Contract Act

Introduction

• Business law is wider than Mercantile and Commercial laws.

• It is divided in Contract, Sale, Agency, Bailment, Negotiable Instrument, and partnership.

• It’s origin is in English law with some changes.

• It control to trade and commerce.

• In daily life we are entering infinite contracts.

• Since morning to night – newspaper, to eat ice cream,

• It came into force on the first day of September 1872

• Applies to whole of India except Jammu Kashmir

• It will not affect to usage or custom

• It is inclusive – other conditions also allowed

 Chpter 1 – Nature of contract

 Introduction :

• In simple words contract means give and take

• It is a private law. It means terms and condition can be determined by the parties

• It provides Limited principles under which Right and duties of the parties are determined

• It is the exchange of promises by two or more parties.

• Contract – 2(h) An agreement enforceable by law.

• Agreement – 2(e) Every promise or set of promise forming consideration for each other.

• Enforceable – can sue in court in case of non performance. Social agreements are not contract.

• Obligations arise due to status not covered. To maintain wife and children due to order of court.

Section 10 essential elements  of a valid contract

1. Free consent – consensus ad idem – same thing in the same sense for the subject matter (Titanic ship) (C.A. OR B.A.) not due to coercion, undue influence, misrepresentation and fraud and mistake .

2. Competent person – sound and major,

3. Lawful object and consideration – drop legal action, immoral or  illegal are not allowed

4. Not expressly void by law –in restrain of trade or marriage are void contract

5. Capacity of parties – major, sound mind and not disqualified

6. Social agreements are not contract : marriage invitation

7. Meaning certain – oil

8. Possible to perform swim to Indian Ocean. Magic,

9. Legal formalities – Gift deed in writing and registered.

Types of contract  :

Validity   :

• Valid – satisfy all essential elements.

                     Satisfy section 10.

• Void – Not enforce at all. Star from sky. Ship turn out   in to sea, goods lost due to fire.

• Voidable  – Enforceable at the option of one or more party but not at the option of other or others. Aggrieved party can enforce it. Student can cancel contract with sir.

Difference between void and voidable contract:

• Ceased to enforceable–at option of aggrieved person

• Impossible, lost, change- coercion, undue infl.                                       in law                        misrepresentation, fraud

• No legal remedy             –  rescind or valid by aggrieved

Illegal contract:

• Forbidden by law. It is punishable. Connected to illegal void but connected to void is legal.

• All illegal are void but all void are not illegal.

• There are various reasons of void out of that one is illegality.  

Difference between void and illegal agreement

• Wide                              –  narrow compare to void

• Not forbidden                 –   forbidden under law.

• No punishment              –  punishment

• Collateral not void        –  void

• May or may not void      – void from very                                                 abinitio                                  beginning

 Unenforceable contract :

• Good in substance but having technical defect.

• Gift deed not writing, debt sued after 3 years.

Basis of formation:

Express contract:

• Words – spoken or written. A offers B accepts by phone.

Implied contract:

• Otherwise than words –  by law – which never intended – by mistake.  A delivers goods to B instead of c’s warehouse. B must return the goods or pay money for that goods.

Tacit contract:

• Inferred from conduct – ATM – fall of hammer In auction.

Quasi contract:

• No offer no acceptance arise by law due to natural justice and equality – finder of goods.

Based on performance of contract:

Executed contract:

• Consideration of promise performed by both the parties. A supplied goods to B and B paid money.

Unilateral contract:

• One party has performed other has to perform

• Advance fees for tuition class. It is a executed by one party.

Bilateral contract:

• Outstanding by both party hence executory.

• Payment will be at the time of delivery.

As per English law:

Formal and simple contract

Types of formal contract:

Contract of record:

• Judgment of court. Court imposes duties on the party. in real sense no agreement between parties. Written acknowledgement of debt 

Contract under seal:

• Form alone. Writing, signed and sealed. Deed or specialty contract. patnership or trust deed.

• Offer /proposal –

• both are used interchangeably

• One person show his intention

• Obtaining the assent of others

• Do or not to do an act 

• Mere intention is not sufficient.

       I want to marry is not an offer.

       Do you want to marry with me is an offer.

• Hence for obtaining assent of others is required in offer.

• Person who makes the offer is an offeror.

• Person to whom offer is made is an offeree.

• Person who accept the offer is known as acceptor or promisee. 

Types of offers

General offer

• made to public- anyone can accept by doing Desired act.

• Performance of the condition is an acceptance of the offer.

         A Damayanti’s swayamvara. Sita’s swayamvara.              Or  Dropadi swaymvara

        Advertisement in newspaper for missing person

        Influenza by using medicines 

Special offer –

• definite person.

• A offers to B then only B can accept. Marriage bio data.

Cross offer –

• two offers similarly to each other without listening to other.

     One’s offer is not acceptance of other. Example :              message from both party in mobile on way due to no  coverage.

Counter offer :

• offeree adds certain conditions in original offer. It is rejection of original offer. – vegetable market, negotiation, bargaining.

•  A offers to B for purchase of his dog at Rs. 100. B replies if u ready to purchase my cat at Rs. 60. I will purchase your dog at Rs. 100.

 Standing offer :

• such offer can be accepted within period of time.

• Government and company tenders, registration form, exam form are example of standing offer. These are required to fill within given time.

Rules : 

   Intention to create legal relationship :

• it means if it is accepted by offeree, offerer can sue for non performance in court. Social invitations  are not valid offer.

• Foundation rank – Tejwanisir unable to come.

• Friend invited for dinner.

• Husband promises to his wife to purchase saree. These are social agreement no body will sue.

Certain :

•   it should be definite. A offers to B to sell oil but what kind of oil he needs not specified. It can not be accepted due to lack of certainity.

• But if it is capable of being certain. It is valid.

• Example B sells only one type of oil. Or B wants as similar to purchase by C.

It should not be only invitation of offer :

• In invitation of offer, try to attract to others for offer. E.g. Auction sale, price list in restaurant, display in mall, prospectus of college or for share.

• Whether is it offer or invitation to offer depends on person’s intention. In offer it can be accepted and offer is binding to himself.

• But in invitation to offer only circulating the information

•  Person  making is not binding although it is accepted. 

• Auction is cancelled some body came by reading notice in News pepar.  He can not sue for his expenses.

It can be specific or general – Discussed as above.

It must be communicated :

• Person who is not aware of offer can not accept although he has fulfilled the condition of offer.

• Missing person traced by some body who is not aware of reward of this act declared in news paper can not claim reward.

It should be for the obtaining the consent of other.

• Mere intention is not offer. I want to marry is not offer. Do you want to marry with me ? Is an offer.

 

It can be conditional :

• Offeree can accept through the fulfillment of condition. Like mode of acceptance, advance deposit, time for acceptance etc. 

No answer does not mean it is accepted.

• A offers to B to purchase my Mobile in Rs.10,000. If you will not reply within 2 days, I shall believe it is accepted, is not valid.   

Acceptance :

Meaning :

•  there should be offer

• It can be accepted(consented) by offeree.

• Act can be do not to do.

• I will not produce A you will not produce B

•  I will not CA coaching you will not start B.COM

Rules :

It should be absolute and unqualified (unconditional)

• Offer can be conditional but acceptance not.

• If acceptance is conditional it is counter offer.

• Example in first meeting A boy offers I need house wife it is conditional offer.

• But if girl makes the conditions like 4G Net, Apple mobile, Activa etc. It is only counter offer. It is not acceptance because there is a variation (change) in terms of offer.

• Now boy may think whether he can suffer such girl. Boy only can accept such counter offer made by girl.

It should be communicated  :  

• Offeree must Communicate the acceptance to offerer.

• Example : in ABC Ltd. Mr. X was appointed as a CA in meeting.

• But appointment letter was not given to him. He knows from other person for his appointment.  Afterward another person was appointed in next meeting. Mr. X can not sue because he was not communicated.

It should be accepted in prescribed mode (given method in offer):

• if it is given in offer, it should be accepted in written, then only written acceptance is valid.

• But if acceptance is in other mode, offerer has not objected, it is valid.

• In above example acceptance was given orally, acceptor has not opposed, it is valid.

Time of acceptance

• If time is specified than within that time

• If time is not specified it should be within reasonable time or before offer lapses(ends)

• Example : A girl offered to a boy for marriage but when boy came after 5 years for acceptance.  A child wel comes by saying uncle.

• It can not be accepted because offer already lapses and acceptance is after reasonable time.

• When applicant applies for shares during june but allotment by the company was made during november. Applicant may reject due to non acceptance during reasonable time. 

 

Mere silence is not acceptance  :

• It can not be assumed (implied) that offer is accepted if offeree has not replied.

• But if from his previous conduct or act, evicence is available for his use. It may assume that it is accepted.

• Example : magazine  continuously used by the person after end of subscription. He is liable for payment.

Acceptance by act (conduct)

• Consent/assent was not given expressly.

• But act or condition of offer is satisfied it is assume that offer is accepted.

• Trademan has not replied to his customer for his order. But goods are delivered to him it means offer of customer is accepted by trademan through conduct.   

Completion of Communication and revocation of offer and acceptance : 

• Mr.  A(offeror)       offers    to       Miss B(offeree)       

        11^th February           (sent)           12^th February (reaches)

• Miss B                           Accepts         for    Mr.  A

      13^th February              (sent)                14^th February(reaches)

When offer is completed – 

• 12^th February when reaches to the offeree.

When Acceptance is completed :

• Against A (offerer )             –  13^th February Sent by B

• Against B (offeree )            –  14^th February Reaches to A  

Revocation/Cancellation : 

• Revocation of offer  : Before 13^th February

    i.e. Before acceptance complete against offeror (A)

• Revocation of acceptance : Before 14^th February

   i.e. Before acceptance complete against offeree (B)

•  In England acceptance cannot be revoked but in india it is allowed. 

• In india acceptance and its revocation reaches simultaneously revocation is valid.

• Law of country is applied at which acceptance is received.  A of America offers to B of Japan. B accepts the offer and sent to America. Law of America will be applicable. 

Revocation of offer  and Acceptance :

• Against sender – put in to transmission.

• Against receiver – comes to his knowledge. 

Methods of revocation of offer :

•  By inform to offeror

• By end of time

• Death or insanity either of party

• Non fulfillment of condition of offer

• Counter offer.

 

 

 

 

Chapter 2 Consideration

• no consideration no contract

Meaning   :

• Quid Pro quo –  something in return 

         A sells goods to B at Rs. 100. For A Rs.   100 is consideration          While for B goods is consideration.

• Right, interest, profit and benefit to promisor  while loss,  responsibility or  obligation to promisee.

•  Section 2 (d) :

• At  the desire  of the promiser

• Promisee or other person

• Has done or abstained  from doing

• Does or abstains from doing

• Promises to do or to abstain from doing

• Such act or abstinence or the promise is a consideration 

• A carries goods of B without consideration is also valid. – due to detriment – To do

• A maintains B’s child and charges RS. 1,000. – To do

• C promises not to sue to D for compoundable offence against Rs .10,000. – abstinence.

Legal Requirement of consideration 

• At the desire of the promisor not at the third party.

•  Act done voluntary is not consideration – R saved goods Of S from fire voluntary.

• Stranger to A consideration but not stranger to A contract. – Activa purchased by your father. Third party can give consideration but third party cannot sue.

      A gifts his property to his daughter for annual                    allowances  to          his brother by executing deed.           But she failed to pay hence A’s          brother can sue            to A’s daughter.

• Executed – performance of act.  Or Executory – promise to act.

      A pays Rs. 5,000 to B for purchase of wheat –                    performance of        an act it is executed.  

        B promise to deliver wheat to A to next day is an              executory              consideration.

•  Past consideration  : It should be performed at the desire of promisor which is not gratuitous. Subsequent promise is valid.

        A performed some act with his desire for B. B                       promise after a        week. Act was not with                           previous        request hence it is present                                 consideration.  

• Adequeacy of consideration : having some value need not  Equal value. Although there is inadequacy of consideration.

        Contract is valid. But for determining existence of            fraud, misrepresentation, undue information, this          factor can be   Considered.

        No body can ask consideration for the act for                      which  he is legally bound to perform. Witness,                over and above the fees, client will pay to the                      solicitor in case of success.

      But over and above legally bound to perform                      consideration  can be paid. 

•  It should be real having  some value –discover treasure by magic is not  real. 

•  It can not be unlawful, immoral and opposed to public policy. 

Suit by third party or  Stranger can sue or exceptions of  stranger to a  contract or exception of privity of contract

         P indebted to Q. P sold property to R. R promises             to P, I will pay  to Q.

         But he fails Q can not sue to R because Q is  third             party.

 In following cases third party also can sue. 

• There is a contract between settlor and trustee but beneficiary can sue to trustee–College,student can sue

• Members of family can sue for family contracts if provided in terms of family settlement.

• Provision of marriage expenses raised during partition of HUF, female member can enforce.

• In case of assignment of contract, assignee can enforce – post paid mobile bill. Audit Facilities as per agreement require to provide to assignee.

• L gives to M Rs 2,000/-to be given to N. M inform same to N. Afterwards, M refuse to pay N can sue to M. Acknowledgement of liability is an acceptance.

• Purchaser of land is liable for  Agreement attached with land if he is informed at the time of purchase.  Complex – 32C

• Principal can enforce the contracts entered by Agent if it is within apparent authority of agent and with name of principal. 

Exceptions of rule “contract without consideration is void.”

• Natural Love and affection :  written and registered agreement between parties standing near relation is enforceable without consideration. (Husband and wife)

• Past voluntary services :

      Services rendered voluntarily

1.       Services rendered for promisor

2.       Promisor exist at the time of service

3.        Promisor intends to compensate.

       E.g. Shoes polish, cleaning car glass, vehicle                       washing in garage.

 

• Time barred debt (after 3 years)

        Period of sue is lapse as per limitation act.                         Written           promise of person liable or his agent           is valid.

        Foundation fees at reception promised by student            in written is valid. After 3 year Debtor signs                        written promise for his dues  he is liable.

• Agency :

  New agencies like Bharat D Biscuit have no consideration. But agreement of area, commission and other matters are valid

• Completed Gift  :

      Donor is liable for his gift although it is without                consideration. Hariya – B.A.D. College.

• Bailment :

       Bailment means goods given to others for any                   purpose.

       Repair, courier etc. Under this no consideration is           required goods should be returned by bailee to                  bailor

• Charity :

       Promisee accepts the liability on the basis                           of charity. Contract is valid. Hariya – B.A.D.                         College

 

CHAPTER 3 – Essential elements of a valid contract

Section 10 – Agreement becomes contract if

1. Free consent – consensus ad idem – same thing in the same sense for the subject matter (Titanic ship) (C.A. OR B.A.) not due to coercion, undue influence, misrepresentation and fraud and mistake .

2. Competent person – sound and major,

3. Lawful object and consideration – drop legal action, immoral or  illegal are not allowed

4. Not expressly void by law –in restrain of trade or marriage are void contract

5. Capacity of parties – major, sound mind and not disqualified

 

Position of the minor 

• Age of majority – Indian majority act 1875 person domiciled in India attaining the age of 18 years

• Void ab initio – Mohiribibi vs. Dharmdas Ghose

• No ratify after attaining the age of majority – bank loan- new promisory note accepted instead of old one is not valid

• Minor can be a beneficiary promissory note

• Promissory note executed in favour of minor is Valid.

• Minor can become a partner in profit only in the firm with the consent of all partner.

• He can always plead minority although he entered in contract with false representation of age

• All the necessary supplies to the minor – his property is liable, he is not personally liable food, cloth and education not luxuries items,

• Guardian – his guardian can enter in to contract for the benefit of minor like marriage contract ,

• Bride can sue to her father in law for allowances agreed by her father in law to her father.

• Certain contracts like for immovable property, guardian can not enter on behalf of minor except he is a certified guardian (appointed by court) 

Sound mind :

• At the time of contract he should be capable of understanding his own interest and forming rational judgement.  E.g. A sane man, Severe fever, Drunken.

• Unsound can enter in contract during interval – patient in a lunatic asylum, sane man, delirium, drunkenness last.

• Contract with unsound mind is void. 

Disqualified person:

• Arised from political, corporate or legal status.

• Foreign Soverigns or Ambassadors, alien enemy, corporations, convicts, insolvent etc.

Free consent:

• Section 13

• Consensus a d idem – same thing in same sence

1. Fundamental error – nature of transaction, person dealt, subject matter of agreement etc. CA-BA, titanic, dhirubhai. Mislead by similarity of name.

2. No contract without free consent.

3. If no consent or consent due to mistake contract void.

4. If consent is due to coercion, undue influence, fraud, misrepresentation, contract is voidable

Elements of vitiating free consent:

Coercion:

• Committing or threatening to commit

• Act forbidden by Indian penal code

• Unlawful detaining property

• Prejudice to any person for entering any contract.

• A says to b I will kill ur son otherwise sale ur house in 1,00,000. This contract is for the benefit of A. it can be enforced by party coerced (B) not party using coercion(A)

• Husband says to his wife give him release deed otherwise I will suicide. Release deed is voidable  due to coercion .

• Party coerced must repay the benefit or advance received while contract is cancelled.

Undue influence: (section- 16)

• Relation subsists

• Dominate the will of weaker party

• Uses position for unfair advantages.

• Real and apparent authority

• Fiduciary relationship

Example:

• Father and son, solicitor and client, trustee and beneficiary, creditors and debtors, old age, illness, doctor and patient

• Burden of proof for undue influence exists lies on dominant party like doctor, teacher, …

Fraud: (section 17)

• Act committed by party or his consent or by his agent

• Intention to deceive

Following acts:

• Representation as true which is known as not true by him

• Concealment of material information

• Promise without intention to perform.

• Other act fitted to deceive

• Act or omission which act declares as fraudulent.

• If contract is formed due to fraud then only he is liable.

• Share purchase from market, although there is a wrong information in prospectus, company is not liable because share holder is not entered due to prospectus.

• A sold horse to B by presenting as sound, in actual horse is unsound hence A is liable.

• Mere silence is not fraud.

• When there is a duty to speak or silence is equal to speech there is a fraud.

• In other words if information is material(which affect to our decision)is not presented or fiduciary relationship, trust is reposed then only silence is fraud.

• A purchases a horse  from B by saying that if u will not deny I assume horse is sound. A has not replied, but horse is unsound hence there is a fraud. 

MISREPRESENTATION:

• He believes to be true hence representing as true in actual it is not true.

• It is innocent without reasonable ground.

• It misleads to others hence can be avoided. 

• Section 18:

• Positively state untrue statement unintentionally

• Breach of duty  hence gain to one loss to other

• Other party in mistake of subject matter.

• A says to B, C will be director of his company by knowing from M which is incorrect hence misrepresentation 

Difference coercion – undue influence

• Physical force or threat   –  moral or                                                                                                           mental  pressure

• Illegal act like commit or  –  no such illegal act

  threatening to commit 

• no relationship                 –  Absolute relationship

• it can be from or to other –   between contracting 

      than contracting parties         parties

•  voidable                                  – set aside or modified or

• benefit will be restored – at the discretion of court 

difference between fraud and misrepresentation 

• intention to deceive           –  no such intention

• believes untrue                  –  believes to be true

• repudiation and damages-repudiation, restitution                                                                             no damages

• Seller will be liable   – party can escape by saying          Although means of/  injured party has means of

  discover is available/ discover

Consequences of coercion, fraud misrepresentation – voidable contract – can enforce  at the option of aggrieved party.

• Aggrieved party may enforce the contract and put in the same position as the statement is correct.

• A sold car to B by saying there is no loan on car(encumberence). But in actual it exists. Hence A will pay the loan.

• In case of misrepresentation or silence, if means of discover are available, contract cannot be avoidable.

• A informs to B unintentionally, his factory capacity is 750 tons and provides accounts in which  500tons are mentioned, but B has not verified, hence contract can not be avoided.

• A party has committed fraud, but other party is not attracted due to such fraud, contract is valid.

• Mr. x purchased shares of A ltd. From market. But material information wrongly shown in prospectus, company not liable, because x was not induced due to prospectus.

• Opportunity was given but not used by buyer although latent defect, contract cannot be avoided.

Mistake:

• Unilateral mistake – valid – jewelry shop – 14^th feb. –imitation necklace.

• Bilateral mistake – mistake of fact – void ship turn out in to sea.

• Mistake of Indian law – valid –for any act prohibited by law, Indian citizen is liable – Correct side rides the vehicles, any crimes,

• Private right from Indian law  – void-to purchase own property which is not known to him

• Mistake of foreign law –  void like mistake of fact.

• Mistake should be of essential fact. Mere opinion is not mistake. Shop keeper opines that this good will be available at Rs. 1000. In actual it was of RS. 800 only contract is valid

Coercion, undue influence, fraud misrepresentation – voidable – can be enforced by aggrieved party only.

• But due to mistake contract is void no body /court also cannot enforce.

Unlawful object and consideration:

• These are two ingredients of a valid contract

• It will be applicable to whole community.

• Rights and duties of parties can be adusted but it should be within law.

• There is a limitation on the contractual freedom.

• A directs to B to steal C’ purse encourages the theft hence illegal.

Object – purpose or design.

• A sells goods to B who is insolvent receive the benefit of contract purpose is to defraud the creditors. Hence object is unlawful.

Unlawful object

• Forbidden by law, fraudulent or injury to the person or property, immoral and opposed to public policy.

• A, B and C agree to divide the gain acquired by fraud.

•  A promise to drop legal action started against B, if he will return back the property robbed.

Unlawful consideration:

• A pays Rs. 1,000 for obtaining employment in public service.

Following seven cases object and consideration is unlawful.

Forbidden by law:

• Act punishable under any law.

• In given example condition given is of license not of  law.  Hence contract is valid only penalty will be paid.

• A obtains the license from forest for grass cutting with the condition that if it will be given to sub contract penalty will be charged. – although it is given to B contract is valid and penalty will be levied.  

Defeat the provision of law:

• Hindu, Muslim or any time being enforce law should not be defeated.

• E.g. A debtor not to plead (sue) within 3 years.

• A son is adopted by paying annual allowances  to natural parents.

Defeat the rule for time being enforce:

• Court can determine remuneration of receiver, any other parties change in it. It is unlawful.

Fraudulent:

•  Agent receives rent for the land of principal without his(principal) knowledge is fraudulent.

• Submit tender to government with single name and do the work jointly or vice versa, it is a defraud to the government.

Injury to person or property of other:

• Print a book –violation of copyright.

• A promises to pay his debt by way of manual labour is slavery hence void. Or pay higher rate of interest is opposed to public policy. It is injury to  person

Immoral:

•  A landlord provides a room on rent for prostitute, it is immoral hence void rent cannot be recovered.

• P advanced money to D for divorce from her husband, afterward he wants to marry with D, it is against good moral.

Opposed to public policy:

• It can be wide or narrow. But if it is defined widely, freedom of contract will not be available. Hence it can be defined as good for the community.

• It is as like unruly horse, if not bribled(controlled),

• It will throw to the rider anywhere.

• Above concept is untrustworthy guide hence described in following limits .

Trading with enemy:

• During war without license no body enter in to contract with the person of enemy country.

Stifling of prosecution(legal action):

• It is a trade of felony. Compromise (waiver) in offence is void.

• But if compoundable offence, to drop legal action against consideration is valid. (divorce)

• In case of uncompoundable offence to drop legal action is void(murder).

Champerty and maintenance:

• In champerty to help with the purpose of sharing in profit.

• In maintenance to help without the purpose of sharing in profit.

• In good faith, both are valid in india but in England both void.

• E.g. A help to B for his property it is valid in india.

• But if A help to B for C’s property it is void in india also.

Interference during justice:

• Judicial officer is induced with partially or corruptly is void

• A offers to B absent in trial as a  witness with consideration is void

• Use of under means to attract to legislation is void (any reference or money or other ways to attract)

Marriage brokerage:

•   to pay money to a person hired to procure a wife is apposed to public policy

Intrest against obligations:

•   agent receive the compensations for agency from others without knowledge of principal is void

• A paid privately to X Rs 2,000 for the agreement in his favour is void

Sale of public office:

• Money consideration for appoinment of a person for service of public other than best qualified person is void

•  To induce to a person for his retierment & appointment of other by paying money

• To pay for recognition like padma vibhushan for reward

Agreement to create monopoly: 

• Hit by MRTP

Agreement in restrant of marriage:

•   other than minor agree not to marry against consideration is void

Agreement in restraint of trade:

•   everybody can do lawful business except in the following

•  sale of goodwill- seller can not do similar business in reasonable area with reasonable time

•  retiring partner receives goodwill hence can not do similar business in specified time within specified area

•  continuing partner can not carry competing busineee during continuous of partnership

• Employment agreement not to carry similar business during continuous of job is valid Ex V.M.shah, sarda & sarda

• Whole production sale of to a particular person, price fixation by association or group of person are valid

Agreement is restraint of legal proceedings:

•   Any party abridge the right given by law. Due within 3 years which  alowed by limitation act.

• Arbitration appointed by parties of cantract is valied for the disputes arised & may arise in future.

Agreement expressly declared void:

• Some cases other than discussed earlier following  agreements are declared to be void.

Consideration unlawful in part:

• If contract is severable, legal part is valid and illegal part is void.

• But if contract is not severable whole contract is void.

• A promise to B to provide security to legal (indigo) and illegal traffic(item) with salary of Rs. 2,000.  Agreement is void.

Agreement meaning of which is uncertain:

• A orders for 10 tons of oil but type is not described hence it is void due to uncertainty.

• But if it is capable of being certain it means seller is a dealer of one type of oil only, it is valid.

• A orders similar of purchase by B it is valid.

Wagering agreement:

• Win or loss depends on uncertain future event in which parties have no direct interest and control.

• If rain will fall A pays to B Rs 10,000, otherwise B will pay.

• There is no interest or control in main event.

Lottries:

• It is illegal hence cannot be enforced.

• But government authorized lottery ticket – person doing will not be punished but it will not become valid.

Speculative transaction:

• It is valid, having  Two elements

1.  Intention to take delivery 

2. due to circumstances pays price difference (movement of price)

• A enters with B in future delivery contract of 100 bales at Rs.150. But on due date price increases to 200. B either takes delivery or settle (receive) difference of Rs. 50 per bale. If price decreases, B will pays the difference.

• Gambling is illegal hence void.

Collateral to wagering is valid.

• Brokerage in such transactions can be recovered.

• Principal will received from agent prize(winning) money receive by him.

• Fresh contract can be enforced by loser of wager is also valid.

• All illegal agreement are void but all void are not illegal.

• Wine business agreement is void due to illegality (Gujarat).

• But subject matter lost, Impossible act(swim indian ocean) only void.

• Collateral to void is valid but collateral to illegal is void.

• Loan taken for purchase of goods lost in sea, is valid loan should be repaid.

Loan taken for business of wine in Gujarat is illegal hence void. Loan will not be repaid.

Chapter 4 Performance of contract

• Contract is subsist until it is performed

Actual performance:

• Done his obligations within time and manner prescribed.

Offer or attempted or tender of performance:

• promisor offer to  perform but promisee refuses.

• Promisor is discharged and vice versa.

By whom contract can be performed

Promisor himself:

• Skill, diligence or personal confidence (trust)

• Paint a picture, marriage.

Agent:

• No personal confidence – promisor may employ other competent person.

Representative

• after  death of promisor liable up to property received in inheritance, unless personal consideration is involved.

Third person:

• if promisee accepted performance from stranger, he again can not ask to promisor although it is not ratified or authorized by promisor.

Joint promisor:

• They  are liable jointly and severely.

• During life time promisors and after death of any or all, their representative will be liable.

Liabilities of Joint promisor:

• They  are liable jointly and severely.

• During life time promisors and after death of any or all, their representative will be liable.

• When any one makes the default, other promisor is liable for whole contract.

• Defaulting promisor is liable to the other promisors who performed the contract.

• If any promisor unable to pay his share, other promisors will suffer deficiency of such promisor in equal share.

• If promisee relieves to any promisor, he will be relieved only against promisee not against other promisor,

• A, B and C are joint promisors. They agree to pay Rs. 3,000 to D(promisee). If A died, A’s representative, B and C (survivor) are liable. If all died representative of All will be liable.

• If A has paid 3,000/-   he may collect from B and C Rs. 1,000 each.

• If A is unable to pay B and C are liable for Rs. 1,500.

• If D relieves to A, A is discharge against D but he is liable for B and C.

Rights of joint promisees:

• Only jointly during life time, promisee jointly can sue, after death legal representative with other survivor can sue.

• A gives promise to B and C to pay 1,000.

• Both B and C jointly can sue on A individually not.

Time and place of performance of contract:

• No time is mentioned; perform within reasonable time based on circumstances.

• If day is mentioned, promisor must perform during business hours at usual business place. Normal business hour is between 10 a.m. to 5 p.m.

• Promisee  may apply for performance. Above rule applies if no condition mentioned in contract.

• If place is not fixed, it is the duty of promisor to ask for place 

Performance of reciprocal promises:

General observation:

• Act – executed –already performed

• Promise – executory – in future.

• It will be consideration for each other.

• Both promise or one promise and other act.

Simultaneous performance:

• At same time or one after the other. Rice and price.

• If one will not perform other will be discharged.

Order of performance expressly fixed:

• Mention in contract the order of performance.

• Must be performed in that order only.

• A promises to build B’s house then only B will make the payment.

• First A must perform then only B has to perform.

Order of performance fixed by implication( no words)

• Nature of transaction like security denotes that first security shall be provided.

• One party preventing to other party from doing the act.

• Prevented party is relieved and other party has to pay compensation to former party.

• Seller has not cut and cord the timber buyer will be discharged from purchase and claim for compensation.

Certain things legal and other illegal:

• Legal valid and can be performed while illegal can not be valid it is a illegal agreement.

• A sold house at RS. 50,000 is valid but additional payment of 75,000 for using gambling void.

Effect of failure to perform at a time fixed in a contract:

If time is essential

•  voidable at the option of promisee. Damages and cancel the contract both remedies are available.

If time is not essential

•  only damages can be claimed.

• It is difficult to determine whether time is essential or not, it depends on fact, circumstances and intention of parties.

• In mercantile contract except payment of money time is essential for performance of contract.

• Notorious goods like silver, share, gold etc., price is changed rapidly

• In case of release of mortgage bond of mortgage property or sale of land time is not essential except shown in agreement strictly,

• Although time is not essential, it should be performed within reasonable time.

• If time is essential, promisee accepts the performance out of time. He may claim damages after giving notice at the time of acceptance of performance. 

Impossibility of performance:

• It is void.

At the time of contract:

• Known to both parties: 

• A swims Indian ocean I will pay to u 1 crore. 

• Not known to both parties:

• Ship turnout into sea.

• Both cases agreement is void. Nobody can claim

• Known to the promisor only:

• Promisor doesn’t know or unable to know with ordinary diligence.

• Promisee may sue for damages to the promisor 

Supervening impossibility:

• At the time of entering into contract it was valid afterwards it becomes impossible like change in law.

• Wine contract in Mumbai if after contract it is restricted.

Appropriation of payment:

• When there are several debts, Party paying (debtor) should indicate against which debt it is paid (Clayton case).

• Creditor must appropriate accordingly.

• If debtor is silent, creditor must appropriate debt first in time.

• Neither party intimated:

• First in time

• If equal standing (same time debt), appropriate proportionately, it will not make any difference although debt is time barred (after 3 years) 

• A has two debts of RS. 700 and 500 raised at same time

• Without indication against which it is paid, A paid Rs. 600. It should be adjusted in the ratio of 7:5. i.e. 350 and 250

Contracts which need not be performed.

• Novation:

• old contract has been rescind, and new contract can be executed.

• In novation there is a change in terms of contract or change in contracting parties. It is with mutual agreement and with consideration

• There was agreement by A to B for payment of Rs. 100.

• C agreed for payment of above due.

• With mutual agreement contract between A and B discharge and new contract between B and c will arise

• Recession:

• only old contract is discharged with mutual agreement which need not be performed. no new contract.

• Alteration:

• only terms of contract are changed with the mutual consent, parties will be same.

• Waiver or remission

• Waiver – wholly dispensed.

• Remit – in time or consideration promisee may provide benefit to promisor.

• Instead of Monday I will pay to you on Saturday. Instead of money I will give necklace.

• In novation, alteration or recession consideration is required, while in case of remission or waiver consideration may not require.

Restoration of benefit under voidable contract:

• When aggrieved party rescinds the contract, other party (promisor) also need not perform it.

• Party rescinding the contract, received any benefit must restore to the promisor.

• If insurance company is aggrieved party due to issue of policy with fraudulent fact or material fact not disclosed.

• Company can cancel the contract refund the premium received after deducting expenses.

• Voidable contract can be avoided at the inception or subsequently.

• When it is avoided, damages and benefits received both should be given to injured party.

Obligation of person who received benefit under void agreement:

• Restore back or pay compensation to the person to whom it is received by the person who wants to rescind the contract.

• Put in the same position as earlier by restoring the benefit.

• A offers to B to pay 1,000 if he marry with C. B accepted and A paid money.

• But c died hence contract becomes void. A must return 1,000.

• A hired a godown for 1 year and paid rent for full year, but after 7 months it was destroyed without fault of tenant, A must refund rent of 5 months from owner

• In property dealing, deposit given as a security for balance amount requires paying within time should not be refunded.

• In case of contract with corporation, it is required in specific form. If contract becomes void, it should be due to promisor hence corporation will not refund

• Voidable contract can be rescinded, it’s communication and revocation is similar to proposal

Discharge of contract

By performance:

• Actual – fulfill obligations within time and manner prescribed.

• Attempted performance – promisor offers but promisee neglects to accept.

Mutual agreement:

• Novation, Rescission, alteration and remission etc. A paid 5,000 instead of 10,000 …

Impossibility of performance –

• Ab initio or supervene

• Change in law

• Destruction of subject matter

• Nonexistence or nonoccurrence of particular things – like personal incapacity like dangerous malady

• Declaration of a war.

• A agrees with B to discover a treasure by magic.

• A and B contract to marry. But before time fixed, A goes mad. Contract becomes void.

• A contracts to act in theatre, too ill.

Lapse of time

• Not performed within specified time given in limitation Act and no action was taken hence deprived the remedy. Creditor cannot file suit after 3 years of due date. It is known as time barred.

Discharge by operation of law

•  death, insolvency etc.

•  A took lease, again same property is purchase by him, purchase is valid.

• Superior right will be valid i.e. purchase

Breach of contract:

• Anticipatory breach of contract:

• Before due date refuse to perform

• Actual breach of contract:

• On due date refuse to perform.

• Injured party may claim damages and discharged from performing his part.

• A contracts to marry with B. A married with C. B is entitled to sue A for breach.

• Promisee dispense or remit accept as think fit by accord and satisfaction.

• C paid 1,000 to B while it was due from A Rs 5,000.

• Promisee refuses to provide reasonable facilities to promisor, he is discharged

• A contracts with B for repair of his house. B refuse to point out his house, B is discharged

Unit 5 – Breach of contract

• Breach means failure of a party to perform his obligations

Anticipatory breach of contract:

• Promisor refuses to perform his promise before time

• Promisee may forthwith end the contract or alive up to due date.

• Damages will be different in both cases.

• To alive is not necessary in the benefit of promisee only. It can be beneficial to promisor also.

EXAMPLES

• X agrees to y for selling wheat at Rs 100 on 3^rd march. X breaches the contract on 2^nd February, price on 2^nd February Rs 110.

• Y has two options – either cancel contract immediately and receive Rs 10 or keep continue contract up to due date i.e. 3^rd march.

• Continuance of contract may or may not be in the benefit of X.

• Between 2^nd February and 3^rd march if price rise to 125 then x will receive Rs. 25.

• If price reduce to 90, x will pay Rs 10

• If sale is prohibited on 3^rd march, nobody will pay damages.

• A agrees with B to employ him from 1^st march, but on 25^th February A refuses.

• A contracts with B for marriage but he married with c.

Actual breaches of contract

•  at the time or during the performance of contract, one party fails or refuses to perform under express or implied contract on schedule date.

• Other party has right of action against party who broken contract.

• A agrees to deliver goods to B on 1st Feb. but on 1^st Feb. A refuses hence it is actual breach of contract

Section 73 laid down the rules of compensation.

Liability for damages

• Monetary compensation awarded by court

Classification of damages

Ordinary damages 

• direct loss suffered by injured party – rickshaw charges in CPT exam 

Special damages 

notice of special circumstances fair of Tata Idica for campus interview

Vindictive/punitive/exemplary damages

• breach of promise to marry and wrongful dishonor of cheque.

• Reputation lost or injury due to feelings hence damages can be heavy.

Nominal damages:

• no actual loss only court awards a rupee or 10 paisa for the nonfulfillment in future.

Deterioration caused by delay:

• Can be recovered without notice from carrier. It includes physical damages as well as special opportunity for sale.

Liquidated damages

•  pre-determined damages.

Remote damages

• cannot be claimed – 6 month salary of CA.

How to calculate damages?

Buyer breaks the contract. – bcm

• Contract price – market price 

Seller breaks the contract. – smc

• Market price – Contract price

• It is the duty of promisee to minimize the loss.

• If promisor deliver goods in open space instead of godown promisee can claim labour charges for transferring in godown. 

• If goods lost in the presence of promisee, he has not taken any steps for minimizing, promisor will not pay damages.

Remedies for breach of contract-

• One party broken the contract and other party absolved and sue for compensation.

• A promises B to deliver but failed.

Suit upon Quantum Meruit:

• As much as earned – quantity of work done.

• One party started the work but before completion other party prevents. First party is discharged and recover the value of work done by party not at default.

•  If contract is divisible party at default also can claim damages.

Cases in which quantum meruit is arise.

Void

•  work is completed subsequently discovered void. Party who receive the benefit must pay compensation to other party.

Work is done or delivered non gratuitously:

• Other person bound to make payments if he accepts such services or goods or enjoy benefit.

• In divisible contract party at fault may sue for work  done.

• X wrong fully delivers 50 bags instead of 100 bags.

Suit for specific performance

•  where damages are not adequate, court at his discretion direct to party perform the promise. Ice cream

Suit for injunction:

• When negativating the terms of contract, court may restrain him from doing. Not to produce A or B.

Unit 6 contingent and quasi contract

• Contract may be absolute or contingent.

Absolute

• without any condition.

Contingent

• do or not to do something – Insurance contract

• Based on collateral event does or does not happen. . Fire is a collateral event.

• Premium payment is a main contract. If fire (collateral) is occurred, claim (do or not to do something) will be received.

• Contract depends on precedent or subsequent condition of happening or not happening. Premium is precedent and claim is subsequent

• Event cannot be reciprocal, performance promise or consideration of promise.

• Reciprocal – A supply 100 bags if B paid money.

• Performance promise – claim

• Consideration of promise – premium.

• A promise to pay Rs 1,000.  If he marries with C is not contingent contract.

• Event should not be based on merely will.

• If I choose pay to you is not contingent.

• If I reaches to Delhi tomorrow morning I will pay to you is a contingent because it is based on will and other factors.

Rules relating to enforcement:

Happening

• Becomes void if event becomes impossible.

• A contracts with B to pay money if he marries with C but C died before marriage.

• If x survives after death of Z, x will purchase Y’s buffalo. But if x died contract becomes void.

Not happening:

• Enforce when event becomes impossible and not before

• P agrees to q to pay if ship does not return. Ship becomes sunk.

Deemed impossible 

• A agrees to pay B a sum of money, if A marries with C, but C married with D.

Happening specified event within fixed time 

• if time fixed is expired it becomes impossible and void.

• A promise to pay to B if ship return within one year. If one year is expired or ship is burnt. Contract cannot be enforced.

Event not happening within fixed time 

• if event happens within time,  contract becomes void.

• If time is expired or contract becomes impossible before time, it can be enforced.

• A promise to pay to B if ship does not return within one year. If one year is expired or ship is burnt. Contract can be enforced.

Contingent on impossible event

• whether known or not known to both party, contract is void due to impossibility of performance.

• Two straight line enclose a space.

Quasi contract:

• In contract voluntary obligation, similar obligation imposed under law for benefit of other.

• No offer, acceptance or agreement.

• Based on equity, justice and good conscience.

• No man can get benefit with loss to others.

Five types of quasi contracts

Necessaries  supplied to minor or unsound mind

• person depends on him suitable to his actual requirement not luxury. Like minor child or wife.

• Reimbursement of advances for necessaries can be claimed.

Recover money paid for another person

• To protect own interest paid a sum of money on behalf of others can be recovered

• Government dues paid by tenant can be deducted from rent.

Person enjoying benefits of non-gratuitous act

• Lawfully does or delivers anything to others not gratuitously, other person  enjoys the benefit, restore the things so done or delivered.

• A delivers goods to B’s warehouse instead of C. B accepts the goods and hence liable for payment.

Finder of goods 

• belonging to others takes it in his custody, responsible like bailee

• P’s broach with her coat forgot in D’s shop. D put in his drawer and lost. D is liable.

Money paid or thing delivered by mistake or coercion

• Person receiving repay or return it.

• A and B jointly owe Rs 100 to C, A alone pays amount to C, B was not aware of that he has paid again to C. C must refund the 2^nd payment made by B.

• In above cases there were no mutual agreement.

Difference between wagering and contingent contract

Wagering            –           contingent

• Promise to pay money –    definition as above

       or money’s worth On the

       basis of uncertain event. 

• Sole determining factor   –   only collateral

• It is also contingent           –     it is not wagering

• Void                                                    valid

• No interest or control    – having an interest 

        In event                                 or control in event