Indian Contract Act Syllabus PDF

# CONTRACT I ## SYLLABUS ### UNIT - I: Basic nature of contract - Formation of contract - Offer, acceptance, revocation, lapse of offers and acceptance - Intention to create legal relationship-Terms of contract & standard form contracts. ### UNIT - II: Consideration - past, present, future considera...

# CONTRACT I ## SYLLABUS ### UNIT - I: Basic nature of contract - Formation of contract - Offer, acceptance, revocation, lapse of offers and acceptance - Intention to create legal relationship-Terms of contract & standard form contracts. ### UNIT - II: Consideration - past, present, future considerations - Privity as to consideration - Value & adequacy of consideration, Rule in Pinnel's case - Exceptions to consideration - Capacity to contract - Free consent Factors which vitiate free consent - Objects of a contract - Unlawful & illegal objects or considerations valid, voidable, void agreements. ### UNIT III: Performance of Contract - Privity of Contract - Tender of performance - Time as essence to performance- Law relating to time, place & order of performance - Performance of reciprocal promises, contingent contracts, joint promises - appropriation of payments. ### UNIT IV: Discharge of contracts - by - Impossibility of performance - Discharge by agreement-novation, recission, alteration - Discharge by breach - Waiver - Accord & satisfaction - Material alteration - Damages- types, measure. ### UNIT - V: Quasi contracts - Quantum Meruit - Specific Relief Act, 1963-recovery of possession-specific performance of contracts-rectification, cancellation of instruments-rescission-declaratory decrees-injunctions. ## Statutory Material: 1. Indian Contract Act, 1872 2. Specific Relief Act, 1963 ## Books Prescribed: 1. Dr. Avtar Singh - Law of Contract & Specific Relief. 2. Anson's Law of Contract. 3. Venkatesh Iyer - Indian Contract Law 4. M. Krishnan Nair - Indian Contract Law. ## Books for Reference 5. Cheshire & Fifoot - Law of Contracts. 6. Mulla-Indian Contract Act. 7. Sarkar - Specific Relief Act.. 8. Basu - Specific Relief Act. 9. Smith & Thomas - A Casebook on Contract. ## Elements: - Proposal (2(a)) - Acceptance [2(b)] - Free consent (14) - Mutual communication. - Consensus-ad-idem[13] - Competency of the parties (11) - Consideration(25] - Lawful subject matter (should be enforceable by law). [23] # LAW OF CONTRACT - I ## UNIT I The Indian Contract Act came into force on the first day of September 1872. The Act was molded on the basis of the principles of contracts established by courts of common law and equity. Before 1872 the law applied within the limits of the presidency towns of Calcutta, Bombay and Madras was the law of England with suitable modifications. In the mofussil the Courts were guided by the principles of justice, equity and good conscience. ## Nature of the contract Act The Indian Contract Act is not an exhaustive code containing the entire law of contracts. The Preamble says it is "to define and amend certain parts of law relating to contracts. The Act as it now stands contains the general principles of contract and contracts of indemnity, suretyship, bailments and agency. Many other Acts provide for various rules of law relating to other branches of contract. The Indian Sale of Goods Act, the Partnership Act, etc are examples. ## Application of English law When the Indian Contract Act is silent on a situation the courts in India have to be guided by the rules of the English Common Law applicable to contracts with sufficient modifications with regard to the Indian society and circumstances. ## Meaning of Contract The word contract is derived from the Latin word 'contractum' meaning drawn together. It therefore denotes drawing together of two or more minds to form a common intention giving rise to an agreement. ## Definition of contract - "An agreement enforceable by law is a contract" thus for the formation of contract there must be - Contract - Enforceability by law. - In other words, Contract = Agreement + Enforceability. ## Agreement: Section 2(e) defines agreement as "Every promise and every set of promises forming the consideration for each other" - In other words, Agreement = Promises ## Promise: Section 2(b) defines promise as; "A proposal when accepted becomes a promise. - In other words Promise = proposal + Acceptance. So the definition of contract can written by the following steps: 1. A contract is an agreement. 2. An agreement is a Promise. 3. A promise is an accepted proposal. Hence every agreement is the result of a proposal from one side and its acceptance by the other. ## When agreement becomes a contract After an agreement is formed it becomes a contract only when enforced by law. The conditions of enforceability are stated in section 10. ## Section 10 "All agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and not hereby expressly declared to be void. Hence, it can be said that every contract is an agreement but every agreement is not a contract. An agreement becomes a contract when the following conditions are satisfied: - Free consent of parties. - Competency of parties. - Lawful consideration. - Lawful object. - Not declared void by law. ## PROPOSAL OR OFFER The proposal or offer is the starting point for contract. Section 2(a) defines proposal as follows: "When one person signifies to another his willingness to or to abstain from doing anything with a view to obtain the assent of that other, he is said to make a proposal" So from the definition when one person says to another that he is willing to do or not to do certain thing with an expectation to get the permission of the other person to do or not to do the said thing he is said to make an offer. The Indian Contract Act uses the word proposal for offer. The person who makes the offer is called offeror and the person who accepts the offer is called offeree. ## OFFER MUST BE CERTAIN The offer or the proposal by the offeror must be definite and certain. By section 29 the agreements the meaning of which is not certain or capable of being made certain are void. So for the agreement to be certain the offer must be reasonably definite and there must be nothing except acceptance to complete it. For eg A agrees to sell to B "a hundred tons of oil". This is not a definite offer because there is nothing to indicate what kind of oil was intended by A. So this agreement is void for uncertainity. ## OFFER MAY BE EXPRESS OR IMPLIED An offer may be expressly stated by the party or it may be implied from the conduct of the parties. Section 9 states about express or implied promises. In so far as the proposal or acceptance of any promise is made in words the promise is said to be express. If it is made otherwise than in words it is said to be implied. For eg.: When a person buys something in a shop he asks the shopkeeper for the thing which he wants, this is express offer. When a person gets into the bus for travelling from one place to another he undertakes to pay for the ticket even though he does not make an express promise. Getting into the bus is itself an implied offer. ## KINDS OF OFFER There are two kinds of offer namely specific and general offer. An offer is said to be specific when it is addressed to a definite individual or group of individuals. It is general when it is made to a uncertained individual. Such an offer can be accepted by an ascertained individual. For eg. A announces a reward of Rs. 1000 for finding his lost purse. Here A does not say to whom he will give the reward. Whoever finds it will be given the reward. This is general offer. The offeror does not prescribe the particular person to whom he is making the offer. It is for the world at large. The leading case on general offer is Carlil v. Carbolic Smoke Ball co. The defendants of this case advertised that they would pay £100 to anyone who got severe cold after using their smoke ball thrice daily for two weeks. They stated that £1000 was deposited in a bank to show their sincierity. Mrs. Carlil relying on the advertisement used the smoke ball for the said period but even after that she caught cold and so she filed a suit for the £100. The co argued that it was only an advertisement and there was no true offer. They also said that a notification of the acceptance by Mrs. Carlil was not made to the co. so they were not liable. But the court held that an offer can be made to an ascertained person also and it is called general offer. This is a case of general offer and the deposit in the bank showed that it was not a mere advertisement. In the case of notification the performance of the conditions in the acceptance of the offer and so the co has made an offer and Mrs. Carlil has accepted it and the co was held liable. ## OFFER AND INVITATION TO OFFER (OR TREAT) Every expression of willingness to enter into a contract may not amount to an offer in the legal sense. If for eg. A company is making an advertisement that it has certain books to sell there is no offer to be bound. The co is actually inviting the public to make an offer. When any of the public goes and asks for the book only there is an offer. So the advertisement by the co is an invitation to offer. An invitation to offer is an attempt to induce offers and it is the starting stage of an offer. By accepting an invitation to offer an offer results. But by accepting an offer an agreement results. This is the major distinction between an offer and invitation to offer. There are some circumstances which are only invitation to offer and not offer. They are as follows: - QUOTATION OF PRICES: In a sale contract where parties quote prices it is only invitation to offer and not offer. An important case with regard to this is HARVEY V. FACEY. Here Harvey sent a telegram to Facey "will you sell us Bumper Hall Pen? Telegraph lowest price" Facey replied "Lowest price for Bumper Hall Pen is £900". Harvey again telegraphed "I agree to buy Bumper Hall Pen for the sum of £900 asked by you". But Facey did not reply. Harvey filed a suit for specific performance. The court held that a suit for specific performance can succeed only if there is a concluded contract. But here Harvey's second telegram that he is ready to buy for £900 was not at all replied by Facey. So Facey's telegram is only an invitation to offer quoting the price and there is concluded contract between the parties. This decision was followed by the Indian Supreme Court in Mcpherson v. Appanna and the court held that quotation of prices is only invitation to offer and not offer. - CALLING FOR TENDER When a circular is sent calling for tender it is only an invitation to ffer and not offer. When a person makes the highest bid he is making an offer. In SPENCER V. HARDING the defendant sent out a circular calling for tender from intending purchasers of certain stock in trade. The plaintiff's tender was the highest. But the defendant failed to sell the stock to him. It was held that the circular was only an invitation to offer and that the tender was the real offer. There was thus no concluded contract in this case. - TENDER AS A STANDING OFFER A tender undertaking to supply goods as and when required along a particular period is a standing offer. It is usually a continuing office to supply goods upto a specified limit or within a stipulated period of time. It is made to an ascertained person. In its acceptance no contract arises immediately. A contract results only if and when a specific requisition is made for a definite quantity of goods. Each requisition is treated as a separate act of acceptance. The tender in such case may ay be revoked at any time before any particular requisition is made by the person to whom the tender is made. GREAT NORTHERN RAILWAY CO V. WITHAM is an example case. - PUBLISHED RAILWAY GUIDES; The railways publish guides or timetables. This is only an invitation to offer. When a person makes his intention to purchase a ticket he is said to make an offer. It is because of this reason that eventhough the timetables say that a particular train runs from one place to another the railway refuses ticket when we make an offer. By issuing time table there is no implied promise that they will issue ticket. There is no offer and there is no contract. - PRICE CATALOUGE A price catalogue which states the lst of goods and its prices is only an invitation to offer. - SELF SERVICE SHOPS There is another example for invitation to offer. When goods are displayed their price tags attached to it is an invitation to offer. When a person selects an article and tries to pay at the counter he is making an offer. The contract is concluded only when the price is accepted by the shop keeper. ## ACCEPTANCE **MEANING**: acceptance means in general the expression of assent to the proposal by the person to whom the proposal s made. Or it is the final expression of assent to the terms of an offer. A contract is formed when the offerree has done something to signify his intention to accept the offer. ## ESSENTIALS FOR A VALID ACCEPTANCE - To constitute a valid acceptance the assent must be communicated to the offeror. It is not sufficient that the offeree has made up his mind to accept. It must be communicated. N Brogden v. Metropolitan Railway Co the plantiff simply wrote approved on the offer and kept it in the drawer of his table. In a suit on this it was held that as the approval or acceptance was not communicated there was no contract. ## Silence & acceptence - Acceptance may be express or implied. Acceptance may be by express conduct or may be implied from circumstances. But an offeror cannot impose contractual liability merely by proclaiming that silence shall be deemed to be consent. In Felthouse v. Bindley the plaintiff wrote to his nephew on 2nd January offering to buy his horse for £30 adding, "if I hear no more about him, I consider the horse mine at that price." No answer was made to this letter. But the nephew told the defendant the auctioneer to whom the horse was entrusted for sale not to sell the horse. The defendant inadvertently sold it to another person. The plaintiff sued the defendant for conversion alleging that the horse was already his. It was held that the offer remained open and that nothing was done to communicate the intention to accept the offer and therefore there was no binding contract. ## Conditional acceptance: - A conditional acceptance is no acceptance at all. Acceptance must be an absolute and unqualified one of all the terms of the offer. Where an acceptance of an offer is made conditional on the execution of a formal contract there is no binding agreement until such formal contract has been drawn up and signed. By section 7 of the Contract Act in order to convert a proposal into a promise the acceptance must be absolute and unconditional. In other words the offeree must assent unreservedly to the exact terms of the proposal. If any term is refused or varied or added by the offeree his purported acceptance merely operates as a counter offer. Then it cannot be said that there is an agreement between the parties. example case Hyde v. Wrench. ## Manner of acceptance: - if the offeror prescribes a particular method or type of acceptance it shall be effected in that manner. By section 7 the acceptance must be prescribed in some usual and reasonable manner unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes the manner in which it is to be accepted and the acceptance is not made in such manner the proposal may insist that his proposal should be accepted in the prescribed manner and not otherwise. This must be done within a reasonable time after the acceptance is communicated to him. If he fails to do so it will have the effect of waving the necessity of accepting in the prescribed manner and there would be a binding contract. ## COMMUNICATON OF ACCEPTANCE - Acceptance is not complete unless and until it is communicated to the offeror. By the Contract Act the communication can be effected by doing any act having the effect of communicating it. By section 8 performance of the conditions of a proposal or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal is an acceptance of the proposal. ## ACCEPTANCE THROUGH THE POST - When the contracting parties are face to face it is easy to fix the exact time at which the contract is complete. If they are at a distance from each other difficulties might arise. In such cases the communication will have to be effected through messenger or through the post or such other means of correspondence. Here English Law has recognized one extremely important exception to the requirement that the acceptance must actually reach the offeror. In the case of communication of acceptance by post, the contract is complete as soon as the acceptance is posted. In the case of Adams v. Lindsell the defendant on 2.9. 1817 offered to sell a quantity of wool at a certain price and required the answer in course of post. The letter reached the plaintiff on the 5th. The same day he posted the acceptance which reached the defendant on the 9th. The defendant not having received an answer by the 7th as lie expected in the normal course sold the wool on the 8th to another person. The plantiff sued for damages for breach of contract. The precise question was regarding the time at which the letter of acceptance would become effective. It was held that the letter of acceptance when posted concluded the contract. The posting of the letter has the same effect as if it has been personally handed over to the offeror through the agent, the post office. Other examples in this subject are, Dunlop v. Higgins, Household Fire Insurance co v. Grant, Entores v. Miles Far East Corporation (Telex). ## INDIAN POSITION Under Indian Law the position is different. Posting of letter of acceptance completes the acceptance only against the proposer. The accept or can revoke the acceptance, for instance by sending the telegram. The justification is that the offeror would not be prejudiced by the revocation of the acceptance for he could not know of the acceptance until the communication of it reaches him subsequently. Under English Law the letter of acceptance once posted completes the transaction and there arises a binding obligation. ## TERMINATON OF OFFER An acceptance is to be effected when the offer is still kept alive. In this connection Anson points out: "Acceptance is to an offer what a lighted match stick is to a train of gun powder." So an offer may lapse for want of acceptance or be revoked before acceptance. Also the offeree may decide to reject the offer. Until an offer is accepted it creates no legal rights, and it may be terminated at any time. The different circumstances in which an offer will be terminated are discussed below: - LAPSE (PASSING OF TIME): If a particular time is fixed for accepting the offer the acceptance must be effected within that time. After the expiry of the time so fixed the offer will lapse. The time may be fixed expressly or impliedly. F no time is fixed the offer will remain open for a reasonable time and then lapse. Eg. Ramsgate Victoria Hotel Co. v. Montifiore. - DEATH OR INSANITY: A contract depends upon the consensus ad idem of the parties. If the offeror dies before acceptance any subsequent acceptance will be ineffective. Similarly after an offeree's death without accepting the offer the heirs or legal representatives cannot accept for hm. By section 6(4) of the contract Act a proposal is revoked by the death or insanity of the proposor if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. - REJECTION: If the offer is rejected by the offeree there is no more the possibility of any acceptance. Rejection may be direct or indirect. When the acceptance is not in the prescribed manner or when the offeree has not fulfilled the conditions precedent to the acceptance, the offer will be terminated. So also the offeree would defeat the very existence of the offer by making a counter offer. - REVOCATION: An offer may be revoked by the offeror at any time before acceptance. An offer is made irrecovable by acceptance. By section 5 a proposal may be revoked at any time before the communication of its acceptance s complete against the proposer, but not afterwards. The revcaton in order to be effective must be communicated to the other party. A revocation by post is not communicated until it is actually received. - FAILURE TO FULFILL A CONDITION: An offer may be conditional. If the condition is not satisfied the offer will not be capable of acceptance. The condition may be express or implied. Under section 6(3) of the Contract Act "A proposal is revoked by the failure of the acceptor to fulfill a condition precedent to acceptance. ## REVOCATION OF ACCEPTANCE In English Law an acceptance once complete cannot be revoked. Acceptance is necessarily irrevocable for it is acceptance that binds both the parties. Therefore when the acceptance is effected properly the offer ceases to be an offer and it becomes an enforceable contract. ## STATUTORY RULES IN INDIA In the Contract Act specific and detailed provisions are made regarding the communication of offer, acceptance and revocation of proposal and acceptance. The rules are contained in sections 4 and 5. As far as the revocation is concerned the communication would be complete against the person who makes it, when it is put into a course of transmission to the person to whom it is made so as to be out of the power of the person who makes it. The revocation will be complete as against the person to whom it is made when it comes to his knowledge. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. ## INTENTION TO CREATE LEGAL OBLIGATION The Indian Contract Act does not spell out that an offer or its acceptance should be made with the intention to create legal relations or legal obligations. Section 10 which prescribes the essentials for a valid contract does not provide for such an essential. But in English Law it is a settled principle that to create a contract there must be a common intention of the parties to enter into a legal obligation. In other words even if the parties may come to an agreement they may not have any serious effect of making it into a contract. A clear illustration of this principle is given in Balfour v. Balfour. In this case the defendant and his wife were enjoying leave in England. When they wanted to return home his wife due to ill health could not accompany him. The defendant agreed to send her a certain amount for her expenses. But after some time they separated each other owing to some differences between them and the allowance fell into arrears. The wife filed a suit to recover the arrears. The suit was dismissed for the reason that it was a mere arrangement between the husband and wife and they did not have any intention to create legal obligation. ## DISCRETION OF THE COURT The intention of parties is to be ascertained from the terms of the agreement and the surrounding circumstances. It is for the court in each case to find out whether the parties had intended to enter into legal obligations. So the intention of the parties depends upon the facts and circumstances of each case and it is the discretion of the court to decide whether the parties intended to create legal obligation or not. ## FAMILY AND SOCIAL MATTERS If the parties had in their minds to create legal obligation then even family and social matters also would get a binding effect. In Mcgregor v. Mcgregor an agreement between a husband and wife was held to be binding contract. here a husband and wife withdraw their complaint under an agreement by which the husband promised to pay her an allowance and in turn she had to reaffirm from pledging his credit. This agreement was held to be a binding contract. The principle applies to dealings between other relations such as father and son and daughter and mother. ## TEST OF CONTRACTUAL INTENTION The test of contractual intention is objective not subjective. What matters is not the parties had in mind but what a reasonable person would think in the circumstances their intention to be. ## INDIAN SUPREME COURT'S VIEW ON INTENTION It is still an open question whether the requirement of intention to contract is applicable under the Indian Contract Act in the way in which it has been developed in England. A limited recognition of the applicability of this principle in India could be found in the decision of Banwari Lal v. Suhdarshan Dayal. In an auction sale of plots of land a loudspeaker was spelling out the terms, etc. of the sale. One of the statements was that a plot of certain lenghth and breadth could be reserved for Dharmashalas. But later n that particular plot also was sold for private purposes. The buyers wanted to restrain this. The court held that the announcement through loudspeaker was only for the purpose of advertising and it cannot be treated as intention to create a contract or intention to create legal obligation. ## The Standard Form Contracts are standardized contracts that contain a large number of terms and conditions in fine print which restrict and often exclude liability under the contract. This gives a unique opportunity to the giant company to exploit the weakness of the individual by imposing upon him terms which often look like a kind of private legislation and which may go to the extent of exempting the company from all liability under the contract. The battle against abuse has fallen to the courts. The courts have found it very difficult to come to the rescue of the weaker party. The courts have evolved and applied certain rules to protect the interest of the consumer, customer or passenger, as the case may be upon whom standard form contracts or exemption clauses are imposed, like reasonable notice should be given, notice should be given, notice should be contemporaneous with contract, theory of fundamental breach, contra proferentem interpretation of the contract, liability in tort, exemption clauses and third parties etc. These modes, along with other Acts help the courts in dealing with the problem of Standard Form Contract. ## DEVICES In the Contract of Adhesion, the individual has no choice "but to accept"; he doesn't negotiate, but merely adheres to the contract. Therefore individual deserves to be protected against the possibility of exploitation inherent in such contracts. Some of the modes of protection which has been developed by the courts are as follows; ## REASONABLE NOTICE It is the duty of the person who is delivering a document to give adequate notice to the offeree of the printed terms and conditions. Where it is not done, the acceptor will not be bound by the terms. In Henderson v. Stevenson, the plaintiff bought a steamer ticket on the face of which was these words only: “Dublin to Whitehaven"; on the back were printed certain conditions one of which excluded the liability of the company for loss, injury or delay to the passenger or his luggage. The plaintiff did not see the back of the ticket, nor was there any indication on the face about the conditions on the back. The plaintiff's luggage was lost in the shipwreck caused by the fault of the company's servants. This was laid down by the House of Lords that the plaintiff is entitled to recover the loss which he suffered from the company in spite of the exemption clauses. In Parker v. South Eastern Rail Co, the plaintiff deposited his bag at the cloakroom at a railway station and received a ticket. On the face of the ticket it was printed: "See back"; and on the back there was a notice "the company will not be responsible for any package exceeding the value of 10". A notice to the same effect was also hung up in the cloakroom. The plaintiff's bag was lost and he claimed the full value of his bag which was more than 10. The company relied upon the exemption clause. The plaintiff contended that although he knew there was some writing on the ticket, he did not see what it was as he thought that the ticket was a mere receipt of the moneyhepaid. In M/s Prakash Road Lines (P) Ltd v. HMT Bearing Ltd, it has been held that the carrier is bound to deliver the goods consigned at the appointed destination or else he will be liable to pay compensation for the same. Merely printing on the lorry receipt that the goods are transported at the owner's risk will not absolve the transporter from his duty unless it is proved that such terms were brought to the notice of the plaintiff. Mere printing on the lorry receipt cannot be deemed to be the term of contract unless the plaintiff's knowledge and the consent about the same. ## NOTICE SHOULD BE CONTEMPORANEOUS WITH THE CONTRACT. If a party to the contract wants to have exemption from liability he must give notice about the exemption while the contract is being entered into and not thereafter. If the contract has been entered into without any exemption clause then subsequent notice regarding the exemption from liability will be in effective. In Olley v. Marlborough Court Ltd., plaintiff and her husband hired a room in the defendant's hotel for one week's boarding and lodging in advance. When they went to occupy the room they found a notice displayed there stating "proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the management for safe custody." Due to the negligence on the part of the hotel staff, plaintiff's property was stolen from the room. In an action against the defendant to recover the compensation for the loss, they sought exemption from liability on the basis of the notice displayed in the room. It was held that notice in the room was not forming the part of contract and therefore the defendants were liable to pay compensation. ## FUNDAMENTAL BREACH OF CONTRACT Another device which has been adopted to protect the interest of the weaker of the parties to the contract when they have an unequal bargaining position is to see that enforcing the terms of contract does not result in the fundamental breach of contract. In a standard form of contract it is likely that the party having a stronger bargaining power may insert such exemption clause in the contract that his duty to perform the main contractual obligation is thereby negative. In Alexander v. Railway Executive, the plaintiff deposited his luggage in defendant's cloak-room and in return received a ticket. A term printed on the ticket exempted the defendant from liability for loss or misdelivery of luggage. Plaintiff's luggage was delivered to an unauthorized person without the production of the ticket. It was held that non-delivery of luggage to the plaintiff amounted to fundamental breach of contract for which the defendant was liable. In Shivraj Vasant Bhagwat v. Shevanta D Indulkar, overloading an insured vehicle was a mere irregularity and not a fundamental breach so as to enable the insurer to get rid of his liability. ## LIABILITY IN TORT Even where an exemption clause is exhaustive enough to exclude all kinds of liability under the contract, it may not exclude the liability of tort. In White v. John Warwick & Co Ltd, plaintiff hired a cycle from the defendant. The defendant agreed to maintain the cycle in working condition and a clause in the agreement provided: "nothing in this agreement shall render the owners liable for any personal injuries..." while plaintiff was riding the cycle saddle titled forward and he was thrown and injured. It was held that although the clause exempted the defendants from their liability of contract, it did not exempt from liability in negligence. ## UNREASONABLE TERMS Another mode of protection is to exclude unreasonable terms from the contract. A term is unreasonable if it would defeat the very purpose of the contract or if it is repugnant to the public policy. In M Siddalingappa v. T Nataraj where a condition that only eight per cent of the cost of garment would be payable in case of loss was held to be unreasonable. In RS Deebo v. MV Hindlekar, laundry receipt contained printed condition restricting liability for loss or damage to 20 times laundry charges or half the value of the garment, whichever was less. The condition was held to be unreasonable. ## LIABILITY TOWARDS THIRD PARTY On the basis of the principles of law of contract, a contract is a contract only between the parties to it and no third party can either enjoy any rights or suffer any liability under it12. In Morris v. CW Martin & Sons, the plaintiff gave her fur garment to a furrier for cleaning. Since the furrier himself could not do the job, he gave this garment to the defendant for cleaning, with the consent of the plaintiff. The defendant's servant stole the garment, for which the plaintiff bought an action against them. The defendant sought exemption from the liability on the basis of agreement between the plaintiff and furrier. The defendants were not allowed exemption and they were held liable. ## ENGLISH & INDIAN VIEW In England, Unfair Contract Terms Act, 1977 severely limits the rights of the contracting parties to exclude or limit their liability through exemption clauses in their agreements. Liability for death or personal injury cannot be excluded or restricted through a term in the contract or notice. Moreover the manufacturer or the distributer cannot exclude their liability arising out of defective goods or for their negligence, as regards goods supplied for private use or consumption. Unlike England, there is no specific legislation in India concerning the question of exclusion of contractual liability. There is a possibility of striking down unconscionable bargains either under section 16 of the Indian Contract Act on the ground of undue influence or under section 23 of that Act, as being opposed to public policy. In Central Inland Water Transport Corp. Ltd v. Brojo Nath, the Supreme Court struck down a clause in service agreement whereby the service of a permanent employee could be terminated by giving him a 3 months' notice or 3 months' salary. It was held that such clause was unreasonable and against public policy and void under section 23 of Indian Contract Act. The Law Commission of India in its 103rd report (May, 1984), on Unfair Terms in Contract, has recommended the insertion of a new chapter IV- A consisting of section 67-A of Indian Contract Act. According to this recommendation where the court on the terms of contract or evidence adduced by the parties, comes to the conclusion that contract or any part that it holds to be unconscionable. A contract according to this provision is considered to be unconscionable if it exempts any party there to from either the liability for willful breach of contract, or consequence of negligence. ## TERMS OF CONTRACT Terms of contract set out duties of each party under that agreement. The terms will be of two kinds: - Express terms: these are laid down by the parties themselves; - Implied terms: these are read into the contract by the court on the basis of the nature of the agreement and the parties' apparent intentions, or on the basis of law on certain types of contract. Terms are to be distinguished from statements made prior to the contract being made. Two main types of statement: - A representation about a state of affairs, or - A promise that something will or will not occur in the future. • Either type of statement can become a term of the contract, whether or not they are oral or written, or partly oral and partly written. Three types of contractual terms, each of which has normative importance relative to the others: - Conditions - Warranties - Innominate terms ## CONDITIONS These are the most important terms of contract. Serious consequences if breeched. Innocent party can treat contract as repudiated (and thus is freed from rendering further performance of contract) and can sue for damages. - Description in contract of term as "condition" is not necessarily determinative of question whether term is condition. Courts tend to search for evidence that parties really intended term to be such. e.g. Schuler AG v. Wickman Machine Tool Sales Ltd. (1974). - Statute may determine that certain terms are to be treated as conditions. E.g. Sale of Goods Act 1979 provides that certain terms relating to title to goods and quality of goods are not just to be implied into consumer contracts but also to be conditions. - Case law also determines that certain terms - typically standard terms in commercial contracts - are to be treated as such. See, e.g. The Mihalis Angelos (1970) ## WARRANTIES - Of lesser importance than conditions, and can be breached without such serious consequences. Innocent party can sue for damages but is not able to terminate the contract. ## INNOMINATE TERMS Can be either conditions or warranties. Breach of them can be serious or trivial depending on particular fact situation. If effects serious, they are conditions and vice versa. -Notion of such terms first emerged in Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Ltd. -Introduction or recognition of this category of terms has given more flexibility to law, but also created more potential for uncertainty. Hence, courts have subsequently been inclined to hold that certain terms will usually be conditions to give commercial actors in a particular market certainty. Hence (as seen above) term in shipping contract stipulating that the ship will be ready within certain number of days will often be held as condition, breach of which enables discharge of contract even in cases when there is only slight delay with trivial or no harm. See The Mihalis Angelos case. See, too, follow-up cases such as Bunge Corp. V. Tradax Export SA (1981) and The Naxos(1990). # UNIT II ## CONSIDERATION Section 10 of the Indian Contract Act requires lawful consideration as an essential factor for giving enforceability to an agreement. By section 25, an agreement made without consideration is void. Sections 23 and 24 deals with the circumstances in which the consideration will be treated unlawful. Section 2(d) defines consideration. Even though in some details the Indian law differs from the English law, in general it follows the English principles. ## DEFINITION OF CONSDERATION Even though the concept of consideration as an essential requirement of a valid contract can be described in terms of quid pro quo or as the price for promise, there is no single definition in English law which is universally followed. In Curie v. Misa it was defined as: "A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsillity, given, suffered or undertaken by the other." In Thomas v. Thomas t was defined as: "Consideration means something which is of some value in the eye of the law, moving from the plaintiff: it may be some detriment to the plaintiff or some benefit to the defendant." Section 2(d) Indian Contract Act defines as: "When at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstained from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise." ## Essentials In accordance with Section