Liability of joint promisee under the Contract Law

Section 43 of the Indian Contract Act, 1872 deals with joint promise. By virtue of said section, when two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise.

For Example:

Adam, Bracken and Clarke jointly promise to pay Dhoni 3,000 USD. Dhoni may compel either Adam or Bracken or Clarke to pay him 3,000 USD.

It was held in Hazara Singh v. Narinjan Singh, (AIR 1929 Lah 783) that Section 43 applies only where two or more persons have made a joint promise have become jointly interested by inheritance in a contract made by a single person.

Similarly, each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.

For Example:

Adam, Bracken and Clarke jointly promise to pay Dhoni the sum of 3,000 USD. Clarke is compelled to pay the whole. Adam is insolvent, but his assets are sufficient to pay one-half of his debts. Clarke is entitled to receive 500 USD from Adam’s estate, and 1,250 USD from Bracken.

Further, if any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.

For Example:

Adam, Bracken and Clarke are under a joint promise to pay Dhoni 3,000 USD. Clarke is unable to pay anything, and Adam is compelled to pay the whole. Adam is entitled to receive 1,500 USD from Bracken.

However, nothing in Section 43 of the Indian Contract Act shall prevent a surety from recovering, from his principal, payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety on account of payment made by the principal.

For Example:

Adam, Bracken and Clarke are under a joint promise to pay Dhoni 3,000 USD. Adam and Bracken being only sureties for Clarke. Clarke fails to pay. Adam and Bracken are compelled to pay the whole sum. They are entitled to recover it from Clarke.

Re, to Shaik Shahed v. Krishna Mohan (AIR1917 Cal 829) where it was held that Section 43 of the Contract Act can have no application where parties became jointly interested by operation of law in a contract made by a single person. It was in that case held that if the landlord brings a suit for recovery of rent without impleading all the tenants who are necessary parties, the suit is not maintainable.

Calcutta High Court in Kailash Chandra v. Brojendra & Ors., (AIR 1925 Cal 1056) observed that, Section 43 of the Contract Act will be applicable to the case of the co-heirs of the deceased is based on misapprehension of the scope of Section 43 of the Contract Act. It is quite apparent that the liability of a son for the debt incurred by the father is limited only to the extent of the share of the property inherited by him. Now one of the essential conditions for the applicability of Section 43 of the Contract Act is that it is open to a creditor to sue any one or all debtors whose liability is joint and several for the recovery of the whole of the amount.

In Lukmidas Khimji v. Purshotan Haridas (1882) I.L.R. 6 Bom. 700, Mr. Justice Latham expressly held that Section 43 of the Contract Act materially altered the rules of the English common law, and disallowed an objection by a partner defendant that the other partners should have been joined as defendants; and yet, while thus clearly recognizing that by reason of Section 43 a joint debtor has no right to have his co-contractors joined as defendants, the learned Judge nevertheless held that the rule in Kendall v. Hamilton (1879) L.R. 4 A.C. 504, would bar a fresh suit against the other partners.

In Motilal Bechardas v. Ghellabhai Hariram (1892) I.L.R. 17 Bom. 6 Mr. Justice Farran held in reference to Section 43 that "as far as the liability under a contract is concerned, it appears to make all joint contracts joint and several." If that is a correct view of Section 43, the doctrine of King v. Hoare, (1844) 13 M. and W., 494, is admittedly not applicable.

In Narayana Chetti v. Lakshmana Chetti (1897) I.L.R. 21 Mad. 256, the Court, following Lakmidas Khimji v. Purshotam Haridas (1882) I.L.R. 6 Bom. 700, held that "it is not incumbent on a person dealing with partners to make them all defendants: he is at liberty to sue any one partner as he may choose." The Court expressly applied to partners not only Section 43 of the Contract Act, but Section 29 of the Code of Civil Procedure, which relates not to joint but to several and to joint and several liability.

In Rahmubhoy Hubibbhoy v. Turner (1890) I.L.R. 14 Bom. 408, Scott, J., in the first Court said that "Section 43 of the Contract Act IX of 1872 is not perhaps quite clear whether a complete adoption of the English rule is intended."

Essential elements of an Agreement

Now a days it is very common that, we all enter into one or more agreements or execute various contracts. However, it is always confusing for most of us that, while writing a contract, what all should be discussed in the same. In other words, how to draft an agreement?

There are various kinds of agreements such as Sale Agreement, Rental Agreement, Employment contract, Memorandum of Understanding (MoU), Non-Disclosure Agreement, Hire-Purchase Agreement, Technology Transfer Agreement, Service Agreement, Transport Agreement, Click-Wrap Agreements, Standard form of Contract etc.

Before dealing with How to draft an agreement, let’s try to understand the essential elements of an agreement OR what all points to be covered in an agreement?

Agreement Title

Title of the Agreement must be specifically mentioned at the very beginning of an Agreement, to understand what the agreement is all about?

For Eg. Sale Agreement, Rental Agreement etc.

Date of the Agreement

It is always recommended to mention the date of execution of the agreement. The same is important because, it will help a person to calculate the tenure of the agreement.

For Eg.

This Agreement is entered on this February 27, 2017 by and between;

This Memorandum of Understanding (hereinafter referred as “MoU”) is entered on this February 27, 2017 by and between;

Unique Identification Number

It is always recommended to provide a Unique Identification Number to each and every agreement we enter into.

Identification of Parties

Identifying Parties along with correct and accurate postal address is an essential element of a contract.

For Eg. M/s ABC Corporation Inc. a company incorporated under the laws of United States of America having its registered office at _______________ (hereinafter referred as “ABC”, which the term shall unless otherwise include all its successors, and permitted assigns) on the FIRST PART 

and

M/s XYZ Corporation Inc. a company incorporated under the laws of United States of America having its registered office at _______________ (hereinafter referred as “XYZ”, which the term shall unless otherwise include all its successors, and permitted assigns) on the SECOND PART

Recitals

Recital is something like an introduction about the parties to the agreement. Recitals generally gives a brief info about the parties.

Body of the Agreement

The main part of an agreement is its body. This part generally deals with Scope/Purpose, Material Description, Pricing & Payment Terms, Deliverables, Shipping/Logistics, Insurance/Risk of Lose, Guarantee/Warrantee, Reimbursement, Assignment etc.

Tenure of the Agreement: This section deals with the duration of the agreement.

Entire Agreement: Generally deals with the concept of whole document, that irrespective of whole documents, the contract shall be treated as a whole.

Waiver: Deals with the waiver of rights by either party to an agreement and effect of such waiver.

Termination: Deals with how can one agreement terminated? To whom the notice of termination to be sent? How many days’ notice to be given?

Effect of Termination: Deals with the obligations of the party during the notice period as well as after termination.

Jurisdiction/Compliance with Laws: Deals with the applicable laws governing the terms and conditions of the Agreement.

Dispute Resolution Mechanism/Arbitration Clause: Basically deals with the Arbitration clause, where the parties refers the dispute arising out of specific agreement to the Arbitrator either appointed by mutual consent or through an institution.

Confidentiality/Non-Disclosure: Deals with the confidentiality of the agreement or the obligation on the part of the parties to the contract to keep the secrecy.

Force Majeure: Deals with the Roles and responsibilities of the parties in case of act of god.

Authorized Signatory Details: Must have part of an agreement where the name and designation of the parties executing the agreement/contract to be mentioned before executing the same.

Witnesses: Minimum of two witnesses to be signed specifying the name and address.

Page Number & Numbering of Paragraphs: It is recommended to number all the pages as well as paragraphs of the contract.

Essential elements of an offer or proposal

As it is known under the English Law, formation of a contract is initiated, as and when an offer or proposal is made.While going through the definition of the term offer OR proposal, it could be read that, following are the essential elements of an offer or a proposal;

Intention to create legal relationship:Free volition or intention to create a legal relationship is an essential element in the formation of a contract. Without such an intention, no binding obligations can come into being. In other words, we can say that, an offer must be capable of creating legal relations.

Formation of a contract is initiated as and when a proposal is made. All such proposals must be certain, define and not vague. Thus it is very clear that, no contract will be formed, if the terms and conditions of the offer is vague, and uncertain.

Communication of the offer: In order to constitute a valid contract, there shall be a valid offer and such an offer shall be properly communicated to the other party, from whom the promisor seeking any favour. By virtue of Section 4 of the Indian Contract Act, 1872 the communication of an offer is completed, as and when it comes to the knowledge of the person to whom it is made.

An offer must be made with an intention of obtaining the assent of the other party to whom the offer is made. Though an offer may be conditional, the same has to be accepted subjected to the said conditions, only then such an acceptance will constitute a valid contract.

However, it may be noted that, an invitation to offer or an invitation to treat is not an offer. For e.g. Notice for tenders, Notice inviting to participate in an auction etc.

What is an Offer or proposal under the Contract Law?

As it is known under the English Law, formation of a contract is initiated with a proposal or offer. The term proposal in Indian Contract law is defined under Section 2(a) of the Indian Contract Act, 1872.

When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal.

The essential aspect of an offer is that, it must be made with a view to obtain the assent of the person to whom it is made. But in many cases it is difficult to understand, whether the actual offer is made or it was just an invitation to offer.

In this regard, it is essential to differentiate an Offer and invitation to treat OR a proposal and invitation to proposal.

Offer and invitation to treat

This may be explained with the help of an example;

You have come across a brochure of a law book seller where it provides the details of books including the author’s name, book title, publisher name and price of each title. In that, brochure, you have noticed a book titled; Arbitration, Conciliation and Mediation authored by Mr. Vishnu S Warrier and published by LexisNexis India.

Cost of said book is quoted as Rs. 395.00/- Only.You are very much concern about purchasing said book. You cannot just go to said shop, which issued the brochure and demand the book for Rs. 395/-. The seller may refuse to sell the book to you.

You cannot hold him responsible for the breach of contract because, the brochures or the catalogue issued by the book seller are merely an invitation to offer.But, when you have gone to the shop and made an offer to purchase the book titled Arbitration, Conciliation and Mediation authored by Mr. Vishnu S Warrier, it is the actual offer.

Said offer may either accept or reject by the book seller. However, once the book seller accepts your offer, he is bound to give you a copy of the book titled Arbitration, Conciliation and Mediation authored by Mr. Vishnu S Warrier and you are bound to pay him the price.

Similarly, a notice for tenders OR auction is an invitation to offer and the lowest OR highest bidder (as the case may be) has no legal right to insist that the tender OR the article kept for auction must be awarded OR sold to him.

How to form a contract in India?

Indian Contract Act, 1872 regulates the contracts entered in India.Contract law is a unique concept of law which permits two or more individuals or corporates to makes law for themselves.The parties are free to enter into and agree to any terms and undertake any obligations under a contract and once they do, they have to abide by them.

Once there is a consensus ad idem and the parties are agreed to the terms of a contract, then all its terms and conditions are enforceable by the court of law.If minds are met, parties have willingly, with their free volition undertaken certain obligations, then such obligations are enforceable by law.

From this it is understood that, OR we can say that, essence of any contract is meeting of minds.Consensus ad idem, the meeting of minds must be real. In other words, consent must be free. It may be vitiated on account of misrepresentation, fraud, undue influence or mistake.

Formation of the contract

As it is known under the English Law, formation of a contract is initiated with a proposal or offer.All agreements are contracts if they are made by the free consent of the parties, who are competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Every promise and every set of promises are forming the consideration for each other is an agreement. When one person signifies his willingness to the other to do or to abstain from doing anything with a view to obtain the assent of the other party, he is said to make a proposal.

To conclude we can say that, three essential elements of a contract are proposal OR offer, acceptance of said proposal OR offer, and consideration. Once a valid contract is entered, it is enforceable.

Novation of contract

Once a valid contract is entered, the parties are free to substitute the same for something else. Such an act is called novation of contract.