ESSENTIALS OF A VALID OFFER :
By Chartered Accountant
5. It May Be Specific Or General :
When an offer is made to a specific person or group of persons, it is called specific offer. Such an offer can be accepted only by the person or persons to whom it is made. A general offer is one which is made to public in general and it may be accepted by any person who fulfills the conditions mentioned in it.
EXAMPLES :
a. M makes an offer to N to sell his bicycle for Rs. 800, it is a specific offer. In this case only N can accept it.
b. A announces in a newspaper a reward of Rs. 1,000 for any one who will return his lost radio. It is a general offer.
c. The CSB Co. advertised to pay 100 pounds to any person who contract flue, after having used their medicine, according to the directions. Mrs. Carlill, used the medicine, but suffered from flue. She sued for the reward. The company was held liable. (Carlill vs Carbolic Smoke Balls Co.)
6. It Must Be Communicated To The Offeree :
An offer is effective only when it is communicated to the offeree. If an offer is not communicated to offeree, it cannot be accepted. An acceptance of offer, in ignorance of it is not acceptance and does not create legal obligations. Thus, an offer which is not communicated is not a valid offer.
EXAMPLES :
G's nephew was missing from home. He sent his servant, When the servant left, G announced a reward of Rs. 501 for anyone who gives information about the boy. The servant before the announcement found the boy and informed G. Later, on he claimed reward. He failed on the ground that he could not accept the offer, unless he had the knowledge of it. (Lalman vs. Gauri Datt)
7. It Should Not Contain Negative Condition :
An offeror cannot say that if acceptance is not communicated up to a certain date, the offer would be presumed to have been accepted. If the offeree does not reply, there is no contract because no obligation to reply can be imposed on him on the grounds of justice.
EXAMPLE :
A wrote to B to sell his book adding that if he did not reply within 5 days, the offer would be considered as accepted. There is no contract.
8. It May Be Subject To Any Conditions :
An offeror may include any condition in his offer. There is no contract, unless all the conditions of the offer are accepted. If the offeror asks for sending the acceptance by telegram and the offeree sends the acceptance by letter, the offeror may reject such acceptance. He must give notice to offeree regarding rejection. If he does not inform the offeree about his rejection, he is considered to have accepted the acceptance.
EXAMPLES :
A asks B to send the reply of his offer by telegram but B sends reply by letter. A may reject such acceptance.
9. It Must Not Contain Cross Offers :
When two parties make similar offers to each other, in ignorance of each others offer, such offers are called cross-offers. The acceptance of cross-offers does not result in complete agreement.
EXAMPLE :
A wrote to B to sell him 1 ton of iron for Rs. 1 lac. On the same day B wrote to A to buy 1 ton of iron from Rs. 1 lac. There is no contract.
Sunday, January 17, 2010
OFFER AND ACCEPTANCE
Offer And Acceptance :
By Chartered Accountant
The first essential of a valid contract is an agreement, i.e., offer and acceptance. An agreement arises when one party makes an offer and the other party accepts it.
By Chartered Accountant
The first essential of a valid contract is an agreement, i.e., offer and acceptance. An agreement arises when one party makes an offer and the other party accepts it.
OFFER
Definition :
Section 2(a) defines a proposal as, " When one person signifies to another his willingness to do or to abstain from doing any thing, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. '
It means that when a person shows his willingness to do or not to do something to obtain the consent of other person, he is said to make a proposal.
The person making the offer is called the offeror or promisor. The person accepting the offer is called the promisee or acceptor. The word offer in English Law is similar to the word proposal in Pakistani law but the word offer is used in our practical life.
EXAMPLES :
a. A offer to sell his watch to B for Rs. 100. A makes an offer to B.
b. A promises to sell his car to B for Rs. 3.lac. A makes an offer to B.
Essentials Of A Valid Offer :
The following are the legal rules or essentials of a valid offer.
1. It May Be Express Or Implied :
An offer may be made by words or by conduct. An offer which is made by words spoken or written is called an express offer. The implied offer appears from the actions, conduct of parties, course of dealings or circumstances of the case.
EXAMPLES :
a. M says to N that he will sell his motorcycle to him for Rs 40,000. It is an express offer.
b. A railway coolie carries the luggage of B without asking to do so. B allows him to do so. It is an implied offer.
c. A transport bus company runs buses to carry passengers at scheduled fares. This is an implied offer by the company.
2. It Must Create Legal Relations :
The offer must be made to create legal relations otherwise there will be no agreement. If an offer does not give rise to legal obligations between the parties, it is not a valid offer. In business transactions there is a presumption that the parties intend to create legal relations.
EXAMPLES :
a. A invites B to dinner and B accepts the invitation. It does not create legal relations, so there is no agreement.
b. A offers to sell his watch to B for Rs. 200 and B agrees. There is an agreement because the parties intend to create legal relations.
c. Three friends agreed to enter a newspaper competition and share any winnings. It was held that they intended to create legal relations so there was a contract. (Simpkins vs. Pays)
3. It Must Be Definite And Clear :
An offer must be definite and clear. If the terms of an offer are not definite and clear, it cannot be called a valid offer. If such offer is accepted, it cannot be called a valid offer. If such offer is accepted, it cannot create a binding contract. An agreement to agree in future is not a contract because the terms of an agreement are not clear.
EXAMPLES :
A has two motorcycles. He offers B to sell one motorcycle for Rs. 27,000. It is not a valid offer because it is not clear which motor cycle A want to sell.
X purchased a horse from Y and promised to buy another, if the first one proved lucky. X refused to buy the second horse. Y could not enforce the agreement, as it is unclear. (Taylor vs. Portington)
4. It Is Different From Invitation To Offer :
An offer is different from an invitation to offer. In an invitation to offer, the person making the invitation does not make an offer but only invites the other party to make an offer. His object is to inform that he is willing to deal with anybody who is willing to deal with him.
EXAMPLES :
a. X displays goods for sale for an auction sale. It is not an offer. The offer will come from the buyer in the form of bid.
b. N advertised to sell his furniture at Bury on specified day. H came from London to attend the auction but all furniture was withdrawn from sale. H sued N for loss of time and expenses. H could not recover expenses because the advertisement was an invitation to offer. (Haris vs. Nickerson)
Definition :
Section 2(a) defines a proposal as, " When one person signifies to another his willingness to do or to abstain from doing any thing, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. '
It means that when a person shows his willingness to do or not to do something to obtain the consent of other person, he is said to make a proposal.
The person making the offer is called the offeror or promisor. The person accepting the offer is called the promisee or acceptor. The word offer in English Law is similar to the word proposal in Pakistani law but the word offer is used in our practical life.
EXAMPLES :
a. A offer to sell his watch to B for Rs. 100. A makes an offer to B.
b. A promises to sell his car to B for Rs. 3.lac. A makes an offer to B.
Essentials Of A Valid Offer :
The following are the legal rules or essentials of a valid offer.
1. It May Be Express Or Implied :
An offer may be made by words or by conduct. An offer which is made by words spoken or written is called an express offer. The implied offer appears from the actions, conduct of parties, course of dealings or circumstances of the case.
EXAMPLES :
a. M says to N that he will sell his motorcycle to him for Rs 40,000. It is an express offer.
b. A railway coolie carries the luggage of B without asking to do so. B allows him to do so. It is an implied offer.
c. A transport bus company runs buses to carry passengers at scheduled fares. This is an implied offer by the company.
2. It Must Create Legal Relations :
The offer must be made to create legal relations otherwise there will be no agreement. If an offer does not give rise to legal obligations between the parties, it is not a valid offer. In business transactions there is a presumption that the parties intend to create legal relations.
EXAMPLES :
a. A invites B to dinner and B accepts the invitation. It does not create legal relations, so there is no agreement.
b. A offers to sell his watch to B for Rs. 200 and B agrees. There is an agreement because the parties intend to create legal relations.
c. Three friends agreed to enter a newspaper competition and share any winnings. It was held that they intended to create legal relations so there was a contract. (Simpkins vs. Pays)
3. It Must Be Definite And Clear :
An offer must be definite and clear. If the terms of an offer are not definite and clear, it cannot be called a valid offer. If such offer is accepted, it cannot be called a valid offer. If such offer is accepted, it cannot create a binding contract. An agreement to agree in future is not a contract because the terms of an agreement are not clear.
EXAMPLES :
A has two motorcycles. He offers B to sell one motorcycle for Rs. 27,000. It is not a valid offer because it is not clear which motor cycle A want to sell.
X purchased a horse from Y and promised to buy another, if the first one proved lucky. X refused to buy the second horse. Y could not enforce the agreement, as it is unclear. (Taylor vs. Portington)
4. It Is Different From Invitation To Offer :
An offer is different from an invitation to offer. In an invitation to offer, the person making the invitation does not make an offer but only invites the other party to make an offer. His object is to inform that he is willing to deal with anybody who is willing to deal with him.
EXAMPLES :
a. X displays goods for sale for an auction sale. It is not an offer. The offer will come from the buyer in the form of bid.
b. N advertised to sell his furniture at Bury on specified day. H came from London to attend the auction but all furniture was withdrawn from sale. H sued N for loss of time and expenses. H could not recover expenses because the advertisement was an invitation to offer. (Haris vs. Nickerson)
DIFFERENCE BETWEEN VOID AGREEMENT AND VOID CONTRACT
DIFFERENCE BETWEEN VOID AGREEMENT AND VOID CONTRACT
The difference between void agreement and void contract are as under:
Void Agreement :
1. A void agreement is unenforceable from the beginning.
2. A void agreement can never be enforced.
3. In a void agreement the parties are not entitled for restoration of benefits which they have exchange during the contract.
Void Contract :
1. A void contract is enforceable when it is made. It becomes unenforceable later on.
2. A void contract can be enforced before it becomes unenforceable.
3. In a void contract the parties are entitled for restoration of benefits which they have exchange during the contract.
The difference between void agreement and void contract are as under:
Void Agreement :
1. A void agreement is unenforceable from the beginning.
2. A void agreement can never be enforced.
3. In a void agreement the parties are not entitled for restoration of benefits which they have exchange during the contract.
Void Contract :
1. A void contract is enforceable when it is made. It becomes unenforceable later on.
2. A void contract can be enforced before it becomes unenforceable.
3. In a void contract the parties are entitled for restoration of benefits which they have exchange during the contract.
DIFFERENCE BETWEEN ILLEGAL AND VOID AGREEMENT
The following are the points of difference between the two.
The following are the points of difference between the two.
Illegal Agreement :
1. Prohibited :
An illegal agreement is prohibited by law.
2. Punishable :
An illegal agreement is punishable.
3. Nature :
An illegal agreement is also void agreement.
4. Object :
The object of illegal agreement is illegal.
5. Collateral Agreement :
A collateral agreement to an illegal agreement is not enforceable.
6. Restoration Of Benefit :
In illegal agreement the money paid cannot be claimed back.
Void Agreement :
1. A void agreement is not prohibited by law.
2. A void agreement is not punishable.
3. A void agreement is not illegal agreement.
4. The object of void agreement is not illegal.
5. A collateral agreement to a void agreement is enforceable.
6. In void agreement the money received must be returned to the other party.
Collateral Agreement :
When an agreement is illegal, other agreement which is collateral to it is also illegal and so not enforceable by law.
EXAMPLES :
A borrows Rs. 2 lac from B to buy a car from X for bomb blast. B knows the purpose of the loan. An agreement between A and B is collateral to the agreement with X so it is also void agreement.
1. Prohibited :
An illegal agreement is prohibited by law.
2. Punishable :
An illegal agreement is punishable.
3. Nature :
An illegal agreement is also void agreement.
4. Object :
The object of illegal agreement is illegal.
5. Collateral Agreement :
A collateral agreement to an illegal agreement is not enforceable.
6. Restoration Of Benefit :
In illegal agreement the money paid cannot be claimed back.
Void Agreement :
1. A void agreement is not prohibited by law.
2. A void agreement is not punishable.
3. A void agreement is not illegal agreement.
4. The object of void agreement is not illegal.
5. A collateral agreement to a void agreement is enforceable.
6. In void agreement the money received must be returned to the other party.
Collateral Agreement :
When an agreement is illegal, other agreement which is collateral to it is also illegal and so not enforceable by law.
EXAMPLES :
A borrows Rs. 2 lac from B to buy a car from X for bomb blast. B knows the purpose of the loan. An agreement between A and B is collateral to the agreement with X so it is also void agreement.
DIFFERENCE BETWEEN VOID AGREEMENT AND VOIDABLE CONTRACT
The following are the points of difference between the two.
The following are the points of difference between the two.
Void agreement :
1. Enforceability :
A void agreement is unenforceable at law.
2. Defects :
A void agreement is void ab-initio and its defects cannot be removed.
3. Rights Of Third Party :
In a void agreement a third party does not acquire any rights.
4. Compensation :
In a void agreement the person is not entitled to compensation for loss arising due to non performance of the agreement.
Collateral Agreement :
A collateral agreement to void agreement is a void contract.
6. Lapse Of Time :
It can never become a void contract on the expiry of reasonable time.
7. Free Consent :
It is void due to lack of any essentials of a valid contract except free consent.
Voidable Contract :
1. A voidable contract is a valid contract till it is rejected.
2. A voidable contract is not void ab-initio and its defects can be removed.
3. In a voidable contract a third party who buys goods in good faith and for consideration before the contract is rejected, acquires rights.
4. In a voidable contract, a person is entitled to compensation for loss arising due to non performance of the contract.
5. A collateral agreement to a voidable contract is not a void contract.
6. It may become a valid contract if the aggrieved party does not reject it within a reasonable time.
7. It is voidable because the consent of a party is not free.
1. Enforceability :
A void agreement is unenforceable at law.
2. Defects :
A void agreement is void ab-initio and its defects cannot be removed.
3. Rights Of Third Party :
In a void agreement a third party does not acquire any rights.
4. Compensation :
In a void agreement the person is not entitled to compensation for loss arising due to non performance of the agreement.
Collateral Agreement :
A collateral agreement to void agreement is a void contract.
6. Lapse Of Time :
It can never become a void contract on the expiry of reasonable time.
7. Free Consent :
It is void due to lack of any essentials of a valid contract except free consent.
Voidable Contract :
1. A voidable contract is a valid contract till it is rejected.
2. A voidable contract is not void ab-initio and its defects can be removed.
3. In a voidable contract a third party who buys goods in good faith and for consideration before the contract is rejected, acquires rights.
4. In a voidable contract, a person is entitled to compensation for loss arising due to non performance of the contract.
5. A collateral agreement to a voidable contract is not a void contract.
6. It may become a valid contract if the aggrieved party does not reject it within a reasonable time.
7. It is voidable because the consent of a party is not free.
Saturday, January 16, 2010
ACCORDING TO PARTIES
4. According To Parties : By Chartered Accountant
According to parties a contract may be of the following two kinds:
a) Unilateral Contract :
In a unilateral contract only one party makes a commitment. In other words, it is a contract where only one party is bound but the other party chooses to be bound by it.
EXAMPLES :
A promises to pay Rs. 1,000 to any one who finds his lost bag. B finds the bag and returns. A . It is a unilateral contract which comes into existence when the bag is found.
b) Bilateral Contract :
It is a contract where as soon as the contract is made, both parties are bound by it. In other words it is a contract in which both the parties have yet to perform their obligations.
EXAMPLES :
A promises to paint the picture for B and B promises to pay Rs. 5,000 to A.
According to parties a contract may be of the following two kinds:
a) Unilateral Contract :
In a unilateral contract only one party makes a commitment. In other words, it is a contract where only one party is bound but the other party chooses to be bound by it.
EXAMPLES :
A promises to pay Rs. 1,000 to any one who finds his lost bag. B finds the bag and returns. A . It is a unilateral contract which comes into existence when the bag is found.
b) Bilateral Contract :
It is a contract where as soon as the contract is made, both parties are bound by it. In other words it is a contract in which both the parties have yet to perform their obligations.
EXAMPLES :
A promises to paint the picture for B and B promises to pay Rs. 5,000 to A.
ACCORDING TO FORMATION
2. According To Formation :
By Chartered Accountant
According to formation, a contract has the following three kinds.
(a) Express Contract :
Express contract is one which is expressed in words spoken or written. When such a contract is formed, there is no difficulty in understanding the rights and obligations of the parties. In express contract, the parties directly state the terms of the contract. (Sec. 9)
EXAMPLES :
A tells to B that he wants to sell his car and B informs A that he agrees to buy the car, there is an express contract.
(a) Implied Contract :
An implied contract is made otherwise than by works spoken or written. It arises from the acts, conduct of the parties, course of dealings or circumstances. It arises when one person, without being requested to do so, renders services under circumstances indicating that he expects to be paid for them, and the other person, knowing such circumstances, accepts the benefit of those services. (Sec. 9)
EXAMPLES :
(a) A went into a restaurant and took a cup of tea. It is a implied contract and A will pay for the cup of tea.
(b) M, a shoe shiner starts polishing the shoes of W in his presence, and W allows him to do so. It is an implied contract.
(c) Quasi Contract :
In quasi contract the law imposes certain obligations under some special circumstances. It is based upon the principle of equity that a person shall bot be allowed to get benefit at the expense of another. In fact it is not a contract but creates relations similar to contract. It is also called constructive contract.
EXAMPLES :
(a) A, finds lost goods of B. A is bound to return the goods to B.
(b) A leaves his goods at B's house by mistake, B treats then as his own and uses. It is a quasi contract. B is bound to pay for the goods.
3. According To Performance :
According to performance a contract is of the following two kinds:
(a) Executed Contract :
A contract is said to be executed when both the parties have completely performed their obligations. It means that nothing remains to be done by either of the party under the contract.
EXAMPLES :
(a) A, buys a book from B. A delivers the books and B pays the price. It is an executed contract.
(b) A agrees to paint a picture from B for Rs. 2,000. When A paints the picture and B pays the price, the contract is said to be executed.
b) Executory Contract :
In an executory contract something remains to be done. In other words a, contract is said to be executory when both the parties to a contract have yet to perform their obligations.
EXAMPLES :
(a) M sells his car to N for Rs. 2 lac. N has not yet paid the price and M has not delivered the car. The contract between M and N is executory.
(b) A agrees to teach B, in May and B promises to pay Rs. 800 to A. It is an executory contract because the promises are yet to be performed.
By Chartered Accountant
According to formation, a contract has the following three kinds.
(a) Express Contract :
Express contract is one which is expressed in words spoken or written. When such a contract is formed, there is no difficulty in understanding the rights and obligations of the parties. In express contract, the parties directly state the terms of the contract. (Sec. 9)
EXAMPLES :
A tells to B that he wants to sell his car and B informs A that he agrees to buy the car, there is an express contract.
(a) Implied Contract :
An implied contract is made otherwise than by works spoken or written. It arises from the acts, conduct of the parties, course of dealings or circumstances. It arises when one person, without being requested to do so, renders services under circumstances indicating that he expects to be paid for them, and the other person, knowing such circumstances, accepts the benefit of those services. (Sec. 9)
EXAMPLES :
(a) A went into a restaurant and took a cup of tea. It is a implied contract and A will pay for the cup of tea.
(b) M, a shoe shiner starts polishing the shoes of W in his presence, and W allows him to do so. It is an implied contract.
(c) Quasi Contract :
In quasi contract the law imposes certain obligations under some special circumstances. It is based upon the principle of equity that a person shall bot be allowed to get benefit at the expense of another. In fact it is not a contract but creates relations similar to contract. It is also called constructive contract.
EXAMPLES :
(a) A, finds lost goods of B. A is bound to return the goods to B.
(b) A leaves his goods at B's house by mistake, B treats then as his own and uses. It is a quasi contract. B is bound to pay for the goods.
3. According To Performance :
According to performance a contract is of the following two kinds:
(a) Executed Contract :
A contract is said to be executed when both the parties have completely performed their obligations. It means that nothing remains to be done by either of the party under the contract.
EXAMPLES :
(a) A, buys a book from B. A delivers the books and B pays the price. It is an executed contract.
(b) A agrees to paint a picture from B for Rs. 2,000. When A paints the picture and B pays the price, the contract is said to be executed.
b) Executory Contract :
In an executory contract something remains to be done. In other words a, contract is said to be executory when both the parties to a contract have yet to perform their obligations.
EXAMPLES :
(a) M sells his car to N for Rs. 2 lac. N has not yet paid the price and M has not delivered the car. The contract between M and N is executory.
(b) A agrees to teach B, in May and B promises to pay Rs. 800 to A. It is an executory contract because the promises are yet to be performed.
Thursday, January 14, 2010
KINDS OF CONTRACT
Kinds Of Contract :
By Chartered Accountant
1. According To Enforceability :
According to enforceability, a contract can be divided as under:
(a) Valid contract :
A valid contract is enforceable by law. An agreement becomes enforceable my law when all essentials of a valid contract are present.
Obligation Of Parties :
In valid contract all the parties are legally responsible for the performance of the contract. If one of the parties breaches the contract, the other party can enforce it through the court of law.
EXAMPLES :
A agrees to sell a car to B. If it fulfills all the essentials of a contract, it is a valid contract. If A fails to deliver the car, B can sue him and if B fails to pay, A can sue him.
(b) Void Contract :
The word void means not binding in law. Section 2(j) defines " A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. " It means that a void contract is not void from the beginning. It is valid contract wen it is made but subsequently it becomes void due to certain reasons. A contract becomes void under the following circumstances:
1. Impossibility Of Performance :
A contract becomes void due to impossibility of performance. A contract becomes void before performance, when it becomes impossible to be performed by any party due to any reason. ( Sec 56).
By Chartered Accountant
1. According To Enforceability :
According to enforceability, a contract can be divided as under:
(a) Valid contract :
A valid contract is enforceable by law. An agreement becomes enforceable my law when all essentials of a valid contract are present.
Obligation Of Parties :
In valid contract all the parties are legally responsible for the performance of the contract. If one of the parties breaches the contract, the other party can enforce it through the court of law.
EXAMPLES :
A agrees to sell a car to B. If it fulfills all the essentials of a contract, it is a valid contract. If A fails to deliver the car, B can sue him and if B fails to pay, A can sue him.
(b) Void Contract :
The word void means not binding in law. Section 2(j) defines " A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. " It means that a void contract is not void from the beginning. It is valid contract wen it is made but subsequently it becomes void due to certain reasons. A contract becomes void under the following circumstances:
1. Impossibility Of Performance :
A contract becomes void due to impossibility of performance. A contract becomes void before performance, when it becomes impossible to be performed by any party due to any reason. ( Sec 56).
EXAMPLES :
A agrees to sell his house to B after two days. His house is burnt next day. The contract becomes void.
2. Subsequent Illegality :
A agrees to sell 100 bags of wheat to B. Before delivery the government bans private trade in wheat. The contract becomes void.
3. Rejection of a Voidable Contract :
A voidable contract becomes void when the part whose consent is not free rejects the contract. ( Sec. 19)
EXAMPLES :
A forcibly buys B's car for Rs. 20,000 only. The contract is voidable at the option of B. B may accept or reject it. If B rejects the contract it becomes void.
4. Impossibility Of Depending Event :
A contingent contract is that, the performance of which depends upon the happening or non-happening of a certain event. It becomes void, when that event does not happen. (Sec. 32)
EXAMPLES :
A contract to give Rs. 1 lac to B, if B gets admission in Heiley College. B fails to get admission. The contract becomes void.
Obligation Of Parties :
In void contract both the parties are not legally responsible to fulfill the contract. Under this contract the party who has received any benefit is bound to return it to the their party.
(c) Void Agreement :
An agreement not enforceable by law is said to be void. The void agreement does not create legal obligations among the parties and is void ab-initio. In void agreement there is absence of one or more essentials of valid contract except free consent. An agreement with minor and an agreement without consideration is void from the beginning. (Sec. 2 (g)).
Obligation Of Parties :
In void agreement, any party who has received any advantage is bound to restore it to the party from which he received it. Both the parties are not responsible from the performance of the agreement.
EXAMPLE :
A promises to buy a dog from B for Rs. 10,000. The dog was dead before the contract The parties were unaware. The agreement is void.
(d) Voidable Contract :
According to section 2(i) "An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract."
A contract is voidable when the consent of one of the parties is not free. It is a valid contract until t is avoided by the party having the right to avoid it. When it is avoided it becomes void. If the party decides to confirm it, it remains valid. A contract becomes voidable under following circumstances.
1. A contract becomes voidable when the consent of one or more of the parties to a contract is obtained by coercion, undue influence, misrepresentation or fraud. ( Sec. 15-18)
EXAMPLES :
(a) A, threatens B to purchase his car for Rs 5 lac. B agrees . The contract is made by coercion and is voidable at the option of B.
(b) A deceives B by stating his factory produces 500 kg of sugar daily and thus induces B to buy it. The contract is voidable at the option of B.
2. When a person promises to do something for another person but the other person prevents him from performing his promise, the contract becomes voidable at his option. (Sec. 53)
EXAMPLES :
A contracts to paint B's house. A is ready to paint but B prevents him from doing so. This contract is voidable at the option of A.
3. When a party to the contract promises to do a certain thing within a specified time, but fails to do it, then the contract becomes voidable at the option of the promisee, if time is essence of the contract. (Sec. 55)
EXAMPLES :
A contracts to paint B's house within one week. A, does not come within the specified time. The contract is voidable at the option of B.
Obligation Of Parties :
The following are the obligation of the parties.
1. It is valid for both the parties if it continues.
2. The law gives an option to one of the parties to avoid it.
3. The party entitled to cancel the contract is not bound to cancel. If he confirms it, the other party remains bound to perform.
4. The aggrieved party can get damages from the other party.
5. If one has received some benefit he must return it to the other.
Burden Of Proof :
The burden Of proof lies on plaintiff, i.e., an aggrieved party. It means that the party, who claims that his consent is unfree, has to prove in the court of law. If he fails to prove, the contract remains valid.
(e) Unenforceable contract :
An unenforceable contract is that which cannot be enforced in a court of law because of some technical defects such as absence of writing, registration, requisite stamp, etc. When these defects are removed, the contract can be enforced.
EXAMPLE :
A borrows Rs. 1 billion from B and makes a pronote on a Rs. 10 stamp paper. It is unenforceable because pronote is undervalued.
Obligation Of Parties :
In unenforceable contract, the parties may perform the contract. But in breach of such contract, the aggrieved party is not entitled to legal remedies.
(f) Illegal Agreement :
An illegal 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 provisions of any law or is fraudulent or it involves injury to the person or property of another or the Court regards it as immoral, or opposed to public policy. (Sec. 23)
EXAMPLE :
A gives money to B, a smuggler to buy smuggled goods. Such agreement is illegal and the money cannot be recovered.
Obligation Of Parties :
The parties to this agreement are not responsible to perform their promises. There is a punishment for the parties according to law also.
(a) A, threatens B to purchase his car for Rs 5 lac. B agrees . The contract is made by coercion and is voidable at the option of B.
(b) A deceives B by stating his factory produces 500 kg of sugar daily and thus induces B to buy it. The contract is voidable at the option of B.
2. When a person promises to do something for another person but the other person prevents him from performing his promise, the contract becomes voidable at his option. (Sec. 53)
EXAMPLES :
A contracts to paint B's house. A is ready to paint but B prevents him from doing so. This contract is voidable at the option of A.
3. When a party to the contract promises to do a certain thing within a specified time, but fails to do it, then the contract becomes voidable at the option of the promisee, if time is essence of the contract. (Sec. 55)
EXAMPLES :
A contracts to paint B's house within one week. A, does not come within the specified time. The contract is voidable at the option of B.
Obligation Of Parties :
The following are the obligation of the parties.
1. It is valid for both the parties if it continues.
2. The law gives an option to one of the parties to avoid it.
3. The party entitled to cancel the contract is not bound to cancel. If he confirms it, the other party remains bound to perform.
4. The aggrieved party can get damages from the other party.
5. If one has received some benefit he must return it to the other.
Burden Of Proof :
The burden Of proof lies on plaintiff, i.e., an aggrieved party. It means that the party, who claims that his consent is unfree, has to prove in the court of law. If he fails to prove, the contract remains valid.
(e) Unenforceable contract :
An unenforceable contract is that which cannot be enforced in a court of law because of some technical defects such as absence of writing, registration, requisite stamp, etc. When these defects are removed, the contract can be enforced.
EXAMPLE :
A borrows Rs. 1 billion from B and makes a pronote on a Rs. 10 stamp paper. It is unenforceable because pronote is undervalued.
Obligation Of Parties :
In unenforceable contract, the parties may perform the contract. But in breach of such contract, the aggrieved party is not entitled to legal remedies.
(f) Illegal Agreement :
An illegal 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 provisions of any law or is fraudulent or it involves injury to the person or property of another or the Court regards it as immoral, or opposed to public policy. (Sec. 23)
EXAMPLE :
A gives money to B, a smuggler to buy smuggled goods. Such agreement is illegal and the money cannot be recovered.
Obligation Of Parties :
The parties to this agreement are not responsible to perform their promises. There is a punishment for the parties according to law also.
Wednesday, January 13, 2010
BUSINESS LAW
CONTRACT AND ITS KINDS ::
Law Of Contract ::
Initially, sections 76-123 and sections 230-266 relating to sale of goods and partnership were contained in the Contract Act, 1930 and a Partnership Act, 1932 came into force.
Definition Of Contract ::
Sec.2 (h) Of Contract Act provides " An agreement enforceable by law is a contract." Thus a contract consists of two elements:
(a) Agreement (b) The agreement must be enforceable by law.
1. Agreement ::
Section 2(e) defines agreement as, " Every promise and every set of promises, forming the consideration of each other, is an agreement.
A promise comes into existence when one party makes a proposal to the other party and that other party signifies his assent. These definitions shows that a contract is an agreement; an agreement is a promise and a promise is an accepted proposal. Following are the characteristics of agreement:
(a) Plurality of Persons :
There must be two or more persons to make an agreement because one person cannot enter into an agreement with himself.
(b) Consensus ad idem ::
It means that both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time. The term consensus means identity of minds.
EXAMPLES ::
(a) A has two cycles X and Y. A sells X cycle. B thinks he is buying Y cycle. There is no consensus ad idem so no agreement.
2. ENFORCEABILITY ::
An agreement is enforceable if it is recognized by courts. In order to be enforceable by law, the agreement must create legal obligations between the parties. Thus, the term agreement is wider than a contract. All contracts are agreements but all agreements are not contracts. Agreements are of two types:
(a) Social Agreements ::
Social agreements are not enforceable because they do not create legal obligations between the parties. In such agreements the parties do not intend to create legal relations.
(b) Legal agreements ::
Legal agreements are enforceable because they create legal obligations between the parties. In such agreements the parties intend to create legal relations.
EXAMPLES ::
(a) A invites b to a dinner. B accepts the invitation but does not attend. A cannot sue B for damages. It is a social agreement.
(b) A promises to sell his car to B for Rs. 2 lac. It is a legal agreement because it creates legal obligations. This agreement is a contract.
Essentials Of A Valid Contract ::
A valid contract is binding and enforceable. In valid contract all the parties are legally bound to perform the contract. It is a contract which can be enforced by either of the parties. If either party refuses to perform the contract, the other can enforce it by a court. To be enforceable, an agreement must possess essentials of a valid contracts.
According to section 10, " All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void. Where necessary the agreements must satisfy the requirements of a law regarding writing, attestation of registration."
The essentials of a valid contract are as follow:
1. Offer And Acceptance ::
For an agreement, there must be a lawful offer by one party and a lawful acceptance of that offer from the other party. The term lawful means that the offer and acceptance must satisfy the requirements of Contract Act.
2. Legal Obligations ::
The parties to an agreement must create legal obligations. It means that if one of them does not fulfill his part of promise, he shall be liable for beach of contract. It is presumed in commercial agreements that parties intend to create legal relations.
EXAMPLES ::
(a) A father promises to pay his son Rs. 500 as pocket money. Later, he refuses to pay . The son cannot recover as it is a social agreement.
(b) A offers to sell his watch to B for Rs. 200. B agrees to buy. It is a contract as it creates legal relationship.
(c) A husband promised to pay his wife an allowance of 30 pounds every month. Later, the parties separated and the husband failed to pay. The wife sued. Held, that the wife was not entitled as agreement did not create legal obligations. ( Belfour vs. Belfour )
3. Lawful consideration ::
Consideration may be some benefit to the other party. It is the price paid by one party for the promise of the other party. An agreement is enforceable only when both the parties get and give something. The something given or obtained is called consideration. Consideration must be lawful as well.
EXAMPLES ::
(a) A agrees to sell his house to B for Rs. 10 lac. For A Rs. 10 lac is consideration and for B house is the consideration.
(b) A promises B a job in public service and B promises to pay Rs. 1 lac to A. The agreement is void as the consideration is unlawful.
4. Capacity Of Parties ::
An agreement is enforceable only if it is made by parties who are competent to contract. To be competent to contract, the parties must be the age of majority and of sound mind and must not be disqualified from contracting by law. A contract by a person of unsound mind is void ab-initio ( from the beginning )
EXAMPLES ::
(a) M, a person of unsound mind agrees to sell his house to S for Rs. 2 lac. It is not a valid contract because M is not competent to contract.
(b) A, aged 20 promises to sell his car to B for Rs. 3 lac. It is a valid contract because A is competent to the contract.
5. Free Consent ::
Consent means that the parties must agree upon the same thing in the same sense. For a valid contract, it is necessary that the consent of parties must be free.
Consent is free when it is not obtained by coercion, undue influence, fraud, misrepresentation or mistake. If the consent of either of the parties is not free, the agreement cannot become a contract. ( Sec. 14)
EXAMPLES ::
A compels B to enter into a contract on the point of pistol. It is not a valid contract as the consent of B is not free.
6. Lawful Object ::
It is also necessary that agreement should be made for a lawful object. The object of agreement must not be fraudulent, illegal, immoral opposed to public policy, imply injury to the person or property of another. Every agreement, with unlawful object or consideration is illegal and therefore void. ( Sec. 23)
EXAMPLES ::
(a) A, promises to pay B Rs. 5000 if B beats C. The agreement is illegal as its object if unlawful.
(b) A hires a house to use for gambling. The object of the agreement is unlawful, so it is illegal.
7. Writing and registration
A contract may be oral or in writing. It is preferable that the contract should be in writing because it is easy to prove in court. If required by law, a particular contract must be in writing, signed, attested by witnesses and registered: e.g. sale and mortgage of land.
EXAMPLES :
(a) X verbally promises to sell his book to Y for Rs. 200. It is a valid contract because the law does not require it to be in writing.
(b) A verbally promises to sell his house to B. It is not a valid contract because the law requires it to be in writing.
8. Certainty Of Terms :
According to section 29. " Agreement, The meaning of which is not certain or capable of being made certain, are void. " The terms of an agreement must be clear, complete
and certain. If the terms are uncertain, the agreement is void.
EXAMPLES :
(a) A promises to sell 20 books to B without specifying their titles. The agreement is void because the terms are not clear.
(b) A agrees to sell B a 100 kg of oil without informing the kind of oil. The agreement is void because of its uncertainty.
(c) O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over two years. Held, there was no contract as the terms were not certain about rate of interest and mode of payment ( Scammel vs. Ouston)
9.Possibility Of Performance :
The valid contract must be capable of being performed. An agreement to do an impossible act is void. If the act is legally or physically impossible to be performed, the agreement cannot be enforced by law. ( Sec.56)
EXAMPLES :
(a) A agrees with B to discover a treasure by magic, the agreement is not enforceable.
(b) A agrees with B to put life into B's dead brother. The agreement is void as it is impossible to perform.
10. Not Expressly Declared Void :
For a valid contract, the agreement must not be one of those, which have been expressly declared to be void by the law. Section 24-30 explain certain agreements which have been expressly declared to be void. An agreement, in restraint of trade and of wager has been expressly declared void.
EXAMPLES :
(a) A promises to close his business on the promise of B to pay him Rs. 2 lac is a void agreement because it is in restraint of trade.
(b) A promises to pay Rs. 2000 to B if Pakistan wins the world cup final. The agreement is void being a wagering agreement.
Law Of Contract ::
Initially, sections 76-123 and sections 230-266 relating to sale of goods and partnership were contained in the Contract Act, 1930 and a Partnership Act, 1932 came into force.
Definition Of Contract ::
Sec.2 (h) Of Contract Act provides " An agreement enforceable by law is a contract." Thus a contract consists of two elements:
(a) Agreement (b) The agreement must be enforceable by law.
1. Agreement ::
Section 2(e) defines agreement as, " Every promise and every set of promises, forming the consideration of each other, is an agreement.
A promise comes into existence when one party makes a proposal to the other party and that other party signifies his assent. These definitions shows that a contract is an agreement; an agreement is a promise and a promise is an accepted proposal. Following are the characteristics of agreement:
(a) Plurality of Persons :
There must be two or more persons to make an agreement because one person cannot enter into an agreement with himself.
(b) Consensus ad idem ::
It means that both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time. The term consensus means identity of minds.
EXAMPLES ::
(a) A has two cycles X and Y. A sells X cycle. B thinks he is buying Y cycle. There is no consensus ad idem so no agreement.
2. ENFORCEABILITY ::
An agreement is enforceable if it is recognized by courts. In order to be enforceable by law, the agreement must create legal obligations between the parties. Thus, the term agreement is wider than a contract. All contracts are agreements but all agreements are not contracts. Agreements are of two types:
(a) Social Agreements ::
Social agreements are not enforceable because they do not create legal obligations between the parties. In such agreements the parties do not intend to create legal relations.
(b) Legal agreements ::
Legal agreements are enforceable because they create legal obligations between the parties. In such agreements the parties intend to create legal relations.
EXAMPLES ::
(a) A invites b to a dinner. B accepts the invitation but does not attend. A cannot sue B for damages. It is a social agreement.
(b) A promises to sell his car to B for Rs. 2 lac. It is a legal agreement because it creates legal obligations. This agreement is a contract.
Essentials Of A Valid Contract ::
A valid contract is binding and enforceable. In valid contract all the parties are legally bound to perform the contract. It is a contract which can be enforced by either of the parties. If either party refuses to perform the contract, the other can enforce it by a court. To be enforceable, an agreement must possess essentials of a valid contracts.
According to section 10, " All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void. Where necessary the agreements must satisfy the requirements of a law regarding writing, attestation of registration."
The essentials of a valid contract are as follow:
1. Offer And Acceptance ::
For an agreement, there must be a lawful offer by one party and a lawful acceptance of that offer from the other party. The term lawful means that the offer and acceptance must satisfy the requirements of Contract Act.
2. Legal Obligations ::
The parties to an agreement must create legal obligations. It means that if one of them does not fulfill his part of promise, he shall be liable for beach of contract. It is presumed in commercial agreements that parties intend to create legal relations.
EXAMPLES ::
(a) A father promises to pay his son Rs. 500 as pocket money. Later, he refuses to pay . The son cannot recover as it is a social agreement.
(b) A offers to sell his watch to B for Rs. 200. B agrees to buy. It is a contract as it creates legal relationship.
(c) A husband promised to pay his wife an allowance of 30 pounds every month. Later, the parties separated and the husband failed to pay. The wife sued. Held, that the wife was not entitled as agreement did not create legal obligations. ( Belfour vs. Belfour )
3. Lawful consideration ::
Consideration may be some benefit to the other party. It is the price paid by one party for the promise of the other party. An agreement is enforceable only when both the parties get and give something. The something given or obtained is called consideration. Consideration must be lawful as well.
EXAMPLES ::
(a) A agrees to sell his house to B for Rs. 10 lac. For A Rs. 10 lac is consideration and for B house is the consideration.
(b) A promises B a job in public service and B promises to pay Rs. 1 lac to A. The agreement is void as the consideration is unlawful.
4. Capacity Of Parties ::
An agreement is enforceable only if it is made by parties who are competent to contract. To be competent to contract, the parties must be the age of majority and of sound mind and must not be disqualified from contracting by law. A contract by a person of unsound mind is void ab-initio ( from the beginning )
EXAMPLES ::
(a) M, a person of unsound mind agrees to sell his house to S for Rs. 2 lac. It is not a valid contract because M is not competent to contract.
(b) A, aged 20 promises to sell his car to B for Rs. 3 lac. It is a valid contract because A is competent to the contract.
5. Free Consent ::
Consent means that the parties must agree upon the same thing in the same sense. For a valid contract, it is necessary that the consent of parties must be free.
Consent is free when it is not obtained by coercion, undue influence, fraud, misrepresentation or mistake. If the consent of either of the parties is not free, the agreement cannot become a contract. ( Sec. 14)
EXAMPLES ::
A compels B to enter into a contract on the point of pistol. It is not a valid contract as the consent of B is not free.
6. Lawful Object ::
It is also necessary that agreement should be made for a lawful object. The object of agreement must not be fraudulent, illegal, immoral opposed to public policy, imply injury to the person or property of another. Every agreement, with unlawful object or consideration is illegal and therefore void. ( Sec. 23)
EXAMPLES ::
(a) A, promises to pay B Rs. 5000 if B beats C. The agreement is illegal as its object if unlawful.
(b) A hires a house to use for gambling. The object of the agreement is unlawful, so it is illegal.
7. Writing and registration
A contract may be oral or in writing. It is preferable that the contract should be in writing because it is easy to prove in court. If required by law, a particular contract must be in writing, signed, attested by witnesses and registered: e.g. sale and mortgage of land.
EXAMPLES :
(a) X verbally promises to sell his book to Y for Rs. 200. It is a valid contract because the law does not require it to be in writing.
(b) A verbally promises to sell his house to B. It is not a valid contract because the law requires it to be in writing.
8. Certainty Of Terms :
According to section 29. " Agreement, The meaning of which is not certain or capable of being made certain, are void. " The terms of an agreement must be clear, complete
and certain. If the terms are uncertain, the agreement is void.
EXAMPLES :
(a) A promises to sell 20 books to B without specifying their titles. The agreement is void because the terms are not clear.
(b) A agrees to sell B a 100 kg of oil without informing the kind of oil. The agreement is void because of its uncertainty.
(c) O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over two years. Held, there was no contract as the terms were not certain about rate of interest and mode of payment ( Scammel vs. Ouston)
9.Possibility Of Performance :
The valid contract must be capable of being performed. An agreement to do an impossible act is void. If the act is legally or physically impossible to be performed, the agreement cannot be enforced by law. ( Sec.56)
EXAMPLES :
(a) A agrees with B to discover a treasure by magic, the agreement is not enforceable.
(b) A agrees with B to put life into B's dead brother. The agreement is void as it is impossible to perform.
10. Not Expressly Declared Void :
For a valid contract, the agreement must not be one of those, which have been expressly declared to be void by the law. Section 24-30 explain certain agreements which have been expressly declared to be void. An agreement, in restraint of trade and of wager has been expressly declared void.
EXAMPLES :
(a) A promises to close his business on the promise of B to pay him Rs. 2 lac is a void agreement because it is in restraint of trade.
(b) A promises to pay Rs. 2000 to B if Pakistan wins the world cup final. The agreement is void being a wagering agreement.
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