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INDIAN CONTRACT ACT 1872 April 28, 20151santhi narayanan.

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1 INDIAN CONTRACT ACT 1872 April 28, 20151santhi narayanan

2 Introduction  Law of contract – Foundation upon which the superstructure of modern business is built  Business – promise made between parties – performance follows later  Breaking of a promise – without incurring liability – endless complications April 28, 20152santhi narayanan

3 Contd -  Law of contract lays down legal rules relating to promises, their formation, performance and enforcement  Applicable not only to business community but others April 28, 20153santhi narayanan

4 Definitions  Anson – Legally binding agreement between two or more person by which rights are acquired by one or more to Act or forbearance on the part of the other.  Salmond – an agreement creating and defining obligation between parties  Pollock – Every agreement and promise enforceable at law is a contract April 28, 20154santhi narayanan

5 CONTRACT  Sec 2(h) – “ An agreement enforceable by law is a contract”.  Two elements -  An Agreement  Legal obligation ie, a duty enforceable by law. April 28, 20155santhi narayanan

6 Agreement  Section 2(e) – “Every promise and every set of promises forming the consideration for each other, is an agreement.”  Promise – What is a promise?  Sec 2(b) - When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise April 28, 20156santhi narayanan

7 Example  Ram offers to sell his car for Rs 1,00,000 to Shyam. Shyam accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between Ram and Shyam  Therefore, an agreement consists of an offer by one party and its acceptance by the other.  Agreement = Offer + Acceptance of offer April 28, 20157santhi narayanan

8 Enforceability of Agreement  An agreement is said to be enforceable by law if it creates a legal obligation.  If an agreement is incapable of creating a duty enforceable by law, it is not a contract.  Thus, an agreement is a wider term than contract. April 28, 20158santhi narayanan

9 Agreement + Legal obligation (Enforceability at law) = Contract April 28, 20159santhi narayanan

10 Contract Act  “All contracts are agreement but all agreements are not contracts”.  Agreements of moral, religious or social nature are not contracts  they are not likely to create a duty enforceable by law  parties never intend to create a legal obligation. April 28, 201510santhi narayanan

11 Contd -  Ex;  X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for the dinner. Can he take his friend to Court????  X cannot go to the court to claim his loss.  A father promises to pay his son Rs 1000 as pocket allowance. Later he refuses to pay. Can the son recover the Amount???  The son cannot recover as its is a domestic agreement and there is no intention on the part of the parties to create legal relations April 28, 201511santhi narayanan

12 Case  Balfour vs Balfour [(1919) 2 K.B. 571]  A promise by the husband to pay his wife 30 pounds every month. Later Husband refuses to pay. Wife goes to court.  Held: unenforceable as parties never intended it to be bound by legal obligations. April 28, 201512santhi narayanan

13 contd  In commercial or business agreements an intention to create legal relations is presumed.  Thus, an agreement to buy and sell goods intends to create legal relationship, hence is a contract, provided other requisites of a valid contract are present.  But if the parties have expressly declared their resolve is not to create a legal obligation, even a business agreement does not amount to a contract. April 28, 201513santhi narayanan

14 Case  Rose&Frank Co. vs Corruption Bros [1925 AC 445]  There was an agreement between R company and C company by means of which the former was appointed as the agent of the latter. One clause in the agreement was: ”This agreement is not entered into….as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.”  HELD - There was no binding contract as there was no intention to create legal relationship April 28, 201514santhi narayanan

15 Distinction between an agreement and a contract  Agreement ◦ Offer and its acceptance constitute an agreement ◦ An agreement may or may not create a legal obligation ◦ Every agreement need not necessarily be a contract ◦ Agreement is not concluded or binding contract  Contract ◦ Agreement and its enforceability constitute a contract ◦ A contract necessarily create a legal obligation ◦ All contracts are necessarily agreements. ◦ Contract is concluded and binding on the concerned parties April 28, 201515santhi narayanan

16 EnforceabilityMethod of Formation Extent of performance Obligation to perform Valid Voidable unenforceable Illegal Void Executed Executory Express Formal Simple Implied Standard Form Contingent Quasi Bilateral Unilateral Classification of Contract April 28, 201516santhi narayanan

17 Valid Contract Essentials April 28, 201517santhi narayanan

18 Essential elements of a valid contract  Proper offer and its proper acceptance  Intention to create legal relationship  Free Consent  Capacity to contract  Lawful consideration  Lawful object  Agreement not expressly declared void  Certainty of meaning  Possibility of performance  Legal formalities April 28, 201518santhi narayanan

19 Offer and acceptance  OFFER  An offer is the starting point in the making of an agreement.  An offer is also called ‘proposal’  Sec 2(a) – “ A person is said to have made the proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence.” April 28, 201519santhi narayanan

20 OFFER  An offer involves the following essential elements;  It must be made by one person to another person  It must be an expression of readiness or willingness to do (i.e., a positive act) or to abstain from doing something (i.e., a negative act)  It must be made with a view to obtain the consent of that other person to proposed Act or abstinence April 28, 201520santhi narayanan

21 Contd  Offeror – The person making the proposal is called the ‘offeror’ or ‘proposer’.  Offeree – The person to whom the proposal is made is called the ‘offeree’ or the ‘proposee’. April 28, 201521santhi narayanan

22 Types of offer General offer – When the offer is made to the world at large Specific offer – When the offer is made to a definite person Implied offer – An offer may be implied from the conduct of the parties or the circumstances of the case. April 28, 201522santhi narayanan

23 Cases  General offer  Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258  Harbhajan lal vs. Harcharan lal (AIR All 539) April 28, 201523santhi narayanan

24 Contd-  Intention to create legal relationship  An offer must be such that when it is accepted it will create a legal relationship  Certain and unambiguous terms  If the terms of the offer are vague or indefinite, its acceptance cannot create any contractual relationship. April 28, 201524santhi narayanan

25 Legal rules as to offer Certain and unambiguous terms Intention to create legal relationship Different from an invitation to offer Proper communication No term of non- compliance of which amount to acceptance Communication of special terms Different from a mere declaration of an intention April 28, 2015santhi narayanan25

26 Contd -  Different from a mere declaration of intention  Mere declaration of intention indicates that an offer will be made or invited in the future  A declaration of intention by a person does not give right of action to another. April 28, 201526santhi narayanan

27 Case  Harrison vs Nickerson  An auctioneer advertised in a newspaper that a sale of office furniture would be held. A broker came from a distant place to attend that auction, but all the furniture was withdrawn. The broker thereupon sued the auctioneer for his loss of time and expenses.  Held - A declaration of intention to do a thing did not create a binding contract with those who acted upon it, so that the broker could not recover. April 28, 2015santhi narayanan27

28 Contd -  Different from an invitation to offer  In an invitation to offer the person making an invitation invites others to make an offer to him  It is prelude to an offer inviting negotiations or preliminary discussions  Case –  Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401  Harvey vs facey April 28, 201528santhi narayanan

29 Contd-  Offer must be communicated  An offer must be communicated to the person to whom it is made.  An offer is complete only when it is communicated to the offeree  Acceptance is not possible unless offer is brought to the knowledge of the offeree. i.e., One can accept the offer only when he knows about it.  Acceptance in ignorance of offer confers no right. i.e., An offer accepted without its knowledge does not confer any legal rights on the acceptor.  Case: Lalman Shukla vs. Gauri Dutt April 28, 2015santhi narayanan29

30 Contd -  No term of non-compliance of which amounts to acceptance  The offer must not contain a term, the non-compliance of which amount to acceptance  Ex: A offers by post to sell his horse to B for Rs 2000. He writes, “ If you do not reply, I shall assume you have accepted the offer.” There would be no contract even if B does not reply April 28, 201530santhi narayanan

31 Contd  While making the offer, the offeror cannot say that if the offer is not accepted before a certain date, it will be presumed to have been accepted  Communication of special terms or standard terms of contract  Special terms of the offer must also be communicated along with the offer.  If the special terms of the offer are not communicated, the offeree will not be bound by those terms. April 28, 201531santhi narayanan

32 Acceptance  Acceptance means giving consent to the offer.  It is an expression by the offeree of his willingness to be bound by the terms of the offer.  Sec 2(b) – “ A proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto. A proposal when accepted becomes a promise.”  Acceptance is the consent given to offer. April 28, 201532santhi narayanan

33 Contd-  Who can accept  In case of a specific offer –  To be accepted by that definite person or that particular group of persons to whom it has been made and non else.  In case of general offer –  An offer made to the world at large or public in general can be accepted by any person having the knowledge of the offer by fulfilling the terms of the offer. April 28, 201533santhi narayanan

34 Contd -  How to make acceptance –  Express acceptance –  An express acceptance is one in which is made by words spoken or written  Implied acceptance –  An implied acceptance is one which is made otherwise than in words.  It is inferred from the conduct of the parties or the circumstances of a particular case April 28, 201534santhi narayanan

35 Legal rules of valid acceptance  Absolute and unqualified  Manner  Communication  By whom  To whom  Before the lapse of the offer April 28, 201535santhi narayanan

36 Communication of offer and acceptance  Must be complete so as to bind the concerned parties because as soon as the communication is complete the parties loose the right of withdrawal or revocation.  (a) Communication of offer – It is complete when it comes of the knowledge of the person to whom it is made. April 28, 201536santhi narayanan

37 Contd -  Communication of acceptance –  As against the proposer –  When it is put in a course of transmission to him, so as to be out of the power of the acceptor.  As against the acceptor  When it comes to the knowledge of the proposer. April 28, 201537santhi narayanan

38 Revocation of offer and acceptance  Taking back, withdrawal (sec 5)  Time for revocation of proposal – A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. April 28, 201538santhi narayanan

39 Contd -  Time for revocation of acceptance – An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. April 28, 201539santhi narayanan

40 CAPACITY TO CONTRACT April 28, 2015santhi narayanan40

41 Minor  Person domiciled in India, who is under 18 years of age.  Law protects minor’s rights because they are not mature and may not possess the capacity to judge what is good or what is bad April 28, 201541santhi narayanan

42 Position of minor’s agreement  Validity – An agreement with a minor is void-ab-intio  Case – Mohiri Bibee vs Dharmdas Ghosh April 28, 201542santhi narayanan

43 Position of persons of unsound mind  Who is a person of unsound mind  Sec 12 - A person is said to be of sound mind for the purpose of making a contract, if at the time when he makes it, he is capable –  (a) to understand the terms of the contract.  (b) to form a rational judgment as to its effect upon his interests  Ex ; idiots, lunatic, drunken person April 28, 201543santhi narayanan

44 Position of agreements with persons of unsound mind  Persons of unsound mind  1. Lunatic  (a) while he is of unsound mind  Capacity to contract  He cannot enter into any contract. Any agreement entered into by him during this period is altogether void and he cannot be held liable thereon. April 28, 201544santhi narayanan

45 Contd-  b) While he is of sound mind  (II) Idiots  He can enter into a valid contract and he is liable for such contract.  He cannot enter into any contract. Any agreement entered by him is void and he is liable thereon. April 28, 201545santhi narayanan

46 Contd  Drunken person  He cannot contract while such delirium or drunkness lasts April 28, 201546santhi narayanan

47 Persons disqualified by law  Alien enemies – cannot enter into any contracts  Foreign sovereigns and ambassadors – can enter into contracts  enforce those contracts in our courts  but cannot be sued in our courts without the sanction of the central government  Convicts – Cannot enter into any contract during the period of the sentence April 28, 201547santhi narayanan

48 Contd -  Company –  Contractual capacity is determined by the ‘object clause’ of the memorandum of association.  Any act done in excess of the power given is ultra vires [(i.e) beyond the power] and hence void.  Insolvent –  Cannot sue and be sued.  Cannot enter into contracts relating to his property.  When the insolvent is discharged the disqualification is removed. April 28, 201548santhi narayanan

49 Effect of Contract entered into by a minor  A minor’s agreement can not be ratified by the minor on his attaining majority.  If a minor has received any benefit under a void contract, he can not be asked to refund the same.  A minor is always allowed to plead minority. (Doctrine of estoppel)  A minor cannot be a partner in a partnership.  A minor’s estate is liable to a person who supplies necessaries of life to a minor, or to one whom minor is legally bound to support (goods and services both).  Minor’s parents/guardians are not liable to a minor’s creditor for the breach of contract by the minor whether the C is for necessaries or not.  A minor can act as an agent and bind his principal by his acts without incurring personal liability.

50 Consideration  Without which no single promise is enforceable  A technical term used in the sense of quid pro quo (i.e., something in return).  When a party promises to do something he must get ‘something in return’. This something is defined as consideration. April 28, 201550santhi narayanan

51 Section 2(d)  “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 abstain from doing something, such act or abstinence or promise is called a consideration for the promise”. April 28, 201551santhi narayanan

52 Contd -  Ex – X promises to deliver the goods to Y and Y promises to pay Rs 1000 on delivery. In this case, the consideration for each of these promises is as under:  For X’s promise - Y’s promise to pay Rs 1000 on delivery  For Y’s promise – X’s promise to deliver the goods April 28, 201552santhi narayanan

53 Essential elements  Move at the desire of the promisor – An act constituting consideration must have been done at the desire or request of the promisor.  Case – Durga Prasad vs. Baldeo  May move from any person – immaterial as to who furnishes the consideration  Case – Chinnayya vs. Ramayya April 28, 201553santhi narayanan

54 Contd -  It may be past present or future  It must be of some value.  It must be real and not illusory  Something other than the promisor’s existing obligation  Case – Ramachandra Chintamana vs. Kala Raju April 28, 201554santhi narayanan

55 Stranger to contract  A stranger to consideration – can sue because the consideration can be furnished or supplied by any person whether he is a promisee or not  A stranger to the contract - cannot sue because of the absence of the privity of the contract  Case – Dunlop P tyre Co ltd vs Selfridge&Co Ltd April 28, 201555santhi narayanan

56 Contracts without consideration(Exceptions to general rule, no consideration, no contract )  Agreements made on account of natural love and affection  Promise to compensate for past voluntary service  Promise to pay a time barred debt  Completed gift  Agency April 28, 201556santhi narayanan

57 Elements of valid consideration Move at the desire of the promisor Move from any person Past/present or future Of some value Real and not illusory Something other than the promisor’s existing obligation Lawful April 28, 201557santhi narayanan

58 Free consent  It is essential to the creation of the contract that the parties are ad idem,ie, they agree upon the same thing in the same sense at the same time and their consent is free and real.  Consent means an act of assenting to an offer. April 28, 201558santhi narayanan

59 Sec 13  “Two or more persons are said to consent when they agree upon the same thing in the same sense.”  Effect of absence of consent – When there is no consent at all, the agreement is void ab-intio, ie, it is not enforceable at the option of either party. April 28, 201559santhi narayanan

60 Free consent  Sec 14  Consent is said to be free when it is not caused by (a) coercion (b)undue influence (c)fraud (d)misrepresentation or (e) mistake  No free consent – contract is usually voidable April 28, 201560santhi narayanan

61 Contd- No Free Consent if the below are present Coercion Undue influence Fraud Misrepres entation Mistake April 28, 201561santhi narayanan

62 Coercion  Sec 15  A contract is said to be caused by coercion if it is obtained by  (a) committing any act which is forbidden by the Indian Penal Code  (b) threatening to commit any act which is forbidden by the Indian Penal Code  (c) Unlawful detaining of any property  (d) threatening to detain any property April 28, 201562santhi narayanan

63 Case  Case 1  Ranganayakam vs Alwar Shetty, (1889) 13 Mad 214  The relatives of a young widow threatened her that they would not allow her to cremate the dead body of her husband unless she consented to the adoption of a boy as her son.  Held: The adoption is not binding on her on account of coercion April 28, 201563santhi narayanan

64 Case  Muttiah Chettiar vs. Koruppen Chetty  (1927) 50 Mad 786  A person secured a release from liabilities from his principal by refusing to hand over the books of account. The release deed was held to be voidable of the option of the principal.  Effect of coercion: Contract is voidable at the option of the party whose consent has been caused by coercion. April 28, 201564santhi narayanan

65 Undue influence  Dominating the will of the other person to obtain an unfair advantage over the other  Sometimes the parties to the agreement are related in such a way that one of them is able to dominate the will of the other.  It creates a mental or moral fear created by coercion. Consequently the party on whom undue influence is exercised is indirectly compelled to enter into the contract April 28, 201565santhi narayanan

66  Ex: A, having money advanced money to his son B during his minority, upon B’s coming of age, obtains by parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence April 28, 201566santhi narayanan

67  In coercion, contract is obtained by committing or threatening to commit an act punishable under Indian Penal code.  In undue influence the consent is obtained by dominating the will of other. Difference between undue influence and coercion

68 Fraud-Sec 17  "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:-  (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;  (2) the active concealment of a fact by one having knowledge or belief of the fact;  (3) a promise made without any intention of performing it  (4) any other act fitted to deceive;  (5) any such act or omission as the law specially declares to be fraudulent. April 28, 201568santhi narayanan

69  Making a false suggestion.  The active concealment of a fact by a person who has knowledge or belief of the fact.  A promise made without performing it.  The party acting on the representation should have been deceived and suffered damage.  Active concealment of the facts amounts to fraud. Essentials of Fraud

70 Contd-  Explanation.- Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. April 28, 201570santhi narayanan

71 Illustrations  a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A.  (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse, is unsound.  April 28, 201571santhi narayanan

72 Contd-  (c) B says to A - "If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's silence is equivalent to speech.  (d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B. April 28, 201572santhi narayanan

73 Effect  Suit for recession  Suit for damages for fraud  Right of recession lost if—  Affirmation of the contract even after becoming aware of the fraud April 28, 201573santhi narayanan

74 Misrepresentation  A false representation of fact made innocently or non- disclosure of a material fact without the intention to deceive the other party  Aggrieved party can avoid or rescind the contract April 28, 201574santhi narayanan

75 Contd-  Ex: A tells B, without checking records, that in his factory 1000 tons of indigo is manufactured every month. A believes his assessment to be true. The actual production is found to be only 830 tons. A is guilty of misrepresentation.  Effect: Right to rescind the contract April 28, 201575santhi narayanan

76 MISTAKE  Erroneous belief about something  Mistake of law  Mistake of fact  April 28, 201576santhi narayanan

77 Mistake Mistake of law Mistake of the law of the country Mistake of foreign law Mistake of fact Unilateral mistake Bilateral mistake April 28, 201577santhi narayanan

78 Sec21. Effect of mistakes as to law  A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in [India] has the same effect as a mistake of fact.  Illustration  A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation: the contract is not voidable. April 28, 201578santhi narayanan

79 Legality of the object and consideration  Object and consideration of contract must be lawful, otherwise the agreement is void  Consideration or object of contract is unlawful in the following cases:  (a) If it is forbidden by law  (b) If it defeats the provision of any law  (c) If it is fraudulent  (d) If the court regards it as immoral or opposed to public policy April 28, 201579santhi narayanan

80 Agreements opposed to the public policy  Agreements of trading with the enemy  Agreement of stifling prosecution  Agreement in restraint of paternal rights  Agreement in restraint of personal liberty  Agreements in restraint of trade April 28, 201580santhi narayanan

81 Other essentials  Certainty of meaning – terms of contract must be unambiguous  Possibility of performance – An agreement to do an impossible act is void  Legal formalities - Must comply with necessary formalities like writing, registration and stamping April 28, 201581santhi narayanan

82 Quasi contracts April 28, 201582santhi narayanan

83 Meaning  Not a contract at all  One or the other essentials of a contract are absent  An obligation imposed by law upon a person for the benefit of the other even in the absence of a contract.  Based on the principle of equity April 28, 201583santhi narayanan

84 Features  Imposed by law and does not arise from any agreement  Duty of a party and not the promise of any party is the basis of such contract  Right under it is always a right to money  Right under it is available against specific persons and not against the whole world April 28, 201584santhi narayanan

85 Types of quasi contracts  Right to recover the price of necessaries supplied  Right to recover money paid for another person  Right to recover for non-gratuitous Act  Responsibility of finder of goods  Right to recover from a person to whom money is paid or thing is delivered, by mistake or under coercion April 28, 201585santhi narayanan

86 Quantum meruit  “as much as earned’  Payment in proportion to the amount of work done.  When a person has begun the work and before he could complete it, the other party terminates the contract or does something which make it impossible for the other party to complete the contract, he can claim for work done under the contract. April 28, 201586santhi narayanan

87 Contd-  He may also recover the value of the work done where the further performance of contract becomes impossible.  The party claiming relief has to establish the following:  He has been ready and willing to perform the contract.  He has made a part performance of the contract for which the remuneration is due. April 28, 201587santhi narayanan

88 Cases in which the claim of quantum meruit can arise  In case of void agreement or contract that becomes void  In case of non gratuitous act  In case of preventing the completion of the contract  In case of divisible contract  In case of indivisible contract performed completely but badly. April 28, 201588santhi narayanan

89 Performance of contract April 28, 201589santhi narayanan

90 Meaning  A contract is said to have performed when the parties to the contract either perform or offer to perform their respective promises.  Sec 37 : “The parties to the contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provision of the Act, or any other law.” April 28, 201590santhi narayanan

91 Contd -  Types of performance:  Actual performance  Attempted performance April 28, 201591santhi narayanan

92 Contd -  Persons who can demand performance  Promisee  Legal representatives  Third party  Joint promisee  Persons who must perform  Promisor  Promisor’s agent  Legal representative  Third party  Joint promisors April 28, 201592santhi narayanan

93 Time and place of performance  The contract must be performed within a reasonable period of time.  The promise must be performed in the manner and at the time prescribed by the promisee. April 28, 201593santhi narayanan

94 Contd-  Time as essence of contract – It is essential for the parties to a contract to perform their respective promises within the specified time. April 28, 201594santhi narayanan

95 Discharge of contract April 28, 201595santhi narayanan

96 Discharge of a contract  Discharge of a contract means the termination of contractual 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. April 28, 201596santhi narayanan

97 Modes of discharge of contract  Discharge by performance  (a) By actual performance  (b) By attempted performance  Discharge by mutual agreement:  (a) Novation – Substitution of a new contract  (b) Rescission – Cancellation of contract  (c) Alteration – Change in terms of contract with mutual consent of parties.  (d) Remission – Acceptance by promisee of a lesser fulfillment of the promise made April 28, 201597santhi narayanan

98 Contd -  (e) Waiver – Intentional relinquishment of a right under the contract.  Discharge by operation of law –  (a) By death of promisor  (b) By insolvency  (c) By unauthorized material alteration  (d) By the identity of the promisor and promisee April 28, 201598santhi narayanan

99 Contd -  Discharge by impossibility of performance  Effect of initial impossibility  Effect of supervening impossibility April 28, 201599santhi narayanan

100 Breach of contract April 28, 2015100santhi narayanan

101 Contd-  Breaking of contract means a breaking of the obligation which a contract imposes  Breach of contract is of two types:  Actual breach of contract  Anticipatory breach of contract April 28, 2015101santhi narayanan

102 Actual breach of contract  At the time when the performance is due  During the performance of the contract April 28, 2015102santhi narayanan

103 Anticipatory breach of contract  Ex; A undertakes to supply certain goods to B on 1 st January. Before this date, he informs B that he is not going to supply goods. This is an anticipatory breach of contract  Anticipatory breach does not necessarily discharge the contract, unless the promisee (the aggrieved party) so chooses. April 28, 2015103santhi narayanan

104 Remedies for breach of Contract  When a contract is broken the injured party has one or more of the following remedies.  Rescission of the contract  Suit for damages  Suit for quantum meruit  Suit for specific performance of the contract  Suit for injunction April 28, 2015104santhi narayanan

105 Rescission  A right not to perform obligation  The aggrieved party is discharged from all the obligations under the contract.  He is entitled to claim compensation for damage which he has sustained for the non performance of the contract April 28, 2015105santhi narayanan

106 Suit for damages  Monetary compensation allowed for the loss suffered by the aggrieved party due to the breach of the contract.  Case; Hadley vs Baxendale April 28, 2015106santhi narayanan

107 Contd -  Rule ; Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be as such as may fairly and reasonably be considered either arising naturally i.e., according to usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in contemplation of both the parties, at the time they made the contract, as the probable result of the breach of it. April 28, 2015107santhi narayanan

108 Section 73  Deals with compensation for loss  Ordinary damages  Special damages  Exemplary damages  Nominal damages  Damages for inconvenience and discomfort  Liquidated damages and penalty  Stipulation for interest  Forfeiture of security deposit April 28, 2015108santhi narayanan

109 Suit for specific performance  Demanding the court’s direction to the defaulting party to carry out the promise according to the terms of the contract April 28, 2015109santhi narayanan

110 Suit for injunction  Demanding court’s stay order  Injunction means an order of the court which prohibits a person to do a particular act. April 28, 2015110santhi narayanan

111 Suit for quantum meruit  Right to claim compensation for the work already done.  Ex: C an owner of a magazine engaged P to write a book to be published by installments in his magazine. After a few installments were published, the publication of the magazine was stopped. It was held that P could claim payment for the part already published. April 28, 2015111santhi narayanan

112 Contract of indemnity April 28, 2015santhi narayanan112

113 Definition  A contract by which one party promises to save the other from loss caused to him by the promisor himself or by the conduct of any other person, is called a contract of indemnity. (Sec 124)  It is entered into with the object of protecting the promisee against anticipated loss.

114 Contd -  A lost his share certificate. He applied to the company for the issue of a duplicate certificate. The company asked A to furnish an ‘indemnity bond’ in its favor to protect it against any claim that may be made by any person on the original certificate. A, accordingly executed the indemnity bond. It is a contract of indemnity between A and the Company. A is the indemnifier and the Company is the indemnified or indemnity holder.

115 Rights of indemnity holder when sued.  Right against the indemnifier  He is entitled to recover all the damages which he may be compelled to pay in respect of suit to which the promise to indemnify applies.  He is entitled to recover all the costs reasonably incurred.  He is also entitled to recover all sums which he may have paid under any compromise of any such suit.

116 Contracts of Guarantee 116 The term guarantee may be defined as an undertaking by one person to pay the amount due from another person A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. Eg – A lends money to B and C promises A that if B fails to repay he will pay the money.

117 Continued… 117 The person who gives the guarantee is called the "surety“. The person in respect of whose default the guarantee is given is called the "principal debtor “. The person to whom the guarantee is given is called the "creditor“. A guarantee may be either oral or written.

118 Essentials of a Guarantee 118 1. There must be a debt existing, which should be recoverable. 2. Existence of 3 parties ie. Principal debtor, creditor & surety. 3. There should be some consideration 4. The liability must be legally enforceable.

119 Continued… 119 5. The principal debtor must be primarily liable. Surety’s liability is secondary. 6. There must be a distinct promise, oral or written by the surety to pay the debt in case of default by principal debtor. 7. All essentials of a contract.

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