Contract Act CHAPTER 1 INTRODUCTION OF CONTRACT AND

Contract Act

CHAPTER 1 : INTRODUCTION OF CONTRACT AND KINDS OF CONTRACT

Law • The term ‘Law’ denotes set of rules and regulations, which govern the social conduct and which can be enforced through the courts. ‘Law’ has been one of the most effective instruments for control of social relations and transactions from the ancient times. • According to Salmond, “Law is the body of principles recognized and applied by the state in the administration of justice. ”

essential characteristics of law • Law presupposes a state. • The state makes law as a rule relating to the actions of human beings. • The law aims to regulate the external actions of human beings • Law is enforced by the State. • Law is applied in administration of justice. • Law applies to all without discrimination, including the state, which itself is regulated by law • Law is always supreme.

Sources of Law • Statutes having their source in legislation made by the State; • Customs and precedents, which over a period of time become as good as law; • Common law, which though originated in the Great Britain, has now been well absorbed into the Indian legal system; • International treaties and agreements; • Judicial decisions and precedents; • Miscellaneous e. g. juristic writings, literary works, foreign decisions etc.

WHAT IS BUSINESS LAW? • According to S. R. Davar, business law “means that branch of law which is applicable to or concerned with trade and commerce in connection with various mercantile or business transactions. ” • As per Slater, “The phrase Mercantile Law or Commercial Law is generally used to denote those portions of the law which deal with the rights and obligations arising out of transactions between mercantile persons. ”

Sources of Business Law • The Lex Mercantoria, i. e. the Law Merchant, which emanated from the customs and usages, which are binding on traders in their dealings with each other. • The Statute Law, which is derived from the legislation or enactments or the subordinate legislation made by the legislative bodies. • The Common Law, which include the principles of law evolved by the judges in making decisions on cases that are brought before them. • The Principles of Equity, which are neither the customs nor codified law, but are imperative dictates of conscience and have been set forth and developed in the Court of Chancery.

Contract • According to Salmond, “a contract is an agreement creating and defining obligation between the parties. ” • Sir William Anson says, "A contract is an agreement enforceable by law, made between two or more persons, by which right are acquired by one or more to acts or forbearance on the part of other or others. “ • According to section 2 (h) “An agreement enforceable by law is a contract”. As per the above definition under section 2 (h), the two important features of the contract are: • (a) An agreement Contract • (b) Its enforceability by law

An Agreement • According to section 2 (e), “every promise and every set of promises, forming the consideration for each other, is an agreement”. • Thus, the agreement is an outcome of the offer and acceptance between parties. i. e. • Offer + acceptance = Agreement.

ESSENTIAL ELEMENTS OF A VALID CONTRACT (UNDER SECTION 10) • Agreement: Republic Medico Surgical Co. vs. UOI. • Intention to create legal relationship : Balfor vs. Balfor • Free Consent : Consent is said to be free when it is not caused by Coercion, Undue influence, Fraud, Misrepresentation and Mistake. • Contractual Capacity • Lawful Consideration • Lawful Object • Certainty of Terms • Agreement should not be Declared Void • Legal Formalities

KINDS OF CONTRACTS (a) Contracts on basis of validity of a Contract Valid Contract , Voidable Contract, Void Contract, Illegal Agreement Un- Enforceable Contract (b) Classification of contract on the basics of mode of formation of contract Express Contract , Implied Contracts, Quasi Contracts (c) Classification on the Basis of Performance of Contract Executed Contracts , Executory Contract , Partly Executed and Partly Executory Contract, Unilateral Contracts , Bilateral Contracts

• Classification of Contracts on the Basis of the Form of the Contracts • Formal Contracts • Simple Contracts

Difference between Illegal and Void Agreements • (a) All the illegal agreements are void but all void agreements are not illegal. • (b) Illegal agreements are void ab initio but a valid agreement may become void subsequently. • (c) There is no punishment to the parties for a void agreement but parties to illegal agreements are punishable by law. • (d) All the agreements, which are collateral to void agreements, are valid but agreements, which are collateral to illegal agreements, are void ab initio. • (e) Void agreements are not illegal until they are proved to be so but illegal agreement are illegal from the very begin. • (f) Void agreements can be void for various reasons as provided under the Contract Act but illegal agreement can be void due to provisions of others Acts also. •

Void Agreement vs Voidable Contracts (1) An agreement not enforceable by the law is known as void agreement (section 2 (g)) where as voidable contract is an agreement which is enforceable at the option of one or more of the parties there to but not at the option of other or others. (Section 2 (i)). (2) Void agreement is not enforceable from the beginning itself and in no case it can be made enforceable by the party. Whereas voidable contract are void only at the option of aggrieved party and who can rescind it, however if aggrieved party does not want to rescind it then it remains valid and enforceable by law. (3) An agreement can be void if any of the essential elements of the agreement, as specified under section 10 of the Act is missing. Whereas voidable agreement can be voidable only due to absence of free consent of the parties. (4) In case of void agreement, no party to the contract can claim damages as law award damages or compensation only when agreement is valid. So in case of void agreement there is no question of damages being granted. Whereas in case of voidable agreement the party, who rescind the contract can claim the compensation or damages for any loses which is suffered by the party for such rescind of the contract. (5) In case of void agreement, restitution is not allowed if parties to the contract were aware of the nature of contract. However, in case of the voidable contract, restitution is always possible (6) Third party do not acquire any right under void agreement whereas in case of voidable agreement third part always acquire the right provided the third party acquire the rights in good faith (7) In case of void agreement, the lapse of reasonable time does not affect the validity of contract. But in voidable contracts parties loses their right after the lapse of time.

Chapter 2 Offer and Acceptance

Offer • Section 2 (a) defines proposal or offer as "When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”. An offer consists of two elements that there is an expression of willingness by the offeror to do or abstain from doing something. Such expression of willingness is made to obtain the assent of the other person to such act or abstinence. The person making the offer is known as offeror and the person to whom the offer is made is known as the offeree.

Essential of a valid offer • An offer must create legal relationship between the parties • Terms of an offer must be clear, definite, certain and capable of being made certain • An offer must be distinguished from a mere declaration of intention • An offer is different from an invitation to an offer (Harvey vs. Facie) • The offer should not include any term or terms, the non -compliance of which may be assumed to lead acceptance • The offer must be communicated to the person to whom it is intended to be made

Kinds of offer • • Express Offer Implied Offer Specific Offer (Boulton vs. Jones ) General Offer (Carllil vs. Carbolic Smoke Ball Co)

Acceptance of an offer is very important for the formation of a contract, since acceptance of an offer is a precondition for an agreement / contract. Acceptance is the consent given by promisee or offeree and it has the effect of converting the offer into an agreement. An offer does not create legal relationship unless the offer is accepted. • Section 2 (b) explain that Acceptance is, “When one 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”. •

Who can Accept an Offer? • Section 2 (b) makes it very clear that, “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted”. So a specific offer can be accepted only by a person to whom it is made. But a general offer, made to the world at large, can be accepted by anyone having knowledge of the offer. But, if the offer is not directed to a particular person but to the world at large, any member of the public who has knowledge about the offer may accept it.

Modes of Acceptance i) Express Acceptance : An express acceptance is one, which is given in words spoken or written. ii) Implied acceptance: It means that an acceptance, which is given by performance of particular act, which is required to be done according to the terms of an offer which is to be gathered from the circumstances or the conduct of parties. Compliance with terms of offer may amount to acceptance.

Legal Rules Regarding Valid Acceptance Or The Essentials of a Valid Acceptance • Acceptance must be absolute and unqualified • Acceptance must be in the mode prescribed or some usual and reasonable mode • Acceptance must be communicated within the time prescribed or within a reasonable time • Acceptance must be given before the offer lapses or is revoked • In no case acceptance can be before the offer • Acceptance must be communicated to the offeror • Silence cannot be a mode of acceptance

Communication of offer, acceptance and revocation • Section 3 of Act provide that communication of proposal, the acceptance of proposal and revocation of proposal and acceptance are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal acceptance or revocation or which has the effect of communicating it.

Termination or Lapse of an Offer • By notice of revocation • By lapse of time • By failure of the acceptor to fulfill a condition precedent to acceptance • By death or insanity of the proposer – Counter-offer by the offeree – By not being accepted in the mode prescribed – Rejection of the offer by offeree

CHAPTER 3 : CONSIDERATION

Consideration • Section 2 (d) defines consideration as: “When at the desire of the promisor the promisee or any other person has done or abstained from doing, does or abstains from doing or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise. ” • Section 2 (f) states that promises, which form the consideration or part of consideration for each other, are called reciprocal promises. Thus, consideration implies some benefits to the promisor and some inconvenience or forbearance to the promisee.

Need for Consideration • The consideration provides some guarantee of deliberation and a certain protection against hasty and ill-considered contracts. It helps in determining the enforceability of promises. Consideration ensures reciprocity and mutuality of promises. Hence consideration is very important for a contract

KINDS OF CONSIDERATION • Present consideration • Past consideration • Future Consideration

Legal rules regarding consideration • There must be some consideration in every contract • Consideration should move at the desire of the promisor (Kedar Nath vs. Gorie Mohamed) • Consideration may move from any other person including the promisee (Chinnaya vs. Ramaya) • Consideration must have some value in the eyes of law • Consideration need not to be adequate • Consideration may be an act to do or abstinence or forbearance of doing something • Consideration may be forbearance to sue • Consideration must be lawful • Consideration must be real and not illusory or impossible

An agreement without consideration is void” OR "No consideration no contract (Section 25 ) • Consideration is one of the most important conditions of a valid contract. Contract without consideration is void. However, there are certain exceptions: Ø Promise made on account of natural love and affection Ø Promise for compensation of voluntarily services Ø Promise to pay time-barred debt Ø Completed gift Ø For the contract of agency

Stranger to Contract and Stranger to Consideration Or “The Doctrine of Privity of Contract • However, the second doctrine of Privity of contract is applicable in India also. Therefore a stranger to a contract cannot sue. A contract is a contract between the partied only and no third person can sue upon it even if it is avowedly made for his benefit. Following are important exception to this rule Ø Trust (Rana Uma Nath Baksh Singh vs. Jang Bahadur) Ø Marriage settlement, partition or other family arrangement (Daropati vs. Jaspati Rai) Ø Acknowledgement of payment or estoppels Ø An agreement creating a charge on immovable property (Khwaja Mohd Khan vs. Hussaini Begum) Ø Agreements relating to land Ø The principal can enforce contracts entered into through the agents

CHAPTER – 3 : CAPACITY OF PARTIES TO CONTRACT

Capacity of parties • Section 10 of Contract Act provides that a contract must have an agreement, capacity to contract, lawful object, consideration for each other and the free consent. Thus, capacity of parties to enter into contract is very important to form a valid contract. • Section 11 provides that “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject”.

Minor • A person is said to be a minor, who has not attained the age of majority. As per Section 3 of the Indian Majority Act, 1875, a person is said to have attained the age of majority when he attains the age of 18 years. • Section 10 only says that all agreements are contracts if they are made by parties competent to contract and Section 11 says every person is competent if he is of the age of majority. These provisions had therefore, given rise to controversy about nature of minor’s agreement. • However, in case of Mohoribibi vs. Dharmodas Ghose, Calcutta Privy Council held that the agreement by a minor is void. It is now an accepted rule.

Effects of Minor’s Agreement or Position of minor • An agreement with a minor Is absolutely void and void ab initio. (Mohoribibi vs. Dharmodas Ghose. ) • No rule of estoppel against minor (Gadigeppa vs. Balangowda) • Doctrine of restitution does not apply against a minor (Khan Gul vs. Lakha Singh) • No ratification of the minor’s agreement (Suraj Narain vs. Sukhu Ahir) • No liability in contract or tort arising out of contract (Jennings vs. Rundall ) • Beneficial contract (Raghava Chariar vs. Srinivasa) • Minor cannot be insolvent • Liability for necessities • Positions of minor’s parents or guardian • Surety for a minor • Minor as an agent

Position of Minor Under Certain Other Laws (1) Minor as a Partner – Partnership is based on agreement. Minor being incompetent to enter into a contract, cannot enter into a partnership agreement. (2) Minor under Companies Act – A minor cannot become shareholder in a company since he is incompetent to enter into a contract. In case a minor inherits certain shares, he may become a shareholder acting through his lawful guardians. Nandita Jain vs. Bennett, Coleman & Co. Ltd. (3) Minor under Negotiable Instruments Act – The negotiable instrument is an instrument in writing containing a certain promise or order to one party to pay certain sum of money to a named party. It includes a Promissory Note, Bill of Exchange or Cheque.

Is minority a boon? • (a) A minor will be liable for necessaries (under section 68) • (b) Minor cannot be held responsible as an agent (under section 184) • (c) Minor can be a partner however he may be admitted to the profits of the firms (under section 30 of Indian Partnership Act, 1932). • (d) A minor cannot bind himself under section 26 of Negotiable Instrument Act, 1881. • (e) A minor can be held liable for the torts but cannot be held liable if it results in the enforcement of the contract. • (f) No specific relief can be given under section 64 and 65 of the Contract Act, whereas section 41 of Specific Relief Act can be invoked in the protection of the minor

PERSONS OF UNSOUND MIND • Section 12 provide that A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and forming a rational judgment as to effects upon his interest. A person, who is usually of unsound mind but occasionally of sound mind, may make a contract when he is of a sound mind. There are two types of unsoundness of mind: - Persons of permanent unsoundness are : • (i) Idiots • (ii) Lunatics • Persons of temporary unsoundness are : • (i) Drunkard or • (ii) Intoxicated by any drug

OTHER DISQUALIFIED PERSONS • • • Alien enemy Foreign sovereign and ambassador Convicts Insolvents Company or statutory corporation Married woman

CHAPTER 5 : FREE CONSENT

FREE CONSENT According to Sec 10 of the Indian Contract Act one of the essentials of a valid contract is “Free Consent” Sec 13 defines “consent” as “Two or more persons are said to consent when they agree upon the same thing in the same sense”. According to Sec 14, consent is said to be free when it is not caused by: 1. Coercion 2. Undue influence 3. Fraud 4. Misrepresentation 5. Mistake

COERCION According to Sec 15 coercion means “Committing or threaten to commit any act forbidden by Indian Penal Code 1860 or unlawful detaining or threating to detaining any other persons property with a view to enter into an agreement. It is immaterial whether the IPC is or is not in force where the coercion is employed” The threat amounting to coercion need not necessarily be from a party to contract , it may also proceed from a stranger to the contract.

UNDUE INFLUENCE Sometimes a party is compelled to enter into a contract against his will as a result of unfair persuasion by the other party. Section 16 defines undue influence as follows A contract is said to be induced by “undue influence”where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other

Essentials of undue influence 1. 2. 3. 4. 5. There are two persons The relations are satisfying between them One must dominate the other There must be unfair advantage It involves the moral pressure

There is an undue influence between the following persons: -Principal and agent -Superior and subordinate - Doctor and patient - Father and son - Teacher and student - Promoter and company - Master servant - Spiritual advisor and devotee

Among the following relations there is no undue influence 1. wife and husband 2. landlord and tenant 3. debtor and creditor CASE: Raniannapurna vs. Swaminathan A poor Hindu widow was persuaded by a money lender to agree to pay 100% rate of interest on money lent by him. She needed the money to establish her right to maintenance. it was a clear case of undue influence and the court reduced the rate of interest to 24%

FRAUD According to Sec 17 fraud means and includes any of those acts committed by a party to contract or with his connivance or by his agent with an intent to deceive or induce a person to enter a contract: 1. The suggestion that a fact is true when it is not true and the person making it does not believe in itto be true 2. The active concealment of a fact by a person 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

The essentials of fraud are: 1. There must be a representation or assertion and it must be false 2. The representation must relate to a fact 3. The representation must have been made with the intention of inducing the other party to act upon it 4. the representation must have been made with a knowledge of its falsity 5. the other party must have subsequently suffered some loss

MISREPRESENTATION According to Sec 18 there is misrepresentation: 1. When a person positively asserts a fact is true when his information does not warrant it to be so, though he believes it to be true 2. When there is any Breach of duty by a person which brings an advantage to the person committing it by misleading another to his prejudice 3. When a party causes however innocently the other party to the agreement to make a mistake as to the substance of the thing which s the subject of the agreement

MISTAKE Mistake of law Of the country Mistake of fact Of the foreign country Bilateral mistake Mistake as to subject matter Mistake as to possibility Physical impossibility existence identity quality quantity Unilateral mistake As to person As to nature Legal impossibility title price

CHAPTER 6 : LAWFUL OBJECT

Legality of object • The object of a contract must be lawful for a valid contract. The agreement will be void if its object is unlawful. Section 10 of the Indian Contract Act says, “all agreements are contracts if they are made for lawful consideration and with lawful object. ” • While consideration is an act, abstinence or promise given in return for a promise, the object is the purpose of the contract.

Unlawful agreements illegal immoral Agreement opposing public policy wager An agreement which interferes with administration of government An agreement interfering with the administration of justice An agreement interfering with administration of personal liberties Restraint of Restraint of

UNLAWFUL OBJECT • If the object of an agreement is the performance of an unlawful act, the agreement is unenforceable. • For a contract to be valid only if the object and the consideration should be legal. • The word object means purpose or design.

Unlawful agreements An agreement forbidden by law [Sec 23] An agreement defecting any provisions of law [Sec 24] Case: Alexander vs. Rayson

If it is fraudulent If it is creating damage to person or property Case: Ramswaroop vs. Bansimandir B borrowed Rs. 100 from L and executed a bond promising to work for L without pay for a period of two years. In case of default B was to pay interest at a very exorbitant rate and the principal sum of once. Held the contract was void as it involved injury to the person of B.

ESSENTIAL ELEMENTS OF WAGER Ø There are two persons. Ø There must be an uncertain future event. Ø No control over the event by both the parties. Ø There must be a reciprocal promise. Ø Others are not interested in the contract.

Wager Contract (Sec 30) A wager contract is a contract in which one person promises to another to pay money or money’s worth by the happening of an uncertain future event in consideration for other person’s promise to pay if the event does not happen.

CHAPTER 7 : PERFORMANCE OF CONTRACTS

Performance of contracts • Every contract creates some legal obligations for the parties to the contract and they continue till the contract is performed or discharged. Performance of the contract is the natural way of extinguishing contractual obligations. Performance of a contract implies fulfillment of the terms, conditions and the obligations of the contract by the parties within specified time and in the manner prescribed. • The performance of contract may be of two types: (a) Actual Performance (b) Attempted Performance

ESSENTIALS OF A VALID TENDER OF PERFORMANCE Section 38 The tender must be unconditional Tender must be an offer to perform in full Tender must be made at proper time and place The promisee must give a reasonable opportunity of inspecting goods • Tender of performance must be made to the proper person • The tender must be made in the proper form • An offer of performance to one of the joint promisee is a valid tender • •

Effect of Refusal of a Party to Perform the Promise Fully • Section 39, “When a party to the contract has refused to perform or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract unless he had signified by words or conduct, his acquiescence in its continuance. ”

BY WHOM THE CONTRACT MUST BE PERFORMED • As per section 40 of the Act, unless it was the intention of the parties to the contract that the promisor himself should perform any promises contained therein, otherwise the promisor or his representatives may employ a competent person to perform it. • Promisor • Agent • Legal Representative • The Third Person • Joint Promisors

Time and Place of Performance • Time for performance of promise, where no application is to be made and no time is specified • Time and place for performance of promise, where time is specified but no application to be made • Application of performance at proper place and time • Place for performance where no application is made, no place fixed • Manner or time by promisee to perform a promise

APPROPRIATION OF PAYMENTS OF DEBTS • As per section 59 to 61 of Indian Contract Act, following are the rules, for the payment of debt and its apportionment: • Appropriation of debt as desired by the debtor • Appropriation by the creditor where indication were not made by the debtor • Appropriation in order of the debts due • Rules regarding the payment of interest and principal when both are due

PERFORMANCE OF RECIPROCAL PROMISES • Contracts requiring simultaneous performance • When the order of performance expressly fixed by the contract • One party preventing the other from performing his reciprocal promise • Non-performance of a reciprocal promise by the party who is to perform first

PERFORMANCE OF JOINT PROMISES • The joint promise must be fulfilled jointly • Any one of the joint promisors may be compelled to perform • Each Promisor may compel contribution • Sharing of Loss by default in contribution • The contribution rule does not apply to principal debtor and surety • The promisee may release any one joint promisor

Contracts which need not be performed (a) When performance of a contract becomes impossible. (Section 56) (b)When there is an agreement between the parties to substitute or rescind or alter the original contract, (Section 62) (c) When the promisee may dispense with or remit, wholly or in part, (Section 63) (d)When a person at whose option a contract is voidable, rescind the contract; Section 64) (e) If any promisee neglects or refuses to afford the promisor reasonable facilities for performance of his promise. (Section 67) (f) If it is an illegal agreement. (g) In case of reciprocal promises, which are to be performed simultaneously, there is no need for promisor to perform his promise unless the promisee is ready and willing to perform his reciprocal promise. (Section 54) •

CHAPTER 8 : DISCHARGE OF CONTRACT

DISCHARGE OF A CONTRACT DISCHARGE BY PERFORMANCE DISCHARGE BY AGREEMENT OR CONSENT DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE DISCHARGE BY LAPSE OF TIME DISCHARGE BY OPERATION OF LAW DISHARGE BY BREACH OF CONTRACT DISHARGE BY ASSIGNMENT

DISCHARGE BY PERFORMANCE ACTUAL PERFORMANCE When both parties perform their promises & there is nothing remaining to perform ATTEMPTED PERFORMANCE When the promisor offers to perform his obligation , but promisee refuses to accept the performance. It is also known as tender

DISCHARGE BY AGREEMENT OR CONSENT • NOVATION (Sec 62): New contract substituted for old contract with the same or different parties • RESCISSION (Sec 62) : When some or all terms of a contract are cancelled • ALTERATION (Sec 62): When one or more terms of • a contract is/are altered by the mutual consent of the parties to the contract • REMISSION (Sec 63) : Acceptance of a lesser fulfilment of the promise made. • WAIVER : Mutual abandonment of the right by the parties to contract • MERGER : When an inferior right accruing to a party to contract merges into a superior right accruing to the same party

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE • KNOWN TO PARTIES • UNKNOWN TO PARTIES • SUBSEQUENT IMPOSSIBILITY • SUPERVENNING IMPOSSIBILITY (Sec 56) Destruction of subject matter Non-existance of state of things Death or incapacity of personal services Change of law Outbreak of war

DISCHARGE BY LAPSE OF TIME • THE LIMITATION ACT 1963, CLEARLY STATES THAT A CONTRACT SHOULD BE PERFORMED WITHIN A SPECIFIED TIME CALLED PERIOD OF LIMITATION • IF IT IS NOT PERFORMED AND IF THE PROMISEE TAKES NO ACTION WITHIN THE LIMITATION TIME, THEN HE IS DEPRIVED OF HIS REMEDY AT LAW

DISCHARGE BY OPERATION OF LAW v DEATH v MERGER v INSOLVENCY v UNAUTHORISED ALTERATION OF THE TERMS OF A WRITTEN AGREEMENT v RIGHTS & LIABILITIES VESTING IN THE SAME PERSON

DISCHARGE BY BREACH OF CONTRACT v ACTUAL BREACH : § At the time of performance § During the performance v ANTICIPATORY BREACH § By the act of promisor (implied repudation) § By renunciation of obligation (express repudation)

Chapter 9: Breach of contract and remedies

REMEDIES OF INJURED PARTY • A remedy is a means given by law for the enforcement of a right. Following are the remedies § Rescission of contract § Damages. § Suit upon quantum meruit. § Suit for specific performance. § Suit for injunction.

RESCISSION When a contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is absolved of all his obligations under the contract. The court may give rescission due to 1)contract is voidable. 2)contract is unlawful The court may refuse to rescind if 1)Plaintiff has ratified the contract. 2)Parties cannot be restored to the original position. 3)The third party has acquired for value. 4)When only a part is sought to be rescinded. (sec 27 of specific relief act 1937)

DAMAGES Damages are a monetary compensation allowed to the injured party by the court for the loss or injury suffered by him by the breech of the contract. The objective of awarding damages for the breech of contract is to put the injured party in the same position as if he had not been injured. This is called the doctrine of restitution. The fundamental basis is awarding damages for the pecuniary loss.

QUANTUM MERUIT The phrase quantum meruit literally means ‘as much as earned’. A right to sue on a quantum meruit arises when a contract, partly performed by one party, has been discharged by breach of contract by the other party. This right is performed not on original contract but on implied promise by other party for what has been done.

SPECIFIC PERFORMANCE • In certain cases of breach of contract damages are not an adequate remedy. The court may, in such cases, direct the party in breach to carry out his promise according to terms of the contract. This is a direction by the court for specific performance of the contract at the suit of the party not in breach • Cases for specific performance to be enforced • 1)when the act agreed to be done is such that compensation is not adequate relief. 2)when there is no standard for ascertaining the actual damage • 3)when it is probable that compensation cannot • be agreed to be done.

INJUNCTION When a party is in breech of a negative term of contract the court may, by issuing an order, restrain him by doing what he promised him not to do. Such an order of the court is called injunction Court refuses grant of injunction [1] whereby a promisor undertakes not to do something [2] which is negative in substance though not in form

CHAPTER 10: VOID AGREEMENTS

Void agreements Not all the agreements entered into are enforceable by law. The agreements, which are not enforceable by law, are said to be void. The agreements, which have been declared void by the Act, are : (1) Agreements by incompetent parties (Section 11) (2) Agreements under mutual mistake of fact material to the agreement. (Section 20) (3) Agreements with unlawful consideration or object (Section 23) (4) Agreements the consideration of which is unlawful in part (Section 24) (5) Agreements without consideration (Section 25) (6) Agreements in restraint of marriage (Section 26) (7) Agreements in restraint of trade (Section 27) (8) Agreements in restraint of legal proceedings (Section 28) (9) Agreement the meaning of which is uncertain (Section 29) (10) Wagering agreement (Section 30) (11) Agreements contingents on impossible events. (Section 36) (12) Agreement to do impossible acts (Section 56) • The agreements given at S. No. 1 to 5 has been explained in the earlier chapters namely, Capacity of parties, consideration, Legality of object and free consent.

• Agreement in restraint of marriage: section 26, every agreement in restraint of marriage of any person, other than a minor, is void. An agreement which restricts a person’s freedom to marry, or to marry any person of his choice is against public policy and is void. • Agreement in restraint of legal proceedings • According to section 28, an agreement absolutely restraining a party from enforcing his right through court, or an agreement, which restrict this right fully or partly will be void. Section 28 of the Indian Contract Act (as amended in 1997), provides that every agreement which restrict any party from enforcing his rights absolutely under any contract, by the usual proceedings in the courts or which limits the time within which one may enforce his right is void to that extent.

Agreements in restraint of trade • Section 27 provide that, every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. The restraint of trade may be partial or complete. Exceptions are: • Sale of Goodwill • Under Partnership Act • Restrictions imposed between Employer and Employee • Restriction by Trade Combinations • Sole selling or solus agreement

• Agreements with uncertain meaning According to section 29 of the Acts, "any agreement, the meaning of which is not certain or capable of being made certain, is void. ” This means that any agreement whose meaning is uncertain or unable of being understood by the parties to contract is void

Wagering agreements (section 30) • agreement by the way of wager is void and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made. • Essentials of a Wagering Agreement – Opposite view regarding an uncertain event – Chances of gain or loss for both the parties – No party should have control over the event – No other interest in the event other then bet amount

Chapter 11 : Quasi contract and Contingent Contract

Quasi contract • A contract is the result of an agreement, which is enforceable by law and obligations arising from the contracts are called “contractual obligations”. However, under certain special circumstances, it may come into existence from the action of parties and the law creates and enforces legal rights and obligations. Such legal rights and obligations imposed or created by law are known as “quasi-contracts”.

TYPES OF QUASI CONTRACTS – Supply of necessaries (Sec 68) – Payment by a interested person (Sec 69) – Obligation to pay for non gratuitous acts (Sec 70 ) – Responsibility of finder of goods (Sec 71 ) – Mistake or Coercion (Sec 72 )

SUPPLY OF NECESSARIES According to sec 68 a minor is liable to pay out of his property for ‘necessaries’ supplied to him or to anyone whom he is legally bound to support. The significance of this is that it does not arise out of a contract as much so as it arises out of a contract. the minor is not personally liable and ‘necessaries’ include food, clothing as well as education, They also include watch bicycle etc.

OBLIGATION TO PAY FOR NON GRATUITOUS ACTS According to Sec 70 when a person lawfully does or delivers anything for the other , not intending to do so gratuitously, and the person derives any benefit from it, he is liable to compensate, or restore thing so done or delivered. Here three conditions must satisfy [1] The thing must have been done lawfully [2] The person intending to do it must not have done it gratuitously [3] The person must have derived benefit from the act

PAYMENT BY A INTERESTED PERSON According to Sec 69 a person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other. The essential elements center around [1] The payment made should be bona fide of ones interest [2] The payment should not be a voluntary one [3] The payment must be such that the other is bound by law to pay

RESPONSIBILITY OF THE FINDER OF GOODS According to Sec 71 a person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as the bailee is bound to take as much care of the goods as a man of ordinary prudence would, In addition to that he must make efforts to trace the owner. If he does not , he will be guilty of wrong conversation, and till the owner is found out the property will vest with the finder, he can sell in case of [1] goods are or perishable nature [2] owner cannot be found out [3] when owner refuses to pay for the lawful charges [4] when the lawful charges amount to two thirds of thing

Contingent Contract(sec 31) A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. It is also called a conditional contract. Example: A contracts to pay B Rs. 10, 000 if B’s house is burnt. This is a contingent contract

Essential Elements of a Contingent Contract: • There are two persons. • There must be an uncertain future event. • Some control over the event but not absolute control. • There is no reciprocal promise between the persons. • Others may be interested in the contract. • It is a valid contract.

Rules Regarding Contingent Contracts • Contingent contracts dependent on happening of an uncertain future event cannot be enforced until the event has happened. ( Sec 32 ) • Where a contingent contracts is to be performed if a particular event does not happen, its performance can be enforced when the happening of that event becomes impossible. ( Sec 33 ) • If a contract is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. ( Sec 34)

• Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, may be enforced if the event does not happen or its happening becomes impossible before the expiry of that time. ( Sec 35 ) • Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether or not the fact is known to the parties. (Sec 36)

Differences Between a Wagering Agreement and a Contingent Agreement: • Wager agreement • There is a reciprocal promise. • It is a void contract. • Others are not interested in the contract. • It is contingent in nature. • Contingent agreement • There is no reciprocal promise. • It is a valid contract. • Others are interested in the contract. • It may not be wagering in nature.

Chapter 12 : Contracts of indemnity and guarantee

INDEMNITY (Sec 124) A CONTRACT BY WHICH ONE PARTY PROMISES TO ANOTHERR TO SAVE HIM FROM LOSS CAUSED TO HIM BY THE CONDUCT OF THE PROMISOR HIMSELF , OR BY THE CONDUCT OF ANY OTHER PERSON IS CALLED A CONTRACT OF INDEMNITY

ESSENTIAL FEATURES OF INDEMNITY ü There are two persons , the indemnifier the indemnified or the indemnity holder ü There must be loss either by the promisor’s conduct or by any other person’s conduct ü It is a contingent contract by nature ü It may be express or implied Sec 125 deals with the commencement of the indemnifier’s liability. His liability commences when the event causing the loss occurs or when the event saving the indemnified from the loss becomes impossible

GUARANTEE (Sec 126) A CONTRACT OF GUARANTEE IS A CONTRACT TO PERFORM THE PROMISE, OR DISCHARGE THE LIABILITY, OF A THIRD PERSON IN CASE OF HIS DEFAULT. THE PERSON WHO GIVES THE GUARANTEE IS KNOWN AS THE ‘SURETY’, THE PERSON IN RESPECT OF WHOM THE GUARANTEE IS GIVEN IS KNOWN AS THE ‘PRINCIPAL DEBTOR’, AND THE PERSON TO WHOM THE GUARANTEE IS GIVEN IS CALLED THE ‘CREDITOR’. A GUARANTEE MAY BE EITHER ORAL OR WRITTEN.

ESSENTIAL FEATURES OF GUARANTEE • Concurrence of three contracts • Primary liability is that of the principal debtor • In case the debtor is a minor , the surety’s liability becomes primary • All the essentials of a valid contract • It may be in writing or oral • There need not be full disclosure of facts to the surety before he gives the guarantee

TYPES OF GUARANTEE • SPECIFIC GUARANTEE : When a guarantee extends to a single transaction or debt it is known as a specific or simple guarantee CONTINUING GUARANTEE : When a guarantee extends to a series of transactions It is called continuing guarantee

CHAPTER 13 : BAILMENT AND PLEDGE

BAILMENT Sec 148 • The word Bailment is derived from the French word “ballier” which means “to deliver”. • Bailment means 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. The person delivering the goods is called the ‘bailor’ and the person to whom they are delivered is called the ‘bailee’.

Essentials of bailment àThere are two persons namely Bailor and Bailee. àBailor means the person delivering the goods, Bailee means the person to whom the goods are delivered. àTheir must be delivery of goods. àThe goods must be in deliverable condition.

àOnly the goods are delivered but not the ownership of goods, their must be purpose. àBailey can use the goods. àGoods must be returned or disposed off after the purpose is accomplished.

Duties and rights of Bailor and Bailee Duties of bailor. FTo disclose known faults. FTo bear extraordinary expenses of bailment. FTo indemnify bailee for loss in case of pre mature termination of gratuitous bailment. FTo receive back the goods. FTo indemnify the bailee.

Rights of bailor ŒEnforcement of rights. Avoidance of contract. (Sec 153) Ž Return of goods lent gratuitously. (Sec 159) Compensation from a wrong –doer. (Sec 180)

Rights of bailee • Delivery of goods to one of several joint bailor of goods. (Sec 165). • Delivery of goods to bailor without title. (Sec 166). • Right to apply to court to stop delivery. (Sec 167) • Right to action against trespassers. (Sec 180) • Bailee’ s lien.

PLEDGE (SEC 172) The bailment of goods as security for payment of a debt or performance of a promise is called “Pledge”. The bailor in this case is called the “pledger” or “pawnor” and the bailee is called the “pledgee” or “pawnee”

RIGHTS AND DUTIES OF PAWNOR AND PAWNEE Rights of Pawnee. àRight of retainer for subsequent advances. àRight to extraordinary expenses. àRight against true owner, when the Pawnor’s title is defective. àPawnee’s rights where pawnor makes default .

Rights of Pawnor • • Right to get back goods. Right to redeem debt. Presentation and maintenance of the goods. Rights of an ordinary debtor.

CHAPTER 14 : CONTRACT OF AGENCY

AGENT Sec 182 defines an agent as a person employed to do any act for another , or to represent another in dealings with third persons the person for whom such act is done is s called the principal

ESSENTIALS OF RELATIONSHIP OF AGENCY • Agreement between principal & agent • Intention of agent to act on behalf of the principal • Anyone can be an agent • Anyone can employ an agent

CREATION OF AGENCY • BY EXPRESS AGREEMENT • BY IMPLIED AGREEMENT Agency by estoppel Agency by holding out Agency by neccesity • AGENCY BY RATIFICATION • AGENCY BY OPERATION OF LAW

• • • REQUISITES OF VALID RATIFICATION Agent must act as an agent for his principal Principal must be in existance at the time of contract Ratification must be with full knowledge of facts Ratification should be done within a reasonable time of the performance of the act The act to be ratified should be of lawful nature The ratification can be done only to the whole transaction & not any part of it (Sec 199) Ratification should be communicated with the party to contract Ratification should not cause any damages to a third party Ratification can only be of acts which principal had the right to do

SUB-AGENT & SUBSTITUTED AGENT A sub agent is aperson employed & acting under the control of the agent in the business of the agency (Sec 191) A substituted agent is a person named by the agent, on an express or implied authority from the principal, to act for the principal (Sec 194)

DIFFERENCES BETWEEN SUB- AGENT & SUBSTITUTE-AGENT SUB-AGENT 1. He works under the agent 2. There is no contact between the agent & the principal 3. Agent is wholly & solely responsible for the acts of the subagent SUBSTITUTE AGENT 1. He works under the pprincipal 2. There is a contract between him & the principal 3. Agent is in no way responsible for the acts of the substituted agent

Termination of agency • By act of parties Agreement Revocation by the principal Revocation by the agent • By operation of law Performance of the contract Expiry of time Death of either party Insanity of either party Insolvency of either party Destruction of the subject matter Principal becoming an alien enemy Dissolution of a company Termination of sub-agents authority

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