Elements of a Contract.pdf
- 1. Elements/Ingredients of a Contact Presenter: Mr. Muhammad Umer Draz Awan
- 2. Contents • What is an offer? • Free Consent, Coercion, Under Influence, Fraud & Misrepresentation • Voidability of contract • Quasi Contracts • Contingent Contracts
- 4. Proposal/Offer: What is an Offer? • When a person shows willingness to do something or abstain from doing anything, he is said to be making an offer. • Showing willingness alone is not enough. • The offeror must communicate his offer to the offeree. Besides, the offer should not contain terms taken as acceptance if the offeree does not agree. • The offeror must be legally competent to enter any contract. • Some other person on behalf of the offeror can also make the offer. • In usual cases, the offer is made to a specific person or persons, but it can also be made to the public in general. • If the offer is made to the whole world, it will convert to a unilateral contract as the acceptance by the other party is not involved, and the announcement is for everyone, willing or non-willing.
- 5. Proposal/Offer: Invitation to Offer • An offer is separate from the invitation to the offer. • Invitation to offer is the way to induce the offer in an attempt to proceed towards the offer. • If the offeree accepts the invitation to offer, it does not result in any contract, but it is an indication that the offeree is open for negotiation.
- 6. Proposal/Offer: Classification of an Offer Different forms of offer are: 1. A General Offer is an offer made to the public in general. 2. A Special Offer is made to some specific person. 3. An offer made in exchange for an identical offer while being ignorant of each other is the Cross Offer. 4. A proposed modification or variation to the original offer is a Counter Offer. 5. An offer valid for a specific time is a Standing, Open, or Continuing Offer.
- 7. Proposal/Offer: Offer & Acceptance
- 8. Proposal/Offer: Offer & Acceptance • For a contract, it is a must to have an offer and its acceptance. • If there is no offer, there will be no communication. • If an offer is not accepted, there will be no contract. • Following are some basic questions that the parties in a contract must deal with; a) Is there any offer, or is it something less than the offer? b) Is there any acceptance of the offer in a proper form? c) If there is an acceptance? Is the acceptance of the offer appropriately communicated to the offeror?
- 9. Proposal/Offer: Statements that are not Offers Following are the scenarios that do not qualify to be an offer: a) Any statement proposed during negotiation without indication to make the other party bound to it before further negotiation. b) A statement that invites the other party to make an offer. c) A statement to lower the prices to invite other parties to make an offer. d) Display of goods with price tags on a ship.
- 10. Proposal/Offer: Termination of Offer • Some documents or statements are not offers. And until the offer is not accepted, it does not create any legal rights and can be terminated. Following are the principal modes in which the offer can be terminated: a) The offeror revokes or withdraws the offer before it gets accepted. b) The offeree rejects the offeror makes a counteroffer. c) If the offer was only open for a specific time, it terminates automatically after the expiry of that time.
- 11. Proposal/Offer: Revocation of Offer • The offeror can revoke the offer any time before the offeree communicates to the offeror about acceptance of the proposal. The offer cannot be revoked once the acceptance is complete. Following are the ways to revoke the offer. a) The offeror can communicate the notice of revocation to the other party. b) If the time is specified, the offer revokes after that time. If no time is specified, the offer can be revoked after a reasonable time and without acceptance. c) The offer is revoked when the acceptor does not fulfill the precedent to acceptance. d) When the offeror dies or becomes insane, and the acceptor comes to know of the fact of death or insanity, the offer is revoked.
- 12. Acceptance of Offer • When the offeree signifies his agreement or approval to the offer, it is said as acceptance. However, the following are the rules of acceptance that must be obeyed. a) Acceptance should be complete and final. b) The offeree must communicate the acceptance to the offeror. c) The offeree must do the acceptance in the prescribed mode. d) Acceptance should be made before the offer lapses. e) Acceptance should also appear in the behavior of both parties. f) The mere silence in response to the offer is not the acceptance.
- 13. Acceptance of Offer • Acceptance of the offer must be final, and it must also contain all the terms of the offer. • However, it is not possible in the case of complex business contracts as it involves a series of proposals, counter-proposals, and agreements. • Besides, in lengthy negotiations, it becomes hard to specify whether the offer or the acceptance is made or not.
- 14. Free Consent, Coercion, Under Influence, Fraud & Misrepresentation
- 15. Free Consent • Section 13 of the Contract Act specifies consent as when two or more people agree on the same thing in the same sense. • Also, consent is free when it does not involve any coercion, undue influence, mistake, fraud, or misrepresentation. • When a party takes the other party’s consent through coercion, fraud, undue influence, or misinterpretation, it is voidable at the option of the affected party. It happens when one party can dominate the other party. • In the case of fiduciary relationships, the law burdens the dominating party to prove no undue influence and protects the weaker party.
- 16. Free Consent • Section 15 of the Contract Act explains coercion as doing or threatening to do any act forbidden by law with the intention to make someone enter into the agreement. • Section 16 of the Contract Act explains Undue Influence as when a person is in a position to dominate the will of another, and they both enter into a contract that appears or has evidence to be unconscionable. Here the dominating party has to prove that there is no undue influence. • Section 17 of the Contract Act explains Fraud as a party entering into a contract or its agent deceiving another party or their agent to enter into the contract.
- 17. Free Consent • Section 18 of the Contract Act explains Misrepresentation as to a party to an agreement causing a mistake that is subject to the agreement. • In case of a mutual mistake related to material facts of the contract, the agreement becomes void. • However, in case of a unilateral mistake, the agreement does not become void. Also, a mistake of law does not affect the contract’s validity.
- 18. Coercion • Definition: The committing, or threatening to commit, any act forbidden by the Penal Code or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. • Explanation - It is immaterial whether the Penal Code is or is not in force in the place where the coercion is employed.
- 19. Coercion - Illustration A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Penal Code. A afterwards sues B for breach of contract at London Port. A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Penal Code was not in force at the time when or place where the act was done.
- 20. Under influence 1) 1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. 2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another- a) where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress. 3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.
- 21. Under influence – Illustrations a) A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence. b) A, a man enfeebled by disease or age, is induced, by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue influence. c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence. d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.
- 22. Fraud • Definition: Means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract: 1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true 2) the active concealment of a fact by one having knowledge or belief of the fact 3) a promise made without any intention of performing it 4) any other act fitted to deceive 5) any such act or omission as the law specially declares to be fraudulent • Explanation – Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
- 23. Fraud – Illustrations a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse is unsound. c) B says to A-"If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's silence is equivalent to speech. d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.
- 24. Misrepresentation • Means and includes: a) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true b) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him c) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
- 26. Voidability of Contract • When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. • A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true. • Exception – If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. • Explanation – A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not render a contract voidable.
- 27. Voidability of Contract - Illustrations a) A, intending to deceive B, falsely represents that 50 pounds of wax are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B. b) A, by a misrepresentation, leads B erroneously to believe that 50 pounds of wax are made annually at A's factory. B examines the accounts of the factory, which show that only 40 pounds of wax have been made. After this B buys the factory. The contract is not voidable on account of A's misrepresentation. c) A fraudulently informs B that A's estate is free from burden. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage-debt redeemed.
- 28. Quasi Contracts
- 29. Quasi Contract (also called Implied Contracts) • Contracts based on the principles of Justice & Equity • Quasi means ‘as if’ or ‘similar to’ • Just like a contract as it creates legal obligations • However, legal obligations created by Quasi Contract do NOT rest on any agreement, but are IMPOSED BY LAW. o Example: If certain books are delivered to a wrong address, then they are under an obligation to either pay for the or return them.
- 30. Quasi Contract: Types of Quasi Contracts Following types of Quasi Contracts: 1) Claim for supply of necessaries to person incapable of contracting 2) Reimbursement of money paid, in which he is interested 3) Obligation of person to pay for enjoying benefit of non-gratuitous act 4) Responsibility of finder of goods 5) Liability of a person to whom money is paid or thing delivered by mistake or under coercion
- 31. Quasi Contracts 1) Claim for supply of necessaries to person incapable of contracting • If a person incapable of entering into a contract or any one who 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. • Illustrations: a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property. b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.
- 32. Quasi Contracts 2) Reimbursement of money paid, in which he is interested • A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other. • Illustrations: The house in which A lives as a tenant is declared to be sold by municipal corporation for non-payment of tax by the owner of the house. A makes the payment in order to protect his interest. A is conferred a legal right to recover such payment from the owner of the house.
- 33. Quasi Contracts 3) Obligation of person to pay for enjoying benefit of non-gratuitous act • Where a person lawfully does anything to another person, or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit there of, the latter is bound to make compensation to the former in respect of or to restore the thing so done or delivered. • Illustration: A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own, B is bound to pay A for them.
- 34. Quasi Contracts 4) Responsibility of finder of goods • A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee. • Definition of Bailee: • A bailee is an individual who temporarily gains possession, but not ownership, of a good or other property. • The bailee, who is also called a custodian, is entrusted with the possession of the good or property by another individual known as the bailor.
- 35. Quasi Contracts 5) Liability of a person to whom money is paid or thing delivered by mistake or under coercion • A person to whom money has been paid, or anything delivered by mistake or under coercion must repay or return it. • Illustration: A and B jointly owe PKR 1000 to C. A alone pays the amount to C, and B not knowing this fact, pays PKR 1000 again to C. C is bound to refuse and repay the amount back to B.
- 37. Contingent Contracts • A contract to do or not to do something, if some event, collateral to such contract, does or does not happen. • Illustration: A contracts to pay B Taka 10,000 if B's house is burnt. This is a contingent contract.
- 38. Enforcement of contracts contingent on an event happening • Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void. • Illustration a) A makes a contract with B to buy B's horse if A survives C. This contract cannot be enforced by law unless and until C dies in A's lifetime. b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse. c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.
- 39. Enforcement of contracts contingent on an event not happening • Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before. • Illustration A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
- 40. When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person • If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. • Illustration A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B.
- 41. When contracts become void which are contingent on happening of specified event within fixed time • Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.
- 42. When contracts may be enforced which are contingent on specified event not happening within fixed time • Contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed has expired and such event has not happened or, before the time fixed has expired, if it becomes certain that such event will not happen. • Illustration: a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year. b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.
- 43. Agreement contingent on impossible events void • Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. • Illustration a) A agrees to pay B PKR 1000 if two straight lines should enclose a space. The agreement is void. b) A agrees to pay B PKR 1000 if B will marry A's daughter C. C was dead at the time of the agreement. The agreement is void.