Description
contracts and agreements with the help of various case studies.
Legal Environment
by Prof. S. Sudeep Kumar
Legality of contracts
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The Object or consideration may be illegal. Forbidden by law. Defeat provisions of law Implies injury to person or property of another. Courts regard as immoral or opposed to public policy.
Legality of object (sec.23)
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Stifling prosecution. Maintenance. Interference with court of justice. Trafficking in public offices & titles. Marriage brokerage agreements. Restricting personal liberty. Restraining parental rights. Tending to create interest opposite to duty. Interfering with marital status. Attempting to vary period of limitation. Attempting to defraud creditors/revenue authorities.
Case study-1
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A has stolen some goods of B. However B is prepared to have an agreement that in return for replacing the stolen goods, he would absolve A of criminal liability & prosecution provided A would meet all expenses for defending B in a law suit against C. However A has to agree in writing that he would not change his job/residence etc. Later B approaches witnesses in the case to get their support in evidence & also meets the judge to get his favor. Subsequently B meets the Sub-Inspector of the local Police station and promises that in return for framing a chargesheet against C and in his favor, he would deliver 2 bags of wheat and 500 grams of cocaine.
Case-study-2
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Arun aged 17 years was employed by “Highway hotel” as staff of their kitchen. Though the working hours were from 8 AM to 6 PM, the employers wanted his father to agree to Arun shifting his residence to the hotel much against his wishes. Arun’s father Mr. Mahadeva was a marriage broker who made agreements with parents of girls of marriageable age that he be paid Rs.25000 as reward when a marriage was finalized. Sometimes he would even lend money to Kamala, a vendor in the nearby vegetable market, in consideration of her getting divorce from her husband to marry him. Since Mahadeva’s brother-in-law was into publishing a local daily newspaper, he feared that his image would get tarnished if the news got published. Hence he threatens him with dire consequences if the news was published.
Case studies
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Rohit agrees to pay Abhilash a sum of Rs.25000 if he loses the latter's bike while using it. Amit agrees to pay Rs.25 lacs to suppliers of Effluent treatment plant in his factory, subject to satisfactory inspection by the Pollution control board. Is there legal liability in the event of breach?
Contingent Contracts(sec.32 to 36)
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Absolute Contracts Vs. Contingent Contracts. (existence of a collateral event) Contracts contingent on happening of an event.(sec.32)where promisor would not be liable to perform the promise till the uncertain event has happened. Contracts contingent on non happening of an event(sec.33) where promisor would be liable to perform if the uncertain event has not happened. Sec.35 provides for time limits for happening or non-happening of events. Contracts contingent on happening of an impossible event(sec.36)
Case studies
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A promises to pay Rs.5000 to B if it rains on 23rd February & B promises to pay the same amount if it doesn't. Vignesh agrees to pay Rs.10000 to Muthu if India beats Pakistan in the 20-20 World cup final match & Muthu would pay if India loses. Is there legal liability in the event of breach?
Wagering contracts(sec30)
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Essentials: Money/money’s worth, event, uncertainty, mutual chances of gain/loss, no control over event. Agreements void in our country. In Maharashtra & Gujarat it is declared illegal. They are conditional. Just a gamble. Hence against public policy. No benefit to society. Not contracts of indemnity. No insurable interest. Consists of reciprocal promises. Amount payable is fixed.
Contingent contracts
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Parties have insurable interest in happening/non happening of event. The future event is only collateral/incidental to contract. No reciprocal promise necessary. Valid contract. Contracts can be contingent on happening , non happening , future conduct of living person or upon happening of a impossible event
Insurance Contracts
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Person having an insurable interest can insure his life or property. In case of contracts of insurance except life insurance, the actual amount payable need not necessarily be the full amount for which the property is insured These are regarded as beneficial to the public policy. Such agreements do not tantamount to gambling as they involve the element of investment and protection.
Case studies
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X supplies Y, a lunatic with necessaries suitable to his condition in life. Is X entitled for reimbursement from Y’s property? Jim has set up his factory in Gurgaon,in a plot of 10 acres leased from Prakash.Since Prakash is going through a difficult phase, he is unable to pay up the arrears of land tax which has accumulated to Rs.2 lacs. Hence the authorities have issued notice that the land would be put up for sale to realize the tax amount. Jim is kind enough to pay up the tax arrears for Prakash. Jim carries on with his business without paying any rent.
Quasi-contracts
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Not a contract at all because the essentials of contract are absent. Obligation imposed by law so that a person shall not unjustly get rich at the expense of another. Duty & not a promise & always it is right to money.
Types
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Right to recover price of necessaries. Right to recover money paid to another. Right to recover for non-gratuitous act. Responsibility of finder of goods. Right to recover from person who has been wrongly delivered something by mistake/under coercion
Compensation in Quasi contracts
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Guided by principle of “Quantum meruit”or “as much as earned”. Singer in a theatre. Trader leaving goods in the wrong place by mistake.
Void Agreements
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Agreements by incompetent persons.(sec.11) Agreements made under bilateral mistake of fact material to agreement.(sec.20) Agreements with unlawful object or consideration.(sec.23) Agreements in which object/ consideration is unlawful in part.(sec.24) Agreements without consideration.(sec.25) Agreements in restraint of marriage.(sec.26) Agreements in restraint of trade.(sec.27) Agreements in restraint of legal proceedings(sec.28) Agreements, the meaning of which are uncertain.(sec.29) Agreements by way of wager.(sec.30) Agreements contingent on impossible event.(sec.56) Agreements to do impossible act.(sec.56,para-1)
Discharge of contracts
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By performance. Agreement. Lapse of time. Operation of law. Impossibility. Breach of contract.
Performance(sec.37)
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Provides that parties to contract must perform or offer to perform their respective promises unless such performance is dispensed with or excused under provisions of the Act. If promisors die before performance, their legal representatives must perform unless a contrary intention appears from the contract. Actual performance. Attempted performance or tender(sec.38): If offer of performance has not been accepted, promisor is not responsible for non-performance nor does he lose rights under the contract.
Tenders(sec.38)
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Must be unconditional. Should be made at proper fixed time & place. Reasonable opportunity to be given to other party. Must be made to proper promisees or joint promisees. Must be an offer to perform in full. Should be for delivery of goods of right quality & quantity. In case of payment of money, tender must be of precise amount. In tender of goods, refusal by promisee would discharge the promisor. In case of tender money, refusal by creditor does not extinguish the debt or release debtor from liability.
Who shall perform?
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Promisor(sec.40) if the intention of the parties was that promise should be performed by promisor himself. (Contracts involving personal skill) Agent(sec.40):Where it is not of personal nature. Legal representatives(sec.37):Where personal qualifications are not material, legal heirs must perform in the event of death of promisor but liability is limited to extent of joint estate inherited by them. Third parties may perform if contract is assigned by act of parties or by operation of law. If there are joint promisors, all persons are required to fulfill the promise.
Who can demand performance?
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Only promisee/legal heirs could demand performance & not third parties even if contract has been made for their benefit.
Time as essence of contract
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Time is of the essence of contract if contraction parties have agreed so. Delay in performance results in injury to one of the parties. Nature of contract requires so. (Mere inclusion of a clause imposing penalty for default is insufficient) Where time is not of the essence, contracts may not be void able, but promisee may claim for loss occasioned by such delay. Acceptance of performance at other than agreed time.
Discharge of contract by agreement(sec.62)
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Novation: substituting existing contract with another. Rescission: All/some terms of contract are cancelled either by mutual consent or when one of the parties fails to fulfill promise. Remission: Acceptance of less than what was agreed for or extension of time. Waiver: Deliberate abandonment of rights by parties to contract. Merger: Inferior right merging into a superior right. Alteration: When terms of contract are altered by mutual consent of parties,old contract discharged
Discharge by impossibility of performance(sec.56)
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Impossibility known to parties at the time of making contract (ab initio). Impossibility unknown at the time of contract. Impossibility arising subsequent to formation of contract. Only if it is caused by circumstances beyond the control of parties (supervening impossibility) like death/incapacity of party, destruction of subject matter, unanticipated change of circumstances, change of law, outbreak of war etc. However difficulty in performance/commercial impossibility/default by third party/strikes, lockouts,civil disturbances do not amount to discharge of contract.
Discharge (others)
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Discharge by lapse of time. Discharge by operation of law (death of a sportsman/artist/insolvency) Discharge by unauthorized alteration in terms of contract. Discharge by breach (anticipatory or actual)
Hadley Vs Baxendale
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Hadley's flourmill at Gloucester & suppliers of steam engine spares were based at Greenwich. Crankshaft of engine broke down & had to be dispatched to suppliers by carriers Pickford & Co. for enabling them to fabricate a similar one. The replacement arrived late & Hadley claimed loss of profit of $300 for 5 days. What are liquidated damages?
Chiranjilal Vs Dwarakadas
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Chiranjilal, a trader in Kanpur agreed to sell canvas @Re.1 per yard to Dwarakadas and deliver the goods at Kolkata. Though he agreed to book the cargo by rail on 5th August, he failed & informed Dwarakadas on 8th August that booking to Kolkata was closed. He moved the court contending that he would have realized a rate of Rs.1.83 per yard in Kolkata.
ONGC Vs SAW Pipes Ltd
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ONGC contracted for supply of steel casing pipes to be supplied before 14th Nov. On 8th August SAW Pipes inform ONGC of delay on account of inability of getting steel plates from Italian suppliers & that they would supply only by Oct.1996& that they needed further 45 days for supply. They agreed on the condition of getting liquidated damages.
Damages
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Liquidated damages General Damages Special damages Punitive damages
Special Contracts(sec.124 to 147) Indemnity & Guarantee
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Indemnity means “ to compensate or made good the loss of the party who has suffered the loss”. Contract of indemnity is one in which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Rights of indemnity holder(sec.125) are: Compensation for all damages he may be compelled to pay in any suit relating to matter to which indemnity applies. Compensation for all costs incurred to defend the suit, not contravening orders of the promisor. All sums paid under terms of any compromise of any such suit, provided it was not contrary to the orders of the promisor. Contract of Indemnity may be express or implied.
Features of indemnity contracts
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Two parties, Indemnifier & Indemnity holder & only one contract exists between the two. Indemnifier undertakes to save the indemnity holder from any loss. Liability of indemnifier is primary & unconditional. Liability arises only on the happening of a contingency. The indemnifier need not act at the request of indemnity holder. Indemnifier cannot sue a third party in the absence of privity of contract. Indemnity contracts may be explicit or implicit.
Contract of Guarantee(sec.126 to 143)
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It is a contract to perform a promise or discharge liability of a third person in case of his default. The essentials of a valid Contract of Guarantee are: Tripartite agreement involving Principal Debtor, Creditor & Surety. Existence of liability/promise whose performance is guaranteed. Essentials of a valid contract applies. However Principal debtor could even be a minor. Cannot be obtained by misrepresentation or concealment of material facts & hence a contract of uberrimae fidei (utmost good faith)
Difference between Indemnity/Guarantee contracts
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Three parties—Principal Debtor, Creditor, Surety. Contract is tripartite. Surety undertakes for payment of debts of principal debtor. Primary liability is on principal debtor whereas it is secondary & conditional for surety. Liability arises only on non-performance of an existing promise. Surety acts at the request of principal debtor. Surety on discharge of debt of principal debtor, can sue him in his own name.
Discharge of surety
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By revocation (sending notice). By death of surety. By novation. By conduct of creditor. By release/discharge of principal debtor.
Bailment & pledge(sec.148 to 180)
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Delivery of goods by one person (Bailor) to another (Bailee)for some purpose, upon a contract that they shall when the purpose is accomplished, be returned or disposed off according to directions of person delivering them.
Essentials of bailment
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Agreement (express or implied) or implied by law as in finder of goods. Delivery of goods. Purpose. Return of specific goods. (Different from sale in the sense that only possession is transferred, consideration need not be passed between bailor & bailee and bailee is obliged to return the goods to bailor on fulfillment of purpose).
Bailment types.
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Gratuitous bailment. Non-gratuitous bailment (all hiring) Bailment for exclusive benefit of bailor. Bailment for exclusive benefit of bailee. Bailment for mutual benefit.
Duties of bailor
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Duty to disclose defects. Duty to bear expenses. Duty to indemnify for premature termination of gratuitous bailment. Duty to indemnify for defective title. Duty to receive back goods. Duty to bear the risk of loss.
Duties of bailee
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Duty to take care of goods bailed. Duty not to make unauthorized use of goods. Duty not to mix own goods with those of bailor’s. Duty to return goods. Duty to deliver accretions of goods.
Rights of bailor
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Right to claim damages for negligence. Right to terminate contract in the event of unauthorized use. Right to claim compensation for unauthorized use. Right to claim separation of goods in the case of unauthorized mixture and compensation where it is non-separable. Right to demand return of goods. Right to be compensated for unauthorized retention of goods. Right to demand accretions to goods.
Rights of bailee
Right to claim damages & expenses. ? Right for indemnification in premature termination of gratuitous bailment. * Right of recovery in case of defective title. * Right to recover if bailor refuses to take back goods. * Right to deliver goods to joint bailors or return in case of defective title. * Right to particular lien. * Rights & obligations of finders of goods.
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Cases
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Deboo Vs Hindlekar (Dry-cleaning business) Srinivasa Iyer Vs.New India Assurance Co. Ltd
Pledge
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Bailment of goods as security for payment of a debt or performance of a promise. The person delivering goods is the pledgor or pawnor. The person to whom goods are delivered as security for payment of a debt or performance of promise is called pledgee.
Difference between bailment
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Pledge is bailment of goods with a specific purpose whereas bailment is for a purpose of any kind. Pawnee cannot use the goods pledged whereas bailee can, as per terms. Pawnee can sell the goods after giving notice to pawnor in case of default, whereas bailee only has right to sue in the event of default. It is also different from hypothecation in the sense that borrower transfers possession of goods in a pledge. Borrower has no right to deal with goods.
Rights of pawnee
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Right of retainer till payment of debt, interest on debt or expenses on preservation. Right to claim reimbursement of extraordinary expenses. Right to sue pawnor. Right to sell. Right against true owner.
Duties
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Take reasonable care of goods. Not to make unauthorized use. Not to mix pledged goods with own goods. Duty to return goods. Duty to return accretions.
Rights/duties of pawnor
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Right to get pawnees duties enforced. Right to redeem. DUTIES Comply with terms of pledge. Compensate the pawnee for extraordinary expenses. OTHERS Pledging can also be done by non-owners like mercantile agents, co-owners or by buyer/seller in possession.
AGENCY-definition
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An agent is a person employed to do any act for another or represent another in dealing with third persons(sec.182).No consideration is required (exception to the rule under sec.25) but the Principal must be competent to appoint one. The person entrusting the duty to represent is called principal.(sec.182) Minor/persons with unsound mind could also become agents.
Creation of Agency
*May be created express or implied (partners/wife etc) ? By ratification. ? By operation of law. ? By Estoppel (Passive-ostensible authority) ? Agency by holding out (active-holding out somebody) ? Agency by necessity. Exceeding authority by necessity.
CLASSIFICATION
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General Special Universal Mercantile—Broker, Auctioneer, Commission-Agent, Banker Agent Non-mercantile---Attorneys, solicitors, wife, Insurance Agents etc.
Agent Vs Servant
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An agent can create relationships between Principal & third parties but a servant cannot do so. While an Agent receives commission for his services a servant is paid wages. While an Agent may work for several Principals at the same time, a servant serves one master at a time. While a servant acts under direct supervision and control of his master, an Agent has discretion without direct control While Principal is liable for wrongful acts of his Agent within his scope of authority, a Master is liable for wrongful acts of servant in the course of his employment.
Delegation of Agent’s authority
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Generally follows the rule of “delegatus non-potest delegare” which means that a delegatee cannot delegate any further. Exceptions(sec.190):Where nature of business of Agency permits appointment of sub-agent. Where appointment of sub agent is permitted by custom of trade. Expressly authorized by Principal. Implied consent of Principal. For emergency & for ministerial acts.
Sub-Agent(sec.191)
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“A person employed by & acting under control of the original Agent”. Possible when permitted by custom of trade/business makes such appointment/Principal agrees/ is a necessity/involves purely ministerial acts/appointed because of unforeseen emergency. Principal is liable for acts of sub agent if appointment is proper. If Agent is improperly appointed, Principal is not liable to third parties and the Sub-Agent is not liable to the Principal.
Substituted Agent (sec.194)
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A person named by the original Agent on the basis of an express or implied authority from the Principal. Privity of contract exists between substituted agent & Principal though it does not exist between sub-agent & Principal. Though a sub-agent is appointed by the Agent, a substituted agent my be appointed by Agent or Principal. A substituted agent is responsible to Principal for all acts, a sub agent is responsible to Principal only for wrongful/fraudulent acts. An agent is liable to Principal for acts of sub agent but an agent is not liable for acts of substituted agent, provided he has taken due care in selecting him. As regards duration of liability, the duty of an agent is over once he has named a substituted agent. But an agent is liable to Principal for acts of sub-agent so long as he continues.
Liability of Principals
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Where the agent contracts for a named Principal, any act done within his real or apparent authority is binding on the Principal, provided it is lawful. If the agent has acted partially beyond authority, only those acts within authority are binding on the principal. Principal is bound by notice given to agent. If Principal by his conduct has induced belief that agent’s unauthorized acts are authorized, he would be liable under doctrine of estoppel.(sec.237) Principal is also liable for misrepresentation/fraud committed by agent within his scope of authority. However, where agent acts for unnamed Principal, the act is binding on Principal and he would be personally liable only if he declines to disclose identity of Principal. Yet, when agent does not disclose existence of Principal, he is personally liable for the contract.
Personal liability of agents(sec.230)
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Where agent acts for unnamed/ foreign Principal or one non-existent/ one who cannot be sued (sovereigns) Agent exceeding authority. Agent receiving money by mistake/ fraud. Agent signing on a negotiable instrument or any contract on his own name. Pretended agent.
Termination of agency
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By mutual agreement with Principal. Revocation by notice by principal. Revocation by agent, giving suitable notice. By operation of law. Accomplishment of object. Expiry of period of agency. Death/insanity of Principal/Agent. Insolvency of Principal. Destruction of subject matter of contract. Termination of sub-agent’s authority. Where agency is coupled with interest or he has partly exercised authority or has incurred personal liability, the agency is irrevocable.
doc_567603074.ppt
contracts and agreements with the help of various case studies.
Legal Environment
by Prof. S. Sudeep Kumar
Legality of contracts
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The Object or consideration may be illegal. Forbidden by law. Defeat provisions of law Implies injury to person or property of another. Courts regard as immoral or opposed to public policy.
Legality of object (sec.23)
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Stifling prosecution. Maintenance. Interference with court of justice. Trafficking in public offices & titles. Marriage brokerage agreements. Restricting personal liberty. Restraining parental rights. Tending to create interest opposite to duty. Interfering with marital status. Attempting to vary period of limitation. Attempting to defraud creditors/revenue authorities.
Case study-1
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A has stolen some goods of B. However B is prepared to have an agreement that in return for replacing the stolen goods, he would absolve A of criminal liability & prosecution provided A would meet all expenses for defending B in a law suit against C. However A has to agree in writing that he would not change his job/residence etc. Later B approaches witnesses in the case to get their support in evidence & also meets the judge to get his favor. Subsequently B meets the Sub-Inspector of the local Police station and promises that in return for framing a chargesheet against C and in his favor, he would deliver 2 bags of wheat and 500 grams of cocaine.
Case-study-2
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Arun aged 17 years was employed by “Highway hotel” as staff of their kitchen. Though the working hours were from 8 AM to 6 PM, the employers wanted his father to agree to Arun shifting his residence to the hotel much against his wishes. Arun’s father Mr. Mahadeva was a marriage broker who made agreements with parents of girls of marriageable age that he be paid Rs.25000 as reward when a marriage was finalized. Sometimes he would even lend money to Kamala, a vendor in the nearby vegetable market, in consideration of her getting divorce from her husband to marry him. Since Mahadeva’s brother-in-law was into publishing a local daily newspaper, he feared that his image would get tarnished if the news got published. Hence he threatens him with dire consequences if the news was published.
Case studies
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Rohit agrees to pay Abhilash a sum of Rs.25000 if he loses the latter's bike while using it. Amit agrees to pay Rs.25 lacs to suppliers of Effluent treatment plant in his factory, subject to satisfactory inspection by the Pollution control board. Is there legal liability in the event of breach?
Contingent Contracts(sec.32 to 36)
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Absolute Contracts Vs. Contingent Contracts. (existence of a collateral event) Contracts contingent on happening of an event.(sec.32)where promisor would not be liable to perform the promise till the uncertain event has happened. Contracts contingent on non happening of an event(sec.33) where promisor would be liable to perform if the uncertain event has not happened. Sec.35 provides for time limits for happening or non-happening of events. Contracts contingent on happening of an impossible event(sec.36)
Case studies
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A promises to pay Rs.5000 to B if it rains on 23rd February & B promises to pay the same amount if it doesn't. Vignesh agrees to pay Rs.10000 to Muthu if India beats Pakistan in the 20-20 World cup final match & Muthu would pay if India loses. Is there legal liability in the event of breach?
Wagering contracts(sec30)
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Essentials: Money/money’s worth, event, uncertainty, mutual chances of gain/loss, no control over event. Agreements void in our country. In Maharashtra & Gujarat it is declared illegal. They are conditional. Just a gamble. Hence against public policy. No benefit to society. Not contracts of indemnity. No insurable interest. Consists of reciprocal promises. Amount payable is fixed.
Contingent contracts
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Parties have insurable interest in happening/non happening of event. The future event is only collateral/incidental to contract. No reciprocal promise necessary. Valid contract. Contracts can be contingent on happening , non happening , future conduct of living person or upon happening of a impossible event
Insurance Contracts
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Person having an insurable interest can insure his life or property. In case of contracts of insurance except life insurance, the actual amount payable need not necessarily be the full amount for which the property is insured These are regarded as beneficial to the public policy. Such agreements do not tantamount to gambling as they involve the element of investment and protection.
Case studies
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X supplies Y, a lunatic with necessaries suitable to his condition in life. Is X entitled for reimbursement from Y’s property? Jim has set up his factory in Gurgaon,in a plot of 10 acres leased from Prakash.Since Prakash is going through a difficult phase, he is unable to pay up the arrears of land tax which has accumulated to Rs.2 lacs. Hence the authorities have issued notice that the land would be put up for sale to realize the tax amount. Jim is kind enough to pay up the tax arrears for Prakash. Jim carries on with his business without paying any rent.
Quasi-contracts
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Not a contract at all because the essentials of contract are absent. Obligation imposed by law so that a person shall not unjustly get rich at the expense of another. Duty & not a promise & always it is right to money.
Types
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Right to recover price of necessaries. Right to recover money paid to another. Right to recover for non-gratuitous act. Responsibility of finder of goods. Right to recover from person who has been wrongly delivered something by mistake/under coercion
Compensation in Quasi contracts
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Guided by principle of “Quantum meruit”or “as much as earned”. Singer in a theatre. Trader leaving goods in the wrong place by mistake.
Void Agreements
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Agreements by incompetent persons.(sec.11) Agreements made under bilateral mistake of fact material to agreement.(sec.20) Agreements with unlawful object or consideration.(sec.23) Agreements in which object/ consideration is unlawful in part.(sec.24) Agreements without consideration.(sec.25) Agreements in restraint of marriage.(sec.26) Agreements in restraint of trade.(sec.27) Agreements in restraint of legal proceedings(sec.28) Agreements, the meaning of which are uncertain.(sec.29) Agreements by way of wager.(sec.30) Agreements contingent on impossible event.(sec.56) Agreements to do impossible act.(sec.56,para-1)
Discharge of contracts
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By performance. Agreement. Lapse of time. Operation of law. Impossibility. Breach of contract.
Performance(sec.37)
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Provides that parties to contract must perform or offer to perform their respective promises unless such performance is dispensed with or excused under provisions of the Act. If promisors die before performance, their legal representatives must perform unless a contrary intention appears from the contract. Actual performance. Attempted performance or tender(sec.38): If offer of performance has not been accepted, promisor is not responsible for non-performance nor does he lose rights under the contract.
Tenders(sec.38)
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Must be unconditional. Should be made at proper fixed time & place. Reasonable opportunity to be given to other party. Must be made to proper promisees or joint promisees. Must be an offer to perform in full. Should be for delivery of goods of right quality & quantity. In case of payment of money, tender must be of precise amount. In tender of goods, refusal by promisee would discharge the promisor. In case of tender money, refusal by creditor does not extinguish the debt or release debtor from liability.
Who shall perform?
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Promisor(sec.40) if the intention of the parties was that promise should be performed by promisor himself. (Contracts involving personal skill) Agent(sec.40):Where it is not of personal nature. Legal representatives(sec.37):Where personal qualifications are not material, legal heirs must perform in the event of death of promisor but liability is limited to extent of joint estate inherited by them. Third parties may perform if contract is assigned by act of parties or by operation of law. If there are joint promisors, all persons are required to fulfill the promise.
Who can demand performance?
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Only promisee/legal heirs could demand performance & not third parties even if contract has been made for their benefit.
Time as essence of contract
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Time is of the essence of contract if contraction parties have agreed so. Delay in performance results in injury to one of the parties. Nature of contract requires so. (Mere inclusion of a clause imposing penalty for default is insufficient) Where time is not of the essence, contracts may not be void able, but promisee may claim for loss occasioned by such delay. Acceptance of performance at other than agreed time.
Discharge of contract by agreement(sec.62)
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Novation: substituting existing contract with another. Rescission: All/some terms of contract are cancelled either by mutual consent or when one of the parties fails to fulfill promise. Remission: Acceptance of less than what was agreed for or extension of time. Waiver: Deliberate abandonment of rights by parties to contract. Merger: Inferior right merging into a superior right. Alteration: When terms of contract are altered by mutual consent of parties,old contract discharged
Discharge by impossibility of performance(sec.56)
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Impossibility known to parties at the time of making contract (ab initio). Impossibility unknown at the time of contract. Impossibility arising subsequent to formation of contract. Only if it is caused by circumstances beyond the control of parties (supervening impossibility) like death/incapacity of party, destruction of subject matter, unanticipated change of circumstances, change of law, outbreak of war etc. However difficulty in performance/commercial impossibility/default by third party/strikes, lockouts,civil disturbances do not amount to discharge of contract.
Discharge (others)
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Discharge by lapse of time. Discharge by operation of law (death of a sportsman/artist/insolvency) Discharge by unauthorized alteration in terms of contract. Discharge by breach (anticipatory or actual)
Hadley Vs Baxendale
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Hadley's flourmill at Gloucester & suppliers of steam engine spares were based at Greenwich. Crankshaft of engine broke down & had to be dispatched to suppliers by carriers Pickford & Co. for enabling them to fabricate a similar one. The replacement arrived late & Hadley claimed loss of profit of $300 for 5 days. What are liquidated damages?
Chiranjilal Vs Dwarakadas
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Chiranjilal, a trader in Kanpur agreed to sell canvas @Re.1 per yard to Dwarakadas and deliver the goods at Kolkata. Though he agreed to book the cargo by rail on 5th August, he failed & informed Dwarakadas on 8th August that booking to Kolkata was closed. He moved the court contending that he would have realized a rate of Rs.1.83 per yard in Kolkata.
ONGC Vs SAW Pipes Ltd
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ONGC contracted for supply of steel casing pipes to be supplied before 14th Nov. On 8th August SAW Pipes inform ONGC of delay on account of inability of getting steel plates from Italian suppliers & that they would supply only by Oct.1996& that they needed further 45 days for supply. They agreed on the condition of getting liquidated damages.
Damages
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Liquidated damages General Damages Special damages Punitive damages
Special Contracts(sec.124 to 147) Indemnity & Guarantee
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Indemnity means “ to compensate or made good the loss of the party who has suffered the loss”. Contract of indemnity is one in which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Rights of indemnity holder(sec.125) are: Compensation for all damages he may be compelled to pay in any suit relating to matter to which indemnity applies. Compensation for all costs incurred to defend the suit, not contravening orders of the promisor. All sums paid under terms of any compromise of any such suit, provided it was not contrary to the orders of the promisor. Contract of Indemnity may be express or implied.
Features of indemnity contracts
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Two parties, Indemnifier & Indemnity holder & only one contract exists between the two. Indemnifier undertakes to save the indemnity holder from any loss. Liability of indemnifier is primary & unconditional. Liability arises only on the happening of a contingency. The indemnifier need not act at the request of indemnity holder. Indemnifier cannot sue a third party in the absence of privity of contract. Indemnity contracts may be explicit or implicit.
Contract of Guarantee(sec.126 to 143)
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It is a contract to perform a promise or discharge liability of a third person in case of his default. The essentials of a valid Contract of Guarantee are: Tripartite agreement involving Principal Debtor, Creditor & Surety. Existence of liability/promise whose performance is guaranteed. Essentials of a valid contract applies. However Principal debtor could even be a minor. Cannot be obtained by misrepresentation or concealment of material facts & hence a contract of uberrimae fidei (utmost good faith)
Difference between Indemnity/Guarantee contracts
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Three parties—Principal Debtor, Creditor, Surety. Contract is tripartite. Surety undertakes for payment of debts of principal debtor. Primary liability is on principal debtor whereas it is secondary & conditional for surety. Liability arises only on non-performance of an existing promise. Surety acts at the request of principal debtor. Surety on discharge of debt of principal debtor, can sue him in his own name.
Discharge of surety
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By revocation (sending notice). By death of surety. By novation. By conduct of creditor. By release/discharge of principal debtor.
Bailment & pledge(sec.148 to 180)
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Delivery of goods by one person (Bailor) to another (Bailee)for some purpose, upon a contract that they shall when the purpose is accomplished, be returned or disposed off according to directions of person delivering them.
Essentials of bailment
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Agreement (express or implied) or implied by law as in finder of goods. Delivery of goods. Purpose. Return of specific goods. (Different from sale in the sense that only possession is transferred, consideration need not be passed between bailor & bailee and bailee is obliged to return the goods to bailor on fulfillment of purpose).
Bailment types.
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Gratuitous bailment. Non-gratuitous bailment (all hiring) Bailment for exclusive benefit of bailor. Bailment for exclusive benefit of bailee. Bailment for mutual benefit.
Duties of bailor
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Duty to disclose defects. Duty to bear expenses. Duty to indemnify for premature termination of gratuitous bailment. Duty to indemnify for defective title. Duty to receive back goods. Duty to bear the risk of loss.
Duties of bailee
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Duty to take care of goods bailed. Duty not to make unauthorized use of goods. Duty not to mix own goods with those of bailor’s. Duty to return goods. Duty to deliver accretions of goods.
Rights of bailor
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Right to claim damages for negligence. Right to terminate contract in the event of unauthorized use. Right to claim compensation for unauthorized use. Right to claim separation of goods in the case of unauthorized mixture and compensation where it is non-separable. Right to demand return of goods. Right to be compensated for unauthorized retention of goods. Right to demand accretions to goods.
Rights of bailee
Right to claim damages & expenses. ? Right for indemnification in premature termination of gratuitous bailment. * Right of recovery in case of defective title. * Right to recover if bailor refuses to take back goods. * Right to deliver goods to joint bailors or return in case of defective title. * Right to particular lien. * Rights & obligations of finders of goods.
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Cases
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Deboo Vs Hindlekar (Dry-cleaning business) Srinivasa Iyer Vs.New India Assurance Co. Ltd
Pledge
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Bailment of goods as security for payment of a debt or performance of a promise. The person delivering goods is the pledgor or pawnor. The person to whom goods are delivered as security for payment of a debt or performance of promise is called pledgee.
Difference between bailment
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Pledge is bailment of goods with a specific purpose whereas bailment is for a purpose of any kind. Pawnee cannot use the goods pledged whereas bailee can, as per terms. Pawnee can sell the goods after giving notice to pawnor in case of default, whereas bailee only has right to sue in the event of default. It is also different from hypothecation in the sense that borrower transfers possession of goods in a pledge. Borrower has no right to deal with goods.
Rights of pawnee
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Right of retainer till payment of debt, interest on debt or expenses on preservation. Right to claim reimbursement of extraordinary expenses. Right to sue pawnor. Right to sell. Right against true owner.
Duties
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Take reasonable care of goods. Not to make unauthorized use. Not to mix pledged goods with own goods. Duty to return goods. Duty to return accretions.
Rights/duties of pawnor
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Right to get pawnees duties enforced. Right to redeem. DUTIES Comply with terms of pledge. Compensate the pawnee for extraordinary expenses. OTHERS Pledging can also be done by non-owners like mercantile agents, co-owners or by buyer/seller in possession.
AGENCY-definition
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An agent is a person employed to do any act for another or represent another in dealing with third persons(sec.182).No consideration is required (exception to the rule under sec.25) but the Principal must be competent to appoint one. The person entrusting the duty to represent is called principal.(sec.182) Minor/persons with unsound mind could also become agents.
Creation of Agency
*May be created express or implied (partners/wife etc) ? By ratification. ? By operation of law. ? By Estoppel (Passive-ostensible authority) ? Agency by holding out (active-holding out somebody) ? Agency by necessity. Exceeding authority by necessity.
CLASSIFICATION
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General Special Universal Mercantile—Broker, Auctioneer, Commission-Agent, Banker Agent Non-mercantile---Attorneys, solicitors, wife, Insurance Agents etc.
Agent Vs Servant
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An agent can create relationships between Principal & third parties but a servant cannot do so. While an Agent receives commission for his services a servant is paid wages. While an Agent may work for several Principals at the same time, a servant serves one master at a time. While a servant acts under direct supervision and control of his master, an Agent has discretion without direct control While Principal is liable for wrongful acts of his Agent within his scope of authority, a Master is liable for wrongful acts of servant in the course of his employment.
Delegation of Agent’s authority
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Generally follows the rule of “delegatus non-potest delegare” which means that a delegatee cannot delegate any further. Exceptions(sec.190):Where nature of business of Agency permits appointment of sub-agent. Where appointment of sub agent is permitted by custom of trade. Expressly authorized by Principal. Implied consent of Principal. For emergency & for ministerial acts.
Sub-Agent(sec.191)
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“A person employed by & acting under control of the original Agent”. Possible when permitted by custom of trade/business makes such appointment/Principal agrees/ is a necessity/involves purely ministerial acts/appointed because of unforeseen emergency. Principal is liable for acts of sub agent if appointment is proper. If Agent is improperly appointed, Principal is not liable to third parties and the Sub-Agent is not liable to the Principal.
Substituted Agent (sec.194)
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A person named by the original Agent on the basis of an express or implied authority from the Principal. Privity of contract exists between substituted agent & Principal though it does not exist between sub-agent & Principal. Though a sub-agent is appointed by the Agent, a substituted agent my be appointed by Agent or Principal. A substituted agent is responsible to Principal for all acts, a sub agent is responsible to Principal only for wrongful/fraudulent acts. An agent is liable to Principal for acts of sub agent but an agent is not liable for acts of substituted agent, provided he has taken due care in selecting him. As regards duration of liability, the duty of an agent is over once he has named a substituted agent. But an agent is liable to Principal for acts of sub-agent so long as he continues.
Liability of Principals
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Where the agent contracts for a named Principal, any act done within his real or apparent authority is binding on the Principal, provided it is lawful. If the agent has acted partially beyond authority, only those acts within authority are binding on the principal. Principal is bound by notice given to agent. If Principal by his conduct has induced belief that agent’s unauthorized acts are authorized, he would be liable under doctrine of estoppel.(sec.237) Principal is also liable for misrepresentation/fraud committed by agent within his scope of authority. However, where agent acts for unnamed Principal, the act is binding on Principal and he would be personally liable only if he declines to disclose identity of Principal. Yet, when agent does not disclose existence of Principal, he is personally liable for the contract.
Personal liability of agents(sec.230)
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Where agent acts for unnamed/ foreign Principal or one non-existent/ one who cannot be sued (sovereigns) Agent exceeding authority. Agent receiving money by mistake/ fraud. Agent signing on a negotiable instrument or any contract on his own name. Pretended agent.
Termination of agency
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By mutual agreement with Principal. Revocation by notice by principal. Revocation by agent, giving suitable notice. By operation of law. Accomplishment of object. Expiry of period of agency. Death/insanity of Principal/Agent. Insolvency of Principal. Destruction of subject matter of contract. Termination of sub-agent’s authority. Where agency is coupled with interest or he has partly exercised authority or has incurred personal liability, the agency is irrevocable.
doc_567603074.ppt