Post on 14-Apr-2018
transcript
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 1/162
MODULE 2
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 2/162
THE CONTRACT ACT 1872
The main object of Contract Act is to introduce
clarity in business transactions.
The law of contracts differs from other branches
of law.
It determines the circumstances in which
promises made by parties to a contract shall be
legally binding on them.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 3/162
DEFINITIONS…
When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining theassent of that other to such act or abstinence, he is said tomake a PROPOSAL or OFFER
A proposal, when accepted, becomes a PROMISE of theofferer
When a person to whom the proposal is made, signifies his
assent thereto, the PROPOSAL is said to be ACCEPTED
The person making the proposal is called the "PROMISOR",and the person accepting the proposal is called "PROMISEE”
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 4/162
When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or toabstain from doing, something, such act or abstinenceor promise is called a CONSIDERATION for the
promise;
Every promise and every set of promises, forming theconsideration for each other, is an AGREEMENT;
Promises which form the consideration or part of theconsideration for each other are called RECIPROCAL PROMISES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 5/162
An agreement enforceable by law is aCONTRACT
Therefore CONTRACT = Agreement +Enforceability by Law.
AGREEMENT = Offer + Acceptance +Enforceability by Law
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 6/162
Section 2(h) defines:
An agreement enforceable by law is acontract.
Therefore there must be :
† An agreement† The agreement should be enforceable by law.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 7/162
ARE ALL AGREEMENTS A CONTRACT??
All agreements are not contracts.
Only those agreements enforceable by law
are contracts.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 8/162
AGREEMENT
Every promise and every set of promises, forming
the consideration for each other, is an
AGREEMENT.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 9/162
CHARACTERISTICS OF AGREEMENT
• An agreement should bemade to more than one
person
Plurality of
persons
• There should be identityof mindsConsensusad-idem
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 10/162
KINDS OF AGREEMENTS
Kinds of Agreements
Valid agreements Invalid agreements
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 11/162
VALID AGREEMENTS
The one which is enforceable by law.
Eg: A contract which is done in par with a legalagreement.
Sale deed.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 12/162
INVALID AGREEMENTS
Invalid agreements
Void Voidable Unenforceable Illegal
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 13/162
TYPES OF CONTRACT
Validity Mode of Performanceformation
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 14/162
VALIDITY
VOIDABLE CONTRACT: An agreement which is enforceable by law at the option of one or more of the parties thereto, but notat the option of the other or others, is a voidable contract”.
VOID AGREEMENT: An agreement not enforceable by law issaid to be void.” A void agreement does not create any legal rightor obligation. Such agreement is void-ab-initio from the beginning itself.
A contract which ceases to be enforceable by law becomes voidwhen it ceases to be enforceable.” In this case when the contractwas entered into, may be valid and binding on the parties as per law, but subsequently it has become void. E.g., in the case of import contract, the agreement is enforceable, but if subsequentlywar brakes out then the agreement becomes void contract.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 15/162
ILLEGAL AGREEMENTS: an illegal agreement is one,which transgresses (against) some basic rule of Public Policyor is of criminal in nature or is immoral. ALL ILLEGAL
AGREEMENT IS VOID, BUT ALL VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void betweenthe immediate parties but has its further effect that even thecollateral transactions to it become tinted with illegality. Acollateral transaction is one, which is subsidiary, incidental or auxiliary to the principal contract.
UNENFORCEABLE CONTRACT: An unenforceablecontract is one which cannot be enforced in a court of law
because of some technical defect such as absence of consideration or absence of contract in writing. The parties tothe contract may fulfill their obligations but in the event of
breach of contract the other party cannot enforce it.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 16/162
MODE OF FORMATION
Express contracts: If the terms of the contract areexpressly agreed upon (whether by words spoken or written) at the time of formation of contract.
Implied contracts: in this case the contract comesinto existence by the acts or conducts of the parties -E.g., Getting into a Public bus.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 17/162
Quasi contract: strictly speaking quasi contracts are
not contracts. A contract is one, which is entering into
with the consent of the parties to the contract. A quasi
contract is one, which is created by law . It is basedon the principle that “a person shall not be allowed to
enrich himself unjustly at the expense of another.”
Contingent Contract: a type of contract- to do or
not to do something, if some event, collateral to such
contract does not happen
E.g., Mr. A contracts to pay B Rs.20000 if B’s house is burnt.This is a contingent contract.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 18/162
PERFORMANCE
Executed contract: An executed contract is one in
which both the parties have performed their
respective obligation.
• Executory contract: An executory contract is one
where one or both the parties to the contract have still
to perform their obligations in future. Thus, a contract
which is partially performed or wholly unperformedis termed as executory contract.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 19/162
Unilateral contract: A unilateral contract is one in
which only one party has to perform his obligation at
the time of the formation of the contract, the other party having fulfilled his obligation at the time o the
contract or before the contract comes into existence.
Bilateral contract: A bilateral contract is one in
which the obligation on both the parties to the
contract is outstanding at the time of the formation of
the contract. Bilateral contracts are also known as contracts with
executory consideration
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 20/162
ESSENTIALS OF A VALID CONTRACT
All agreements are contracts if they are made with: Offer and Acceptance
Intention to create a legal relationship
Lawful Consideration
Capacity of the Parties
Free Consent
Lawful Object
Certainty and Possibility of Performance
Legal formalities
If any of the above is missing, the contract becomes void
E g Mr A has 3 cars He asked Mr B
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 21/162
OFFER AND ACCEPTANCE
There must be minimum two parties to an agreement. I.e. one party making the offer (also called as
offerer/proposer/promisor)
and
the other accepting it (also called asofferee/proposee/promisee/acceptor)
The terms of offer must be definite
Acceptance must be unconditional.
E.g., Mr. A has 3 cars. He asked Mr. B
“are you ready to purchase my car for
Rs. 2 lakhs.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 22/162
OFFER – MEANING
A person is said to have made a proposal/offer,
when he 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
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 23/162
OFFER - KINDS OF OFFER:
Express offer - When offer is made by express
spoken or written words
E.g., When A says to B, “Will you purchase my house
at Chennai for Rs. 3 lakhs. .
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 24/162
Implied offer - An offer may also be implied
from the conduct of the parties or the
circumstances of the case.
E.g., When a transport company runs a bus on a
particular route, there is an implied offer by the transport
co. to carry passengers for a certain fare. The acceptance
of the offer is complete as soon as a passenger boards
the bus.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 25/162
Specific offer - When an offer is made to a
definite person, it is said to be Specific Offer. It
can be accepted by the person to whom it is
made.
General offer – When an offer is made to the
world at large .
E.g., If Mr. A asks to B, for his blue car for Rs.
2,00,000/-, Mr. C cannot accept the offer.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 26/162
ESSENTIALS REGARDING OFFER
The offer must be given with an intention to createlegal relationship - A social invitation even if it isaccepted, does not create a legal relationship becauseit is not intended so.
The terms of the offer must be definite: the termsof the offer must be definite and certain and must not
be ambiguous or vague.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 27/162
Offer must be communicated: an offer to be completemust be communicated to the person to whom the offer ismade. Mere by acting to the terms of the offer withoutknowledge, the offer cannot be treated as accepted. Anacceptance of offer in ignorance of offer is no acceptance
and does not confer any right on the acceptor.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 28/162
Offer may be conditional: When the offer is
subject to conditions, they must be clearly
communicated to the offeree. If the person
accepts the offer without the knowledge of theconditions the offeror can‟t claim the fulfillment
of conditions. But the conditions are clearly
expressed, then offeree can plead ignorance
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 29/162
Offer must not contain a term that non-
compliance of which may be assumed to
amount to acceptance: the person making theoffer cannot say that if acceptance is not
communicated by a certain time, the offer
would be considered as accepted.
statement of price is not an offer: a mere
declaration of intention or a mere statement of price is not construed as an offer to sell
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 30/162
ACCEPTANCE
When a 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
Acceptance may be implied or expressed. In expressacceptance- it could be either expressed in written or spoken , while that given by conduct is termed asimplied acceptance.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 31/162
LEGAL RULES TO ACCEPTANCE
Unconditional - An acceptance in order to be binding must be absolute/complete and
unconditional. The acceptance must be to all
terms of offer.
Communicated to the offeror
Must be given in the prescribed mode - if the
acceptance is not according to mode
prescribed, or some usual or reasonable, there
is no contract.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 32/162
Given in a reasonable time - if any time limit is
specified, the acceptance must be given within
that time. If no time limit is specified by the
offeror, then it must be given
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 33/162
Must be given by the parties, to whom the
offer is made - When an offer is made to a
particular person, it can be accepted by him
alone. If it is accepted by another person, there isno valid acceptance
Must be given before the offer lapses or
withdrawn
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 34/162
It cannot precede an offer
Once the offer is rejected it cannot be
accepted by the offeree, unless the offeror
renews the offer
It cannot be implied for the silence - the
acceptance of an offer cannot be implied from
the silence of the offeree, unless the offeree
has, by his previous conduct inducted that hissilence means the acceptance
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 35/162
LAPSE OR TERMINATION OF OFFER
I. By communicating the notice of revocation - Offeror can givenotice of revocation to offeree but before the acceptance iscomplete as against him.
e.g., At an auction sale, A makes the highest bid of B‟s goods.He withdraws the bid before the fall of the hammer. The offer
has been revoked before its acceptance.
II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed time is over, otherwise after the reasonable time.
e.g., A seller on Thursday offered wool to a purchaser and gavehim 3 days time to accept. The purchaser accepted the offer onMonday, by that time A had sold the wool. Held, the offer hadlapsed.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 36/162
III. By non-fulfillment by the offeree of a conditionprecedent to acceptance
E.g., S a seller agrees to sell certain goods subjectto the condition that B, the buyer, pays the agreed
price before a certain date. S had sold the wool. If
before the date buyer did not pay then the offer isrevoked.
IV. By death or insanity of the offeror provided the
offeree comes to know it before acceptance. But If heaccepts an offer in ignorance of the death or insanityof the offeror, the acceptance is valid.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 37/162
V. By counter offer - When offer is accepted with somemodifications in the terms of the offer, then it amounts to counter offer. By putting counter offer the original offer comes to an end.
E.g. A asks B, Are you ready to purchase my flat for 10 lakhs.B asks A, Are you ready to sell it to Rs. 8 lakhs. B‟s question to
A is a counter offer. E.g. An offeree agreed to accept half the quantity of goods
offered by the offeror on the terms and conditions as wouldhave applied to the full contract. Held, there was no contract asthere was a counter offer to the offer
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 38/162
VI. If an offer is not accepted according tothe prescribed or usual mode provided the
offeror gives notice to the offeree within areasonable time that the acceptance is notaccording to the prescribed or usual mode. If the offeror keeps quiet, he is deemed to haveaccepted the acceptance.
VII. If the law is changed. An offer comes toan end if the law is changed so as to make the
contract contemplated by the offer illegal or incapable of performance.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 39/162
VIII. Destruction of subject matter: - „A‟ offers „B‟his cow for Rs. 4500/- In the mean time, the cow dies
due to snake bite. The offer is lapsed.
Rejection of offer: - An offeree may reject the offer.Once he does that he cannot subsequently accept it.
Rejection of the offer may be express or implied.Express Rejection: The offeree may reject the
offer expressly, i.e., by words written or spoken.This is effective only when notice of rejectionreaches the offeror.
Implied Rejection: Rejection of the offer isimplied by law- where the offeree makes acounter-offer or where the offeree gives aconditional acceptance
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 40/162
REVOCATION OF OFFER
Revocation means
taking back or
Withdrawal or
cancellation.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 41/162
COMMUNICATION OF REVOCATION OF
OFFER
The communication of a revocation is complete -
as against the person who makes it (i.e. for the
revoking party), when it is put into a course of
transmission to the person to whom it is made, soas to be out of the power of the person who
makes it; (i.e. when the letter of revocation is
posted.)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 42/162
(For the opposite party) as against the personto whom it is made, when it comes to his
knowledge (when the letter reaches him)
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
against A when the telegram is dispatched, i.e., on 19th May. It is complete asagainst B when he receives it, i.e., on 21st May.
TIME FOR REVOCATION OF PROPOSALS
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 43/162
TIME FOR REVOCATION OF PROPOSALS
AND ACCEPTANCE
A proposal may be revoked at any time before the
communication of its acceptance is complete as
against the proposer, but not afterwards.
Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. theletter is posted on the 1st of the month. Mr. B accepts the proposal by a
letter sent by post on the 4th. The letter reaches Mr. A on the 6th.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 44/162
An acceptance may be revoked at any time before
the communication of the acceptance is complete
as against the acceptor, but not afterwards.
Mr. A may revoke his offer at any time before Mr. B posts his letter of
acceptance, i.e., 4th but not afterwardsMr. B may revoke his acceptance at any time before the letter of acceptance
reaches Mr. A, i.e., 6th, but not afterwards
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 45/162
LOSS OF LETTER OF ACCEPTANCE IN
POSTAL TRANSIT:
Acceptance is complete as against the offeror as soonas the letter of acceptance is posted.
The contract is complete even if the letter of
acceptance goes astray or is lost through an accidentin the post.
But in order to bind the offeror, it is important that theletter of acceptance is correctly addressed, adequatelystamped and posted,
Otherwise the acceptance is not complete
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 46/162
REVOCATION HOW MADE
A proposal is revoked –
(1) by the communication of notice of revocation bythe Proposer to the other party;
(2) 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, withoutcommunication of the acceptance;
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 47/162
(3) by the failure of the acceptor to fulfill a
condition precedent to acceptance; or
(4) by the death or insanity of the Proposer, if thefact of the death or insanity comes to theknowledge of the acceptor before acceptance.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 48/162
ESSENTIALS OF A VALID CONTRACT
Intention to create legal relationship
When two parties enter into an agreement their
intention must be to create a legal relationship
between them.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 49/162
If there is no such intention to create legal
relationship , there can be no contract between
the parties.
In Balfour v Balfour,a husband agreed to pay $20 to
his wife every month while he was abroad. On
failure of pay the wife sued him for the recovery of
amount. It was held that it was a domestic agreement
which do not intend to create legal relations
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 50/162
ESSENTIALS OF A VALID CONTRACT
Lawful Consideration
÷ When a party to an agreement promises to do
something, he must get something in return.
÷ This “something in return” is defined asconsideration.
E.g., A agrees to sell his car to B for Rs.15000/-, for A’s promise the
consideration is Rs.15000/- and for B’s promise the consideration is the car.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 51/162
LEGAL RULES TO CONSIDERATION
Move at the desire or request of promisor - An actconstituting consideration must have been done at thedesire or request of the promisor, if it is done at thedesire of the third party or without the desire of the
promisor it will not be a good consideration.
It may move from the Promisee or any otherPerson – This means that as long as there is a
consideration for a promise it is immaterial who hasfurnished it. But a stranger to the consideration will be able to sue only if he is a party to the contract
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 52/162
It may consist of an Act or Abstinence (meansnot doing something)
Consideration can be past, present or future
E.g., A borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. Bis now about to file a suit and A agrees now to pay a higher rate of interest. B agrees for
not filing a suit. This forbearance is a valid consideration.
It need not be adequate - Consideration as said “something in
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 53/162
It need not be adequate Consideration as said something inreturn” and something this something in return need not beequal in value to “Something given”. The law requires that thecontract must be supported by consideration and not theadequate consideration.
Must be real & not illusionary - There is no realconsideration in the following cases: Physical impossibility: A promises to put life into B‟s dead
wife on the consideration of Rs.999. A‟s promise is physically impossible to perform.
Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn promise todischarge A from the liability. This is legally impossible,
because C cannot discharge A from the debt due to B. Uncertain consideration: A engages B for doing certain
work and promises to pay a “Reasonable some”. There isno recognized method of ascertaining the “ReasonableSome”. The promise is unenforceable due to uncertainty.
Should not be illegal - the consideration given for an
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 54/162
Should not be illegal - the consideration given for an
agreement must not be unlawful. A consideration to
the contract must not be against Public Policy,
Immoral and illegal
It must be something which the promisor is not already
bound to do: a promise to do what one is already bound to do,
either by general law or under an existing contract, is not a
good consideration for the new promise, since it adds nothingto the pre-existing legal or contractual obligation.
CL: There was a promise to pay to the vakil an additional sum if the suit was
successful. Held, the promise was void for the want of consideration. The vakil
was under a pre-existing contractual obligation to render the best of his services
under the original contract. (Ramachandra Chintaman vs. Kalu Raju)
C O O S O
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 55/162
EXCEPTION TO THE RULES OF
CONSIDERATION
Where an agreement is expressed in writing andregistered under the law for the time being in force for
the registration of the documents and is made on
account of natural law and affection between parties
standing to the near relation to each other, it is
enforceable even if there is no consideration
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 56/162
Promise to pay a time-bared debt: A promise to paya time-bared debt by the debtor is enforceable
provided it is made in writing and signed by the person to be charged therewith or by his agent. Thedebt must be such “of which the creditor might haveenforced payment but for the law for the limitation of suits”
Completed gifts
Compensation for the past voluntary services
Charitable subscription
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 57/162
Compensation for the past voluntary services - is
binding.
E.g. P f inds S‟s purse and gives it to him. S
promises to give P Rs. 100/- This is a
contract i.e., A promise, to compensate,wholly or in part, a person, who has already
voluntarily done something for the
promisor, is enforceable, even though
without consideration
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 58/162
DOCTRINE OF PRIVITY OF CONTRACT
Meaning:
The general rule is that only the parties to acontract can sue and be sued upon the contract.
In other words, if a person is not a party to thecontract (i.e., a stranger to contract), he cannot sue.
It implies the mutuality of will and legal bonding between the parties.
It refers to the relationship between the parties whohave entered into a contract.
Stranger to Contract V. Stranger to Consideration
A who is indebted to B, sells his property to C. C promises to pay off the debt to B. When C fails to pay; B has no right to sue C, because heis a stranger to contract.
CAPACITY TO CONTRACT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 59/162
CAPACITY TO CONTRACT
Every person is competent to contract who is of: the age of majority according to the law to which he is
subject, sound mind, and is not disqualified from contracting by any law to which he
is subject. Section 11 declares the following persons to be incompetent to
contract. Minors Persons of unsound mind Persons disqualified by any law for the time being in force. Idiot
Lunatic with unsound mind Alien enemy Convicts
MINOR
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 60/162
MINOR
According to Section 3 of the Indian Majorities Act,1875, a minor is a person who has not completedeighteen years of age. In the following two cases, heattains majority after twenty one years of age:
Where a guardian of a minor‟s person or propertyhas been appointed under the guardian and wardsAct, 1890, or
Where the superintendence of a minor‟s propertyis assumed to be court of wards.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 61/162
The rules governing minor‟s agreements are based on twofundamental rules:
The first rule is that the law protects minors‟ against their owninexperience and against the possible improper designs of
those more experienced.
The second rule is that, in pursuing the above object, the lawshould not cause unnecessary hardship to person who dealswith minors.
Legal rules of Minors:
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 62/162
g
An agreement with minor is void- ab-initio
A minor mortgaged his house in favour of a money lender to secure aloan of Rs.20, 000/- Subsequently the minor sued for setting a side
the mortgage, stating that he was underage when he executed the
mortgage. Held, the mortgage was void and, therefore, it was
cancelled. Further the money lender requested for the repayment of
the amount advanced to the minor as part of the consideration for the
mortgage was also not accepted (Mohiri Bibi vs. Dharamodas Ghose)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 63/162
He can be a Promisee or a Beneficiary: incapacity of minor to enter into a contract means incapacity to bind
him-self by a contract. There is nothing that debars him
from being a beneficiary. Such contract may be enforced
at the option of the minor and not the other party.
Case law: M, Aged 17, agreed to purchase a second hand scooter for Rs.5000/-
from N. he paid Rs.200/- as advance and agreed to pay the balance the next day
and collect the scooter. When he came with the balance money next day, N told himthat he has changed his mind and offered to return the advance. N cannot avoid the
contract, though M may, if he likes. (Sharafat Ali v/s Noor Mohd)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 64/162
He can always plead minority: even if he has, by
misrepresenting his age, induced the other party tocontract with him, he cannot be sued either in contract or
in tort for fraud because if the injured party were allowed
to sue for fraud, it would be giving him an indirect
means of enforcing the void agreement.
Case law: M, A minor, borrowed Rs.5000/- from L and executed aPromissory note in favour of L. after attaining the majority, he
executed another Promissory note in settlement of the first note. Thesecond Promissory note is void for the want of consideration.(Indran Rama Swamy v/s Anthiappa Chettiar)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 65/162
If he has received any benefit under a void
agreement, he cannot be asked to compensate or payfor it: section 65 which provides for restitution in case of
agreements discovered to be void does not apply to the
minor
Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable torefund the loan not only that, even his mortgaged property cannot be made liableto pay the debt.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 66/162
There can be no specific performance of the
contract with minor, since agreement with minor
is void-ab-inito: Can‟t file a suit for specific non
performance. But if a contract is entered into on his
behalf by his Parents / guardian then the same can beenforced by or against the minor provided the
contract is :
(a) within the scope of the authority of the Parent /
guardian, and
(b) for the benefit of the minor.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 67/162
He cannot enter into a contract of Partnership: aminor can be admitted as a beneficiary of Profits of aPartnership firm already in existence, with theconsent of all the existing Partners. But he cannot beadmitted as a Partner
He can be an agent: an agent is merely connectinglink between Principal and third Party. The movementthe Principal and third party comes into contract witheach other, the agent drops out with any personal
liability, hence a minor can act as agent.
His Parents / guardian are / is not liable for
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 68/162
His Parents / guardian are / is not liable forthe contracts of the minor: the exemption tothis rule is that where the minor act as an agent
of his Parent / guardian, the Parent / guardianshall be liable for his acts.
He cannot be adjudged as an insolvent.
He cannot be a shareholder in a Company.
He can be member in a Trade union: APerson who attained the age of 14 years can beadmitted as a member.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 69/162
Minor’s liability for necessaries: a minor is liable to pay out of his property for “necessaries” supplied to himor to anyone whom he is legally bound to support(Section 68). The claim arises not out of contract but outof what are called Quasi-Contracts. Again it is only the
property of the minor, which is liable for meeting the
liability arising out of such contracts. He is not personally liable.
Case law: G, a minor, entered into a contract with R, a noted billiards player, topay him certain sum of money to learn the game and play matches with him duringhis world tour. R spent time and money in making arrangements for billiardsmatches. Held, G was liable to pay as the agreement was one for necessaries as
it was in effect “for teaching, instructions and employment and was reasonableand for the benefit of the infant.” (Robarts v/s Gray)
UNSOUND MIND
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 70/162
UNSOUND MIND
A person is said to be of sound mind for the proposeof making a contract, if, at the time when he makes it, he is capable of
understanding the terms of the contract andTo form a rational judgment as to its effect upon
his interest.
Therefore, if both of the above is not satisfied, then isa person suffering of unsound mind.Eg: IdiotsLunaticsDrunkards
A person, who is usually of unsound mind, butoccasionally of sound mind, may make a contractwhen he is of sound mind
FEW OTHER PERSONS ARE ALSO PROHIBITED
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 71/162
FEW OTHER PERSONS ARE ALSO PROHIBITED
TO ENTER INTO A CONTRACT.
Alien Enemy.
Insolvent.
Foreign Sovereigns, their diplomatic staff and
accredited representatives of the foreign states.
Corporations (beyond MOA and AOA).
Convicts
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 72/162
FREE CONSENT
According to section 14, an agreement can be treatedas a valid contract when the consent of the parties are
free and not under any undue influence, fear or
pressure etc. The consent of the parties must be
genuine and free consent.
A consent is said to be free when it is not
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 73/162
A consent is said to be free when it is not caused by
(i) coercion, (ii) undue influence
(iii) fraud,
(iv) misrepresentation, or (v) mistake.
If the contract made by any of the above four reason,at the option of the aggrieved party it could be treated
as a void contract. If the agreement induced bymutual mistake the agreement would stand void or canceled
Vitiating elements in
Contract
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 74/162
VITIATING ELEMENTS IN A CONTRACT
Coercion Coercion" is the
committing, or threatening to commit, anyact/crime or
the unlawful detaining, or threatening to detain,any property or any act
forbidden by the Indian Penal Code 1860
with the intention of causing any person to enter into an agreement.
Threat to commit Suicide amount to Coercion
E.g. A threatens B to shoot himif he does not release him fromdebt which A owes to B. This is
coercion.
UNDUE INFLUENCE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 75/162
UNDUE INFLUENCE
When a special kind of relationship exists between the parties
such that one party is in a position to exercise undue influenceover the other.
And such party uses his position to dominate the will of the
other party to obtain an unfair advantage over the other party
Essentials:
There must be two persons.
The relationship should satisfy between them.
One should dominate the other.
There must be unfair advantage.
It is a moral character
Some of the e amples here nd e infl ence
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 76/162
Some of the examples where undue influenceexists between the following relations:
Superior and subordinate Principal and agent
Doctor and Patent
Promoter and Company Solicitor and Client
Father and Son
Teacher and Student Spiritual guru and devotee
Case Laws: A Spiritualguru induced his devoteeto gift him the whole of his
property in turn of a promise of salvation of thedevotee. Held, the consentof the devotee was givenunder the undue influence.(Mannu Singh v/s Umadat
Panday)
FRAUD
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 77/162
FRAUD
Essentials:
There must be a representation There must be two persons
There must be an active concealment of the fact
The person making the representation does not believe it to be true
There must be an intention of the proposer or the promiser to deceive the other person
The other person must have relied upon the representationand must have been deceived and suffered loss
The representation must have been made before the
Commencement of the contract The representation must relate to a material fact which
exists now or existed in the past
MISREPRESENTATION
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 78/162
MISREPRESENTATION
Essentials:
It must be representation of material fact
It must be made before the conclusion of the
contract
It must be wrong but the person making it believes
it to be true
It must have been made without any intention of
deceiving the other Person It need not be made directly made to the Plaintiff
MISTAKE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 79/162
Mistake may be defined as an erroneous belief aboutsomething.
It may be of two kinds
mistake of law Mistake of own country
Mistake of foreign country
mistake of fact A bilateral mistake
Unilateral mistake
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 80/162
MISTAKE OF LAW
Mistake of law of the country is no excuse, is awell-settled rule of law. A Party to the contract
cannot be allowed to ask for relief on the ground
that the act was done in ignorance of law.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 81/162
Mistake of law of a foreign country: such
mistake is treated as mistake of fact, and such
agreement is treated as void
E.g. A & B purchases and sells a plot of land of 195 sq.mts. in
Dublin, believing that a house can be constructed over it.Actually in Dublin house cannot be constructed on a plot lessthan 200 sq.mts. The contract can be avoided.
MISTAKE OF FACT
E.g. A person was induced to sign a gift deed (will),on the presentation that it was a power attorney.
E X t h d i t d hi lf Y
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 82/162
MISTAKE OF FACT
Unilateral Mistake - Unilateral means only one partyto a contract is under a mistake of fact. A contract can
be avoided on the ground of unilateral mistake, if it can be shown that mistake was caused by Fraud or misrepresentation.
Types:A unilateral mistake may be-
Mistake as to the nature of transactionMistake as to identity of party
E.g. X goes to a shop and introduces himself as Y
and purchases some goods on credit. The contract is
void.
Bilateral Mistake - Where both the parties to an
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 83/162
Bilateral Mistake Where both the parties to anagreement are under a mistake as to a matter of fact, theagreement is void.
TypesMistake as to existence of subject-matter
Identity of subject-matter
Title of subject-matter
Quality of subject-matter Quantity of subject-matter
Price of subject-matter
E.g. A agrees to buy a horse from B at certain price.The horse was dead at the time of bargain and neither
party was aware about the fact. Held, the agreement isvoid.
LAWFUL OBJECTS
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 84/162
The object of the agreement must not be illegal or
unlawful
It is forbidden by law - An act is forbidden by law
when it is punishable under the criminal law or is
prohibited by special legislation or regulations made
by the competent authority.
is of such nature that, if permitted it would defeatthe provisions of any law
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 85/162
→ is fraudulent - an agreement if any made for
any fraudulent purpose is void. Thus, an
agreement with an intention of fraud of
creditors with a view to defeat their right is
void.
→ of involves or implies, injury to the person or property of another - injury means wrong,
harm or damage. Person means ones body,
property includes both movable andimmovable.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 86/162
the Court regards it as immoral - anagreement, the consideration or object of which is immoral, e.g., agreement betweenhusband and wife for future separation, isunlawful (Sumitra Devi v/s Sulekha Kundu)
opposed to public policy – An agreementwhich is injurious to the general public or isagainst the interest of the society
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 87/162
™Agreement not declared void or illegal:Agreements which have been expressly
declared void or illegal by law are not
enforceable at law; hence does not constitute avalid contract.
™CERTAINTY AND POSSIBILITY OF
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 88/162
CERTAINTY AND POSSIBILITY OF
PERFORMANCE
The terms of agreement must be certain and
not vague. If it is not possible to ascertain the
meaning of the agreement, it is not enforceable at
law. Also, agreements to do impossible actscannot be enforced
LEGAL FORMALITIES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 89/162
LEGAL FORMALITIES
A contract may be oral or in writing. If, however,the law requires for a particular contract, it should
comply with all the legal formalities as to writing,
registration and attestation.
IE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 90/162
IE;
The contract act does not insist that the agreementmust be in writing, it could be oral. But, in somecases the law strictly insist that the agreement must bein writing like agreement to sell immovable property
must be in writing and should be registered under theTransfer of Property Act, 1882. These agreement arevalid only when they fulfill the formalities likewriting, registration, signing by the both the parties
are completed. If these legal formalities are notcompleted, it cannot be treated as a valid contract.
PERFORMANCE OF A CONTRACT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 91/162
PERFORMANCE OF A CONTRACT
It means fulfilling of their respective legal obligationscreated under the contract by both the promisor and
promisee.
Performance by all the parties of the respective
obligations is the normal and natural mode of
discharging or terminating a contract.
Illustrations
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 92/162
(a) A promises to deliver goods to B on a certain day
on payment of Rs. 1,000. A dies before that day. A‟s
representatives are bound to deliver the goods to B,
and B is bound to pay Rs. 1,000 to A‟s
representatives.
(b) A promises to paint a picture for B by a certainday, at a certain price. A dies before the day. The
contract cannot be enforced either by A‟s
representative or by B [section 37]. The performance
can be „actual performance‟ or „attempted performance‟, i.e. „offer to perform‟.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 93/162
Section 38 specifies that where a promisor hasmade an offer of performance to the promisee,
and the offer has not been accepted, the promisor
is not responsible for non-performance, nor doeshe thereby lose his rights under the contract.
WHO CAN DEMAND PERFORMANCE???
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 94/162
WHO CAN DEMAND PERFORMANCE???
It is only the promisee who can demand
performance of the promise under a contract .
A person cannot acquire rights under
a contract to which he is not a party.
( T.G Venkataraman vs. State of
Madras)
BY WHOM CONTRACTS MUST BE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 95/162
PERFORMED ???
By the promisor himself
By the promisor or his agent
By the legal representatives
Performance by a third person
BY WHOM CONTRACTS MUST BE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 96/162
BY WHOM CONTRACTS MUST BE
PERFORMED ???
Section 40 specifies:
That if it appears from the nature of the case that it
was the intention of the parties to any contract that
any promise contained in it should be performed by
the promisor himself, such promise must be
performed by the promisor.
In other cases, the promisor or his representativesmay employ a competent person to perform it.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 97/162
Obligations of Parties to Contracts
Actual Performance: If the promisor makes an
offer of performance to the promisee and the offer
to perform is accepted by the promisee.
Attempted Performance: If the promisor makes an
offer of performance to the promisee; but the offer
to perform is not accepted by the promisee (also
called offer to perform or tender).
PERSONS LIABLE FOR, AND ENTITLED TO,
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 98/162
, ,
PERFORMANCE (SEC 40 & SEC 42)
Persons liable for Performance:
Promisor
Agent of Promisor Any of the several joint
promisors
Legal Representatives
of a Promisor
Persons entitled toPerformance:
Promisee
Agent of PromiseeAll the joint promisees
together
Legal Representatives
of a Promisee
PERFORMANCE OF JOINT PROMISE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 99/162
PERFORMANCE OF JOINT PROMISE
Jointly and severally liable unless otherwise provided
Claim from other joint promisors, if he is
compelled to perform the whole promise or makes a default in performance of his promise
Where one of the joint promisors is released,
other joint promisors shall continue to be liable.
DISCHARGE OF A CONTRACT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 100/162
DISCHARGE OF A CONTRACT
Discharge of a contract means termination of thecontractual relations between the parties to a
contract.
A contract is said to be discharged when the
rights and obligations of the parties under the
contract come to an end.
MODES OF DISCHARGE OF CONTRACT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 101/162
MODES OF DISCHARGE OF CONTRACT
Discharge of
contract
Impossibility
Agreement
Performance
Breach
Operation of
law
Lapse of time
DISCHARGE BY PERFORMANCE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 102/162
(a) By Actual Performance: A contract is said to be
discharged by actual per-formance when the parties to
the contract perform their promises in accordance
with the terms of the contract.
(b) By Attempted Performance or Tender: A
contract is said to be discharged by attempted
performance when the promisor has made an offer of
performance to the promisee but it has not beenaccepted by the promisee.
DISCHARGE BY MUTUAL AGREEMENT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 103/162
Since a contract is created by mutualagreement, it can also be discharged by mutualagreement.
A contract can be discharged by mutual
agreement in any of the following ways: a) Novation
b) Rescission
c) Alteration d) Remission
Novation [Section 62]
N i h b i i f
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 104/162
Novation means the substitution of a new contractfor the original contract. Such a new contract may be
either between the same parties or between different parties. The consideration for the new contract is thedischarge of the original contract.
Example i) A owes money to B under a contract. It is agreed
between A, Band C that B shall henceforth accept Cas his debtor, instead of A. The old debt of A to B no
longer exists and a new debt from C to B has beencontracted.
Rescission [Section 62]
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 105/162
Rescission means cancellation of the contract by any party or all the parties to a contract.
Example
X promises Y to sell and deliver 100 Bales of cotton on 1st Oct. at his godown and Y
promises to pay for goods on 1st Nov. X does
not supply the goods. Y may rescind thecontract.
Alteration [Section 62]
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 106/162
Alteration means a change in the terms of a contractwith mutual consent of the parties.
Alteration discharges the original contract and createsa new contract. However, parties to the new contractmust not change.
Example
X promises to sell and deliver 100 bales of cotton on1st Oct. and Y promises to pay for goods on 1st Nov.Afterwards, X and Y mutually decide that the goodsshall be delivered in five equal installments at Z‟sgodown. Here, original contract has been dischargedand a new contract has come into effect.
Remission [Section 63]
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 107/162
Remission means acceptance by the promisee of a‟
lesser fulfillment of the promise made.
According to Section 63, “Every promisee may
dispense with or remit, wholly or in part, the
performance of the promise made to him, or may
extend the time for such performance, or may acceptinstead of it any satisfaction which he thinks fit.”
Example
i) A promises to paint a picture for B. B afterwards
forbids him to do so. A is no longer bound to perform
the promise.
DISCHARGE BY OPERATION OF LAW
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 108/162
DISCHARGE BY OPERATION OF LAW
A contract may be discharged by operation of
law in the following cases:
→ By Death of the Promisor
→ By Insolvency
→ By Unauthorised Material Alteration→ By the Identity of Promisor and Promisee
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 109/162
Example:
X draws a bill receivable on Y who accepts
the same. X endorses the bill in favour of Z
who in turn endorses in favour of Y. Here, Y is
both promisor and promisee and hence theother parties are discharged.
DISCHARGE BY IMPOSSIBILITY OF
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 110/162
PERFORMANCE
The effects of impossibility of the performance of a contract may be discussed under the following
two heads:
(a) Effects of Initial Impossibility
(b) Effects of Supervening Impossibility
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 111/162
Effects of Initial Impossibility [Section 56]
Initial impossibility means the
impossibility existing at the time of making the
contract. The effects of initial impossibility are
as under.
Case:♪ Where both the promisor and promisee know about the initial
i ibili
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 112/162
impossibility.
Effect:
♪ Such agreement is void ab initio.
♪ Example X undertakes to put life into the dead wife of Y. This
agreement is void.
Case:
♪ Where both the promisor and promisee do not know about the
initial impossibility
Effect:
♪ Such agreement is void on the ground of mutual mistake.
♪ Example X agrees to sell his horse to Y. Unknown to both the
parties; the horse was dead at the time of making the
agreement. This agreement is void.
Case:
Wh h i l k b h i i i l
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 113/162
♪ Where the promisor alone knows about the initial
impossibility
Effect:
♪ Such promisor must compensate for any loss which
such promisee sustains through the nonperformance
of the promise.♪ Example A contracts to marry B, being already
married to C, and being forbidden by the law to
which he is subject to practise polygamy. A must
make compensation to B for the loss caused to her bythe non-performance of his promise.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 114/162
Effects of Supervening Impossibility [Section56] Supervening impossibility means
impossibility which does not exist at the time of
making the contract but which arisessubsequently after the formation of the contract.
Case:
Where an act becomes impossible after the contract is
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 115/162
Where an act becomes impossible after the contract is
made.
Effect:
The contract to do such an act becomes void when the
act becomes impossible.
Case: Where an act becomes unlawful by reason of some
event beyond the control of promisor.
Effect:
The contract to do such an act becomes void when the
act becomes unlawful.
Case:
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 116/162
Where the promisor alone knows about the
impossibility.
Effect:
Such promisor must compensate the promiseefor any loss which such promisee might have
suffered on account of non-performance of the
promise.
Case:
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 117/162
Where an agreement is discovered to be void
or where a contract becomes void. Effect:
Any person who has received any benefit
under such agreement or contract is bound torestore it or to make compensation for it, to the
person from whom he received it. [Section 65]
Example: X contracts to sing for Y at a concertfor Rs 1,000, which is paid in advance. X is
too ill to sing. X must refund Rs 1,000 to Y.
DISCHARGE BY LAPSE OF TIME
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 118/162
A contract is discharged if it is not performed or
enforced within a specified period, called period of limitation. The Limitation Act, 1963 has prescribed
the different periods for different contracts.
E.g: Period of limitation for exercising right to
recover a debt is 3 years, and to recover an
immovable property is 12 years. The contractual
parties cannot exercise their rights after the expiry of period of limitation.
DISCHARGE BY BREACH OF
CONTRACT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 119/162
CONTRACT
A contract is said to be discharged by breach of contract if any party to the contract refuses or
fails to perform his part of the contract or by his
act makes it impossible to perform his obligationunder the contract.
A breach of contract may occur in the following two
ways:
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 120/162
ways:
Anticipatory Breach of Contract: Anticipatory
breach of contract occurs when party declares hisintention of not performing the contract before the
performance is due.
Actual Breach of Contract :Actual breach of
contract occurs in the following two ways:
(i) On Due Date of Performance: If any party to a
contract refuses or fails to perform his part of the
contract at the time fixed for performance, it is calledan actual breach of contract on due date of
performance.
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 121/162
During the Course of Performance: If any
party has performed a part of the contract and
then refuses or fails to perform the remaining
part of the contract, it is called an actual breachof contract during the course of performance.
Remedies for Breach
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 122/162
Remedies for Breach
Remedies
Damages
Recission Restitution Specific
Performance
Injunction Quantum
merui t
Anton Pi l ler
order
Common law Equitable
remedies
DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 123/162
Main purpose of damages is to enable the innocent
party to receive MONETARY COMPENSATION. Damages are a common law remedy and awarded
as of right.
They are calculated on the basis of looking at whatthe position of the plaintiff would have been if the
contract had been properly performed.
They are assessed on a once and for all basis at the
date of breach.
DAMAGES Steps in determining an award of damages
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 124/162
p g g
DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 125/162
Causation
Is there a causal connection between the breach and theloss suffered?
The plaintiff must show that the breach of contract bythe defendant was the cause of the loss.
The general test used by the courts is the same as thatused in assessing damages in general – the „but for‟ test
CASE: Alexander v Cambridge Credit Corporation Ltd (in rec) (1987)
Note the „but for‟ test is not an exclusive test, e.g. there
is the „common sense‟ test, which was approved in: CASE: Chappel v Hart (1998)
DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 126/162
Remoteness
The loss or injury must not be too remote, i.e. lossesmust be reasonably related to the contract.
Hadley v Baxendale (1854) indicates 2 types of loss arerecoverable:
loss arising from the breach in the usual or normal
course of things; and
loss arising from special or exceptionalcircumstances where it can be shown that thedefendant had actual knowledge of the plaintiff‟s
needsCASE: Victoria Laundry v Newman Industries [1949)
CASE: Commonwealth of Australia v Amann Aviation Pty Ltd (1991)
DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 127/162
G S Damages
The aim of damages is to put the injured party back as close to the position they would have been in had the breach never occurred.
Damages are recoverable for provable or economic loss as well as:
expectation losses
reliance losses
CASE: Commonwealth of Australia v Amann Aviation Pty Ltd (1991)
distress and disappointment
CASE: Jarvis v Swan Tours [1972]
CASE: Jackson v Horizon Holidays [1975]
CASE: Baltic Shipping Co Ltd v Dillon (1993) physical injury
CASE: Grant v Australian Knitting Mills Ltd [1936]
Difficulty in calculation is not a ground for disallowing a claim
CASE: Howe v Teefy (1927)
DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 128/162
Mitigation of damages
The plaintiff must take reasonable steps to minimise
or mitigate their loss. Failure to do so can result in areduction of damages.
CASE: Payzu v Saunders [1919]
Mitigation is a question of fact and the onus of proof is on the defendant.
Damages
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 129/162
Damages
Damages
Nominal(No actual loss suffered)
Ordinary
(Usual remedy)
Exemplary
(punitive)
General Special
TYPES OF DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 130/162
The type of damages that will be awarded will be
determined by the seriousness of the breach and whether the contract has specified the amount of damages to be
paid in the event of breach:
nominal damages – plaintiff‟s legal rights have beeninfringed but they have suffered no actual loss
CASE: Charter v Sullivan [1957]
ordinary damages – loss suffered by the plaintiff as aresult of the breach and can be either general or special
damages exemplary damages – punitive and may be awarded for
non-economic loss
CASE: Jackson v Horizon Holidays [1975]
TYPES OF DAMAGES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 131/162
Liquidated damages
Awarded where a plaintiff is able to sue for aspecified sum, which must be a genuine or bona fide
pre-estimate of the actual loss that will flow fromthe breach.
Unliquidated damages
Awarded where an injured party has no fixed sum inmind and leaves the court to decide the amount.
Penalty
A threat to ensure performance and not enforceable
because they are not a genuine pre-estimate of thedamage that will result from the breach
CASE: Dunlop Pneumatic Tyre Co v New Garageand Motor Co Ltd [1915]
Equitable Remedies
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 132/162
q
Equitable
Remedies
Recission Restitution SpecificPerformance
Injunction Quantum merui t
Anton Piller Order
These are discretionary remedies at equity and are onlygranted where damages are not an adequate remedy.
EQUITABLE REMEDIES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 133/162
Rescission
A right available to an injured party.
Does not require the intervention of the court.
Entitles the injured party to set the contract aside and isonly available for breach of a condition.
Substantial restoration must be possible as the injured
party is restored to their pre-contractual position.
The right to rescission is lost if the injured party:
continues with the transaction;
fails to act or act within a reasonable time; or if an innocent third party acquires an interest in the
subject matter.
EQUITABLE REMEDIES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 134/162
Restitution
Is based on the concept of unjust enrichment andsometimes referred to as quasi-contract.
The plaintiff must establish:
the benefit was at the plaintiff‟s expense;
it would be unjust to allow the defendant to keep
that benefit or enrichment; andCASE: Pavey & Matthews Pty Ltd v Paul (1987)
the defendant must obtain a benefit or enrichment;
the defendant has no defences to rely upon.
EQUITABLE REMEDIES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 135/162
Q
Restitution can be used if:
the defendant has received a sum of money from the plaintiff and there has been a total failure of consideration or a mistake of fact;
CASE: McCormack v Commonwealth (1984)
under a mistake of law;CASE: David Securities Pty Ltd v Commonwealth Bank (1992)
under duress or compulsion.
Restitution makes use of the doctrine of quantum meruit
CASE: Pavey & Matthews Pty Ltd v Paul (1987)
CASE: Planche v Colburn (1831)
CASE: Sumpter v Hedges [1898]
EQUITABLE REMEDIES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 136/162
Specific Performance
A remedy compelling performance.
It is only granted at the court‟s discretion where thecourt can supervise the implementation of thecontract.
It is not available in contracts involving personal
services because the court is unable to adequatelysupervise the task
CASE: Ryan v Mutual Tontine Westminster Chambers Assoc [1893]
EQUITABLE REMEDIES
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 137/162
Q
Injunction
It is a restraining order which prevents a person from
breaking a contract.
It is a discretionary remedy and aims at enforcing
negative promises.
It normally cannot be used where it would achieve the
same result as specific performance.
EQUITABLE REMEDIES
Mareva Injunction
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 138/162
Mareva Injunction
Prevents the defendant from removing assets from
the court‟s jurisdiction. CASE: Mareva Compania Naviera SA v International Bulk Carriers SA, The Mareva [1975]
Anton Piller Order Prevents a defendant from disposing of any evidence
before trial.
CASE: Anton Piller KG v Manufacturing Processes Ltd [1976]
Quantum Meruit
Arises where there has been part-performance, andonly where it can be implied that payment would bemade.
STATUTES OF LIMITATIONS
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 139/162
An injured party can loose their right to an action unlessthey act within a certain time period.
The statutes of limitations of the States and Territories
determine the time limits within which an injured partymust take action.
Prevents actions remaining open indefinitely.
VOID AGREEMENTS
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 140/162
Agreements by incompetent parties Agreements under mutual mistake of fact material to the
agreement
Agreement with unlawful consideration or object – (a)immoral & illegal agreements (b) agreements opposed to
public policy
Agreements unlawful in part
Agreements without consideration
Agreements in restraint of marriage
Agreements in restraint of legal proceedings
Agreements which are uncertain and ambiguous
Agreement by way of wager or wagering agreements
Agreements to do impossible acts
WAGERING AGREEMENTS
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 141/162
Definition:Agreement between two parties
One promises to pay money or money‟s worth
On happening of some uncertain event
In consideration of other party‟s promise to pay
If that event does or does not happen
Example: P and Q enter into an agreementthat if Australia‟s team wins the test match,
P will pay Rs. 100 and if it loses Q will pay
Rs. 100 to P
BAILMENT, BAILOR AND BAILEE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 142/162
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 instructions of the person delivering them. (Section
148)
Bailor
is the person delivering the goods
Bailee is the person to whom the goods are delivered.
ESSENTIALS OF BAILMENT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 143/162
ContractDelivery of the Goods – Delivery of
possession of goods by Bailor to Bailee
Possession (not ownership) is transferred
Modes of Delivery
Purpose (goods must be returned after aspecific purpose is accomplished)
Consideration (generally in the form of money payment)
DUTIES OF THE BAILOR
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 144/162
Disclose faults in goods (Sec 150) Bear Expenses (Sec 158)
Indemnify(secure in respect of harm) Bailee (Sec
159 & Sec 164) Receipt of Goods back on termination of
bailment
DUTIES OF BAILEE (OR) RIGHTS OF BAILOR
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 145/162
Care of Goods (Sec 153)
To act consistently with the terms (Sec 153)
Compensation for damage to goods (Sec 154)
Not to mix goods bailed with others
With bailor‟s consent (Sec 155) Without bailor‟s consent
Return of the goods bailed (Sec 160)
Compensation for failure to return (Sec 161)
Increase or profit from goods bailed (Sec 163)
Delivery of goods to Joint Bailors (Sec 165)
RIGHTS OF BAILEE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 146/162
Enforcement of Bailor‟s duties Delivery of goods to Joint Bailors
Delivery of goods when Bailor‟s title is
defective (Sec 166) Right of Lien (Secs 170 & 171)
Wrongful deprivation of goods (Secs 180 &
181)
PLEDGE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 147/162
Pledge is a Bailment of goods as security for payment of a debt or performance of a promise
Pawnor is the Bailor of such goods
Pawnee is the Bailee of the goods Eg., A borrows Rs.200 from B and keeps his
watch as security for payment of the debt, the
bailment of watch is a pledge.
ESSENTIAL ELEMENTS OF A CONTRACT OF
PLEDGE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 148/162
PLEDGE
Delivery of Goods (may be actual or constructive)
Security
Goods – Only goods can be pledged. Goodsincludes Shares, Documents, Promissory Notes,
Bills of Exchange or Valuable things. However,
money i.e., currency notes, cannot be pledged.
RIGHTS OF A PAWNEE/PLEDGEE
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 149/162
Right of Retainer (Sec 173) Retainer for subsequent advances (Sec 174)
Reimbursement of Expenses (Sec 175)
Rights in case of default by Pawnor (Sec 176) Suit
Retention/Sale of Goods
Surplus/Deficit on Sale
No Notice Right against true owner (Sec 178A)
RIGHTS OF A PAWNOR
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 150/162
To get back goods To redeem goods before sale (Sec 177)
Right to Notice of Sale
Goods in proper condition
PLEDGE V. BAILMENT
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 151/162
PledgePurpose: specific
Sale of goods:
Pledgee has a right of sale of pledged on
default of pawnor
Use of goods: No
right
BailmentPurpose: other
purposes like repairs,
safe custody, etc.,
Sale of goods: No right
Use of goods: Can use
as per the terms of the
contract
LAW OF AGENCY
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 152/162
Definitions (Sec 182)
Agent Is a person employed
To do any act for another, or
To represent another in dealings with
third partiesPrincipal
Is the person
For whom such act is done, or Who is so represented
WHO CAN APPOINT AGENT (SEC 183)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 153/162
Any person whoHas attained the age of majority
and
Is of sound mind,
can appoint another person as his
agent to act on his behalf with an authority to
bind him.
WHO MAY BECOME AGENT (SEC 184)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 154/162
As between Principal and the third party, any person can become an Agent.
Even a person who
Has not attained majority; or Is of unsound mind, can become an agent of another.
ESSENTIALS OF A CONTRACT OF AGENCY
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 155/162
Test for Agency Rules as to Agency (Maxim: qui facit per
alium facit per se)
Elements of Agency Intention
Express/Implied Agreement
Consideration not necessary
Capacity to employ agent
Capacity to be employed as agent
KINDS OF AGENTS
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 156/162
Based on AuthorityUniversal Agent
General Agent
Special Agent Based on Nature of Work
Commercial or Mercantile Agents
Non-mercantile Agents
DUTIES OF AN AGENT/RIGHTS OF THE
PRINCIPAL
The Principal instructed his agents to deliver goods only against cashbut agent delivered them on credit. Held Agent was liable for the pricewhich the purchaser failed to pay (Paul Bier V. Chottalal)
A, an agent for sale of goods, having authority to sell on credit, sells toB on credit, without making proper and usual enquiries as to his
l B t th ti f h l i i l t A t k
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 157/162
To act as per Principal‟s directions (Sec 211) Skill and diligence (Sec 212)
Render proper Accounts (Sec 213)
Communicate with Principal (Sec 214) Not to deal on his own account (Secs 215 & 216)
Pay all sums received (Sec 218)
No remuneration for business misconducted (Sec220)
solvency. B, at the time of such sale is insolvent. A must makecompensation to his principal in respect of any loss thereby sustained.
A employs B to recover Rs. 1 lac from C. Through B’s misconduct themoney is not recovered from C. B is not entitled to remuneration for hisservices, and shall make good the loss sustained.
CONTD.,
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 158/162
Not to make secret profits Not to disclose information
Upon termination of agency (Sec 209)
Not to delegate authority (Sec 190)
Liable to pay damages
RIGHTS OF AN AGENT/DUTIES OF THE
PRINCIPAL
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 159/162
Right of Retainer (Sec 217) Right to Remuneration (Secs 219 & 220)
Right of Lien (hold property to recover debt Sec
221) Right to be indemnified (Secs 222, 223, & 224)
Right to compensation (Sec 225)
Right of stoppage in transit Liability of Principal inducing others (Sec 237)
MODE OF CREATION OF AGENCY
A residing in Delhi and has a house at Kolkata. He appoints Bin Kolkata, by a Power of Attorney, as a caretaker of hishouse
A owns a shop in Noida but lives in Delhi He visits the shop
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 160/162
Express Agreement Implied Agreement
Agency by Estoppel
Agency by Holding OutAgency in case of Necessity
Agency by Ratification
By operation of Law
house. A owns a shop in Noida but lives in Delhi. He visits the shopoccasionally which is managed by B. B usually orders from C in A’sname for the shop, and pays them out of A’s funds with A’s knowledge.B has an implied authority from A to order goods from C in his name for the shop.
P consigns goods to N with instructions not to sell below a fixed price. Jenters into an agreement with N (who also does not indicate the reserveprice) for the purchase of entire lot at a sum below reserve price. P keepsquiet. P is stopped from later denying that N did not have the authority tosell below the reserve price.
P allows his servant A to buy goods for him on credit from C and pays for them regularly. On one occasion, P pays A cash to purchase goods. Apurchases goods on credit and pockets the money. C can recover the pricefrom P since through previous dealings, P has held out A as his Agent.
* Partners are considered as Agents of each other and also of the Firm.* The management of a Company is considered to act as an Agents of the Company.
Meaning: When a person does some act on behalf of another withoutsuch other’s knowledge, the act may be ratified(to approve or sanctionor confirm) or disown by the other person. When he opts to ratify thesame, he is bound by the acts as if he had expressly authorised theperson to do the act on his behalf (Sec 196).
A without authority, buys goods, for B. Later B sells them to C on his ownaccount; B’s conduct implies a ratification of purchase made for him by A.
* Agent may have to sell goods instantly if it is of perishable nature andcannot withstand until further instructions from Principal.
* A horse sent by rail was not taken delivery at the destination. The stationmaster has to feed the horse. The Station master becomes an Agent bynecessity and hence the owner shall compensate him.
CONDITIONS FOR A RELATIONSHIP TO BE
AN AGENCY BY NECESSITY:
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 161/162
Agent should neither be in a position nor have anyopportunity to communicate with his Principal within the
time available.
Actual and definite commercial necessity to act
promptly.
Acted bonafide and for the benefit of his Principal.
Adopted the most reasonable and practicable cause.
Possession of the goods belonging to his principal andwhich are subject of contract.
TERMINATION OF AGENCY By Act of Parties
Agreement (mutual agreement)
7/27/2019 Module 2 ils
http://slidepdf.com/reader/full/module-2-ils 162/162
g ( g )Revocation by Principal thro noticeRenunciation by Agent thro reasonable notice
By Operation of LawCompletion of Business Impossibility of performance
Expiry of fixed period of time Insanity or death of Principal or AgentDestruction of subject matter Insolvency of Principal
Termination of Sub-agent‟s authority Dissolution of a Company