FREE CONSENT

·         Meaning of consent: it means an act of assenting to an offer. According to section 13, "Two or more persons are said to consent when they agree upon the same thing in the same thing in same sense." Thus, consent involves identity of minds in respect of the subject matter of the contract. In English Law, this is called 'consensus-ad-idem'.

·         Effect of Absence of consent:

When there is no consent at all, the agreement is void ab-initio, i.e. it is not enforceable at the option of either party. Example: X has one Maruti car and one fiat car. He wants to sell fiat car. Y does not know that X has two cars. Y offers to buy X's Maruti car Rs 50,000. X accepts the offer thinking it to be an offer for his Fiat car. Here, there is no identity of mind in respect of the subject of the subject matter. Hence there is no consent at all and the agreement is void ab-initio.

·         Meaning of Free consent: It is one of the essential elements of a valid contract as it is evidenced by section 10 which provides that all agreements are contracts if they are made by the free consent of the parties... according to section 14, consent is said to be free when it is not caused by (a) Coercion, or (b)Undue influence, or (c) Fraud, or (d) Misrepresentation, or (e) Mistake.

·         Effect of Absence of free consent:

When there is consent but it is not free (i.e. when it is caused by coercion or undue influence or fraud or misrepresentation), the contract is usually voidable at the option of the party whose consent was so caused.

1.    COERCION

Meaning of coercion [section 15]: It means compelling a person to enter into a contract, by use of physical force/activities forbidden by Indian penal code, OR
threatens to do activities forbidden by I.P.C, OR
threatens to damages the property.
Effect of coercion: Voidable and can be cancelled at the option of aggrieved party. OR A 'suicide and a 'threat to commit suicide' are not punishable but an attempt to commit suicide is punishable under the Indian penal code.
X threatens to kill Y if he does not sell his house for Rs. 1,00,000 to X. Y sells his house to X and receives the payments. Here, V's consent has been obtained by coercion. Hence, this contract is voidable at the option of Y. If Y decides to avoid the contract, he will have to return Rs 1,00,000 which he had received from X.
"Y" (aggrieved party) will return Rs. 1,00,000
"X" (defendant party) will return the house and any benefit from the goods.
When voidable contract cannot be cancelled:
When the third party become interested into a voidable contract. E.g. A obtain the car of B through coercion. Let, A sold it to "C" an innocent buyer, now B cannot get the contract cancelled. When the aggrieved party ratify/confirm/affirm then contract cannot be cancel.

2. UNDUE INFLUENCE:

Meaning of Undue influence[section 16(1)]: The term 'undue influence' means dominating the will of the other person to obtain an unfair advantage over the other. According to section 16(1), a contract is said to be induced by undue influence

1.    where the relations subsisting between the parties are such that one of them is in a position to dominate the will of the other, and

2.    the dominant party uses that position to obtain an unfair advantage over the other.

When two-partner are in relation, and one of them is dominant and other is in weaker position and dominant person takes undue-Advantage, then it is called"Undue- influence."

No presumption of domination of will

According to judicial decisions held in various cases, there is no presumption of undue influence in the following relationships:

1.    Husband and wife

2.    landlord and tenant

3.    Creditor and debtor

Effect of undue influence [section 19A]: when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.
Comparison between coercion and undue influence:
Similarities: In case of both coercion and undue influence, the consent is not free and the contract is voidable at the option of the aggrieved party.

3. FRAUD
Meaning and essential elements of fraud [section 17] : The term 'fraud' means a false representation of fact made willfully with a view to deceive the other party. Fraud includes following:

·         Wrong suggestion about a fact, knowing that it is not-true;

E.g. X sells to Y locally manufactured goods as imported goods charging a higher price, it amounts to fraud. OR A seller claimed that his projector is made in Singapore, and sold it for Rs. 100,000/- However the fact is that "Projector was made in south India".

·         Active concealment (Hide) of defect in goods:

E.g. "A car-painter, uses paint to hide the scratches over the old furniture and sold it claiming that is Now". This is fraud. OR X a furniture dealer, conceals the cracks in furniture sold by him by using some packing material and polishing it in such a way that the buyer even after reasonable examination can not trace the defect, it would tent amount to fraud through active concealment.

·         Promise made without intention to perform:

E.g. "A man and a woman underwent a ceremony of marriage with the husband not regarding it as a real marriage. Held, the husband had no intention to perform the promise from the time he made it and hence the consent of the wife was obtained under fraud. OR "A farmer agrees to supply 100kg potato that will be produced by him out of his field, after three month". Two months has been lapsed, but the farmer neither implant seeds, nor does cultivation. This is case of fraud.

·         Any activity declared fraud as per other law; under companies act and insolvency acts, certain kinds of transfers have been declared to be fraudulent.

Note: In case of fraud, the seller is always liable even though buyer has an opportunity to check the fraud.

·         Any activity fitted (supported) to deceive. It covers those acts which deceive but are not covered under any other clause.

Effect of Fraud[section-19]

The effects of fraud are as follows:
(a) The party whose consent was caused by fraud can rescind (cancel) the contract but he cannot do so in the following cases:

·         Where silence amounts to fraud, the aggrieved party cannot rescind the contract if he had the means of discovering the truth with ordinary diligence;

·         Where the party gave the consent in ignorance of fraud;

·         Where the party after becoming aware of the fraud takes a benefit under the contract;

·         Where an innocent third party before the contract is rescinded acquires for consideration some interest in the property passing under the contract.

·         Where the parties cannot be restored to their original position.

(b) The party whose consent was caused by fraud 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 representation made had been true.

1.    The party whose consent was caused by fraud, can claim damage if he suffers some loss.

Weather silence is fraud? 

 General concept: According to explanation to section 17, "Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud".
In other words, Silence is not fraud. It is buyer, who must check the goods & suitability.
E.g. X purchased a used computer from Z thinking it as a computer imported from USA, Z failed to disclose the fact to X. On knowing the fact X wants to repudiate the contract. So, here X cannot repudiate/rescind/cancel the contract.


Exceptions to the general rule:

The general rule that silence does not amount to fraud has the following exceptions. Where the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak. Such duty arises in the following two cases:

·         When silence is equivalent to speech: E.g. "A student of BBA select a Business law-book and asks the seller". If seller don't stop me from buying this book, I will assume that "it is best". The seller remained silent here the student will treat "silence" as speech. If the book was inferior, then it is a case of fraud.

·         Disclosure of dangerous nature: E.g. Shyam sold his horse to Ram a buyer for Rs. 11000/- Shyam knows that horse was "wicked" but fails to disclose it to buyer. Here seller has committed fraud by remaining silent.

4. Misrepresentation

The term "misrepresentation" means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party. Section 18 defines the term "misrepresentation" as follows
"Misrepresentation" means and includes-

·         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;

·         Any breach of duly which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading an other to his prejudice or to the prejudice of anyone claiming under him;

·         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.

Essential elements of misrepresentation:

·         By a party to a contract: The representation must be made by a party to a contract or by anyone with his connivance or by his agent. Thus, the misrepresentation by a stranger to the contract does not affect the validity of the contract.

·         False representation: There must be a false representation and it must be made without the knowledge of its falsehood i.e. the person making it must honestly even it is to be true.

·         Representation as to fact: The representation must relate to a fact. In other words, a mere opinion, a statement of expression or intention does not amount to misrepresentation.

"Innocent misstatement made into good faith OR without any intention to cause loss"
E.g. A farmer says that his land is very productive and produces 100 quintal per acre. This is misrepresentation and buyer can cancel the contract.
Note: When the buyer has an opportunity to check the misrepresentation, but he fails then buyer cannot cancel the contract.
E.g. An owner of factory, while selling his factory, express his opinion as my factory produces 1000 kg per ann-um and requested the buyer to find out exact production by checking "production-record". If the buyer fails to check the production record then buyer cannot blame seller.

Effect of misrepresentation[section 19]

The effects of misrepresentation are as follows:

1.    Right to rescind the contract The party whose consent was caused by misrepresentation can rescind (cancel) the contract but he cannot do so in the following cases:

·         where the party whose consent was caused by misrepresentation had the means of discovering the truth with ordinary diligence;

·         where the party gave the consent in ignorance of misrepresentation;

·         where the party after becoming aware of the misrepresentation, takes a benefit under the contract;

·         where an innocent third party, before the contract is rescinded, acquires for consideration some interest in the property passing under the contract;

·         where the parties cannot be restored to their original position.

(b) Right to insist upon performance The party whose consent was caused by 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 representation made had been true.
Comparison between fraud and misrepresentation
Similarities: There are basically two similarities in case of fraud and misrepresentation as follows:

1.    In both the cases, a false representation is made by a party;

2.    In both the cases, the contract is voidable at the option of the party whose consent is obtained by fraud or misrepresentation.

5. Mistake

Meaning of mistake [section 20]
A mistake is said to have occurred where the parties intending to do one thing by error do something else. Mistake is "erroneous belief" concerning something.
Classification of Mistake of Law:
(a) Mistake of Indian Law(In sense of penalty): The contract is not voidable because everyone is supposed to know the law of his country. e.g. disobeying traffic rules"
(b) Mistake of Foreign Law(void-ab-initio): A mistake of foreign law is treated as mistake of fact, i.e. the contract is void if both the parties are under a mistake as to a foreign law because one cannot be expected to know the law of other country.

Mistake of fact

Mistake of fact be either Unilateral mistake or Bilateral mistake.
Unilateral mistake [section 22]: The term 'unilateral mistake' means where only one party to the agreement is under a mistake. According to section 22, "A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact."
Bilateral mistake [section 22]: The term 'bilateral mistake' means where both the parties to the agreement are under a mistake. According to section 20, "where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void." thus, the following three conditions must be satisfied before declaring a contract void under this section:

1.    Both the parties must be under a mistake

2.    Mistake must be of fact but not of law.

According to explanation to section 20. "An erroneous opinion as to the value of the thing which forms the subject matter of agreement is not to be deemed a mistake as to a matter of fact."
Note: Mistake about price is valid.

CONTRACT LAW - PART IV (CONSENT)

Agreements enforceable by law are contracts.

The Contract Law is mostly Commonsense

Points for discussion as based on The Indian Contract Act 1872

FREE & GENUINE CONSENT

Consent is said to be free when it is not caused by:

1.            Coercion,

2.            Undue influence,

3.            Fraud,

4.            Misrepresentation or 

5.            Mistake.

COERCION

Coercion is:

The committing or threatening to commit any act forbidden by the Indian Penal Code, 1860.

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.

Even threat to commit suicide amounts to coercion.

The threat need not proceed from the party to the contract, it may proceed from a third person also.

A threat to file a civil or criminal suit is not forbidden by the Indian Penal Code.

Burden of Proof: that the consent was obtained by coercion shall lie upon the aggrieved party who wants to set aside the contract.

Effect of Coercion:

The contract is voidable at the option of the party whose consent was so obtained. When the aggrieved party decides to set aside the contract, it must give back any benefit received from the other party under the contract. Moreover, the other party need not perform his part of the contract. If the aggrieved party does not opt to set aside the contract, it works as a valid contract.

UNDUE INFLUENCE

Undue Influence is:

Where 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.

When is a person in a position to dominate the will of the other:

·                     Real or apparent authority.

·                     Fiduciary relation.

·                     Persons with affected mental capacity.

·                     When a transaction appears to be unconscionable, it is presumed that the stronger party has exercised undue influence over the weaker party.

Undue influence may be exerted by a person who is not a party to the contract.

Lack of foresight is not a ground for establishing a case of undue influence.

The law presumes undue influence in a contract with a ‘pardanashin woman’, and the courts throw the burden on the other party to prove that undue influence was not exercised.

Burden of proof: is on the party who is in a position to dominate the will of the other.

Effect of undue influence:

The contract is voidable at the option of the party whose consent was so obtained. The court may direct the aggrieved party to refund the benefit whether in whole or in part or set aside the contract without any direction for refund of benefit. If the aggrieved party does not opt to set aside the contract, it works as any other valid contract.

FRAUD

Fraud exists when it is shown that a false representation has been made,

·                      knowingly,

·                      or without belief in its truth,

·                     or recklessly, not caring whether it is true or false,

and the maker intended the other party to act upon it.

It also exists when there is a concealment of a material fact.

Fraud cannot be committed by a stranger to the contract.

Fraud must have been committed upon the other party.

The following acts constitute a fraud:

·                     Suggestion that a fact is true, by one, who does not believe it to be true.

·                      An active concealment of fact, by one, having knowledge of the act.

·                     A promise made without any intention of performing it.

·                     Any such acts or omission which law specifically declares to be fraudulent.

Mere silence is not fraud, except;

·                     When silence itself is equivalent to speech.

·                     When it is the duty of the person keeping silence to speak.

·                     When it is the duty of the seller to disclose latent or hidden defect.

Effect of fraud:

The contract is voidable at the option of the defrauded party. The defrauded party is entitled to compensation for any damage he has sustained. The defrauded party may insist that the contract shall be performed and that he should be put in the position in which he would have been if the representation made was true.

MISREPRESENTATION

Misrepresentation is a misstatement of a material fact made innocently with an honest belief as to its truth or non-disclosure of a material fact, without any intent to deceive the other party.

The effect of misrepresentation is that the agreement is voidable by the party whose consent is obtained by misrepresentation.

MISTAKE

Mistake is erroneous belief about something.

It may be mistake of law or mistake of fact.

Mistake of law does not result in a voidable contract.

Bilateral mistake of fact renders a contract void. (lack of consensus ad idem).

The mistake must relate to fact, not opinion. The fact must be essential to the agreement &  The fact must be existing at the time of contract.

Instances of Bilateral Mistake:

Mistake as to:

·                     the existence of the subject matter.

·                     the identity of the subject matter.

·                      title or rights.

·                     the quantity of subject matter.

·                     the quality of subject matter.

·                     assumptions.

Unilateral mistake does not affect the validity of an agreement. However, if it can be proved that the mistake was caused by fraud or misrepresentation it can be avoided.

Instances of Unilateral Mistake:

Mistake as to:

1.       Identity of the contracting party.

Said v Butt(1920)

(Case of the drama critic S, with whom the management, of which B was the managing director,  never intended to enter into a contract.)

2.       The character of document.

Mistake as to identity of the contracting party (caused by fraud):

Cundy v Lindsay (1878)

(Case where a fraudulent man called Blenkarn posing as a well known firm Blenkiron & Co ordered a large quantity of handkerchiefs in writing  from Cundy – received the goods & disposed off the goods to Lindsay , who acted in good faith – held that there was no contract between Cundy & Blenkarn and therefore, he had no right to sell the goods.)

Philips v Brooks (1919)

(Case of a jeweler & a certain North masquerading as Sir George Bullough – mistake was not about identity but only about the attributes of the buyer.)

Ingram v Little (1961)

(Case of sale of car by three ladies including I – cheque offered but refused – buyer persuaded them to believe he was a certain Hutchinson, leading businessman quoting an address & a telephone number – particulars verified by the ladies – car given for the cheque – car resold to L – cheque proved worthless – I sued L for car or for its value – held that as the ladies intended to enter into contract with the real Hutchinson  there could be no contract with a rogue – since the rogue had no title to the car, he could not convey a good title to L.)

Lewis v Averay (1971)

(Case of sale of car by L – cheque offered – buyer, masquerading as a famous film actor, asked to wait till cheque was cleared – sellers resistance broken – proof of identity, a special pass  of admission to a film studio,  given – cheque bounced – buyer had in the meantime sold it to innocent buyer A – held that L should suffer, it was he who had allowed the possession of goods to pass without waiting for the cheque to be cleared.)

consideration

n. 1) payment or money. 2) a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act (forbearance) can be consideration, such as "I will pay you $1,000 not to build a road next to my fence." Sometimes consideration is "nominal," meaning it is stated for form only, such as "$10 as consideration for conveyance of title," which is used to hide the true amount being paid. Contracts may become unenforceable or rescindable (undone by rescission) for "failure of consideration" when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly (as when the mechanic does not make the car run properly). Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts. Examples: prostitution, gambling where outlawed, hiring someone to break a skater's knee or inducing someone to breach an agreement (talk someone into backing out of a promise).

Consideration Law

Introduction

The mere fact of agreement alone does not make a contract. Both parties to the contract must provide consideration if they wish to sue on the contract. This means that each side must promise to give or do something for the other. (Note: if a contract is made by deed, then consideration is not needed.)
For example, if one party, A (the promisor) promises to mow the lawn of another, B (the promisee), A's promise will only be enforceable by B as a contract if B has provided consideration. The consideration from B might normally take the form of a payment of money but could consist of some other service to which A might agree. Further, the promise of a money payment or service in the future is just as sufficient a consideration as payment itself or the actual rendering of the service. Thus the promisee has to give something in return for the promise of the promisor in order to convert a bare promise made in his favour into a binding contract.

DEFINITION OF CONTRACT CONSIDERATION LAW

Lush J. in Currie v Misa (1875) LR 10 Exch 153 refered to consideration as consisting of a detriment to the promisee or a benefit to the promisor:

"... some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other."

The definition given by Sir Frederick Pollock, approved by Lord Dunedin in Dunlop v Selfridge Ltd [1915] AC 847, is as follows:

"An act or forebearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable."

TYPES OF CONSIDERATION

1. EXECUTORY CONSIDERATION

Consideration is called "executory" where there is an exchange of promises to perform acts in the future, eg a bilateral contract for the supply of goods whereby A promises to deliver goods to B at a future date and B promises to pay on delivery. If A does not deliver them, this is a breach of contract and B can sue. If A delivers the goods his consideration then becomes executed.

2. EXECUTED CONSIDERATION

If one party makes a promise in exchange for an act by the other party, when that act is completed, it is executed consideration, eg in a unilateral contract where A offers £50 reward for the return of her lost handbag, if B finds the bag and returns it, B's consideration is executed.

RULES GOVERNING CONSIDERATION

1. CONSIDERATION MUST NOT BE PAST

If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past. The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A gives B a lift home in his car. On arrival B promises to give A £5 towards the petrol. A cannot enforce this promise as his consideration, giving B a lift, is past.

EXCEPTIONS TO THIS RULE:

(A) PREVIOUS REQUEST

If the promisor has previously asked the other party to provide goods or services, then a promise made after they are provided will be treated as binding. See:

·         Lampleigh v Braithwait (1615) Hob 105.

(B) BUSINESS SITUATIONS

If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid. See:

·         Re Casey's Patents [1892] 1 Ch 104.

Note: The principles in Lampleigh v Braithwait as interpreted in Re Casey's Patents were applied by the Privy Council in:

·         Pao On v Lau Yiu Long [1980] AC 614

(C) THE BILLS OF EXCHANGE ACT 1882

Under s27(1) it is provided that any antecedent debt or liability is valid consideration for a bill of exchange. For example, A mows B's lawn and a week later B gives A a cheque for £10. A's work is valid consideration in exchange for the cheque.

2. CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE

Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is recognised by the law as having some value, it is described as "real" or "sufficient" consideration. The courts will not investigate contracts to see if the parties have got equal value. 

3. CONSIDERATION MUST MOVE FROM THE PROMISEE

The person who wishes to enforce the contract must show that they provided consideration; it is not enough to show that someone else provided consideration. The promisee must show that consideration "moved from" (ie, was provided by) him. The consideration does not have to move to the promisor. If there are three parties involved, problems may arise. See:

·         Price v Easton (1833) 4 B & Ad 433

4. FOREBEARANCE TO SUE

If one person has a valid claim against another (in contract or tort) but promises to forbear from enforcing it, that will constitute valid consideration if made in return for a promise by the other to settle the claim. See:

·         Alliance Bank v Broom (1864) 2 Dr & Sm 289.

5. EXISTING PUBLIC DUTY

If someone is under a public duty to do a particular task, then agreeing to do that task is not sufficient consideration for a contract. See:

·         Collins v Godefroy (1831) 1 B & Ad 950.

If someone exceeds their public duty, then this may be valid consideration. See:

·         Glassbrooke Bros v Glamorgan County Council [1925] AC 270.

6. EXISTING CONTRACTUAL DUTY

If someone promises to do something they are already bound to do under a contract, that is not valid consideration. Contrast:

·         Stilk v Myrick (1809) 2 Camp 317.

·         Hartley v Ponsonby (1857) 7 E & B 872.

The principle set out in Stilk v Myrick was amended by the following case. Now, if the performance of an existing contractual duty confers a practical benefit on the other party this can constitute valid consideration. 

7. EXISTING CONTRACTUAL DUTY OWED TO A THIRD PARTY

If a party promises to do something for a second party, but is already bound by a contract to do this for a third party, this is good consideration.

Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance, the performance is consideration for the promise, while the promise is consideration for the performance.

Consideration must have a value that can be objectively determined. A promise, for example, to make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise.

Traditionally, courts have distinguished between unilateral and bilateral contracts by determining whether one or both parties provided consideration and at what point they provided the consideration. Bilateral contracts were said to bind both parties the minute the parties exchanged promises, as each promise was deemed sufficient consideration in itself. Unilateral contracts were said to bind only the promisor and did not bind the promisee unless the promisee accepted by performing the obligations specified in the promisor's offer. Until the promisee performed, he or she had provided no consideration under the law.

For example, if someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a Bilateral Contract would be formed binding both of you once you provided consideration by accepting those terms. But if that same person offered to pay you $10 each day you drove him to work, a unilateral contract would be formed, binding only upon the promisor until you provided consideration by driving him to work on a particular day.

Modern courts have de-emphasized the distinction between unilateral and bilateral contracts. These courts have found that an offer may be accepted either by a promise to perform or by actual performance. An increasing number of courts have concluded that the traditional distinction between unilateral and bilateral contracts fails to significantly advance legal analysis in a growing number of cases where performance is provided over an extended period of time.

Suppose you promise to pay someone $500.00 to paint your house. The promise sounds like an offer to enter a unilateral contract that binds only you until the promisee accepts by painting your house. But what constitutes lawful performance under these circumstances? The act of beginning to paint your house or completely finishing the job to your satisfaction?

Most courts would rule that the act of beginning performance under these circumstances converts a unilateral contract into a bilateral contract, requiring both parties to fulfill the obligations contemplated by the contract. However, other courts would analyze the facts of each case so as not to frustrate the reasonable expectations of the parties. In neither of these cases are the legal rights of the parties ultimately determined by courts by applying the concepts of unilateral and bilateral contracts.

In still other jurisdictions, courts have simply expressed a preference for interpreting contracts as creating bilateral obligations in all cases where no clear evidence suggests that a unilateral contract was intended. The rule has been stated that in case of doubt an offer will be presumed to invite the formation of a bilateral contract by a promise to perform what the offer requests, rather than the formation of a unilateral contract commencing at the time of actual performance. The bottom line across most jurisdictions is that as courts have been confronted by a growing variety of fact patterns involving complicated contract disputes, courts have turned away from rigidly applying the concepts of unilateral and bilateral contracts and moved towards a more ad hoc approach.

Consumer contracts - what’s meant by offer, acceptance and consideration

A contract is a legally binding agreement. As a consumer you form a contract every time you buy something, even if you don't realise it.

It's important to know if you have a contract if something goes wrong with the goods or services you've bought, because this affects what options you have to sort things out.

For a consumer contract to be valid, there are certain conditions. There must be an offer, consideration and acceptance. Both parties must intend to make a legally binding contract and both parties must be capable of making a legally binding contract.

Read this page to find out more about what's meant by offer, acceptance and consideration.

If you don’t yet have a contract

Until an offer is accepted, there is no contract. You can change your mind and withdraw your offer to buy. The trader can also change the price of the goods if they think they have made a mistake in pricing them. And if the goods you ordered are out of stock, the trader could make a counter-offer of a substitute item.

·         More about pricing errors on a website or in a shop

What is meant by offer and acceptance?

Before a consumer contract is made, one person must make an offer and another person must accept it.

Usually, you will make an offer to the trader to buy their goods or services for a price. The trader will then accept your offer and you will have a contract.

For example, in a shop you make the offer when you take the goods to a till and the shop worker accepts your offer when they put the goods through the till. Before the goods go through the till, you can change your mind about buying them and, in the same way, the trader can decide not to sell them.

Another example is when a builder gives you a quote for a job they are offering to do. If you accept the quote, you have accepted their offer and a contract is formed.

With some types of goods or services you can negotiate with the trader. This means more than one offer is made before acceptance takes place. For example, if you ask a builder to fit a new kitchen you may want to haggle with them over the price. If they offered to fit the kitchen for £5000, you could then make a counter-offer of £4000 to do the work. The trader will either make another counter-offer or accept your latest offer.

The contract between you and a trader is only finalised when an offer has been accepted. Once a contract has been finalised, it is legally binding on both sides.

Displays of goods are not offers but an invitation to treat

You can’t insist that a trader sell you goods simply because they are on display in a shop window or on a shop shelf. This is because displays of goods with prices in the shop or on a web page is not an offer from the trader but an invitation to treat. This means they are inviting or encouraging you to make an offer. You can pick the item off the shelf but can change your mind about buying it before you get to the checkout.

This also means if a trader has wrongly priced an item by mistake, they don't have to sell it to you at that price. When you go to the checkout to buy the item, you are making an offer to the trader to buy it at the labelled price. The shop can choose not to accept your offer and correct the price of the item.

What is meant by consideration?

For a consumer contract to be legally binding, as well as offer and acceptance, there must also be consideration or a price. Consideration means that both parties must do something or promise to do something which they intend to be legally binding. In contracts for goods or services, this usually means that one party promises to pay a price and the other party promises to supply goods or services.

Payment does not have to be made at the time the offer is accepted - that is, when the contract is made, but there must be a promise to pay later.

Payment may be made by cash, cheque, debit, or credit card. It may even be in kind, for example, by part exchange of goods, or by anything which is of value to the buyer or seller - for example, tokens or vouchers.

Example of acceptance, offer and consideration

A buyer sees a birthday cake in a bakery window (invitation to treat).

The cake has a price label next to it which says the cake is £7.99.

The buyer offers the baker £7.99 for the cake (offer).

The baker agrees to this amount (acceptance).

The buyer hands over the money (consideration) and takes the cake.

What is mean by contingent contract?

In: Contract Law [Edit categories]

Answer:

Contingent Contract is a Contract which has to do or not to do something. 

for example Krishna Contracts with Ram that he will give 1 crore rupees if rains fall on 31st december... held it is based on future whether it happens or may not happen. 




A contingent contract is a contract to do or not to do something if some event. Collateral to such contract, does or does not happen. Insurance contract provide the best example of contingent contracts. 

Example:

·        
A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contingent contract.

·        
A promises to B Rs. 1 crore if a certain ship does not return within a year.

Essential features of a contingent contract

1.   
Dependence on a future event: The performance of a contingent contract depends upon the happening or non-happening of some future event.

2.   
Collateral Event: The event must be collateral to the contract.

3.   
Uncertain Event: The event must be uncertain.

Note:
The performance of a contingent contract must depend upon the happening or non-happening of an event and not on the mere will of the promisor. 
Rule about contingent contract
When the contract, based upon happening of future event:
For example : A promises to pay B Rs. 10,000 if A's ship coming from London reaches at Mumbai-port on or before 31stMay,2011. 
Case 1:When the ship reaches at Mumbai-port on or before 31stMay,2011 
Valid contract(Enforceable law)
Case 2: When the ship reaches at Mumbai port after the specified period i.e. 31stMay,2011 
Void/ Unenforceable
Case 3: When the ship sinks 
Void/Unenforceable
When the contract, based upon non-happening of future event:
For example : A promises to pay B Rs. 10,000 if A's ship coming from London doesn't reaches at Mumbai-port on or before 31stMay,2011. 
Case 1:When the ship reaches at Mumbai-port on or before 31stMay,2011 i.e., specified period 
Void
Case 2: When the ship reaches at Mumbai port after the specified period i.e. 31stMay,2011 
Valid
Case 3: When the ship sinks 
Valid

Contingent contract

Q. What is contingent contract? Is it enforceable by law? If so under what circumstances. Discuss fully. (2001)
1. Introduction:
If any contract performance depends upon the happening of certain event of future is called contingent contract. An ordinary contract can become contingent contract. If its performance is made dependent upon the happeningor non happening of an uncertain event, collateral to such contract. Contingent contract is also called conditionalcontract.
Example:
A contracts to pay B Rs. 2000 if B marries to C. This is contingent contract.
Collateral event:
The collateral event means connected event.
2. Definition of contingent contract:
A “contingent contract” is a contract to do or not to do something if some event, collateral to such contract, does not happen.
3. Essentials:
Following are the essentials of the conditional contract.
(i) The performance of such contract depends upon the happening or non happening of some future uncertain event.
(ii) The event must be uncertain,
(iii) The happening or non happening of the events must be collateral.
4. Rules of the performance of contingent contract:
Rules of the performance of contingent contract are following.
(I) Happening of uncertain event:
According to Sec. 32
“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 happened. If the event becomes impossible, such contract becomes void.
Example:
A contracts to pay B a sum of 100,000/- when B marries C. C dies without being married, to B. The contract becomes void.
(II) Un happening of uncertain event:

According to Sec 33.
“Contingent 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 but not before.
Example:
“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.

(III) Time not specified:
According to Sec. 34
“If the future event which the contract is contingent is the way which the person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it will be void contract.
Example:
“A agree to pay B a sum of money if B marries to C. But C marries to D. The marriage of B to C must now be considered impossible. Although it is possible that D. may die and C may afterwards marry B.

(IV) Time specified:
According to Sec. 35 (1)
Contingent contracts to do or not do anything if a specified uncertain events happens with in a specified time become void. If at the expiration of the fixed time such event has not happens or before the time fixed.
Example:
A promises to pay B a sum of money if train returns to Karachi within 24 hours. The contract is enforceable if train returns with in specified time. But if train destroyed during the fixed time the contract will be void.

(V) Fixed time expired:
Sec 35 (2)
“Contingent contracts to do or not to do anything if a specified uncertain event does not happened with in a fixed time may be enforced by law when time has expired and such event has not happened or before the time fixed has expired it becomes certain that such event will happen.”
Example:
A promises B to pay a some of money if certain trains does not turn within day. The contract may be enforced if train does not return.

(VI) Impossible events:
According to sec 36.
“Contingent agreement to do or not to do anything impossible event happens are void whether the impossibility of the event is known or not to the parties to the agreement a time when it is made.
Example:
A agree to pay B a sum of money if B will marry A’s daughter’s C. C was dead at the time of agreement. It is void.

5. Conclusion:
To conclusion it can be said that, contingent contract is also known as conditional contract. It is valid contract. The parties have real interest in the occurrence or non-occurrence of the event. Contracts of guarantee, indemnity and insurance are its example.


Law of contingent contract

Introduction

Contingent contract is a contract to do or not to do something if some event. Collateral to such contract, does or does not happen. Insurance contract provide the best example of contingent contracts. The performance of a contingent contract depends upon the happening or non-happening of some future event.

Law of Contingent contract. According to the section 31 of the contract Act 1872, “A Contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.”

A Contingent contract contains a condition promise. A promise is “absolute” or “unconditional” when the promise undertakes to perform it in any event. A promise is “conditional” when performance is due only if an even, collateral to the contract, dose or does not happen. “Collateral” means “subordinate but from same source, connected but aside from main line.”

Characteristic of Contingent contract

From the above discussion it follows that there are two essential Characteristics of Contingent contracts—– The performance of such contracts depends on a Contingency on the happening or non-happening of the future event. In a Contingent contract, the event must be collateral incidental to the contract. The Contingency is uncertain. If the Contingency is bound to happen, the contract is due to be performed in any case and is not therefore a Contingent contract.

Quasi contract

There are certain dealings which are not contracts strictly, though the parties act as if there is a contract. The contract Act specifies the various situations which come within what is called quasi contract.

When one person obtains a benefit at the expense of another and the circumstances are such that he ought, equitably, to pay for it, the law will compel payment, event thought there is no contract  between the parties by which payment is promised. The parties will be put in the same position as they would have occupied if there was a contract between them. Such cases are called quasi contract because the relationship between the parties in such cases resembles those created by contract. Sections 68-72 of the contract act describe the cases which are to be deemed quasi contract.

Remedies for Breach of contract

When a contract is breach by any party of the contract. The other party is entitled to get remedies for this breach by the court. The following remedies are available for breach of contract——-

Rescission of the contract

Ratification of the contract

Damages

Specific performance of contract

Injunction

Quantum Meruit

1. Rescission of the contract

When one party to a contract breach the contract the other party is entitled to ratification the contract under section 35-38 of the specific Relief Act 1877.

2. Ratification of the contract

When any contractual document is made with fraud or with mutual mistake and which does not express the real intention of the parties, than the affected party to the contract  is entitled to the ratification the contract according to there intention under section 31-34 of the specific Relief  Act 1877.

3. Damages

When a contract breached by one party the other party of the contract is entitled to get damages for such breach. The amount of the damages is a question of fact and determine according to circumstance.

4. Specific performance of contract

One of the importances for the breach of contract is specific performance of contract. Here bought parties to the contract are bound to perform there obligation according to contract by the diction of the court. The providing regarding the specific performance of contract is equated by the section 12-30 of the specific Relief Act 1877.

5. Injunction

One of the important remedies for breach of contract is injunction. The providing regarding injunction is equated by the section 52-57 of the specific Relief Act 1877. And the under xlv of the code of civil procedure 1908.

6. Quantum Meruit

The remedies for breach of contract also be given with the rule of “so much remedies as much performance.” It is known as Quantum Meruit by the section 65 of the specific Relief Act 1877.

Performance & Breach

What is meant by performance?

Performance of contract is one among the several modes of discharge of contract. Performance refers to the fulfilment of the obligations as stated in the terms of the contract. The parties to the contract must either perform or offer to perform their respective obligations, unless they are exempted by the law.

Types of Performance: Performance of contract can be split up into 2 types.

Actual Performance: When a party to the contract has made a promise (promisor) regarding the offer of performance to the other party (promisee) and the promise is accepted by the promisee, it is termed as actual performance.

Attempted performance:  When there is an offer of performance made by the promisor to the promise and the offer has not been accepted by the promisee, it amounts to attempted performance. The offer may be accepted by the promise in future depending on his preferences.

What is meant by breach?

A breach of contract refers to the non-performance of duty, but not every non-performance of duty can be accounted as breach of contract .A party to the contract need not have to perform his promises under a contract until performance is due.

Breach of a contract may result in the termination of the obligations of the contract. It occurs when either one or both parties to a contract have made a default in the performance of an obligation as required by the contract. A breach occurs when a party:

·         Denial to perform the contract

·         Indulges in an action which is prohibited by the contract

·         Hinders the other party from performing his obligations

Types of breach:

·         Actual Breach: When there is an actual non- performance or a violation of the terms of the contract by any of the parties to the contract it is termed as actual breach. The affected party can claim for damages in the court of law. 

·         Anticipatory breach: Anticipatory breach happens when a party to the contract, announces well in advance of the due date for performance, that he cannot perform his quota of obligations as stated by the contract. In such cases, the other party may sue for damages resulting from non-performance, immediately after the breach is announced.

Performance and termination

Performance

A contract may be discharged in a number of ways; most commonly through performance, by the parties, of their contractual obligations. As a general rule, for a contract to be discharged by performance the contractual obligations must be performed completely and exactly; it is not sufficient to 'substantially' perform a contract. There are, however, some exceptions to the rule that exact performance is required. The parties may also modify this requirement - by expressly or implicity providing that exact performance is not required. Determining the relevant level of performance will, therefore, depend on proper construction of the contract involved.

• View Performance page for more detailed discussion

Discharge by Agreement

Parties are free to terminate their contract by agreement. This might take the form of a termination provision in the contract itself or through a new and separate contract.

• View Discharge by Agreement page for more detailed discussion

Discharge for Breach

Breach of contract may give the non-breaching party a right to terminate a contract. The non-breaching party may terminate a contract for breach if (a) a provision of the contract permits discharge for breach in the circumstances (eg, it might provide that in the event of failure to supply goods on a specific date the other party may terminate the contarct), (b) if the other party repudates the contract - that is, renounces their obligations under it (eg, they say that will not perform the contract); or (c) the breach is sufficiently serious (minor or technical breaches will generally not allow the non-breaching party to terminate)

• View Discharge for Breach page for more detailed discussion

Discharge by Frustration

In some cases a contract will be brought to an end because of a supervening event that is beyond the control of the parties; for example, a contract between A and B, whereby B agrees to hire A's theatre on a particular night may be frustrated if, as a result of a terrorist act the theatre is destroyed prior to the date for performance of the contract (seeTaylor v Caldwell (1863) 3 B & S 826).

The doctrine of frustration applies only in a limited range of circumstances - generally where the event renders performance of the contract something fundamentally different from that anticipated by the parties. The courts are likely to be unsympathetic if the event could have been anticipated and therefore provided for by the parties in their contract.

Where frustration is established the contract is terminated automatically (in futuro); there is no option to discharge or to perform and, at common law, the loss resulting from the termination lies where it falls (although there are limited exceptions to that rule). Statutory modification means that in most cases the harshness that might result from that common law rule is avoided (see eg, Fair Trading Act 1999 (Vic) Part 2C)

A contract is a legal document that binds at least two parties to one another. A contract requires one or both parties meet obligations detailed in the contract before it is completed. In some instances, contract termination can occur that will make the contract void of legal binding. Only the parties involved in the agreement may terminate a contract.

Impossibility of Performance

A contract typically requires one or more parties to do something, which is called performance. For example, a company may hire and sign a contract to have a public speaker talk at a company event. Once the public speaker fulfils his duties agreed upon in the contract, it is called performance. If for some reason it is impossible for the public speaker to fulfil his duties, it is called impossibility of performance. The company has the right to terminate the contract in the case of an impossibility of performance.

Breach of Contract

When a contract is intentionally not honoured by one party, it is called a breach of contract and is grounds for contract termination. A breach of contract may exist because one party failed to meet his obligations at all or did not meet his obligations fully. A material breach of contract allows the hiring party to seek monetary damages, and an immaterial breach of contract does not allow the party to seek monetary damages. For example, if you purchased a product that did not arrive until a day after the agreed upon delivery date, that is an immaterial breach of contract. However, if your order did not come until two weeks after the delivery date and it affected your business, then that is a material breach of contract.

Prior Agreement

You may terminate a contract if you and the other party have a prior written agreement that calls for a contract termination because of a specific reason. The agreement must give the details of what qualifies as a reason for contract termination. It should also state what actions need to take place for one of the parties to terminate the contract. In most cases, one party must submit a written notice to the other party to terminate the contract.

Rescission

A rescission of a contract is when a contract is terminated because an individual misrepresented themselves, acted illegally or made a mistake. For example, if you bought a house but after further inspection you discover that the seller intentionally hid the poor physical condition of the home, you may possibly terminate the contract. A contract rescission may take place if one party is not old enough to enter a contract or if a elderly person is not able to make legal decisions because of incapacity.

Completion

A contract is essentially terminated once the obligations outlined in the contract are completed. Parties should keep documentation showing that they fulfilled their contract duties. Documentation is helpful if the other party tries to later dispute the fulfilment of your contract obligations. A court of law will require proof of contract fulfilment if a dispute occurs.

 

What does it mean to terminate a contract?

To terminate a contract means to end the contract prior to it being fully performed by the parties. In other words prior to the parties performing all of their respective obligations required by the contract, their duty to perform these obligations ceases to exist.

In general, the effect of the termination of a contract is to discharge the parties from their unperformed obligations under the contract. However, termination does not affect liabilities of the parties for breaches of the contract that occurred prior to the contract being terminated. And, despite the fact that future obligations to perform under the contract terms have been extinguished, if appropriate, the parties remain entitled to pursue claims for damages under the common law and as provided by any termination provisions that may be contained within the contract.

The right to terminate.

There are two basic types of termination: 1) termination for cause, otherwise known as termination for default; and 2) termination for convenience. A party's right to terminate its contract may originate from the general principles of contract law or it may arise out of the terms of the contract itself. On the other hand, termination for convenience may originate only from the terms of a contract which provide for such termination, for there is no general contract principle allowing termination for convenience. A termination for cause is available only in response to a material breach of the contract by the other party. What qualifies as a material breach to the contract may be determined by a review of the contract case law or what qualifies as a material breach or default may be stated in the contract itself. A failure to perform any contract term is a breach of the contract. However, substantial damages are recoverable only from a material breach and a material breach entitles the non-breaching party to treat the material breach as a breach of the entire contract. Whether there has been a material breach depends upon the seriousness of the breach and the likelihood that the injured party has, nevertheless, received substantially what it had contracted to receive under the contract. The extent of the monetary damage suffered by the non-breaching party is not necessarily determinative of material breach. Materiality of the breach must be determined on a case-by-case basis and in light of the purposes for which the party entered the contract.

The following facts are considered by courts in determining whether a breach was material:

1.    Was there a failure of an essential feature on the contract which had induced the non-breaching party to enter the contract;

2.    Did the breach go to the substance of the contract and defeat the non-breaching party's purpose for making it;

3.    Did the breach affect a matter of vital importance going to the essence of the contract;

4.    Did the non-breaching party receive substantially less or different from that which he had bargained to receive?

Steps to proper termination.

The terms of the contract itself sometimes identifies the conditions under which a party may be found in material breach or default or conditions under which a party may terminate for convenience. Service of notice and proper completion of other procedural requirements necessary for termination under the contract terms must be followed exactly. Otherwise, the termination might not be authorized by the contract and therefore be a wrongful termination.

Although termination under general principles of contract law does not specifically require prior notice and an opportunity to cure, providing notice and opportunity to cure may prompt the defaulting party into curing the default and will place the non-breaching party in a more favourable light should the dispute end up in arbitration or litigation. And, cure of the breach or default is usually preferable to termination and the often accompanying legal action.

Wrongful termination.

In the event a party terminates the contract without having justification either under general principles of contract law or under the terms of the contract, such a termination is called a wrongful termination. A wrongful termination is a repudiation of the contract, and is therefore in itself a material breach of the contract.

Damages related to termination.

Damages available to the non-breaching party following its termination of the contract or in response to a wrongful termination by the other party include direct damages, consequential damages, and all other damages necessary to place the non-breaching party in the same position it would have been in should the contract have been completely performed by the parties. In the context of a contractor wrongfully terminating its contract with an owner, the owner would be entitled to recover from the contractor the costs of hiring a replacement contractor to finish the Work, costs associated with delay of completion of the project including lost profits from use of the completed project, any additional costs for completion due to the termination, and any additional costs related to administration of the project, including additional costs for project management.

On the other side, in response to an owner's wrongful termination of a construction contract, the contractor would be entitled to recover the cost of its work to the point of termination plus all overhead incurred, plus lost profits and overhead. In the event of an owners' wrongful termination of the contractor following substantial completion, the contractor would be entitled to recover the contract amount less the actual cost the contractor would have incurred in completing the balance of the project.

 

Conclusion

Contract termination is a drastic step and should be avoided, if possible. However, there are times when termination is appropriate, such as when the terms of the contract or the law allow for termination and it would also be the best way to mitigate damages. Under these circumstances, the contract should be terminated with caution and with good legal advice.