Description
Legal Contract Act
Introduction
• This Act may be called the Indian Contract Act, 1872.It extends to the whole of India [except the State of Jammu and Kashmir]; and it shall come into force on the first day of September, 1872 • Sec.2(h) “ An agreement enforceable by law” • Agreement + enforceability by law = Contract • Agreement must create a legal obligation or duty
Contd..
• Section 1 of Contract Act provides that any usage or custom or trade or any incident of contract is not affected as long as it is not inconsistent with provisions of the Act. In other words, provision of Contract Act will prevail over any usage or custom or trade
Contd..
• It must be noted that contract need not be in writing, unless there is specific provision in law that the contract should be in writing
– e.g. contract for sale of immovable property must be in writing, stamped and registered – Contracts which need registration – Bill of Exchange or Promissory Note – Promise to pay a time barred loan – Contract made without consideration on account of natural love and affection
Contd..
• A verbal contract is equally enforceable, if it can be proved.. A contract can be enforced or compensation/damages for breach of contract can be obtained through Civil Court
Proposal and Promise
• When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal • Proposal may be express(spoken or written) or implied(inferred from conduct)
Promise, Promisor and Promisee
• When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise • The person making the proposal is called the promisor and the person accepting the proposal is called the It promisee
Constituents of a Proposal(essential elements)
• The proposal must show the obvious intention on part of the offerer to be bound by it • The offerer must make the proposal with view to obtain the assent of the offeree • It must be definite • It must be communicated to the offeree
Consideration Definition
Something of value given by both parties to give to a contract that induce them to enter into the agreement of mutual performance
Consideration continue…
• Consideration is essential element for the formation of contract • It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do
Consideration
Essential Condition • It should be objectively defined • Promise to give a gift is not forceable since its subjective
Consideration
For example:- In a contract for the sale of goods the money paid is the valuable consideration for the vendor, and the property sold is consideration for the purchaser. In the formation of simple contracts, whether written, oral or implied, consideration must enter, and it must enter also in sealed contracts
Contract
• Court has divided contract in to two types: • Bilateral contract • Unilateral contract
Bilateral Contract.
• Bilateral contract is an agreement by which both parties exchange mutual promises • Each party makes at least one promise • Promisor :- He is the maker of promise • Promisee :- He is the receiver of promise • Promise act as sufficient consideration for both promisee and promisor
Example of bilateral contract
• If someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a Bilateral Contract would be formed binding both of you once you provided consideration by accepting those terms
Benefit / Detriment Theories of Consideration
• Consideration – Promisor agrees to suffer a loss or a detriment • Detriment – Loss suffered in agreeing to do something not obligated or agreeing not to do what entitled to do • Benefit theory – value the promisee is receiving • Detriment theory – value promisor is giving up
Unilateral contract
• In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance • Performance act as consideration for promise and promise act as a consideration for performance. • Instead if return promises, promisor asks for the performance
Example of unilateral contract
• If same person offered to pay you $10 each day you drove him to work, a unilateral contract would be formed, binding only upon the promisor until you provided consideration by driving him to work on a particular day.
Adequacy and equality of consideration
• The adequacy of consideration, as between the parties, is immaterial, so long as there is no fraud. • Incase of equality of consideration its not necessary that promise do not be equal. • Does not need to meet a reasonable person standard .
Promises that are not valid consideration
• • • • • • • Illusory promise. Promise to confer gifts. Donatives promise. Moral promise. Pre-existing duty. Discharge of debt Public obligations.
Steps involved in consideration
• The steps involved in the contract are o proposal and its communication o acceptance of proposal and its communication o Agreement by mutual promises o Performance of contract
Essential requirements for contract.
• Offer and its acceptance • Free consent of both parties • Mutual and lawful consideration for agreement • It should be enforceable by law. Hence, intention should be to create legal relationship. Agreements of social or domestic nature are not contracts
Essential requirements for contract
• • • • Parties should be competent to contract Object should be lawful Certainty and possibility of performance Contract should not have been declared as void under Contract Act or any other law
COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSAL
• Communication When Complete: The, communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. • The communication of an acceptance is complete: o as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; o as against the acceptor, when it comes to the, knowledge, of the proposer.
• The communication of a revocation is complete o as 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 o as against the person. to whom it is made, when it comes. to his knowledge.
• Illustrations o A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter o B accepts A's proposal by a letter sent by post. The communication of the acceptance is complete— as against A, when the letter is posted; as against B, when the letter is received by A
• A revokes his proposal by telegram. The revocation is complete as against A when the telegram is despatched. It is complete as against B when B receives it. B revokes his acceptance by telegram. B's revocation is complete as against B when the telegram is despatched, and as against A when it reaches him
Revocation of proposals and acceptances. – 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 • Illustrations • A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post – A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards – B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards
Revocation how made • A proposal is revoked— – by the communication of notice of revocation by the proposer to the other party – by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance – by the failure of the acceptor to fulfil a condition precedent to acceptance; or – by the death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance
Acceptance must be absolute. • In order to convert a proposal into a promise, the acceptance must— – be absolute and unqualified – be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such a manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted” in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance
Promises express and implied • In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied Illustration • When A’s rental agent shows B around the building , she goes out of her way to show off the laundry room, saying “Here’s the terrific laundry room, and its for every tenant to use.” • B rents the apartment. Later all the washing machine breaks down but A wont fix them. This way A has violated his implied promise to maintain the laundry room appliances in the working order
VOID AGREEMENTS • If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. • Illustration – Ashish entered into a contract with Baman to buy stolen cars. Buying and Selling in itself is not illegal but since this contract involve illegal activity, so the contract is void. – I have promised Deep to get him job in a company for a consideration of Rs 5 lakhs. After getting the job, Deep refused to pay. But I cannot sue him as the contract itself is void as it involves illegal act like bribery.
• The consideration or object of an agreement is lawful, unless: – It is forbidden by law. E.g. steal car and share the money – Is of such a manner that, if permitted, it would defeat the provision of any law. E.g. A bribed a Jury to vote for him – Is fraudulent. E.g. A & B forge docs to evade tax. Dispute on sharing the benefits – Involves or implies injury to person or property. E.g. A promises B Rs 50000 to break the leg of C – The court regard it as immoral or opposed to public policy. E.g. Pregnant A promising Dr. B some amount if B reveal the sex of baby before birth
VOIDABLE CONTRACTS E.g. 1 – A’s car had done 150000 kms. He repainted car, tampered with the meter and made it 20000 kms. Offered the car to B for Rs 2 Lakh. B paid an advance of Rs 1 Lakh. Later B learnt about the reality about the car. B wants his money back but A insists that he should pay the remaining 1 Lakh and take the car. E.g. 2 – A’s car had done 150000 kms. He repainted car, tampered with the meter and made it 20000 kms. Offered the car to B for Rs 2 Lakh. B paid an advance of Rs 1 Lakh. Later B learnt about the reality about the car. However, Govt. imposed some tax which made cars expensive. Now, A wants to return the paid 1 Lakh to B and not give him the car. But here B refuses.
• In both the above cases, the contract can be turned to nullity at the option of suffering party. • Contracts become voidable when the consent of an innocent party is obtained through coercion, fraud, misrepresentation or undue influence.
What agreements are contracts
• 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 are not hereby expressly declared to be void.
Who are competent to contract
• Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.
What is a sound mind for the purposes of contracting.
• A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. • A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. • A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
Illustrations
(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals. (b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.
Free consent
• Two or more persons are said to consent when they agree upon the same thing in the same sense. [section 13]. • Consent is said to be free when it is not caused by (1) Coercion, as defined in section 15 (2) Undue influence, as defined in section 16 (3) Fraud, as defined in section 17 (4) Misrepresentation, as defined in section 18 (5) Mistake, subject to the provisions of sections 20, 21 and 22.
Coercion
"Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Illustration A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta.
Undue Influence
A contract is said to be induced by "undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Illustration A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
Fraud
"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent. Illustrations (a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse, is unsound. (c) B says to A "If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's silence is equivalent to speech.
Misrepresentation
Means and includes(1) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true (2) Any breach, of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him; (3) Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
Power to set aside contract induced by undue influence
When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there under, upon such terms and conditions as to the Court may seem just.
Illustrations
(a) A's son has forged B's name to a promissory note. B, under threat of prosecuting A's son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside. (b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and, by undue influence, induces B to execute a bond for Rs. 200 with
Agreement void where both parties are under mistake as to matter of fact.
• Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.
•
Illustrations
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the facts. The agreement is void. (b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.
Voidability of agreements without free consent.
(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B. (b) A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage debt redeemed.
Performance of reciprocal promises
• Promises which form the consideration or part of the consideration for each other are called reciprocal promises. [section 2(f)]. A mutual promise can be of following types – (a) Mutual and independent – Where each party must perform his promise independently and irrespective of whether the other party has performed or is willing to perform e.g. Seller agrees to deliver on 5th and Buyer agrees to pay on 15th. (b) Conditional and dependent – Performance of promise by one party depends on prior performance of promise by other party. e.g. Buyer agrees to pay for goods 15 days after delivery. Hence, unless seller delivers goods, buyer’s liability does not arise.
Obligation of parties to contracts
The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance' is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.
A
Deliver goods worth Rs. 1000 A dies
B
A’s representatives
B
A
Paint a picture
B
Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for nonperformance, nor does he thereby lose his rights under the contract.
Offer of performance
A
A fails to deliver
B
Effect of refusal of party to perform promise wholly – When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. Contract to sing
A
Willfully absent
B
Absent with consent
A
Contract stands annulled
B
Pay damages with continuation on contract
Any one of joint promisors may be compelled to perform – When two or; more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any 1*[one or more] of such joint promisors, to perform the whole of the promise.
Jointly promise to pay Rs 3000
A pays Rs 3000
B A C A
B C
D
D may compel either of them
D
B has to pay Rs 1500 to A
Devolution of joint rights – When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person. Jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.
B dies
B
Rs 5000
A
C
Time and place for performance of promise, where time is specified and no application to be made – When promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. Promises to pay on 1st January
A
Delivers after closing hours
B
A has not performed his promise
Promisor not bound to perform, unless reciprocal promisee ready and willing to perform. When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise. A shall deliver goods to B to be paid for by B on delivery
B is unwilling to pay for the good on delivery A need not deliver the goods A is not willing to deliver the goods on payment B need not pay for the goods
A shall deliver goods to B at a price to be paid by instalments, the first instalment to be paid on delivery
Liability of party preventing event on which the contract is to take effect – When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation 1* from the other party for any loss which he may sustain in consequence of the non-performance of the contract.
A and B enter a contract that B shall execute work for A at Rs 1000
B is ready and willing to execute the work accordingly
A prevents him from doing so
Contract is voidable at the option of B B is entitled o recover from A, compensation of loss incurred by non-performance
Effect of neglect of promisee to afford promisor reasonable facilities for performance – If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any nonperformance caused thereby.
A contracts with B to repair B's house
B neglects or refuses to point out to A the places in which his house requires repair A is excused for the non-performance of the contract if it is caused by such neglecter refusal
Contingent Contract
Definition : A “Contingent Contract" is a contract To Do or Not To Do something, if some event, collateral to such contract, does or does not happen. " Example:
If B loses his Job
A
Rs. 10,000 Every Month
B
• Enforcement of contracts contingent on an event happening
A’s buying B’s house is not Enforceable by law till B marries C
If B marries C
Buy B’s house
A
B
• Enforcement of contracts contingent on an event not happening
Contract is enforceable only after the Ship is Sunk
If Ship X doesn’t return to the coast
A
B
• When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person The marriage of B to C must now be considered IMPOSSIBLE, although it is possible that D may die and that C may afterwards marry B.
If B marries C
A
B
When contracts become void which are contingent on happening of specified event within fixed time
The contract of LIC paying Rs. 2,00,000 to A’s family becomes void if A doesn’t die before 1st January 2010
If A Dies before 1st January 2010
LIC
A
• When contracts become void which are contingent on happening of specified event within fixed time
If B marries C
The contract is void, if C was dead at the time of agreement
A
B
THE CONSEQUENCES OF BREACH OF CONTRACT
• When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. • Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach
• Examples:
Grocer C
100 Kg Rice @ 25 Rs/Kg Delivered at 11:00 Hrs on 21st Nov 2008
100 Kg Rice @ 23 Rs/Kg Delivered at 10:00 Hrs on 21st Nov 2008
Hotel A Fails Grocer B
A is entitled to receive 200Rs as a direct loss A can’t enforce B to pay him for the loss of business because of delay
Compensation for breach of contract where penalty stipulated for
• When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
A
B
If A doesn’t pay Rs. 500 to B then A is entitled to pay B Rs 1000; Even though the loss was Rs. 500
• Party rightfully rescinding contract entitled to compensation A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the nonfulfillment of the contract
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights In every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract
Quantum Meruit
• In Latin means “As Much As He Has Deserved” • A contract may come to end by breach of contract , contract becoming void or voidable contract avoided by party. In such case, if a party has executed part of contract, he is entitled to get a proportionate amount i.e. ‘as much as earned by him’.
• To state a claim under Quantum Meruit, a plaintiff must allege that: o Defendant was enriched o The enrichment was at plaintiff's expense o The circumstances were such that equity and good conscience require defendants to make restitution. o Ex- When a person hires another to do work for him, and the contract is either not completed or is otherwise rendered un-performable the person performing may sue for the value of the improvements made or the services rendered to the defendant. The law implies a promise from the employer to the workman that he will pay him for his services, as much as he may deserve or merit.
Illustration
• A Man talks to a neighbor and tells him he's going to build a wall on their property that will give a benefit to both the man and his neighbor. The neighbor neither agrees nor disagrees with what the man wants to build. The man builds the wall, and then asks the neighbor to compensate him for the benefit of the wall that he conferred on the neighbor. The neighbor refuses. The man is entitled to some compensation based on quantum meruit. This is because there was an implied promise between the man and the neighbor, which is derived from contract law, because the man was acting under the assumption that the neighbor would pay for part of his services.
CONTRACT OF INDEMNITY A contract of indemnity is one where one party promises to save the other from loss or injury caused by the conduct of the promisor himself or of the third party (Section 124, Indian Contract Act) Key Fundamentals •It is a promise to compensate for or security against damage, loss or injury. •In wider sense it includes all contracts of insurance, guarantee. •It is not a collateral but an independent contract •It is a tool for allocating risks contingent liability •It should not be too broad or imprecise. •It should provide for extended periods of claims but for justifiable reasons. •Indemnity should survive period of agreement
Right of indemnity-holder when sued
The promisee is entitled to recover from the promisor: • all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies • all costs which he may be compelled to pay in any such suit, if in bringing of defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit • all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contract to the orders of the promisor, and was one which it would have been prudent for the promise to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.
Mohit Kumar Saha vs. New India Assurance Co AIR 1997, Calcutta HC
• It held that the indemnifier must pay the full amount of the value of the vehicle lost to theft as given by the surveyor. Any settlement at lesser value is arbitrary and unfair and violates art 14 of the constitution.
CONTRACT OF GUARANTEE A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default (Section 126, The Indian Contract Act) Key Fundamentals •Promise to perform promise of a third party if the third party breaks the promise. Primary liability of third party must exist. •3 parties – surety (guarantor), principal-debtor and creditor •Often termed as a “collateral” which means “parallel” “additional”. It is secondary liability as principal-debtor must be liable and defaulted. •A guarantee can be continuing. It can also be conditional.
Contd…
• It can be contained in more than one document, which will have to be read together. • A contract of guarantee may be made by a company under its common seal or by an authorized person. • A public company is prohibited to give a guarantee on a loan to any person by a director,etc (Sec 295, Companies Act) • There should be an explicit statement – “Guarantee is absolute and unconditional”. • It should be enforceable. • It should not contain representations which form basis of fraudulent inducement. • It should be preferably negotiated.
Consideration for Guarantee
• Anything done, or any promise made, for the benefit of the principal debtor, may be sufficient consideration to the surety for giving the guarantee.
Examples
• B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is sufficient consideration for C’s promise. • A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C’s promise. • A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.
Continuing guarantee
• A guarantee which extends to a series of transactions is called a "continuing guarantee". Illustrations: a) A, in consideration that B will employ C in collecting the rent of B's zamindari, promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee. b) A promises to pay B for all groceries bought by C for a period of 12 months if C fails to pay. In the next three months, C buys 2000/worth of groceries. After 3 months, A revokes the guarantee by giving a notice to B. C further purchases 1000 Rs of groceries. C fails to pay. A is not liable for Rs. 1000 of purchase that was made after the notice but he is liable for Rs. 2000 of purchase made before the notice.
Contd..
• As per section 131, the death of the surety acts as a revocation of a continuing guarantee with regards to future transactions, if there is no contract to the contrary. • It is important to note that there must not be any contract that keeps the guarantee alive even after the death. • In the case of Durga Priya vs. Durga Pada AIR 1928, Cal HC held that in each case the contract of guarantee between the parties must be looked into to determine whether the contract has been revoked due to the death of the surety or not. If there is a provision that says death does not cause the revocation then the contract of guarantee must be held to continue even after the death of the surety.
Difference between contract of indemnity & contract of guarantee
Contract of Indemnity Contract of Guarantee It is a bipartite agreement between the It is a tripartite agreement between the indemnifier and indemnity-holder. Creditor, Principal Debtor, and Surety Liability of the indemnifier is contingent Liability of the surety is not contingent upon upon the loss. any loss. Liability of the indemnifier is primary to the Liability of the surety is secondary to the contract contract and consequently if the principal debtor is not liable, the surety will also not be liable. The undertaking in indemnity is original. The undertaking is collateral to the original contract between the creditor and the principal debtor
The reason for a contract of indemnity is to The reason for a contract of guarantee is to make good on a loss if there is any. enable a third person get credit
Bailment
• Definition : It is a special type of contract. A " bailment " is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them • Bailor : The person delivering the goods is called the “Bailor". • Bailee : The person to whom they are delivered is called, the “Bailee".
Delivery to Bailee
• It can be done by any process, that ensures possession of goods by Bailee . • Possession of goods can also be made to any person who is authorized by Bailee.
Bailor’s Duty
• Its Bailor’s duty to disclose faults, which Bailor is aware of, in goods bailed to Bailee. • If fault materially interferes with use of good ,Bailor is responsible for damages. • If Bailee is exposed to extraordinary risk ,because of fault, Bailor is responsible for damages. • If goods are Bailed for hire, Bailor is responsible for damages . This condition holds true irrespective of Bailor’s knowledge about fault.
Illustrations
Lends a vicious Horse, Without disclosing to B If Horse causes damages, Then A is liable
Gives a Carriage on Hire to B. Carriage is damaged, however A doesn’t know.
If B gets injured, A is liable for damages
Bailee’s Duty
• Bailee is bound to take much care of goods bailed to him , as any person with prudent mind will do , as it will take of its own goods under similar circumstances, quality and value of goods. • Bailee is not liable for loss ,destruction or deterioration of things bailed , if Bailee has taken proper care as mentioned .
Termination of Bailment by bailee’s act
?A contract of bailment is avoidable at the option of the bailor, if the bailee does any ad with regard to the goods bailed, inconsistent with the conditions of the bailment. ?If the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. ?If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods re-mains in the parties respectively ; but the bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.
Contd………
• If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods. • Where, by the conditions of the bailment, the goods are to, be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.
Contd…..
?In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed. ?It is the duty of the bailee to return, or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. ?If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of. the goods from that time.
Contd….
• A gratuitous bailment is terminated by the death either of the bailor or of the bailee. • If a person, other than the bailor, claims goods bailed, he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods. • Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.
Bailment of pledges
• Pledge : The bailment of goods as security for payment of a debt or performance of a promise is called " pledge ". • Pawnor : Bailor is called Pawnor • Pawnee : Bailee is called Pawnee
Pawnee’s right of retainer
?The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. ?The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged. ?Pawnee's right as to extraordinary expenses incurred. The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.
Contd….
• If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledge as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.
Types of pledges
• Pledge by mercantile agent.-Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same ; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.
Contd…..
• Pledge by person in possession under voidable contract.When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title. • Pledge where pawnor has only a limited interest.-Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.
Suit by bailor or bailee against wrong-doer.
• If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury. • Apportionment of relief or compensation obtained by such suits.-Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests
Contract of agency
• Agency is a special type of contract. • The concept of agency was developed as one man cannot possibly do every transaction himself. Hence, he should have opportunity or facility to transact business through others like an agent • all usual requirements of a valid contract are applicable to agency contract • One important distinction is that as per section 185, no consideration is necessary to create an agency.
principles
• Excepting matters of a personal nature, what a person can do himself, he can also do it through agent (e.g. a person cannot marry through an agent, as it is a matter of personal nature) • A person acting through an agent is acting himself, i.e. act of agent is act of Principal.
Principal and Agent
• Agent- An "agent" is a person employed to do any act for another or to represent another in dealings with third persons. • Principal- The person for whom such act is done, or who is so represented, is called the " principal".
• • • •
Who may employ agent. Who may be an agent. Consideration not necessary. Agent's authority may be expressed or implied.
• Definitions of express and implied authority. • Illustration-A owns a shop in Dankuni, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he Is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A's funds with A's knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop.
Extent of agent's authority.
• An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. • An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.
Agent's authority in an emergency.
• An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances. • Illustration- An agent for sale may have goods repaired if it be necessary.
Sub-agent
• A " sub-agent " is a person employed by, and acting under the control of, the original agent in the business of the agency. • Sub-agent's responsibility. The sub-agent is responsible for his acts to the agent, but not to ,the principal, except in case of fraud or wilful wrong.
Ratification
• Right of person as to acts done for him without his authority. • Ratification may be expressed or implied. • Illustration-A, without authority, buys goods for B. Afterwards B sells them to C ,on his own account; B's conduct implies a ratification of the purchase made for him by A.
Termination of agency.
• An agency is terminated o by the principal revoking his authority o by the agent renouncing the business of the agency o by the business of the agency being completed; o by either the principal or agent dying or becoming of unsound mind o by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors
• Notice of revocation or renunciation. • Revocation and renunciation may be expressed or implied. • Illustration- A empowers B to let A's house. Afterwards A lets it himself. This is an Implied revocation of B's authority.
doc_581119822.ppt
Legal Contract Act
Introduction
• This Act may be called the Indian Contract Act, 1872.It extends to the whole of India [except the State of Jammu and Kashmir]; and it shall come into force on the first day of September, 1872 • Sec.2(h) “ An agreement enforceable by law” • Agreement + enforceability by law = Contract • Agreement must create a legal obligation or duty
Contd..
• Section 1 of Contract Act provides that any usage or custom or trade or any incident of contract is not affected as long as it is not inconsistent with provisions of the Act. In other words, provision of Contract Act will prevail over any usage or custom or trade
Contd..
• It must be noted that contract need not be in writing, unless there is specific provision in law that the contract should be in writing
– e.g. contract for sale of immovable property must be in writing, stamped and registered – Contracts which need registration – Bill of Exchange or Promissory Note – Promise to pay a time barred loan – Contract made without consideration on account of natural love and affection
Contd..
• A verbal contract is equally enforceable, if it can be proved.. A contract can be enforced or compensation/damages for breach of contract can be obtained through Civil Court
Proposal and Promise
• When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal • Proposal may be express(spoken or written) or implied(inferred from conduct)
Promise, Promisor and Promisee
• When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise • The person making the proposal is called the promisor and the person accepting the proposal is called the It promisee
Constituents of a Proposal(essential elements)
• The proposal must show the obvious intention on part of the offerer to be bound by it • The offerer must make the proposal with view to obtain the assent of the offeree • It must be definite • It must be communicated to the offeree
Consideration Definition
Something of value given by both parties to give to a contract that induce them to enter into the agreement of mutual performance
Consideration continue…
• Consideration is essential element for the formation of contract • It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do
Consideration
Essential Condition • It should be objectively defined • Promise to give a gift is not forceable since its subjective
Consideration
For example:- In a contract for the sale of goods the money paid is the valuable consideration for the vendor, and the property sold is consideration for the purchaser. In the formation of simple contracts, whether written, oral or implied, consideration must enter, and it must enter also in sealed contracts
Contract
• Court has divided contract in to two types: • Bilateral contract • Unilateral contract
Bilateral Contract.
• Bilateral contract is an agreement by which both parties exchange mutual promises • Each party makes at least one promise • Promisor :- He is the maker of promise • Promisee :- He is the receiver of promise • Promise act as sufficient consideration for both promisee and promisor
Example of bilateral contract
• If someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a Bilateral Contract would be formed binding both of you once you provided consideration by accepting those terms
Benefit / Detriment Theories of Consideration
• Consideration – Promisor agrees to suffer a loss or a detriment • Detriment – Loss suffered in agreeing to do something not obligated or agreeing not to do what entitled to do • Benefit theory – value the promisee is receiving • Detriment theory – value promisor is giving up
Unilateral contract
• In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance • Performance act as consideration for promise and promise act as a consideration for performance. • Instead if return promises, promisor asks for the performance
Example of unilateral contract
• If same person offered to pay you $10 each day you drove him to work, a unilateral contract would be formed, binding only upon the promisor until you provided consideration by driving him to work on a particular day.
Adequacy and equality of consideration
• The adequacy of consideration, as between the parties, is immaterial, so long as there is no fraud. • Incase of equality of consideration its not necessary that promise do not be equal. • Does not need to meet a reasonable person standard .
Promises that are not valid consideration
• • • • • • • Illusory promise. Promise to confer gifts. Donatives promise. Moral promise. Pre-existing duty. Discharge of debt Public obligations.
Steps involved in consideration
• The steps involved in the contract are o proposal and its communication o acceptance of proposal and its communication o Agreement by mutual promises o Performance of contract
Essential requirements for contract.
• Offer and its acceptance • Free consent of both parties • Mutual and lawful consideration for agreement • It should be enforceable by law. Hence, intention should be to create legal relationship. Agreements of social or domestic nature are not contracts
Essential requirements for contract
• • • • Parties should be competent to contract Object should be lawful Certainty and possibility of performance Contract should not have been declared as void under Contract Act or any other law
COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSAL
• Communication When Complete: The, communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. • The communication of an acceptance is complete: o as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; o as against the acceptor, when it comes to the, knowledge, of the proposer.
• The communication of a revocation is complete o as 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 o as against the person. to whom it is made, when it comes. to his knowledge.
• Illustrations o A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter o B accepts A's proposal by a letter sent by post. The communication of the acceptance is complete— as against A, when the letter is posted; as against B, when the letter is received by A
• A revokes his proposal by telegram. The revocation is complete as against A when the telegram is despatched. It is complete as against B when B receives it. B revokes his acceptance by telegram. B's revocation is complete as against B when the telegram is despatched, and as against A when it reaches him
Revocation of proposals and acceptances. – 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 • Illustrations • A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post – A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards – B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards
Revocation how made • A proposal is revoked— – by the communication of notice of revocation by the proposer to the other party – by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance – by the failure of the acceptor to fulfil a condition precedent to acceptance; or – by the death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance
Acceptance must be absolute. • In order to convert a proposal into a promise, the acceptance must— – be absolute and unqualified – be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such a manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted” in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance
Promises express and implied • In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied Illustration • When A’s rental agent shows B around the building , she goes out of her way to show off the laundry room, saying “Here’s the terrific laundry room, and its for every tenant to use.” • B rents the apartment. Later all the washing machine breaks down but A wont fix them. This way A has violated his implied promise to maintain the laundry room appliances in the working order
VOID AGREEMENTS • If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. • Illustration – Ashish entered into a contract with Baman to buy stolen cars. Buying and Selling in itself is not illegal but since this contract involve illegal activity, so the contract is void. – I have promised Deep to get him job in a company for a consideration of Rs 5 lakhs. After getting the job, Deep refused to pay. But I cannot sue him as the contract itself is void as it involves illegal act like bribery.
• The consideration or object of an agreement is lawful, unless: – It is forbidden by law. E.g. steal car and share the money – Is of such a manner that, if permitted, it would defeat the provision of any law. E.g. A bribed a Jury to vote for him – Is fraudulent. E.g. A & B forge docs to evade tax. Dispute on sharing the benefits – Involves or implies injury to person or property. E.g. A promises B Rs 50000 to break the leg of C – The court regard it as immoral or opposed to public policy. E.g. Pregnant A promising Dr. B some amount if B reveal the sex of baby before birth
VOIDABLE CONTRACTS E.g. 1 – A’s car had done 150000 kms. He repainted car, tampered with the meter and made it 20000 kms. Offered the car to B for Rs 2 Lakh. B paid an advance of Rs 1 Lakh. Later B learnt about the reality about the car. B wants his money back but A insists that he should pay the remaining 1 Lakh and take the car. E.g. 2 – A’s car had done 150000 kms. He repainted car, tampered with the meter and made it 20000 kms. Offered the car to B for Rs 2 Lakh. B paid an advance of Rs 1 Lakh. Later B learnt about the reality about the car. However, Govt. imposed some tax which made cars expensive. Now, A wants to return the paid 1 Lakh to B and not give him the car. But here B refuses.
• In both the above cases, the contract can be turned to nullity at the option of suffering party. • Contracts become voidable when the consent of an innocent party is obtained through coercion, fraud, misrepresentation or undue influence.
What agreements are contracts
• 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 are not hereby expressly declared to be void.
Who are competent to contract
• Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.
What is a sound mind for the purposes of contracting.
• A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. • A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. • A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
Illustrations
(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals. (b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.
Free consent
• Two or more persons are said to consent when they agree upon the same thing in the same sense. [section 13]. • Consent is said to be free when it is not caused by (1) Coercion, as defined in section 15 (2) Undue influence, as defined in section 16 (3) Fraud, as defined in section 17 (4) Misrepresentation, as defined in section 18 (5) Mistake, subject to the provisions of sections 20, 21 and 22.
Coercion
"Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Illustration A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta.
Undue Influence
A contract is said to be induced by "undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Illustration A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
Fraud
"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent. Illustrations (a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse, is unsound. (c) B says to A "If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's silence is equivalent to speech.
Misrepresentation
Means and includes(1) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true (2) Any breach, of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him; (3) Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
Power to set aside contract induced by undue influence
When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there under, upon such terms and conditions as to the Court may seem just.
Illustrations
(a) A's son has forged B's name to a promissory note. B, under threat of prosecuting A's son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside. (b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and, by undue influence, induces B to execute a bond for Rs. 200 with
Agreement void where both parties are under mistake as to matter of fact.
• Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.
•
Illustrations
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the facts. The agreement is void. (b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.
Voidability of agreements without free consent.
(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B. (b) A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage debt redeemed.
Performance of reciprocal promises
• Promises which form the consideration or part of the consideration for each other are called reciprocal promises. [section 2(f)]. A mutual promise can be of following types – (a) Mutual and independent – Where each party must perform his promise independently and irrespective of whether the other party has performed or is willing to perform e.g. Seller agrees to deliver on 5th and Buyer agrees to pay on 15th. (b) Conditional and dependent – Performance of promise by one party depends on prior performance of promise by other party. e.g. Buyer agrees to pay for goods 15 days after delivery. Hence, unless seller delivers goods, buyer’s liability does not arise.
Obligation of parties to contracts
The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance' is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.
A
Deliver goods worth Rs. 1000 A dies
B
A’s representatives
B
A
Paint a picture
B
Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for nonperformance, nor does he thereby lose his rights under the contract.
Offer of performance
A
A fails to deliver
B
Effect of refusal of party to perform promise wholly – When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. Contract to sing
A
Willfully absent
B
Absent with consent
A
Contract stands annulled
B
Pay damages with continuation on contract
Any one of joint promisors may be compelled to perform – When two or; more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any 1*[one or more] of such joint promisors, to perform the whole of the promise.
Jointly promise to pay Rs 3000
A pays Rs 3000
B A C A
B C
D
D may compel either of them
D
B has to pay Rs 1500 to A
Devolution of joint rights – When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person. Jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.
B dies
B
Rs 5000
A
C
Time and place for performance of promise, where time is specified and no application to be made – When promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. Promises to pay on 1st January
A
Delivers after closing hours
B
A has not performed his promise
Promisor not bound to perform, unless reciprocal promisee ready and willing to perform. When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise. A shall deliver goods to B to be paid for by B on delivery
B is unwilling to pay for the good on delivery A need not deliver the goods A is not willing to deliver the goods on payment B need not pay for the goods
A shall deliver goods to B at a price to be paid by instalments, the first instalment to be paid on delivery
Liability of party preventing event on which the contract is to take effect – When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation 1* from the other party for any loss which he may sustain in consequence of the non-performance of the contract.
A and B enter a contract that B shall execute work for A at Rs 1000
B is ready and willing to execute the work accordingly
A prevents him from doing so
Contract is voidable at the option of B B is entitled o recover from A, compensation of loss incurred by non-performance
Effect of neglect of promisee to afford promisor reasonable facilities for performance – If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any nonperformance caused thereby.
A contracts with B to repair B's house
B neglects or refuses to point out to A the places in which his house requires repair A is excused for the non-performance of the contract if it is caused by such neglecter refusal
Contingent Contract
Definition : A “Contingent Contract" is a contract To Do or Not To Do something, if some event, collateral to such contract, does or does not happen. " Example:
If B loses his Job
A
Rs. 10,000 Every Month
B
• Enforcement of contracts contingent on an event happening
A’s buying B’s house is not Enforceable by law till B marries C
If B marries C
Buy B’s house
A
B
• Enforcement of contracts contingent on an event not happening
Contract is enforceable only after the Ship is Sunk
If Ship X doesn’t return to the coast
A
B
• When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person The marriage of B to C must now be considered IMPOSSIBLE, although it is possible that D may die and that C may afterwards marry B.
If B marries C
A
B
When contracts become void which are contingent on happening of specified event within fixed time
The contract of LIC paying Rs. 2,00,000 to A’s family becomes void if A doesn’t die before 1st January 2010
If A Dies before 1st January 2010
LIC
A
• When contracts become void which are contingent on happening of specified event within fixed time
If B marries C
The contract is void, if C was dead at the time of agreement
A
B
THE CONSEQUENCES OF BREACH OF CONTRACT
• When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. • Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach
• Examples:
Grocer C
100 Kg Rice @ 25 Rs/Kg Delivered at 11:00 Hrs on 21st Nov 2008
100 Kg Rice @ 23 Rs/Kg Delivered at 10:00 Hrs on 21st Nov 2008
Hotel A Fails Grocer B
A is entitled to receive 200Rs as a direct loss A can’t enforce B to pay him for the loss of business because of delay
Compensation for breach of contract where penalty stipulated for
• When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
A
B
If A doesn’t pay Rs. 500 to B then A is entitled to pay B Rs 1000; Even though the loss was Rs. 500
• Party rightfully rescinding contract entitled to compensation A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the nonfulfillment of the contract
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights In every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract
Quantum Meruit
• In Latin means “As Much As He Has Deserved” • A contract may come to end by breach of contract , contract becoming void or voidable contract avoided by party. In such case, if a party has executed part of contract, he is entitled to get a proportionate amount i.e. ‘as much as earned by him’.
• To state a claim under Quantum Meruit, a plaintiff must allege that: o Defendant was enriched o The enrichment was at plaintiff's expense o The circumstances were such that equity and good conscience require defendants to make restitution. o Ex- When a person hires another to do work for him, and the contract is either not completed or is otherwise rendered un-performable the person performing may sue for the value of the improvements made or the services rendered to the defendant. The law implies a promise from the employer to the workman that he will pay him for his services, as much as he may deserve or merit.
Illustration
• A Man talks to a neighbor and tells him he's going to build a wall on their property that will give a benefit to both the man and his neighbor. The neighbor neither agrees nor disagrees with what the man wants to build. The man builds the wall, and then asks the neighbor to compensate him for the benefit of the wall that he conferred on the neighbor. The neighbor refuses. The man is entitled to some compensation based on quantum meruit. This is because there was an implied promise between the man and the neighbor, which is derived from contract law, because the man was acting under the assumption that the neighbor would pay for part of his services.
CONTRACT OF INDEMNITY A contract of indemnity is one where one party promises to save the other from loss or injury caused by the conduct of the promisor himself or of the third party (Section 124, Indian Contract Act) Key Fundamentals •It is a promise to compensate for or security against damage, loss or injury. •In wider sense it includes all contracts of insurance, guarantee. •It is not a collateral but an independent contract •It is a tool for allocating risks contingent liability •It should not be too broad or imprecise. •It should provide for extended periods of claims but for justifiable reasons. •Indemnity should survive period of agreement
Right of indemnity-holder when sued
The promisee is entitled to recover from the promisor: • all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies • all costs which he may be compelled to pay in any such suit, if in bringing of defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit • all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contract to the orders of the promisor, and was one which it would have been prudent for the promise to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.
Mohit Kumar Saha vs. New India Assurance Co AIR 1997, Calcutta HC
• It held that the indemnifier must pay the full amount of the value of the vehicle lost to theft as given by the surveyor. Any settlement at lesser value is arbitrary and unfair and violates art 14 of the constitution.
CONTRACT OF GUARANTEE A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default (Section 126, The Indian Contract Act) Key Fundamentals •Promise to perform promise of a third party if the third party breaks the promise. Primary liability of third party must exist. •3 parties – surety (guarantor), principal-debtor and creditor •Often termed as a “collateral” which means “parallel” “additional”. It is secondary liability as principal-debtor must be liable and defaulted. •A guarantee can be continuing. It can also be conditional.
Contd…
• It can be contained in more than one document, which will have to be read together. • A contract of guarantee may be made by a company under its common seal or by an authorized person. • A public company is prohibited to give a guarantee on a loan to any person by a director,etc (Sec 295, Companies Act) • There should be an explicit statement – “Guarantee is absolute and unconditional”. • It should be enforceable. • It should not contain representations which form basis of fraudulent inducement. • It should be preferably negotiated.
Consideration for Guarantee
• Anything done, or any promise made, for the benefit of the principal debtor, may be sufficient consideration to the surety for giving the guarantee.
Examples
• B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is sufficient consideration for C’s promise. • A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C’s promise. • A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.
Continuing guarantee
• A guarantee which extends to a series of transactions is called a "continuing guarantee". Illustrations: a) A, in consideration that B will employ C in collecting the rent of B's zamindari, promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee. b) A promises to pay B for all groceries bought by C for a period of 12 months if C fails to pay. In the next three months, C buys 2000/worth of groceries. After 3 months, A revokes the guarantee by giving a notice to B. C further purchases 1000 Rs of groceries. C fails to pay. A is not liable for Rs. 1000 of purchase that was made after the notice but he is liable for Rs. 2000 of purchase made before the notice.
Contd..
• As per section 131, the death of the surety acts as a revocation of a continuing guarantee with regards to future transactions, if there is no contract to the contrary. • It is important to note that there must not be any contract that keeps the guarantee alive even after the death. • In the case of Durga Priya vs. Durga Pada AIR 1928, Cal HC held that in each case the contract of guarantee between the parties must be looked into to determine whether the contract has been revoked due to the death of the surety or not. If there is a provision that says death does not cause the revocation then the contract of guarantee must be held to continue even after the death of the surety.
Difference between contract of indemnity & contract of guarantee
Contract of Indemnity Contract of Guarantee It is a bipartite agreement between the It is a tripartite agreement between the indemnifier and indemnity-holder. Creditor, Principal Debtor, and Surety Liability of the indemnifier is contingent Liability of the surety is not contingent upon upon the loss. any loss. Liability of the indemnifier is primary to the Liability of the surety is secondary to the contract contract and consequently if the principal debtor is not liable, the surety will also not be liable. The undertaking in indemnity is original. The undertaking is collateral to the original contract between the creditor and the principal debtor
The reason for a contract of indemnity is to The reason for a contract of guarantee is to make good on a loss if there is any. enable a third person get credit
Bailment
• Definition : It is a special type of contract. A " bailment " is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them • Bailor : The person delivering the goods is called the “Bailor". • Bailee : The person to whom they are delivered is called, the “Bailee".
Delivery to Bailee
• It can be done by any process, that ensures possession of goods by Bailee . • Possession of goods can also be made to any person who is authorized by Bailee.
Bailor’s Duty
• Its Bailor’s duty to disclose faults, which Bailor is aware of, in goods bailed to Bailee. • If fault materially interferes with use of good ,Bailor is responsible for damages. • If Bailee is exposed to extraordinary risk ,because of fault, Bailor is responsible for damages. • If goods are Bailed for hire, Bailor is responsible for damages . This condition holds true irrespective of Bailor’s knowledge about fault.
Illustrations
Lends a vicious Horse, Without disclosing to B If Horse causes damages, Then A is liable
Gives a Carriage on Hire to B. Carriage is damaged, however A doesn’t know.
If B gets injured, A is liable for damages
Bailee’s Duty
• Bailee is bound to take much care of goods bailed to him , as any person with prudent mind will do , as it will take of its own goods under similar circumstances, quality and value of goods. • Bailee is not liable for loss ,destruction or deterioration of things bailed , if Bailee has taken proper care as mentioned .
Termination of Bailment by bailee’s act
?A contract of bailment is avoidable at the option of the bailor, if the bailee does any ad with regard to the goods bailed, inconsistent with the conditions of the bailment. ?If the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. ?If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods re-mains in the parties respectively ; but the bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.
Contd………
• If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods. • Where, by the conditions of the bailment, the goods are to, be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.
Contd…..
?In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed. ?It is the duty of the bailee to return, or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. ?If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of. the goods from that time.
Contd….
• A gratuitous bailment is terminated by the death either of the bailor or of the bailee. • If a person, other than the bailor, claims goods bailed, he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods. • Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.
Bailment of pledges
• Pledge : The bailment of goods as security for payment of a debt or performance of a promise is called " pledge ". • Pawnor : Bailor is called Pawnor • Pawnee : Bailee is called Pawnee
Pawnee’s right of retainer
?The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. ?The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged. ?Pawnee's right as to extraordinary expenses incurred. The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.
Contd….
• If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledge as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.
Types of pledges
• Pledge by mercantile agent.-Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same ; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.
Contd…..
• Pledge by person in possession under voidable contract.When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title. • Pledge where pawnor has only a limited interest.-Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.
Suit by bailor or bailee against wrong-doer.
• If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury. • Apportionment of relief or compensation obtained by such suits.-Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests
Contract of agency
• Agency is a special type of contract. • The concept of agency was developed as one man cannot possibly do every transaction himself. Hence, he should have opportunity or facility to transact business through others like an agent • all usual requirements of a valid contract are applicable to agency contract • One important distinction is that as per section 185, no consideration is necessary to create an agency.
principles
• Excepting matters of a personal nature, what a person can do himself, he can also do it through agent (e.g. a person cannot marry through an agent, as it is a matter of personal nature) • A person acting through an agent is acting himself, i.e. act of agent is act of Principal.
Principal and Agent
• Agent- An "agent" is a person employed to do any act for another or to represent another in dealings with third persons. • Principal- The person for whom such act is done, or who is so represented, is called the " principal".
• • • •
Who may employ agent. Who may be an agent. Consideration not necessary. Agent's authority may be expressed or implied.
• Definitions of express and implied authority. • Illustration-A owns a shop in Dankuni, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he Is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A's funds with A's knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop.
Extent of agent's authority.
• An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. • An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.
Agent's authority in an emergency.
• An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances. • Illustration- An agent for sale may have goods repaired if it be necessary.
Sub-agent
• A " sub-agent " is a person employed by, and acting under the control of, the original agent in the business of the agency. • Sub-agent's responsibility. The sub-agent is responsible for his acts to the agent, but not to ,the principal, except in case of fraud or wilful wrong.
Ratification
• Right of person as to acts done for him without his authority. • Ratification may be expressed or implied. • Illustration-A, without authority, buys goods for B. Afterwards B sells them to C ,on his own account; B's conduct implies a ratification of the purchase made for him by A.
Termination of agency.
• An agency is terminated o by the principal revoking his authority o by the agent renouncing the business of the agency o by the business of the agency being completed; o by either the principal or agent dying or becoming of unsound mind o by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors
• Notice of revocation or renunciation. • Revocation and renunciation may be expressed or implied. • Illustration- A empowers B to let A's house. Afterwards A lets it himself. This is an Implied revocation of B's authority.
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