an entire contract requires
entire performance to entitle the
performer to payment.
 Payment for partial
performance
• 1. court may interpret the contract not
as being an entire contract, but as a
contract which is made up of a series of ‘
entire obligations’;
• 2. courts will allow recovery where a
party in breach has substantially
performed his obligations
• Where partial performance has been
accepted then compensation may be
made for that performance.
 Standard of performance

• Strict performance: when the terms of

the agreement is the ‘essence of contact
’ the party in breach is liable . The
reasons for breach is irrelevant.
• Standard of reasonable care: imposes a
duty on the party to use reasonable care
and skill in the performance of his/her
contractual obligation.