jnobia108 - Business Law
student.2020
2.Ch-2-B.Law-new-9d6b8cdade157f9bf44bee526bbaf514.pptContract Law
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Dr.K.Raghu Ram, SCT.
Chapter - 2
Learning Objectives:
Recognize and apply the appropriate legal rules applicable under the Contract Law, in order to establish legal liability
Identify grounds for breach of contract and appropriate remedies.
Dr.K.Raghu Ram, SCT.
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Contract law
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- Royal Decree No. 29/2013, Civil Code of Oman Article 66 – 171
- Most commercial transactions are based on contract. However, there is no definition of the word contract in business legislation of Oman. However the definition of contract can be understood from the judgments. The common and simple definition of the word contract is:
- An agreement enforceable by law
- “Contract is the concurrence of the volition of two persons to create an obligation or to transfer it”.
- In simple words, “A contract is an agreement based on mutual accord of two persons/parties to create an obligation or to transfer it”.
- Every Agreement and promise enforceable at law is a contract – Sir Fredrick Pollock
- A contract is an agreement creating and defining obligations between the parties – Salmond
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
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- The above said contract definition indicate that a contract is basically consist of two various distinct parts. (a) There must be a mutual agreement between the parties (b) An agreement should be enforceable by law.
- To be enforceable, the agreement entered in to the contract should be tied with an “Obligation”. Therefore, a contract is a combination of two elements
- An Agreement
- An Obligation
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Bilateral and Unilateral contracts
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- Bilateral Contracts: ‘Contracts in which both parties are legally bound to perform their side of the agreement (that is both exchange promises).
- Unilateral Contracts: ‘only one party is obliged to perform (that is, one party makes a promise in exchange for the performance by the other party of an act, but the other party does not promise to perform that act).
Eg: Sales offers.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Agreement
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- An agreement enforceable by law is also known as contract. All agreements are called as contracts if they are made by offer and acceptance(agreement), mutual accord, competent to contract for a lawful consideration with lawful objects are not hereby expressly declared as void contract. Moreover, the contract should be required to register in writing by law or the presence of witness of the parties.
Agreement + Enforceability = Contract
Valid Offer + Valid Acceptance+ Enforceability = Contract
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Essentials Elements of a valid Contract
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There must be meeting of minds between the buyer and seller with regard to the object of sale and the price (Ar.93- Commercial Law of Oman, Ar.66-Civil Code)
Willing to create Legal Relations: The parties must have intended to enter into a contract by creating a legally enforceable agreement. Absence of this willingness makes it a mere Social Agreement, but not a contract.
Offer: An Offer is a promise an offerer to be bound on particular terms and must be capable of acceptance, which may be oral or writing or it may be inferred from the conduct of the parties. But, there must be an intention to create legal relationship between the parties.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Essentials Elements of a valid Contract
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Offer:
For proposing an offer, it must be clearly addressed to one or more specific persons. The proposals made to the public are ordinarily intended to be nothing more than invitations to negotiate.
According to Civil Code, Article 94, the given information about the price or posted something for sale to the public is not an offer. Thus, an advertisement in a newspaper for the sale of goods is only an invitation to negotiate unless the contrary s clearly indicated (Civil Code, Article 73).
Offers and invitation to offers are different.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Essentials Elements of a valid Contract
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Acceptance: An acceptance completes the contracts. Therefore, a valid acceptance should be unconditional, absolute, as per offer, within the time mentioned in the contract or with in the reasonable time and from the offeree. In order to make it valid contract, the acceptance should come from the party with the knowledge of offer.
Valid Offer + Valid Acceptance+ Enforceability by Law = Contract
The following are some of the important aspects of acceptance:
May be in oral or in writing
May be expressed or implied
In case of particular method is prescribed, the offer must be accepted in the prescribed manner
Must be unqualified and absolute and must correspond with all terms and conditions of the offer
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
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Some of the important aspects of acceptance:
Conditional acceptance will lead to rejection of an offer
If any changes are made in the offer by Offeree is known as “Counter Offer”. (Civil Code, Article 78). Conditional acceptance is known as “Counter Offer”
Acceptance must be communicated to the offerer. Once the acceptance is given, it should be communicated.
Acceptance may occur by gesture like “Nodding the Head”. In some cases, the acceptance can even through “Silence”.
In case the offeree keeps quite for a valid offer, then it can be taken as “Mere Silent Acceptance”
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
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Some of the important aspects of acceptance:
Acceptance should be provided with in reasonable time and before the offer lapses or revoked. In case the offerer gave the offeree a specific period of time to accept the offer, the offerer must keep the offer open for that period of time (Civil Code, Article 77)
Inferred from the circumstances surrounding by the parties transaction. Under this case, one party simply begins the performance in accordance with the offer made, is called as “Voluntary Performance”. Then, it leads to Silent Acceptance
The offer and acceptance also considered on the basis of previous course of similar dealings between the parties.
The offer can be terminated or revoked before the acceptance, rejection and lapse of time.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
iv.Lawful Consideration
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- Consideration means something in return. Consideration is the price for which the buyer or seller promises the exchange the value of business transaction from one party to another.
- Moreover, consideration offers a sure legal relationship for binding the commercial contract.
- Consideration is given something valuable in eyes of law in favour of other party but not necessarily same value; it can be little less or more.
- Consideration can be past, present or future. It may be doing something or not doing something.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
v.Lawful object
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- The purpose (subject matter) or object should be acceptable by law. The object entering into an agreement should be lawful manner.
- In other words, the purpose for which the contract is entered into by both the parties should not be illegal, immoral and contrary to the public policy.
- Any agreement made by any of the above will be considered invalid and prohibited from the eyes of law.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
vi.Capacity to contract
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- Every party entering or competent to enter into a contract that is of the age of majority according to law, person of sound minded in nature and should not be disqualified by the court. Thus, the flaw in capacity of contract may be due to minority, idiocy, lunacy, drunkenness and person committed towards bankruptcy
Following persons cannot enter into contracts
- Minors : Contracts with or by minors is void-ab-initio (from the beginning)
- Persons of unsound mind : Idiots, Lunatics, Drunkards/intoxicated persons
- Person Disqualified by law : Alien enemy, Foreign Sovereign, Convict, Company, and Insolvent
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
vii.Free Consent or Mutual accord
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- Parties entering into a contract must do it with free and genuine consent.
- The consent of the parties are said to be free it is not caused due to:
- Coercion
- Undue Influence
- Fraud
- Misrepresentation
- Mistake
- If consent is obtained through first four, contract is voidable at the option of the aggrieved parties. But, the agreement due to mistake is material to the agreement and could be called as void.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
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- Agreement Performance Possibility (Certainty and possibility of performance): The mutual terms and agreement for entering into a contract should be of capable to perform the work. An agreement entered without knowing the act of impossibility cannot be enforced by the parties of the contract.
- Legality: The parties entering into a contract should legally bind themselves to the performance and outcomes of it.
- Certainty of Meaning: The agreement entered should be certain in nature and it should not be vague or indefinite. In case of indefinite, it may not possible to measure its meaning and enforced. In such a case, the agreement is not valid based on uncertainty.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Obligation
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The term obligation in law is applicable only in civil cases not in criminal cases. The business legislation of Oman does not have the definition for the word “Obligation”.
The common definition for the word obligation is known to be “An obligation is a bond or tie between two persons and conferring each mutual rights and duties which the law will give effect to”.
In the definition the words ‘give effect” means the law and legal system can be used to compel the parties to respect the rights, perform the duties or give compensation for not performing the duties.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Obligation
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Creation of Obligation: Obligations may be created by different ways. The two important obligations created by parties as voluntary act of volition and other arises by independent of volition of the parties.
Contractual Obligations: Obligations created by voluntary act of the parties themselves are the obligations under a contract.
Non-contractual Obligation: Non-contractual obligations are those which arise independently, without volition of the parties. Eg: Responsibility for any loss due to defective part.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
Obligation
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Non-Performance of Obligation: If the party under obligation does not perform his obligation is said to be breached. If the unperformed obligation is a contractual one, the debtor is said to be under a contractual liability or to be contractually liable; if the obligation is one which arises by independent of the volition of parties, the debtor is said to be under a non-contractual liability.
Non-performance of the obligation is known as: Breach of Contract
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Obligations’ in Sale of Goods
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- Obligations of Seller: A seller is required to (a) deliver the goods and (b) ensure that the goods confirm to the contract.
- Place and Time for Delivery: The place of delivering the goods should be properly mentioned in the contract. Similarly, the date of delivery should be fixed in the contract. In case of fixed dates are mentioned in the contract, delivery must be made upon the consideration of the contract unless the nature of the item or custom dictates (Civil Code, Article 114). In case the item sold is a seasonal item, it must be delivered before the end of such season.
On the other hand, it the seller fails to deliver the sold items on the specific date, the contract will be considered withdrawn without notice. However, the buyer may give the seller three extra days to perform the contract from the date of delivery (Civil Code, Article 115)
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Obligations’ in Sale of Goods
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- Conformity of Goods: The seller must deliver goods which are of the same quantity, quality and description as stated in the contract. According to Article 95 of Civil Code, the sold items must conform to the specimen.
- The goods must be contained or packaged in the manner required by the contract. However, no rescission of the contract is allowed for minor difference in the quantity or type. In the above issue, the price of the goods can be increased or decreased because of smaller or larger quantity (Civil Code, Article 116). Finally, the difference is serious and makes the goods not suitable for intended to enter into a contract, the contract can be withdrawn. Moreover, this would be the case only if there is no agreement or custom to indicate anything about the contract (Civil Code, Article 116)
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Obligations’ in Sale of Goods
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- The buyer has to examine the defected goods after the delivery and obliged to inform the seller immediately of any defects discovered.
- In case the buyer could not identify the defective goods at the time of inspection, then buyer may notify the seller about the defect later when the buyer discovered the issue (Civil Code, Article 118).
- If the buyer notified the issue to the seller after discovered, the buyer would lose his rights to recover the defective goods from vendor. In any case, the maximum time limit to bring a legal action for defective goods is within one year from the date of delivery. This applies if the parties agree for a longer period or seller conceals a defect with fraudulent intentions (Article 118)
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Obligations’ in Sale of Goods
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- Obligations of Buyer: A buyer is required to (a) pay the price and (b) take delivery of the goods
- Payment of Price: The buyer is obliged to pay the price at the time and place designated in the contract. In case of no details information, the buyer has to pay when the goods are delivered (Article 120).
- In case the parties have not agreed to a place for payment but have specified a place for the delivery of the goods then the payment must be made at the place (Civil Code, Article 119).
- The buyer has the right to pay the price before the due date and he may receive some deductions in the price for paying early according to agreement or customs (Civil Code, Article 124).
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Obligations’ in Sale of Goods
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- Taking Delivery: The buyer has to cooperate with the seller to take goods at the time of delivery. A buyer who fails to cooperate in this regard will be responsible for any resulting costs. In addition to that, one who fails to take delivery assumes the risk for any damages of the goods after the time. (Civil Code, Article 125).
- In case, the purchaser refuses to take delivery of the sold items, the vendor may deposit the items with a custodian and sell it by public auction after the expiry of the reasonable period of time about which he must notify the purchaser. In case the items sold are perishable, no such notice is required.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Conditions & Warranties’
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- The Contract is made up of ‘Terms’ which set out the rights and obligations of all parties involved. The parties may expressly agree terms, but other terms may be implied.
- ‘Terms that the parties have specifically negotiated’ are Known as ‘express terms’. They are included at the express wishes of the parties. They are the elements of the contract and are binding. If terms are broken there are legal consequences. In the event of: ‘Dispute’ The court is required to apply the terms of the contract.
- Terms of contract comes in different forms viz. Conditions & warranties.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Conditions & Warranties’
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- Conditions: A term which is essential to contract; breach of it would allow the other party to treat the contract as repudiated (cancelled). If the condition is breached, the party not in default entitled to repudiate the contract because the contract can be deemed to be VOID.
- A condition is a term or oral written which goes directly 'to the root of the contract, or is so essential to its very nature that if it is broken, the innocent party can treat the contract as discharged. That party will not therefore be bound to do anything further under that contract.
- Warranties: ‘Warranty’ – a less vital term of a contract (collateral to the main purpose), A breach of it would give rise to a claim for damages, not a right to discharge/reject the goods.
- If the warranty is breached, the party not in default is not entitled to repudiate the contract because it is not voidable.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
‘Conditions & Warranties’
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- Eg: A Pen…..writing instrument ( Parker Pen)
- Eg: A car………means of transport
Bettini v Gye
Bettini was an opera singer. He agreed to sing in London in a number of theatres beginning on 30 March. He also agree that he would arrive in London 6 days before the first performance in order to practice. Bettini then, became ill and did not arrive in London until 3 days before the first performance. The opera company refused to allow him to sing and said he had breached the contract.
However, the court said:
The part of the agreement about practicing was a Warranty and not a condition. That meant it was not a basic part of the contract.
Dr.K.Raghu Ram, SCT.
Dr.K.Raghu Ram, SCT.
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Dr.K.Raghu Ram, SCT.
Thank you
Dr.K.Raghu Ram, SCT.
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